The Treasury hedge fund
HM Treasury today becomes perhaps the biggest hedge fund in the UK: it is investing £25.5bn in Royal Bank of Scotland shares and £5.7bn in Lloyds shares, financed almost exclusively by borrowing.
It's probably quite good business.
If we're past the nadir for the economy and for bank shares - and that's a fair bet - it's not a bad punt to borrow at an average interest rate of around 3% (by selling new gilt-edged stock with maturities of five years or ten years) to invest in assets with substantial potential upside.
I'm not sure that I'd recommend that the government speculate its way out of its debt problem by taking further stock-market punts, but there is a delicious irony that economic and financial woes caused by banks gearing up their balance sheets in the boom years are being solved by HM Treasury now gearing up the public-sector balance sheet.
Of course, the chancellor would never concede that he's become a hedge-fund manager.
His motive for deploying taxpayers' funds in this way is to shore up these two banks.
Even though the outlook for both of them is way better than it was six months ago, they're still chronically short of capital.
The weakness of RBS is the most terrible indictment of its previous management and board.
Only with the most complex and delicate of financial engineering has it escaped the fate of being 100% nationalised.
Because on top of the £25.5bn of new capital - provided by you, me and 30 million other British taxpayers - the state is also (as I pointed out yesterday) selling it catastrophe insurance through the revised Government Asset Protection Scheme (Gaps) and promising to inject a further £8bn of capital were there to be a further calamity of biblical proportions for the banks.
Here's how to see all this: Royal Bank is being forced to raise sufficient capital to protect itself against the losses that are most likely to materialise over the coming few years; and it has a contingency plan just in case the worst were to happen.
As for Lloyds, it too became perilously fragile - although compared to poor old RBS, it looks a model of prudence.
Lloyds' requirement for £21bn of additional capital is one of the great humiliations in the history of banking.
But the bank has retained, perhaps, just a scintilla of dignity, since it is raising most of this capital from the private sector, rather than from taxpayers.
Here's what may strike a few of you as odd: Lloyds is paying a staggering, unprecedented, reputation-destroying £2.5bn fee to the Treasury for being propped up by the state over the past few months; and (like the management of RBS) the executive management of Lloyds' board has only agreed to defer their bonuses for their performance during the past appalling year until 2012.
To be clear, it was the current top team at Lloyds that (unlike their opposite numbers at Royal Bank) were the architects of the bank's woes. Which is why some might say that cancelling bonuses would perhaps be more appropriate than postponing them.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~37~RS~)
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"It's probably quite good business."
Ah yes, but so were collateralised debt - and look what happened there...
Good business is done when both participants are willing in the engagement - in this case neither party is wiling - i.e. bad business.
I expect this to carry on for a while, the Government is now in a 'shareholder pose' and can do nothing but fire more money at the problem.
As for who is responsible or not - it does not matter if the personell change they all follow the same idiotic and fundamentally flawed theories.
The contradictions of Capitalism never left us - they were simply swept under the carpet
...and now they're back - and bigger and badder than ever!
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Do you really believe we are past the nadir for the economy, bob? That's a bit like saying we had won world war2 one month after Dunkirk.
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Yes I'm that with house prices trading back at five times earnings we are now over the worst.
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When you say: "The weakness of RBS is the most terrible indictment of its previous management and board", that's by no means the whole story. There are countless small businesses having their loans called in by RBS as a result of this shambles. And these small businesses are now having to struggle to make alternative credit arrangements at a time when money is tight, property surveys are being kept artificially low, LTV's are stricter and bank charges in the form of interest rates and arrangement fees are at rip-off levels. Not for the directors of these small businesses the worry of how to manage the influx of £25 billion of taxpayer's money into their companies, or the depressing prospect of awarding themselves 6-figure bonuses for dismal ongoing failure. Caledonian Comment
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#3. Dear Prudence wrote:
"Yes I'm that with house prices trading back at five times earnings we are now over the worst."
Oh yes, whoopee accelerated structural breakdown of society - just what all of us need! Keep pumping the bubble up - faster, faster, faster.... pop!
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The obvious question is why are international investors prepared to lend Funds to the British government at around 3% to buy shares in RBS?
Barclays also tried and failed to buy ABN Amro. Had Barclays succeeded they would now be in RBS's position. This raises a pretty big question mark over the commercial judgment of Barclays Management.
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It is a long time since I have commented on these boards - I managed to kick the habit.
The Government keep talking about doing something about these bonuses and that action being worldwide to stop the bankers working their way round the system - I have my doubts this will ever be done effectively.
Receiving/earning bonuses at the same time as Government handouts is a disgrace. It seems the City and the rest of the UK are now detached almost in to two separate nations. There is a large part of me hopes that the paper shuffling all collapses and these bankers have to learn to live on the land - of course they have all made so much money they would employ manual workers to do the dirty stuff for them whilst they supped cocktails on the verandah.
As regards whether we are past the worst - I think the world has reached a plateau of comfort - this plateau is at quite a low level. For the UK I do not see a route up the mountain from here. For the rest of the world I can see it climbing the mountain again for a while but ultimately the world cannot sustain everyone having a standard of living of the West - so either the West will have to get poorer, the rest will have to stay poor or ,and I fear this result is the most likely, the rest will rise towards the West standard of living until some cataclysmic natural catastrophe destroys all our standards of living forever.
You make money faster pumping oil than you can print money.
However when the money runs out you can print some more, when the oil runs out.........
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Dear fractalfinance, there aren't as many foreign investors who think sterling debt is a good buy as you might imagine: I think you'll find the government is buying it's own bonds via the BoE, ie printing money, ie impoverishing our future.
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The action of the Chancellor hardly fills me with confidence that, to quote that deliciously hedged phrase "resume growth at about the turn of the year" (ie Q4/09 or Q1/10), the economy will pick up in the next three months or so. When will this stipendiary of billions cease. If the Chancellor has any confidence in the economy he would express in his medium term forecast a large capital inflow from the sale of these public assets to offset some of the vast public debt.
It would be better for the strategic security of the economy if not only the banks were supervised rather than regulated and that there was a public sector 'model' competitor to set the pace on the ethical and service standards. This could facilitated by extracting HBOS from Lloyds and merging it with Northern Rock.
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Robert - I think that you are being a bit harsh on Lloyds; their un-doing was principally taking on Halifax BOS at the behest of Gordon Brown who probably felt embarrassed that, not one but two Scottish banks had spectacularly failed.
The bit I don't get is why the Government doesn't use RBS to move into state run banking. After all if the slimming down of RBS and Lloyds is to create more competition what better way to achieve this than to have a state owned retail and commercial bank to compete with the private sector.
Of course, your comments about the actions of the former RBS board are quite right. When is Fred Goodwin going to be relieved of his knight-hood?
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"Lloyds' requirement for £21bn of additional capital is one of the great humiliations in the history of banking.But the bank has retained, perhaps, just a scintilla of dignity, since it is raising most of this capital from the private sector, rather than from taxpayers."
The above is technically accurate but appears to be 'spun'. As the taxpayer owns circa 38% of Lloyds, then it will have to stump up £8.5B as its share of the rights issue. In return it will get a load of useless paper and £2.5B to leave the insurance scheme. This sounds like the economics of the madhouse.
The suggestion that the injection of many billions is required to get these banks to defer bonuses is pure fantasy. RBS is at least 70% owned by HMG and can simply TELL RBS to stop paying or deferring ANY bonuses. Even at 38% in Lloyds HMG is the principle shareholder and I find it hard to believe that they could not force this through without paying any billions.
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So we're investing £25 billion in RBS, to increase our stake from 74% to 84%. So that £25 billion injection buys us 10% of the equity? So we're effectively valuing RBS at £250 billion pounds... a quarter of a trillion pounds? Is this valuation realistic for a near bankrupt bank that's totally reliant on state support? If not, could you explain why on earth so much taxpayers money is being invested for such a tiny increment in equity?
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#6 fractalfinance:
"Barclays also tried and failed to buy ABN Amro. .... This raises a pretty big question mark over the commercial judgment of Barclays Management."
++++++++++++++++
Barclays Mgt were probably taken in at the time by the AAA ratings of the 'toxic assets' as RBS themselves were.
Worthless bits of paper traded by the trainload. It has been a long time yet we still have not been able to plumb the bottom of the Abyss. Perhaps it cannot be spoken.
I wrote 'worthless' earlier. Maybe I should have put 'Liability' instead.
Toldyouitwould
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So RBS is the only bank in the GAPS scheme. Therefore the purpose of GAPS is to allow the Goverment to insure £282bn of dodgy assets which belong to an institution that is 84% owned by... the Government.
Is it just me, or does this all seem completely mad? A scheme by which the Government insures itself. Wouldn't the sane answer now be to fully nationalise RBS and have done with it? It seems like the taxpayer is already taking on all the risk with RBS anyway.
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I was just wondering how much, in total, have we invested in RBS & Lloyds shares to date, if you include these amounts?
We all need to keep a record so that when "our" stake is sold by the government we can get a good idea of how much we may have lost or gained?
I fear we are in so deep with both RBS & Lloyds that they have us over a barrel rather than the other way round.
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2. At 10:17am on 03 Nov 2009, bankingballs wrote:
"Do you really believe we are past the nadir for the economy, bob? That's a bit like saying we had won world war2 one month after Dunkirk."
great name - great comment.
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Re the various posts re RBS and Barclays bidding for ABM Amro I imagine every morning the shareholders and workers of Barclays offer a small prayer to their guardian angel Sir Fred Goodwin.
I think the appropriate phrase is "there but for the grace of god go I".
At the time of the ABM Amro fight banks were falling over themslves to buy almost anyone with a banking licence. It seemed to me madness driven more by boardroom ego than common sense.
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Yet more taxpayer subsidies for the greedy bankers.
Can't they see what happened to British Leyland? Let's save ourselves some trouble: sack the entire City immediately and sell it off lock, stock and barrel to the Chinese!
To incentivise the deal I would chuck in Gordon Brown and his party for free: a bonus even!
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9. At 11:31am on 03 Nov 2009, watriler wrote:
"The action of the Chancellor hardly fills me with confidence that, to quote that deliciously hedged phrase "resume growth at about the turn of the year" (ie Q4/09 or Q1/10), the economy will pick up in the next three months or so. When will this stipendiary of billions cease. If the Chancellor has any confidence in the economy he would express in his medium term forecast a large capital inflow from the sale of these public assets to offset some of the vast public debt."
....oh it's far worse than that - Evan Davis asked him about this banking deal and he used the phrase "I hope..." in his answer.
Uh oh - we're down to hope - and when hope is eventually lost - what then?
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In summary, Lloyds bought HBOS complete with its debt with the excuse that the larger, more powerful organisation would do wonderful things. Now, they have to become smaller because the large, debt-ridden and partly government owned organisation is too powerful. So they will sell off some assets, which will cover some of the debt. It sounds like a painful way of going around in a circle and getting nowhere. Or is it a downward spiral?
While all this goes on, ordinary people pay the bills (act as bankers to the banks?). Does anyone profit? Oh yes, when recovery arrives, the Darling Treasury Hedge Fund wins! If so, then this is a better scheme than Madoff's. How can the rest of us get in on it?
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I personally think I'm past the point of caring what this government does.
I'm more worried about my local LloydsTSB branch as I live in Scotland. Due to the way most of the big banks operated in the last few years we were dissuaded by the Bank from moving our accounts up here when we moved from England. It was apparently to be a seemless service - seems not ! no doubt my branch will be auctioned off and I will be required to move my accounts to the new Timbucktoo Bank of where ever !!
Lloyds was already well managed boring bank popular with a lot of personal and small business customers, until Flash Gordon forced a shot gun marriage with Bank of Scotland.
I blame the government, they meddled and have made the whole messy problem a lot worse that it might have been. Instead of having a few banks down the pan (RBS, Bank of Scot, Northern Rock, etc), we now only seem to have a few that are ok (HSBC, Barclays, Nationwide.....) and have brought down others.
Just a thought as we as a country are now pretty bankrupt could we ask the Germans to step in or maybe the USA on a hot foot mission to avert an international crisis.
Oh well back to sleep then.
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Robert. We have billions of pounds of so called 'toxic assets' on RBS's books, which they are insuring for a premium of 700 million pounds. Does anyone have any idea of what these assets are and more importantly has RBS actually received any money from TARP because an asset has actually gone bad. Additionally, when you exclude these assets are RBS operating annually as a profitable company or not. Finally, it is criminal that we continue to allow executives to benefit from their poor management. How can Stephen Hester and his exec's contemplate deferring bonuses, when the only thing they have achieved is making people redundant and selling business.
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WolfiePeters - you seem to be complaining about us ordinary people paying the bills when the government pay out the money and then suggesting that it is the Govy that wins when the recovery arrives - either they are both ours or neither is ours.
Of course everyone keeps talking about the fact that we re paying the bill - unfortunately we are not currently paying the bill - the government is running our country at a loss - it is when the govt start trying to get us back to break even that we start paying - I think Labour are hoping that the Tories win the election so they can hand over the mess - cue 5 years of the Tories blaming lots of horrendous tax rises and spending cuts on the Labour government - oh I can't wait........
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WolfiePeters
The scandalous thing about this deal between Lloyds and HBOS, government inspired, is that it must have been a clear breach of the UK and EU rules on competition. They all said nothing as a merger went ahead putting together two banks with around 32% of the savings and mortgage markets. Included in that silence of the lambs was the chief instigators Gordon Brown and Sir Victor Blank, the Lloyds Board, the FSA, the EU competition authorities, the Treasury, etc etc. The press and media said nothing. Nor did the experts (analysts). On the Government's part it was an act of desperation, so they must have gone into the monopoly with their eyes deliberatly shut. On the part of Blank and Daniels it must have been pure greed. One newpaper headline desrcibed it as the deal of the century and there is no doubt their heads were turned. Sir Victor has slunk away into the night, but Eric Daniels remains at the helm. With the prospect of bonuses from 2012. How can a man who took this kind of gamble (and those of his Board who were there) still be trusted to run the new entity?
Now we are faced with the prospect that another monopoly player (Tesco) is being touted as a potential buyer of a bank. Say Sainsbury, Morrison and Asda want to buy one as well. Will the MMC rule against Tesco growing bigger than its current market share if banking becomes part of that market share? Like petrol crept in under radar? Might we end up with a Poundstretcher Bank? Or a Royal Bank of Lidi? And as for the other name being touted around, if he gets a bank how long will it be before he is moaning about unfair competition as he does with everything else he runs?
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Darling may have been the biggest hedge fund manager at the start of the day, but with the RBS share price heading south once again it may well be a short lived description. Clearly investors do not think much of the European Commissioner's meddling.
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The architect of Lloyds woes were Darling and Brown who strong armed the current Lloyds management to rescue HBOS. Lloyds shareholders should be compensated for this terrible deal, if it hadnt had happened Lloyds would be trading at 300+ right now
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So if this all goes "belly up", Labour will be forever blamed; yet if it succeeds, it will have been bcause they critisised the banks for having too high a leverage, as well as critisising hedge funds, then copied them... How will Labour ever regain credibility again??
Oh yeah, it'll be because by the time they've regrouped to have another collective "stab" at governance (no pun intended), the "boom" of boom & bust'll be back into full swing, low-leveraged financial institutions will seem terribly inefficient, and Labour will be able to brag about how they pioneered "fiscal policy for the 21st Century"... Good work guys
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I think that it is an even better punt than you say Robert, because if the bonds sold to raise the money are bought by the Bank of England, as part of its quantitative easing programme, then any interest paid to the Bank will return to the Treasury as profit made by the nationalised Bank.
Eventually the pressure on sterling might become a problem, but only if and when the private banks start printing money again by providing credit as lavishly as they did before the credit crunch. At that point the shares could be resold to reduce the money supply at a good profit.
This point applies to all government investment at the moment. There is a double benefit. For example why not use government funding to modernise Royal Mail. Selling it off later, if for political reasons the government at that time thinks this necessary, when market conditions will be much better.
The government should take the opportunity to buy up the whole of RBS and HBOS, telling the EU commissioner that there is an over riding need to do this in the present economic emergency.This would solve the problem of regulating banks "too big to fail" raised by the Governor of the BOE recently. The wholly publicly owned banks would no longer be required to operate in the interest of any private shareholders by taking advantage of the credit shortage to charge high interest rates. Their lending policies could be in the interest of the national economy.
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To GrimUpNorth77 and MajorRoad Ahead Again2
You are both right.
GrimUpNorth: certainly, the difference between government and people is blurred. In this context, I see them as 'middle men' raising money on the basis of our collateral. When (or if) the pay back arrives, the middle men will, like good hedge fund managers, be in a position to skim the cream off the milk. Worse still, if anyone has to pay, it’s clear who it will be.
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Is there not an overwhelming case for Scottish independence now.
Leave Alex and his pals to prove their credentials by letting a Scottish government inherit RBS and BoS. Scotland could join the Euro take an "Icelandic" solution with European taxpayers sharing the burden.
Our Scottish mafia government would of course have to return to help out.
The taxpayers of England and Wales could get their old Lloyds back (perhaps with a bit of Halifax). We might even allow Northern Rockers to go further North. Could we then buy back Bradford, Bingley and Leicester?
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"Only with the most complex and delicate of financial engineering has it escaped the fate of being 100% nationalised."
And we all know that nothing could ever go wrong with complex financial engineering...
Just one obvious thing that could go wrong: what about all these dodgy assets that the taxpayer is insuring? How much are we in this for if those assets prove to be worthless?
I suspect this could get a lot worse yet. Still, it's nice to see that it's not doom and gloom for everyone. At least the banking executives will get nice fat bonuses come 2012. Lucky them.
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David Buick was just interviewed on the BBC, and when asked at what price the Lloyds rights would be set he said he thought it would be around the current price (of 83p). I know it is naff to own up to watching Working Lunch, which in financial terms is a bit like Watch with Mother. However, I would have expected better, even though they occasionally have the man with braces on whose then firm (Barclays) predicted the 2000 year end stock market at 7,000 and was only 2,000 points out.
There can be no doubt that it is going to be deeply discounted - something I assume the underwriters already in place would insist upon. Otherwise they will finish up with 57% of the rights and the Government their 43%. No-one in their right mind would take up their rights at a current market price, when the only saving would be dealing costs. The only way that it could be the current market price would be if there were a conspiracy to avoid small shareholders taking part.
I understand that Daniels has said he will set the rights price before the next Lloyds meeting at the end of November.
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trevst - I live in Northern England but get a bit frustrated when the Scottish question is dragged into the banking crisis because the banks are Scottish banks - not sure if the Head men who got them in that mess were Scottish however - unless of course you go all the way back to McGordon and McDarling. I realise a lot of your comments are tongue in cheek.
Scotland is a beautiful country and the Scottish people are also on the whole wonderful. From an economic point of view they may well have a valuable resource still to come with all the water and how bad the weather is they may well have access to more renewable energy than we have in England so I wouldn't be in a rush to give Scotland away.
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The lies are falling apart at the seams.....
Remember UBS?
"The chairman, Peter Kurer, told an extraordinary general meeting in Basel, Switzerland, that "despite recent extremely volatile market conditions, UBS currently expects to report a small profit for the third quarter, based on preliminary estimates."
...another false dawn I'm afraid - £337m loss announced today.
This is exactly the sort of hopeful statements the Government is making about RBS and Lloyds at the moment.
We've been in recession long enough now that the falsehoods and inaccurate predictions made at the start are now known not to be true.
The only predictions that have come to fruition are those of the bear - not the bull.
Bull is exactly what it is.
Remember selling Northern Rock back to the private sector?
"Government mulls early Northern Rock sale
Tue Apr 28, 2009 8:41am BST
LONDON (Reuters) - The government is considering plans to sell off nationalised lender Northern Rock although no formal discussions are taking place with potential buyers, people familiar with the matter said on Monday.
A sale before the end of the year was "not impossible" but would be hard to achieve given the lack of visibility on the length of the recession, a banking industry source said."
....another story to convince us that everything is under control when it clearly isn't.
That's the wonderful thing about history - you cannot hide from it.
I went hunting in my garden for green shoots and all I found was a 'baroness in hiding'.
Bring them to account
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#33 ......
Thankyou. It's sad that some still do not understand that "the Scottish banks" were not even remotely Scottish. Their main shareholders were City based fund managers and they were regulated (I use the term loosely) by London based organisations inc the FSA, the BoE and the incompetent Treasury.
In Scotland it was realised a long time ago that these banks were lost causes in terms of the real value they added to the Scottish economy.
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WOTW
Apparently there is a plague of Baronesses at the moment. But nothing to match the plague of the other kind of Baroness that will come when Gordon writes his departure honours list.
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This may not exactly be the point of this discussion.......but
I'm a big motor-racing, Formula 1 fan (F1). Having watched this season's sport at various race tracks around the world on the BBC, my senses were overloaded by the number of Banks, e.g. ING, RBS etc. splattered across my T.V. screen. I could only envisage the great and the good from these banks enjoying the hospitality of various sporting venues. I had expected to see these bankers not only enjoying their racing, but knocking back a few magnums of the old bubbly while travelling around the world at the tax-payer's expense.
Was it only me who felt nauseous watching the banks distribute our hard-earned tax money to the Formula 1 fraternity this year?
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Banking is now a one customer system with the "government" taking from the taxpayer being the primary client.
It may have all worked much better had the government given the money to the taxpayer directly, as it is borrowed in their name, and let the taxpayer either spend it, boost the economy, or save it, recaptialize retirement accounts.
Shoring up bad decisions by banks has done nothing but save the banks, and provide undeserved bonuses to reward betrayal and failure. The economy is supported by consumer purchases and the money has gone to the top and not the consumers. These decisions prolong the gloom and do nothing but reward the wealthy for mismanagement and failure.
"Well, Jack, I called you in today to say our best customer called and canceled all business with us because of your poor service and we will probably need to close the firm, but before we do we would like to give you a bonus." Only in government and banking.
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26. At 12:39pm on 03 Nov 2009, Chevgr wrote:
"The architect of Lloyds woes were Darling and Brown who strong armed the current Lloyds management to rescue HBOS. Lloyds shareholders should be compensated for this terrible deal, if it hadnt had happened Lloyds would be trading at 300+ right now"
Can we clear this one up - there are lots of people (probably Lloyds shareholders) who claim they were bullied into submission by a raging Government to take on HBOS.
The reality is that if Lloyds had not stepped in (and they were the only ones of a substantial size and national allegiance who could) - then the pain for them would have been just as bad (if not worse) than it is now.
The fact is that Lloyds would not be trading around 300 at the moment, it would not be trading at all - the group might have survived, but the bank would have been in as much trouble as Barclays are (oh and they're in trouble - just keeping it quiet)
They were not bullied by Government, they were bullied by their own actions and those of other banks.
Just because Lloyds shareholders have been 'dun ova' it doesn't mean they can come on here and harp on about what a nasty Government we have and how it's at the foot of al their problems.
Where were you at the shareholders meetings? Were you voicing your protest loudly - or simply accepting the status quo - as led by the hedge funds and other major investors.
This is why I do not participate in shares if I can avoid it - it's a 'faux democracy' and as with all fakes it usually comes unstuck.
Don't forget - the value of your shares can go down as well as up.
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Corporate sponsorship and entertainnig is an absolute joke - most customers who finish up being entertained do not wat to even be there in my opinion but feel obliged to go - only the bankers have time for it because it is part of their 'job' - HA!
There used to be a joke about bankers that went something like - when the sun is shining they want to give you an umbrella and when it rains they take it away. This can now be extended to when it rains on them we have to give them umbrellas.
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I run a small business which has suffered during the downturn (some 30% of our staff have been made redundant in order for the business to survive and others are on short time.) We never received any grants, only ever paid taxes on time. In previous years the corporation tax rates 20-21% (and 28% for larger companies depending on profits) were the same rates as imposed on Bank businesses now defined as too big to fail. I have never had any illusions that if we go bust, then no government bailout will rescue us.
Maybe any business should be assessed by the government whether it is a 'business to be saved' i.e. An industry of strategic importance, Big Bank, Steel works, Nuclear reactor, Airport, Channel tunnel, BBC etc; and they should pay Super % Corp tax (This higher rate corporation tax which comes with an implicit guarantee of rescue for the staff and customers) Those firms that have no chance of being saved, should pay 0% Corporation tax and maybe lower rates of National insurance (And then at least we would know as investors and employees where we stand, and we would get a benefit in less taxation than those people, who's jobs are more secure within protected firms..)
The problems arise (e.g. Equitable life) where there is regulation but this regulation is not a guarantee because the policyholders are seen as shareholders by the government. Compare with the Northern Rock where depositors are protected but shareholders lose out.
Most members of the public were unaware of the nuanced differences between these situations.
If the government were to make it 'more expensive' in terms of tax rates for the businesses which receive the guarantee, maybe there could be less onerous taxes on small businesses which will never receive any help.
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41. At 1:43pm on 03 Nov 2009, PaulattheRocks
It's very sad to hear your plight (and the report of yet more 'hidden' job losses) - I can only wish you the best of luck.
The big difference between you and the corporate giants is that they are big enough to influence Government - preventing what they would describe as 'unfair taxation' - as you suggested.
This then encourages companies to grow - for when they are as big as these giants - they too can control Government.
This is how they become too big to fail.
The sad fact is that in the Government's eyes - you are dispensable and you (and many others) will be sacraficed in order to save the uber-rich bankers with whom they feed at the trough together.
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#41:
As another small business owner, I heartily agree with your suggestion about corporation tax. Sounds like a great idea to me. You're quite right: no-one would lift a finger to help us if we went out of business.
BTW, sorry to hear about your business. Mine isn't doing too well this year either. No redundancies (yet!), but I'm expecting profits this year to be down about 90% compared with last year. Let's hope things pick up soon.
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Lloyds are trying to get out of the Govt guarantee scheme as it costs them a lot of money, but caps the risk (any bad loans beyond that being covered by the taxpayer).
Lloyds is having to raise £20B+ (38% from the taxpayer!) partly to increase its reserves supposedly to cover the potential bad debt and release it from the Govt guarantee. However, Lloyds is still in the "Too big to fail" category, so should its reserves be insufficient to cover its losses (as they turn out even worse than expected!!!) then guess who will pick up the tab for saving Lloyds AGAIN .... the taxpayer. So Lloyds gets its bonuses albeit deferred, and gets its protection basically for free (the Government share of the rights issue is 3.5 times the £2.5B payment to get out of the scheme.
In addition, why on earth is the Govt taking up the rights option? Well its because unless they did, there isn't a cat in hell's chance of the rights issue being successful, not to avoid dilution (unless the offer price was suicidal).
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One thing that is often overlooked in the quest for 'competition' is the inefficiency this often brings.
Take Surbiton high street - it has 3 types of shop - Banks, Estate agents and Coffee shops - more choice than you could wave a stick at.
....and yet having all these identical (or near identical) vendors in the street is completely inefficient. The high street needs 1 bank, 1 estate agent and 1 coffee shop - and that's it.
If the system wasn't defined and run by the laws of competition then you could still have choice - but without the inefficiency.
The eventual conclusion to this problem is (as is happening now) the high street has many holes in it - and soon to be many more. Trading space is wasted and property stays empty - as well as making it look run down.
So my question is why do we al accept that competition is good. We don't need 500,000 badly run banks, we just need 1 bank - well run - doing the day to day mundane stuff banks always used to do.
It's only when the uncompromising 'need for choice' is pursued that we produce inefficiencies.
...and yet rather from learning from this - Alistair Darling seems to be positively encouraging it.
We need 1 bank offering varied products - not thousands of banks offering extremely similar products.
I mean there was no 'rule book' on bank charges - and yet in our supposedly 'free market choice' world all the banks seemed to charge about the same in the way of penalties.
Co-incidence? - I think not.
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WritingsontheWall
I think you are totally wrong when you say that the bank (Lloyds) would have been in just as much trouble as Barclays. You are also totally wrong when you ask "Where were you at the shareholders meetings" as if in some way you were sharing the blame around to small shareholders as much as big ones.
I dont go along with the strong arm theory - as I have posted earlier I think Blank and Daniels were suckered, and saw the chance that had escaped them with Abbey National years earlier. However, they must have been given a green light by government, by the EU and by the institutional shareholders of both banks, otherwise why would they think they could get away with a monopoly busting bid? I think you are missing most of the points here. Of course, there will be papers in the Treasury and elsewhere about what transpired in Sept 08, but it was both a total screw up on behalf of Lloyds and a con by the government who must have given some assurances that they have now totally ignored.
As for small shareholders and the amount of clout they carry, the fact that you dont own shares probably explains why you don't understand how it works. Every company has a bunch of institutional shareholders who have all the cards - the same people who have already been briefed about the forthcoming rights in advance whereas none of the small shareholders even get anything other than what they read in the press.
A few large shareholders who owned shares in both banks voted for the merger. In the case of HBOS it was a bacon-saving exercise, the alternative being going bust. A lot of these same institutions held shares in both banks. A lot of small shareholders went to the meeting to protest, and some in the most strident ways. They were totally ignored, with a benign look of chiding on the faces of Blank and Daniels.
The institutions I am talking about are the very same people who run our pension funds so it is not just LLoyds shareholders who are losing out from all this.
By the way I agree with the previous post that Lloyds would have been safely trading on its traditional savings and mortgage business and worth much more than it is now. Not as you have put it "not trading at all". However, the only way you could ever prove that would be to know the percentage of toxic assets for HBOS and Lloyds. I suspect it will be hugely down to the former.
Stick to the facts, Ma'am. Stick to the facts.
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....and for those who think 'other banks' are better off than us - rest assured their time will come.
In an environment like this - there is no way the biggest national bank is going to breeze through this crisis.
http://news.bbc.co.uk/1/hi/business/8339990.stm
Spanish unemployment at a whopping 19% - that is a lot of people out of work.
How long before we're bailing out Abbey National and A&L?
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wOTW - your post has got me thinking - there must be a tipping point at which the workers in the private sector simply can't pay for the public sector and the unemployed.
The private sector contribute taxes (PAYE/NI/VAT/Corp Tax)to the government. These need to pay the net wages of the public sector and the unemployed.
Only once these are paid is there some money left for other costs - lets presume they are all covered by indirect taxes - I wonder how these sums work out and what the 'tipping point' is?
i.e. Net Wages of Public Sector plus Unempoyment Benefits = Private Sector taxes
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46. At 2:14pm on 03 Nov 2009, majorroadaheadagain2
It's exactly because I do understand how shareholding works that I do not invest. All institutions of any size are controlled by a small number of elite shareholders (Hedge funds, Pension funds etc.) I'm sure Victor Blank does not invite you to play golf with him to get your approval for his next move. Being a small shareholder is like being a voter - a pointless and fruitless excercise which only serves to frustrate and highlight your complete lack of power or influence in decision making. It's not a case of 'blame' - but the Lloyds shareholders who come on here and complain are not large ones (well at least I presume not) and therefore have no basis for complaint. The fact is they are only now realising what being a shareholder actually means - pure and simply cannon fodder - trying to hang on to the coat-tails of the rich - hoping they too can breach the glass ceiling and live comfortably without actually being industrious.
If you suggest that the lloyds board were 'suckered' then you are saying that these sharks - of great and vast experience - were fooled by a bunch of civil servants and clutzy politicans - I don't think so, it's too much to have to believe. The strong arm theory has more credibility (even though that's wrong too)
I empathise with the protesters at the HBOS shareholders meeting - in the same way I empathise with the G20 protesters on the street - they both represent the little man and are both railroaded by stronger and more powerful adversaries. However it's a bit late rolling up to the shareholders meeting and crying about the impending takeover when you have happily collected your 'pound of flesh' for the last 10 years in the form of nice dividend payments.
There was no point protesting as the decision had already been made. The protest was merely a recognition by the smaller shareholder that their democratic right was worthless - when they really needed it too.
...and as for pension funds - well that's why I don't have one. Why would I hand my wealth to some muppet to manage - so they can act in 'their own interests' - as all the pension funds have done over the last 2 years (note I said their interests - not the pensioners who's funds they hold)
If all pensioners (or future pensioners) held their pensions individually then they would have democratic power - but this is discouraged as you are less able to provide the diversity required. What actually happens is the power is opened to all - and then focused back into a single fund manager - who is also playing golf with Victor.
As for 'not trading at all' - the collapse of HBOS (which would have happened) would have been the second run a bank in less than 6 months - it would have been catastrophic for the banking system as all trust would have gone out of the window.
I suspect the Government simply couldn't do what it did with NR without seriously damaging sterling (and I mean more than it has been) - I mean if the UK Government is seen to be taking in failing banks at such a rate - how long before our credit rating was downgraded and the Governments ability to borrow was terminated?
Lloyds bought the financial system time - time to revive itself - as the biggest player in that system Lloyds had as much vested in saving the system as anyone.
I don't come back from the betting shop moaning about the bad tip I was given down the pub - so it's a bit rich for Lloyds shareholders to complain about being unfairly treated.
The other banking shareholders think they have got off lightly - but their time will come. If you want to look on the bright side - at least Lloyds went for the 'rip the plaster off fast' rather than the painful slow peel back others are now going to go through.
The facts are as they stand - shares can go down as well as up - and in this case they went down - and it's no good blaming the Government for a 'systemic failure'.
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48. At 2:42pm on 03 Nov 2009, GRIMUPNORTH77
Yes definitely - I can't tell you where that tipping point is - but I can tell you what happens.
The Government are forced to raise taxes to absurd levels (I think they did in the 60's) - at which point those still lucky enough to be in work start to question "why should I bother working when 98% of what I earn goes to the Government".
The Government can offset this by paying for the public sector and unemployed with 'borrowed funds from the future' - which unfortunately have to be paid back at some point (they hope when more people are working again and tax revenues are up)
Considering only about 40% of the country are employed at any one time (the others being retired and children etc) and the rate of unemployment could reach 10% (which I assume is based on the whole pop. - not just the 'available to work' population) - then we can't be far off.
However the alternative is to cut the public sector jobs - but this will merely add to our problems (unemployment and less consumption). This is what the Tories will do next term.
We're in a no-win situation - the winners were the bankers - they have since left the game - leaving us with no chance to get back in the game.
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I am not one for conspiracy theories but today's announcement of the breakup of the banks smells like a red herring for excusing the billions more this government are having to prop them up with and the jobs that will have to be lost.
Hope and trust in the future and all will be well Brown tells us but what we never hear is WHEN in the future.
The whole announcement is just another hotch potch to confuse the poor taxpayer and try to convince them once again that someone knows what they are doing. We can expect this month in and month out now until Brown has finally gone.
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#48 "i.e. Net Wages of Public Sector plus Unempoyment Benefits = Private Sector taxes"
Er +++++ repayment of Govt borrowings!!!!!!!!! et al
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I'm sorry but do none of you get it? RBS has nearly 2 trillion of "assets". For those of you who did accounting that means they also have nearly 2trn of liabilities. If RBS went belly up the tax payer would suffer the most. assuming recovery of about 1 trillion of assets you're looking at a tax payer bill of 900bn/30mio... the UK would just go pop. and most people would lose their savings/pensions/ISAs. better the 30bn stitch in time than the epic fail of the nine.
At the same time just over 50% of the UK population are now employed by the public sector... that is higher than any other country. How did we voters let that happen?? The UK has 3 industries. Fin/legal/accounting services, guns & more guns. People bore on about relaunching our manufacturing base. Please get real. The average wage of someone in china making clothes for primark is about 5 bucks a week. anyone on here want to work for 250 bucks a year so we can "get our manufacturing base back". Thought not.
People need to wake up. The govt engineered this crash by spending so much.. we are the ONLY economy to enter recession having INCREASED debt and REDUCED savings in the 8 years preceding the recession. Shouting at the bankers bonuses will not help this. All you are doing is succeeding in deflecting attention from the issues that really matter and that is a gov't with a plan and a population that embraces the austerity. sorry but we don't have any other choice. you can call for bankers bonuses to be cut all together but it is totally fruitless. And no the tories will be no better either.
Just remember those who can't, govern.
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We are all doomed. China has all the cash. The west has all the debt and the middle east and Russia have all the energy. Oh dear is all I can say. Third World War within 20 years...either that or this recent global recession will seem like a kid's tea party in comparison to what is coming next. No doubt the next recession will be the catalyst for the aforementioned war
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Instead of borrowing money, why don't we make stuff and sell it abroad ? You know, manufacturing, IT, medicines...
That used to be how we paid for foreign goods.
Economists seem to be so enamored with borrowing that they have forgotten all about the real economy, yes that means you Robert.
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Post 45 you must be wrong as there are at least four mobile phones shops on every High Street I have been on recently. Surely the mobile phone has reached Surbiton?
Having said that "To let" signs and "Closing Down Sales" are still pretty common here in the Midlands.
I do agree with your generalisation though that there does seem to be little other than banks, coffee shops, mobile phone shops and charity shops plus new arrivals in the cash converter style shops and the ubiquitous Poundland. This might explain why I never shop in my local High Street.
Two of the three Estate Agents just up the road from me have shut but maybe they still have the money to buy property in Surrey there isn't much spare in Birmingham..
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I see that a key element of the announcement is that more competition will be created by sell offs. Nice bit of spin but how do you do it in practice? What practical value are a few Nat West branches in Scotland and how do you sell RBS branches in England without an infrastructure unless someone wants to invest heavily in IT and admin etc? LTSB Scotland is relatively self contained and LBG says it will sell off maybe 300 branches in E&W as part of reliving the TSB brand. What makes anyone want such branches when LBG will identify its least profitable, worst sited and poorest maintained with least potential? Even after that what makes Darling Gordon think that customers will be willingly sold off to some other institution? LTSBS customers would see little change but people with NW/RBS and LTSB have chosen to be with those banks. Their contract is with the Bank not the branch.So what happens when LTSB customers vote to stay not transfer - what company in its right mind will pay for property and not customers. Call me cynical but I wonder how much will happen by 4 years' time?
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If you want a tale to show you how the system works - take the story of New Star Asset Management and John Duffield. This man set up a hedge fund and employed a number of people - some leaving secure jobs on promises of a great future.
Fast forward a number of years and the same New Star is being rescued by another asset manager - in the process many staff lose their jobs as de-duplication occurs during the takeover (rescue).
Mr Duffield is un-deterred and simply sets up a new fund management / hedge fund called Brompton asset management - and then entices former employees from their position at the 'saviour' - Henderson asset management.
The big problem with this story is whilst small businesses struggle to survive - simply because they follow moral guidelines - people such as Mr Duffield know how to play the system and therefore survive.
I mean how many SME's out there are going to get bailed out by the banks next year - and how many will be let to go to the wall?
This is where the inequality is so apparent - Mr Duffield's loss was merely an inconvenience to him - to most SME's failure means their business, their income, their house, their assets. This is where the risk v reward formula is completely out of touch with reality.
Whilst the small man slogs hard - the rich man merely tinkers with the system so it works in his favour.
Only at times like these does the reality of where you come in the pecking order really hits home - which is why there is so much anger out there at the moment.
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50. At 3:12pm on 03 Nov 2009, writingsonthewall wrote:
48. At 2:42pm on 03 Nov 2009, GRIMUPNORTH77
Surely, in the light of the financial and economic events since October 09, there is evidence for not only the tipping point that you discuss having occurred.... but also a credible name for the point in time...... "Quantitative Easing"
The moment that this was introduced was the point in time when the Treasury took note of the fact that the total available finances of UK PLC were not enough to re-balance the debt.
I am looking forward to the final accounting for this period... when we can read some true figures of the actual amounts used. Only then will we be able to understand whether the Western Casino saved us from collapsing banks or abused us by supporting them and them only. My own experience would lead me to believe that the re-capitalisation of the banks has led to an abuse of the individual as well as a fundamental change in many previously believed ethical/moral rules.
Absolute power corrupts absolutely.
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57. At 3:51pm on 03 Nov 2009, distressedone
That is a very accurate picture of the realities of 'selling in a falling market' - something which the Government have not really grasped properly when they talk about 'making profit for the tax payer'.
I mean look at the friends re-united saga - or the property market.
People only sell what is worthless first, they save their prized posessions until there is no turning back.
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Hi Robert,
Bank Bailout Number 6 plus 175billion QE and still no credit flowing to SMEs....
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Brown and Darling are both putting so much spin on the new loans that I fear they will both disappear where the sun does not shine.
Where is all the money coming from to fund the new loans.
Just how much is the national debt now.
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There are two figures that ALL banks should be required by law to provide to the government which the government should publish.
1) A total of all bonuses paid to managerial staff upwards in the last 10 years.
2) A total of all bad debts written off split by country in descending order over the last 10 years.
Both figures should be available easily from their accounting records.
I am sure others will be able to add to my list of two - the key criteria for appearing on the list are that the information must be readily available and quantifiable as this then would avoid any excuse and delay over providing the information.
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It's not good business. It's the collective action of a group of ministers who know they'll be out of a job in 6 months. If I were George Osborne, I'd be asking around the Shadow Cabinet to see if anyone wanted to swap jobs. It's probable Lloyds will manage to climb out of the hole they're in; less so RBS, who will find itself in direct competition with the buyers of the branch network and brands they're being forced to divest. Even so, share value of both banks will fall, first when government spending slows, second when quantative easing stops, and third if employment and consumer confidence drops as a result of the first 2; and also, in the case of RBS, because when the European Union gets it way it will be a much smaller trading unit. So it will take a lot longer than Alastair Darling says for us to get our money back. Hedge funds normally go for shorter term plays, but they have to show a return to their investors. Not so the Treasury, which has squandered taxpayers' money for the last 9 years with no discernible improvement.
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It is scandalous. What is also scandalous is that no national broadcaster has done a proper detailed expose on Gordon the Moron and his band of incompetent ministers. It is quite staggering, almost unbelievable and worthy of a movie that almost single-handedly, one man, Gordon Brown, has destroyed a country. You could have a whole documentary series on it, starting with the pensions grab, the PFI scandal, the vastly bloated increase in public sector jobs and so on. The voters should be reminded of jsut how stupid, disorganised, dishonest and incompetent Gordon Brown is/has been. If he was in any other job he would definitely have been sacked and possibly even arrested for corruption, fraud. In fact the BBC should do it and title it "Gordon is a moron" - title credits to the Jilted John and in fact there is already a book by Vernon Coleman so all the material is there ready and waiting. Please please please will the person responsible for documentaries commission this program so that those who, as yet have not fully understood how dangerous this man is to the UK, get the chance to appreciate this. Who knows it may even open the eyes of some of the Labour robots who think he is the messiah....
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59. At 4:15pm on 03 Nov 2009, chilloutzone
Very true.
In fact the 'tools' (and I mean that in the politest way ;-)) that the Government have used all point to reaching that point - i.e. QE and low interest rates.
....but what is clever about these tools is they are almost invisible to the naked eye - whereas 98% tax is certainly not.
If you told the country that the pound in their pocket had been devalued by at least 7% this year (175 Billion (QE) of 2 Trillion (GDP)) then people might react differently to QE.
Especially if the proposal was to increase taxation by 7% to achieve the same effect (although it would have to be by considerably more as not everyone is working) - then you would have public outcry.
Remember to additional facts here:
1) This doesn't account for low interest rates and is just a ball-park figure from QE
2) They're proposing to expand QE - and I very much suspect they will.
As I said yesterday, when the Government needs to sell something off we're in an inflationary environment - however their actions (or rather that of the central bank) are saying something completely different.
Having read the front page of a 'free city paper' this morning - apparently the signs of recovery are coming through in droves (I think they're talking about manufacturing rise yesterday) - such is the absurdity of the situation - it's easier to believe the lie than face the truth.
...but logic dictates that with HSBC and RBS announcing branch closures and job losses - these newly unemployed will contribute further to the depression we're already in.
yes - that's right folks, I stuck my colours to the mast on Friday - which is the point I believe the depression started.
If I am right - then I should be made chancellor - because it's a damn sight more accurate a picture than our current encumbant.
The markets seem to agree with me today - but only time will tell. You can only live the lie for so long before it envelops you and you can no longer see the truth.
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Bonuses, bonuses, bonuses - what is it with everyone. Bonuses are not, were not the cause of the problem. This is a complete red herring the politicians have latched onto to cover up the fact that politicians, law makers, central banks, regulatory authorities have as much responsibility for this mess as the banks and other financial institutions. Everyone forgets the fact that Bill Clinton's administration was directly responsible for the developement of the sub-prime mortgage disaster. Why? Social mobility. Equality. All socialists should be rounded up and sent to Scotland. They can winge, moan and ruin that country is instead of ruining ours.
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64. At 4:51pm on 03 Nov 2009, Webgraham001 wrote:
"It's probable Lloyds will manage to climb out of the hole they're in"
...only by using their dominant position to overcharge consumers for credit (although some would argue that's all they have ever done)
"We should all sacrafice ourselves for the common good"
I'll be found lying in the street outside the Lloyds building having donated all my worldly goods to saving this inept and incompetent beast.
Lloyds survive - You pay
Lloyds fail - You pay
Take your choice.
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It always was the plan to sell off our bank investments. At considerably more than we paid for them. Sales that will pay-down debts caused by the temporary drop in Corporation Tax receipts this year that have caused the government deficit.
Letting British banks go bust - as the Tories wanted - was and is madness. But that policy grabbed big headlines. Even though it would make this American created recession far deeper and longer.
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Re my tipping point - WOTW has made me think of another possible tipping point.
This is the point at which even if all workers in the private sector are taxed at 100% this still would not pay for the net pay of the public sector, child benefit, pensions and unemployment benefits.
I have one crumb of comfort - I have had a few months away from this blog and have returned because I am dumbfounded at the lack of anger, worry, concern etc in day to day society - everyone seems to think everything is okay - as only about 50 different people have contributed to this blog today it suggests we are all in the minority - so don't worry everyone it's going to be okay!!
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Bob
How are the "Hedge Fund managers" Darling and Brown doing in creating a profit for the taxpayers from Northern Rock as promised in February 2008? How much exactly are the taxpayers underwriting?
I wouldn't trust Brown as a Hedge fund manager, it was after all him who sold our Gold reserves.
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Where will this leave the share holders?
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Robert, I think you are spot on with your analysis of Lloyds Bank. I cannot confirm what you say with RBS because I do not know enough about them. I have several worries
One. As you say, the top team at Lloyds is the one that led this prudent well run bank into disaster in accepting the merger from the Halifax. It is not good enough to say they shouldn't get bonuses at all. They should be out. They have cost the owners of their business (the shareholders) dear. As I have said before, a penny a share would have been too much to pay for HBOS yet these morons paid 61p.
Two. Fund managers followed the corporate line when it was obvious to anybody with half an eye that the deal should have been blocked by Lloyds shareholders. Every fund manager who controlled LLoyds TSB shares and did not vote against the merger should be fired. I have heard nothing about these morons being called to account.
Three, what about Barclays and HSBC? OK, they have survived, and HSBC are moving to Hong Kong. But they are both hugely influential in our economy and both are "too big to fail." Both are capable of catastrophic collapse at some time in the future and nothing has been done to say how we will be defended if HSBC or barc,lays corporately fail by speculating on some latter day equivalent to CDOs
Four, yes the government is running a hedge fund. This is unlikely to be in the skill set of career civil servants. We have a government that is hot on micromanagement and control freakery. We have the potential for disaster on a massive scale if they get it wrong. It needs to be managed independently by politically disinterested people who will play everything straight back down the middle.
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Darling is more like bookies runner for Brown and Lord Meddlesome
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Robert, you said: "To be clear, it was the current top team at Lloyds that (unlike their opposite numbers at Royal Bank) were the architects of the bank's woes. Which is why some might say that cancelling bonuses would perhaps be more appropriate than postponing them."
Prior to merging with HBoS, Lloyds was a conservative and well run bank. The board made one big horrible mistake - they thought they could rescue HBoS - a crazy idea but a hugely valuable one to the government at the time. Is that the sin they should pay for? If so, why not punish your friends in number 10 and 11 Downing Street who were accomplices to the crime?
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#73. At 6:31pm on 03 Nov 2009, Henry_Quimper wrote:
"Every fund manager who controlled LLoyds TSB shares and did not vote against the merger should be fired."
But then again, if as fund managers they also controlled HBOS shares (which could have wiped out if it sank without trace) what else could they do?
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Absolutely agree with majorroadaheadagain2 watching Working lunch these days is more like "Consumers champion direct" rather than a programme about business which was what it used to be about. Plenty of those sort of programmes on in the evening Watchdog, rogue traders or what ever the rest are called.
Still suppose it grabs a headline or two , you only have to watch a time or two at the aggressive interview techniques employed for those brought to the court of Curry and Munchetty - their use of childish humour would be used on the beach with Punch and Judy. Let's have the programme back to where it was please.
Daily politics today was equally condemned headline headline headlines about taxpayers 30 million, with absolutely no detail. No explanation that the Government 5.5 billion in to Lloyds was to ensure their stake remained in the same percentage as the other shareholders, including small ones who have already stumped up for one lot of rights to retain their position in the company.
No, headlines make the feature and that is why all rhetoric only ever refers to banks and bankers, although rather belatedly one or two more enlightened commentators are using the word "investment" in front of bankers which probably relates to less than 1% of the industry. Yet the world is convinced that everyone within the industry is of that ilk and have been on the "take" and frivalous - though not in my high street certainly.
If their guilty by association then the whole house of commons should resign on the back of the expenses scandal.
Right next myth. Banks won't lend. Well they never had unless the individual/ business deserved it. ... like in the "good old days" before the headlong flight in to pawnbroking based on ever increasing property values (whoops ! ) and for all those businessmen crying over giving guarantees or security, take a time trip back to the 50's 60's and 70's and you will find the same conditions existed then as today. What's different oh the free and easy credit available in the last two decades - made everyone soft and not prepared for the medicine.
Can someone explain, when a bank provides a borrowing facility to a business to provide the cash to service their ongoing daily cashflow needs it is called an overdraft facility (working capital etc) ..... but when the banks receive money ...it is called a bail out, because intrinsically it's the same , just in higher figures. That support used to come quietly from the Bank of England and the world carried on as if nothing had happened - so what we get now are headlines to make a story on the front page. Let's face it the taxpayers aren't exactly "giving it away" wasn't 12% once mentioned.
Given the lack of recompense to shareholders by those organisations fully under control of the government... Northern Rock etc but the fact the elements will be sold - no doubt at a profit, their temporary funding exercise has taken control from those that owned it whilst doing what banks are expected (demanded) to do each day and provide working capital for businesses. What that organisation needed was help with funding , strong management and trade out of their position, not queues outside their door full of pensioners.
Which takes me back even further - to the start of this "recession" - many still feel the Banks are wholly responsible, but are they ?
Let's go back to the loss of the tax benefits once available to pension fund managers .... that "simple" revenue earner for the Government to shell out monies on all their pet projects, was probably the catalyst for subsequent disasters.....
As stock values dropped .. the managers got jumpy and one by one switched in to the bond markets causing further falls and shortfalls in pension funds ...at which stage some became "insolvent" based on funding criteria of the lifetime of their employees.. companies started looking for savings (I spoke to one business today who downsized and sold assets just to make up funding a pension shortfall) The government becoming anxious at the failures set up a protection scheme , which costs the funds yet more money and the contraction continued yet further to a stage where very few new employees in the UK will enjoy the benefits of their predecessors - if only they had left alone, the funds would probably be at least 30 % richer - the markets would be booming and releasing yet more cash into the economy ..... that's where the FSA could have come in and started to reign in the 125 % mortgages and a gentle tightening of credit lines ( if they were in control ) although politically that would have been very hard for Brown et al to swallow given the infamous "Britain has never had it so good" ..Oh really, not under your watch kind sir, even the pensioners who have done the right thing all all their lives had their retirement nest eggs hit by retrospective legislation and low interest rates.
One final question. Given a mortgage is taken out and paid for over 25 years what is the average rate for the last 25 years ...don't claim the low rates of today are expensive, I reckon I could say that without the calculation.
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I have the growing feeling that all this stuff was engineered. Too many things have happened too quickly for them not to be planned in advance.
I smell a rat.
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Good to have you back Robert.
I am confused in a very big way on how we are exiting the ‘recession’.
1 Our banks are all bust, but now the UK Taxpayer is instead – Whoops, he don’t know it yet but when the point comes where the central bank admits that they newly created money will ACTUALLY come into existence and will not be burnt by HMG – That is the point where our inflation will spiral.
Conclusion : The banks are re capitalised with worthless Sterling.
2. Our banks are now in the jolly position in which they can lend, as their capital ratios are just the jinkies. Let’s forget who owns them, it’s just funny money anyway.
3. All we need now are some Jolly consumers who want to borrow, WHOOPS!
3.a. Consumer Group 1 = Halfway to bankruptcy, so they cannot borrow squat (for at least 6 years)
3.b Consumer Group 2 = Too indebted, and too s**t scared to even borrow the 30p require to acquire a packet of opel fruits.
Conclusion?
We have some banks with ‘whole balance sheets’ but a diminishing customer base. What future for our banks Mr Darling? The truth of the matter is, we should have let every last one of them go bust!!! The result? A Chinese invasion of eastern money looking for a place to obtain growth.
It’s going to happen very soon Folks 银行
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GRIMUPNORTH
"So don't worry. Everyone is going to be OK"
You have been away for a few months. Welcome back. You are right although your post may have been a bit on the sardonic side? Everything is always better than it seems at the time. Each decade brings its own disasters and some people go under but on the whole it always turns out alright for the majority. Except in Africa, where people live in pieces of tin in the sand with no food. They don't give a damn about bankers or sub-prime mortgages. They just want water and whatever scraps of food we give them.
So when you hear people sounding on these posts like the gods of doom are at our door they are out there but not at our door. When I was a young man I could have said that to Neville Chamberlain, and I would have been wrong. But today's bogymen are just transitory things on our shoes that we trod in. As you say everything is going to be OK. Except in Africa.
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76. A valuable comment. At the time of the merger, HBOS was already down around 60p. Lloyds TSB had been dragged down from around 250p as soon as merger talk started. (Dragged down because those owning Lloyds shares could see what would happen!). If the merger had been voted down, fund managers would have had little to lose on the HBOS side as the next day HBOS would have had to call in the receivers. But Lloyds TSB had a huge upside when the penny dropped that it wouldn't happen. Fund managers aren't supposed to be sheep and vote for a merger because the board want it. They would have dropped a lot less if they had voted it down by the inevitable rebound in Lloyds TSB shares. I still say they should be called to account.
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#79 JavaMan1984
The banks have already identified and got on board those jolly borrowers.
The banks ended up owning troubled assets. Property developers etc. that should have gone bust except they owed billions to the banks who simply grabbed them.
So the banks get money from the government, us, then lend\give it to their own troubled assets.
All a bit incestuous?
Neelie needs to follow the money.
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Morning Robert,
A Note For Posterity:-
RBS had a cash problem and through a rights issue raised £12 billion (to see them through) in Apr 2008.
RBS had another cash problem later the same year (despite Mr Turners stress tests) and received £20 billion from Treasury in Nov 2008.
RBS have another cash problem and will receive £25 billion from the Treasury in Nov 2009.
This is more money than the great American City-Corp received!
Lloyds didn't admit to any cash problems in Apr 2008.
Lloyds had a cash problem in Nov 2008 and received £7 billion from the Treasury plus another £10 billion for taking over HBOS.
Lloyds are to receive another £6 billion from the Treasury in Nov 2009.
Nothing has changed in the last 18 months, the toxic assets are still there (hidden from the public and financial reporters view).
The Government want to sell the revised Northern Rock (Good Bank) with another injection from the Treasury of £8 billion pounds. Who will buy this good bank if the big five are forbidden to bid? (My guess is that it will go to Santander just like the good bit of B&B because those guys know a bargain when they see one).
I have asked publically on this blog many times, Robert, what did the banks spend the money on that they received from the Treasury? Someone must know but they ain't tellin!
As an aside to a previous blogger, China will be the next bubble to pop (all the signs are there if you care to look).
When Europe and Japan put an end to their quantitive easing (which they desperatly want to) we will see the next banking collapse in the West.
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The FSA spent it's time faffing about with things like loan insurance, instead of taking a long term view of the whole picture; the banking system comes close to collapse.
Now, the government starts sticking it's big clumsy oar into the banking industry instead of taking a long term view pertaining to the running of the country. And to be fair, most of them are assuming they're not going to be in a job in six months time. "Lessons have been learnt"? Really?
Oh, and normally, when one body aquires a "controlling" share (30%+) of a company they have to make an offer for all of the shares? Why does the government/UKFI not have to do this? Shame really, because as I understand it, the compulsory offer would have to be set at no less than the highest price paid for shares by them in the last year - about 128p for LBG shares I think? I could do with selling mine for 128p each... any takers?
This country is a mess, this country is a mess, this country is a mess... And before you say "well why don't you move then you muppet", it's because my pounds' worth has plummeted so much that all I could afford abroad is a life herding goats in Ethiopia - and I get sunburnt too easily, so I'm stuck. :(
Maybe MP's should have their salaries (and expenses, of course) deferred for 3 years and paid in Bank shares... that might make them perk things up a bit. Or resign. Truth is, "Bankers" are no better at politics than politicians are at Banking, so these current hybrid organisations (LBG & RBS) run by Bankers with the occasional "suggestion", order, or U-turn (ie regarding competition levels) are going to be going round in circles for ages...
And regarding "competition": The Government backed the LTSB takeover of HBOS and said that it was ok as far as the level of competition within the industry goes. Now, it says that it agrees with the EU's stance and orders to divvy up the assets. So, did it:
(a) Lie to us then
(b) Lie to us now
(c) Make a total policy U-turn after cocking everything up
(d) Not really understand what was going on, or
(e) All of the above.
You decide...
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Bloomberg gave a nice summary of this latest Lloyd's/RBS bailout:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7GNUspBylyw
I'm interpreting this as a mixed bag. On the one hand the banks need/get more taxpayers' money (despite having soaked up wads of bailout money + QE already). OTOH the government is finally taking steps to deal with "too big to fail". Kudos to the British - that's more than our American government has done. In fact, as the Bloomberg article crows, our "healthier" American banks have gotten bigger. Probably to ensure getting bailed out again when the commercial real estate market collapses.
I wonder why this restructuring is happening so suddenly. Did something trigger it?
As an aside, have any of you heard from JadedJean lately? I saw this obituary:
http://news.bbc.co.uk/2/hi/europe/8341489.stm
JJ hasn't posted since 10/27, and I seem to remember somebody posting that he/she was a French anthropologist. It would explain the moniker, and the familiarity with population statistics. I hope I'm wrong. :(
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70. At 5:22pm on 03 Nov 2009, GRIMUPNORTH77 wrote:
"as only about 50 different people have contributed to this blog today it suggests we are all in the minority - so don't worry everyone it's going to be okay!!"
Ahh but surely if this blog is representative we're clearly not going to be ok as there are very few posts of that sentiment.
Either that or this blog tends to attract negative people!
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76. At 7:31pm on 03 Nov 2009, vegetable_grower
The wonders of diversification - all based on the assumption that everything doesn't fall at once.
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The Times today makes Daniels into a sort of hero. Not that he saw Neelie Kroes coming, but just that by avoiding the APS he has spiked her guns.
Yesterday it was Listen with Mother (Working Lunch) today it is Wake Up to Bunny. The one thing they had in common was David Buick. Yesterday he said that he thought the Lloyds rights issue would be at around the current market price (then around 85p). Today Mickey Clarke on WUTM suggested that there were rumours in the City that the Lloyds rights would be at 15p. FIFTEEN PENCE. David Buick's reaction to that was "GOSH". Nothing more.
I usually find WUTM useful, and they do get some good interviews, but it all a bit short and constricted. Yet it is all that the BBC's Radio 5 Live offers on finance. Adam Shaw does a good bit at 6.15am on Radio 4 but again it is all far too short. During the day there is virtually nothing, and no wrap up of the stock market in any meaningful way. When you think that LLoyds has 2.8m shareholders it is odd that you can get hours of coverage of show jumping, Formula 1 etc but so little on finance.
Robert - We need a half-hour Robert Peston show at 4.30pm each afternoon on Radio 4.
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For those that don't see the need for new banking competition on the High St, think on this.
Do you have any confidence that the existing cartel of banks will not enforce base+3% mortgages in perpetuity if there is no new competition? They want to dig themselves out of their hole (and make big bonuses) by charging us through the nose for everything. ATM-use, current accounts, lousy interest on your deposits, etc.
Only with fresh, debt-free competition can we have any hope that they will be honest.
When Tesco gets too big (food, clothing, electronics, petrol, insurance, banking, whatever) we can break them up as well.
Remember, the war never ends,
Regards
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80. At 11:07pm on 03 Nov 2009, majorroadaheadagain2
Isn't "Blind optimism" how we got here in the first place?
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83. At 11:51pm on 03 Nov 2009, splendidhashbrowns
When you list out the events as you have it certainly looks like we're pumping more and more in and getting less and less in return.
Isn't this what happened in 1929? - or rather it didn't because they let the banks fail - this time they're taking the Government down with them.
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Just a reminder for everyone...
That money we are borrowing at 3% is in the main off ourselves. The QE experiment by the Bank Of England is the main buyer of our debt. When this ends and we have to sell not only our gilts for that year but begin to sell what the Bank of England has bought then gilt yields are likely to rise substantially.
You are falling for an illusion created by government action which can only be short-term Mr Peston. It may turn out to be not so different from what got us into this position.
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We increase our buy in to RBS and retain our stake in TSB.
BUT then we create 3 competitors how is this going to end up as a good bet when disgruntled customers from these two banking dinosaurs leave in their droves....
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Maybe in FS the recession is over - over 55% of jobs posted in IT are for FS posts (FS is a 25% contributor to the ecomomy), and this is a good indication of the imbalance in the 'recovery'. Jobs funded by public money. If you've manufacturing skills in IT then forget it - less than 3%. Retail slumbers, construction is comatose. Even government IT jobs are drying up as budgets tighten. So jobs advertised considerably imbalanced with respect to the sector's contribution to the economy, suggesting a strong unidirectional bias, and something to be greatly concerned about.
When a guy goes for an HGV job needing international experience and he is one of 350 fully qualified applicants then we know that the recovery is still limited to the few.
It is the lack of basic jobs which is crippling society and whilst all the effort has been poured into preventing (short-term?) the collapse of the financial system, those at the sharp end, dependent on wide-scale economic recovery, continue to be ignored by government who continue to offer farcical employment incentives to employers without the underlying cash flow to support extra employment. What's more those unemployed people are growing more desparate as personal and public funds run out.
For the vast majority it has been life-as-usual but with some belt tightening and being fleeced if you want to borrow money, but getting nice little incentives in VAT cuts and cheap cars. For those unemployed by the gross incompetence of the state and its significant tax patron Financial Services it has been a nasty period of being sacrificed and ignored for the common good
Recovery? - not round here.
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48 GRIMUPNORTH77 wrote:
"there must be a tipping point at which the workers in the private sector simply can't pay for the public sector and the unemployed."
- a lot of people think that there would be a point at which there isn't enought tax to cover uneployment payouts but infact this is mathematically impossible:
imagine that 90% of the workforce was unemployed and recieving benefits. They will be spending those benifits in order to survive and they are not going to be paying that money to other unemployed people - so all that money will be going to the remaining 10% who are still working. With all that money coming in thier wages will be huge and with an apropriatley high tax rate on those incomes, enough tax will be generated to cover the benifit payouts - a mathamatical certainty.
The above equilibrium only breaks down if some of those still employed who have the highest income (let's call these individuals 'scum' in the interests of clarity) dodge thier tax by sending the money ofshore - then the whole system breaks down, which by the way, is what's happening now.
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Now, why would they the Treasury wish to be associated with the Term Hedge Fund ?
Many Hedge Funds have existed purely to exploit the slower, less agile Investors (ie selling short other peoples Pension Funds etc).
People have not forgotten this.
Surely the Treasury would like to be seen as a long term Investor ?
Any way, now Europe has commanded the breakup of LLoyds Hbos and Rbs, will they command the break up of Santanders far larger kingdom ?
Abbey, Alliance and Leicester, Bradford and Bingley ..........
Or is Santander exempt ?
And will Northern Rock or Bradford and Bingley Shareholders ever see any compensation ? Its a fair bet they will get nothing back.
Bank Shares under the current management style (ie big bonuses to staff before Shareholders regain any of their huge losses) are an investment to avoid.
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The Lloyds rights document is now out and Ian-the-Chopper or someone will correct me if make a hash of the maths.
There are 27bn shares in issue now and Lloyds is looking for 13.5bn pounds. Thus the issue price would need to be 50p per share (or 25p on a 2 for 1) to give them their 13.5bn. And I thought it was going to be difficult.
The PMQs today was disgusting. Brown kept harping on about Cameron and his "cast iron" referendum promise. He looked triumphant on the issue, but it wont be long before the electioneering starts, and hopefully Labour's 2005 manifesto "pledge" on a referendum will come back to haunt him. Cameron and Clegg both tried to get him to say the magic words of accepting all of the Kelly report, but he wouldn't utter the word "all". There were an unusually large number of planted questions on wicked Tory councils, which gives a further idea about the election ground.
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Robert,
It's always worth remarking that Lloyds is only in its current position at the demand of the Prime Minister, who forced it to accept HBOS. If it was not for that, Lloyds would be the best-placed of all the UK banks.
Although because many HBOS executives have secured roles in the new LBG senior management your comment about their bonuses isn't as harsh as it might have been!
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94. At 09:45am on 04 Nov 2009, p45builder
You need to be a little careful about job availability. IT FS are notorious for having agencies who advertise jobs that simply don't exist (although the regulator / Government wil swear blind it's not the case)
There is also a rebound in IT FS specifically as the initial panic hit the first reaction was to dump the majority of the 'expensive IT department' - just about now things will stop working and suddenly the business realise "oh that's what that guy used to do" - in an industry where "time is money" it's essential that systems remain available (especially as the front line threw away their maths books and traded it in for a computer.
All you need to do is try to book a table at lunchtime in the city. 2 years ago you couldn't get one - especially at short notice - these days you can march up and get one anywhere.
Slowly the businesses are going under - but it's no headline grabbing collapse as the media had hoped - but instead a slow painful decline lasting several years.
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98. At 1:18pm on 04 Nov 2009, Moik wrote:
"It's always worth remarking that Lloyds is only in its current position at the demand of the Prime Minister, who forced it to accept HBOS. If it was not for that, Lloyds would be the best-placed of all the UK banks."
Utter rubbish. Are you seriously expecting us to believe that Lloyds took on HBOS as a 'favour to Government'?
Lloyds had to take on HBOS because nobody else would - but their interests were not the countries - or the Governments - but their own.
If HBOS fell then Lloyds would have been in a precarious position as one of the largest UK banks - most exposed to a collapsed and bankrupt Government.
Make no mistake the motive was self-preservation.
It's also been convenient in hindsight to play the 'done wrong' card so that people like you believe they are the good guys. It also allows them to blame all their losses on HBOS loans (which of course is not true).
Maybe the path they would have taen would be like Barclays - now owned in the majority by a foreign power and likely to have to make savage cuts to staff in order to satisfy those majority shareholders - and who ultimately might end up in a worse position than Lloyds as they have no Government backed guarantee (always a winner with many savers)
I bet you're just another wingeing Lloyds shareholder - didn't you read the smallprint when you signed up? Were you protesting at the board meeting prior to the decision - or did you buy into something as a 'little fish' hoping that your interests would be shared by the 'big fish'?
Oh the naeivity.
This is why I say "Do not invest in stocks and shares with money you wouldn't be prepared to put on a horse".
....still I suppose you also think horse racing is a fair and even contest too do you?
It's nice and easy to blame the Government, or the Prime minister for Lloyds troubles - but the reality is that they are a bank - the banks were in trouble - there were no exceptions. This is because bank staff do not understand how Capitalism works - they actually think you can make money from thin air.
This was an oversight Lloyds were just as much a part of as anyone else - in fact more so as they are one of the most established and biggest around - i.e. should know better!
....you could also ask yourself why Lloyds board were paying themselves such large sums of money and yet capitulated in front of Government with what you describe as a 'bad deal' - of course that would mean blaming someone other than Government.
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"The weakness of RBS is the most terrible indictment of its previous management and board."
But who are still very comfortably well off, even multi-multi-millionaires, compared to most of us. If this is the worst that can happen, it is a big come-on-again indeed.
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"If we're past the nadir for the economy ... and that's a fair bet"
You are joking, aren't you Mr Peston? I thought we were heading for a double dip?
http://tinyurl.com/ygcl6ok
Ah well, we'll see.
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writingsonthewall
100
You accuse Moik of writing "Utter Rubbish". In my view most of what you write fits that description, and self-important to boot.
You say bank staff do not understand how capitalism works. They are probably glad of that when they go to work on the No 53 bus from whereever. They are just ordinary people, not like you and me, but certainly like me. They go to work in the morning and try to do as good a job as possible. They dont understand everything, but are probably bemused at the way in which uninformed people like yourself band them all together with the few spivs who nearly brought our system down. And then have people like you with whatever axe you have to grind (on almost every subject where there is someone to blame rather than someone to congratulate) by saying such stupid things like you did at 100.
You wrote about bank staff "they actually think you can make money from thin air". Bank staff - tellers, computer operators, account managers, cleaners, canteen operators.
There may be a few people on here who think you are a knowledgable man or woman. And a good laugh. To me you are something else. When you disagree with someone who wishes to express hiss or her opinion at least leave them with a little dignity. It is a valuable commodity, not made out of thin air.
You have just left my Christmas card list.
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103.... having just read writingonthewalls most recent offering.. I must admit also having read much of his previous pontificating, I was already thinking along the lines of you.
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Banking is like a studd fAAArm where Gordon the HandymAAAn has to make sure that FoinAAAvon is up to the job and produces the next generation of lucky foals to run the GrAAAnd gnaaashaaanaaal baaanking [banking]system whilst not falling either at the hedgies or into the hole sale market.
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103. At 2:22pm on 04 Nov 2009, majorroadaheadagain2 & 104. At 7:16pm on 04 Nov 2009, wholistens
1) I work in the financial industry so please don't lecture me on who is at fault here - I unlike many in the field understand which cogs in the wheel took part and all are culpable (including myself).
2) You both have got the wrong end of the stick - 'bank staff' does not mean the cleaners, the canteen staff, the security guards - in fact if you actually worked in a bank you would know these are in fact viewed as 'support staff' as they do not participate in banking activities. These staff generally do not get issued shares as incentives - only those who participate in the activites of the bank do.
3) If you want a full out assault - try this:
Moik and similar complainers about Lloyds shares and treatment are at fault for not bothering to understand how Capitalism works. I bet 99% of shareholders have never read Das Capital - if they had (like me) then they would never, ever invest in the stock market as it's merely a conduit for expoloiting the workforce of this country.
If you're looking for people who assign blame without reason then you need to look at the thousands of people who are complaining about loosing money on shares - and blaming Government, or Gordon Brown, or the EU - or whoever. Not one of them seems to realise that Capitalism does this thing where it over-extends and then collapses - they are too willing to believe the spin about "We've fixed it this time" from successive Governments.
All Government is guilty of is pretending they're in control (during the good times) and blaming 'bad wind' when it all goes wrong in an attempt to divert blame.
The truth is a Mr Karl Marx explained why this keeps happening but the folly of man (or rather Government) is that he can control everything he creates - sadly this is not the case.
The bottom line is if you think you can 'earn money' from nothing other than 'having money' - without consequence or exploitation - then you are sadly mistaken. To moan when you loose money through this method is akin to saying "It's not fair - why can't I exploit others for my own gain".
The fact that the investing in the stock market is so far removed from the underlying exploitation was also explained by Marx - it was called Alienation and it allows exploitation to continue without pricking the conscience of the "exploiter".
So when you're thinking about the low level employee who is catching the 53 to work and getting paid decreasing 'real' wages driving them closer to poverty - to the point where their life is nothing but work, sleep, work, sleep - you ask yourselves "where does the profit really come from"
When you can answer that you will feel like me.
My particular annoyance is with those who claim that lloyds were bullied into submission by the Government - and that the decision to take on HBOS has 'impacted their wealth' - which as I explained above means 'impacted my ability to exploit'
If you think exploitation of your fellow man is acceptable - then you are a philistine and I shall discount you as a 'grunt'.
However I suspect both of you - from your words - do not agree exploitation is acceptable.
All I am doing is simply pointing out where the exploitation occurs and how the system ensures we all must take part - exploit, or be exploited - that is the choice under Capitalism.
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It is vital - of utmost importance that the world understands who this is http://www.fasb.org/facts/factsrhh.shtml . What he is about, where he comes from, his history and experience, what he is all about, who he represents and why he does what he does. Then consider what he has done.
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And now - a clear unequivacal warning for one and all http://ftalphaville.ft.com/blog/2009/11/05/81681/a-smooth-iasb-and-an-impairment-change/
What accounting rules changes did before - they are going to do again. Without slightest shred of doubt - You ain't seen nothing yet. Buy dusk masks, the economy will be around our ankles and nothing to do about it. Not even cry.
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#95 EnglishRefugeeInThai
Does buying gold or for that matter a foreign manufactured car meet your criterion of sending the money offshore?
How about out of season asparagus?
Or is paying tax on your income all that counts?
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How to drive demand for new shirts, http://ftalphaville.ft.com/blog/2009/11/05/81741/did-someone-say-commission-free-etfs/
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So then ... writingsonthewall ... you don't actually practice what you preach, don't walk the walk having been seduced by Marxism.
I wish I had accused you earlier of a tendency towards communism, in your thinking which you now admit to. Indeed I almost referred to queues for basic services seen in many previous communist states as they were "growing up" in my previous post .. where the elite took the rewards and the subservient peoples complied or died, for their troubles, for speaking out.
No level of legislation can EVER deal with equality, under any system, communism or capitalism - that's just the way it has been and will work forever..so stop striving for that ideal - there are far too many with "self interests" at the top of their tree - call that exploitation if you wish.
If you really believed in what you say, you would have no part in the role you also claim to have played and are playing .. you are allegedly someone who seem to enjoy the benefits of your present rewards but hanker after another regime, yet still try to lecture others on their own decision making
I do not need to read the writings of a German philosopher to understand the difference between right and wrong.
Oh and no, I don't believe cleaners etc. are bank staff (many are contracted to other organisations ) , nor do I believe that 99 % of bankers are any more culpable in relation to the present crisis than the rest of the great British public. It's just that "Bankers" provide a great attention grabbing headline.
No paper / broadcaster is ever going to accuse it's readers/ listeners/viewers of precipitating the crisis through their greedy demand for credit and living the life of their neighbours and then complain when their borrowing goes awry laying that blame squarely, but unfairly on the banks for leading them astray. So the blame culture always exists, it's just the way it's portrayed in the media.
Oh and one final thought where would those cleaners, guards and multitude of others be, without corporate organisations utilising their skills to move their own businesses forward or keeping them running. Oh, perhaps they'll be spending their day queuing.
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As a Barclays shareholder I was having kittens at the thought of Barclays outbidding RBS for ABM-AMRO. Imagine my relief when RBS scored a goal. It later became obvious that RBS was buying a pig-in-the-poke but they unbelievably pressed ahead. Perhaps the reason for this will come out in due course. Being a cynic, I am a firm believer in following the money trail. Who was the person (or persons) who stood to gain the most from the purchase of ABM-Amro? Perhaps we should all be a bit more suspicious of those we have carelessly empowered up to date!
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There is a dufference between Hedge Funds and Hedging, it is as subtle as breaking glass. Both activities however involve risk and operate in a cloud. Hedging is insurance, it just works, it is that clever and that complicatedly simple, it just works - it is profitable as an entity, it generates fees. It can be a profitable insurance.... alas hedging sits atop a precipice. The precipce of stupidity, not its own - insurance is a smart move, negate risk share losses, survive. There is one huge risk that cannot be covered - that is arbitrary revaluation. The mess caused last time this happened is on going and still not understood or seen for what it was and it is going to happpen again when the lads at IASB get to throw their monkey wrench into the world of valuing financial balance sheets. Brick wall, well Swiss Alps collides with the Mutual/Banking express train. It's going to be a li'l bit worse than messy. You cannot nail jelly to a wall, mark to market is not a financial instrument - in fact it is no instrument at all - it is a banana skin, which is why traders love that way of doing business.
http://ftalphaville.ft.com/blog/2009/11/02/80741/synthetic-etf-attack/
Izabella Kaminska has a rounded view of these matters - 'Point is Taxloss even a well informed IFA cannot know what these funds really hold as assets and what their real value is. From DB-x trackers prospectus: "Valuation of the Underlying Asset and the Sub-Fund’s assets: The Sub-Fund’s assets, the Underlying Asset or the derivative techniques used to link the two may be complex and specialist in nature. Valuations for such assets or derivative techniques will only usually be available from a limited number of market professionals which frequently act as counterparties to the transactions to be valued. Such valuations are often subjective and there may be substantial differences between any available valuations." http://www.google.co.uk/search?hl=en&client=opera&rls=en&q=%22Izabella+Kaminska%22+derivative+valuation&btnG=Search&meta=&aq=f&oq=
The valuation exercise undertaken by FAS157 - GAAP - was the credit crunch. Stand bye for it's second round - http://docs.google.com/gview?a=v&q=cache:XAR_WE0utokJ:www.gcactuaries.org/documents/CEIOPS_comments_IASB_IAS39ED_140909.pdf+iasb+dervitive+valuation&hl=en&gl=uk&pid=bl&srcid=ADGEESgHFgLv5OCfeevwp-MvBl4gfkhwdsryLN-CnlpYMFQ4Lv1dZ1nJjWAk_9wWxmbfqOiJVBPlngT6Qi6T646zzgQQ8Ta2_HJqlKAx4mXrFulSJhfGVtx1i0v8u1WEhpitpjQEiYGS&sig=AFQjCNFSRYRZQyWMGfl7oBbdrDwQLeW20Q
There is simply no way to reconcile business practice and accounting standards that effect a global/national revaluation. It is impossible to achieve globally. Disaster beckons. Nice idea now go back to the playground, think it through when you've grown up.
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#113 went to hedging. Now - Hedge/Mutual et alia Funds and .......... profit. Oil tankers floating off our shores for 10 months waiting for a price swing. Whose risk is that? http://www.moneymorning.com/2009/08/06/cftc-speculators-hearing/
Risk - http://www.moneymorning.com/2009/08/07/etf-investing/
With the best will in the world, revaluing this ants nest that is modern trading will bring about a large round of beer & sandwiches.
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well I haven't posted for a while but seeing some of the usual inaccurate rubbish I had to comment in particular
#100. writingsonthewall
for some curious reason he appears to have it in for Barclays, claiming they are now foreign owned etc etc rubbish rubbish etc
1) I find it strange that people moaned about the Taxpayer bailing out banks, and yet when a bank avoids that by going to overseas investors they get knocked for doing so.....no win situation. Perhaps you could point out that some investors have made a killing in the Barclays share issues, and HMG could we have done the same. I'd suggest that if Barclays had taken cash from the Govt, its shareprice would have tanked and likely stayed there (and no doubt would be being sized up for a break-up right now). It was only after avoiding the Govt APS that Barclays shareprice rose!
2) Barclays is actually profitable (I suppose people will claim its all moke and mirrors, but they are still declared profits, and they pay corporation tax on them as a result...). I note that Lloyds is likey to post a loss mostly caused by the poisonous HBOS elements.
3) Your claim that Barclays is foreign controlled is at best error ladden. Its true the single largest shareholder is the Qatar Investment Authority, but currently they have somewhat less than 10% of shares, plus warrants on a few more. The sharebase still has a large number of UK based pensions funds for example....still best not let truth get in the way of a good story
4) Comments about job losses as scaremongering. Esp about at the behest of 'foreign' owners. Yes, Barclays has made a number of redundancies this last 18 months. No more than Lloyds has done, RBS is doing and also as will happen in the integration of A&L, B&B etc into the Santander empire. I'd also point out that HSBC is planning to shed 1700 roles, and has taken NO Govt funding either.....
Its very frustrating that people queue up to knock banks, when in truth there are very few people in the organisations who have caused problems.
oh, suppose I should mentioned I'm both a Lloyds and Barclays shareholder, so I take a keen interest in both.
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Every single economy in the world, at the same time, with the same problems - here, listen to an expert http://www.ft.com/cms/885d7916-e3aa-11dc-8799-0000779fd2ac.html?_i_referralObject=986728677&_i_referrer=staf&fromSearch=n This has never happened before. A credit bubble did not cause the scale of damage that has occured. Credit creates wealth and someone turned the credit off. Reduced credit = reduced growth so................ where is the recovery going to come from. No one borrowed too much, the mechanisms to deal with it existed. They have done since money was invented. Credit was halted. A credit supply crunch - who did that and why?
The problem that developed was because interest rates were too high. They were too high. They were too high. Instead of borrowers paying down principal and growing their own wealth, finance developed a gravy train of revenue from high interest rates. That was the folly, that was the mistake, that was why credit was crunched - not another penny could be squeezed out in profits from high interest rates and that was the mother of all risks - pure arrogance.
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We have had the mother of all regulatory blunders dropped on us. It's father is on his way. No one has worked it out yet. This was not modern orthodoxy. It was a mistake that has masked itself in recrimination. I wait and watch -
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Yet more good news from RBS this morning!
http://news.bbc.co.uk/1/hi/business/8345922.stm
When will it all end?
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Keep em coming Gordo, best placed?
http://news.bbc.co.uk/1/hi/business/8346170.stm
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111. At 11:04pm on 05 Nov 2009, wholistens wrote:
"So then ... writingsonthewall ... you don't actually practice what you preach, don't walk the walk having been seduced by Marxism."
Assumptions, assumptions, assumptions.....built around your mis-understanding of Marx and what he wrote.
95% of what Marx wrote was about Capitalism, not Communism, and to date there is no-one who has challenged or defeated his theory on surplus value theory and the diminsihing profit causing overproduction - you (like many others) just thought that concept 'flew away with the birds of progress' - well current events beg to differ.
I am no Communist - I am an anti-Capitalist, the system is faulty - even our own Government admits it when it talks of 'systemic risk' and 'systemic failure' - whilst it plugs the ever increasing holes of the banking system.
You can drag out all those old cliches about long queues of failed Communist states all you like - if you were educated enough you would realise they were degenerated or deformed workers states and not Communist ones as there was no disctatorship of the proletariat in any of them. Most of them were dictatorships which used Communist ideology to ensure power was secured.
- The Capitalist regimes call them 'Communist' so simpletons can neatly categorise them together - a bit like describing people as 'black' or 'white' - or 'old' or 'young'.
"No level of legislation can EVER deal with equality, under any system, communism or capitalism - that's just the way it has been and will work forever..so stop striving for that ideal - there are far too many with "self interests" at the top of their tree - call that exploitation if you wish."
It seems to me from this statement you are perfectly happy with exploitation and wage slavery (so long as it's not you - right?). So why is it acceptable to have economic exploitation but the law stops me coming round to your house with my 7ft frame and 'exploiting' your smaller size for my gain?
-interesting, it seems your attitude towards exploitation is based on the condition you are the exploiter and not the exploited.
"If you really believed in what you say, you would have no part in the role you also claim to have played and are playing .. you are allegedly someone who seem to enjoy the benefits of your present rewards but hanker after another regime, yet still try to lecture others on their own decision making"
I can only play the hand I am dealt - but rest assured, when total equality is enforced I will not worry about giving up my worldly goods - because:
a) They were easy to come by - thanks to Capitalist exploitation
b) I have useful skills (which incidently I don't need to employ at work in order to earn vast sums) so I will be happy to live in an equalised world. Only those who know they haven't earned what they have are running scared of equality - could that be you perhaps?
"I do not need to read the writings of a German philosopher to understand the difference between right and wrong."
....and yet clearly you do - as you feel exploitation of your fellow man is acceptable.
"No paper / broadcaster is ever going to accuse it's readers/ listeners/viewers of precipitating the crisis through their greedy demand for credit and living the life of their neighbours and then complain when their borrowing goes awry laying that blame squarely, but unfairly on the banks for leading them astray. So the blame culture always exists, it's just the way it's portrayed in the media."
Have you ever applied for a loan? - I can only assume not.
Why do you think there is a need for 'small print' - is that how honest business is done?
...oh but it's the fault of the borrower for not having a degree in financial engineering isn't it - should everyone who need to borrow money come up to this standard? - Have you met a farmer before? They are skilled in rearing animals - not finance, and yet they are forced to rely on 'advice' from the paid financial advisors - a trust which has clearly been broken in recent years.
"Oh and one final thought where would those cleaners, guards and multitude of others be, without corporate organisations utilising their skills to move their own businesses forward or keeping them running. Oh, perhaps they'll be spending their day queuing."
well lets start with that they wouldn't be doing - i.e. destroying the planet through mass inefficiency.
...as for queuing - don't you think most of them will be queuing outside the job centre? - or do you think the CEO's will be sacrificing themselves for the good of the poor?
As you feel exploitation is fine - then you are in the minority - you just don't know it yet. I mean why stop there, slavery is much more productive and you don't have to worry about employment law and redundancy and all those 'headaches'.
Finally, you think I am a hypocrite working in the world which is doomed for failure? - well many others know this, but what do you suggest? I sit around on the dole queue doing nothing waiting for the end? All I can do is try to point out the failures of the current system (because most people - like yourself - are in denial there is a problem) - and then maybe we can get onto alternative ways of allocating resources which are less damaging the the people and the environment - and hopefully before it's too late.
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RBS have now written off £8 billion bad debts over the past 6 months, according to today's figures. That can't be down to bad management and uncontrolled sales teams, can it?
That kind of performance suggests the sooner they let their top guys go, the better. I would suggest the Hester converts the bonuses to negative numbers and gets a claw-back. Surely there is nothing in their contracts which says a bonus has to be positive?
Regards,
I presume I owned a tiny slice of 83% of that write-off, guess we should cancel Xmas.
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#116 interest rates were too high.....
No, the problem was not the interest rates, it was that the credit terms were too slack. Anybody and his granny could borrow whatever they wanted, both personal or business.
Whether it was your credit card company increasing your limits way beyond what you could sustain;
or your mortgage company saying we'll will lend you 125% of the value of the house you want to buy, and at 7 times your earnings;
or your friendly bank saying, c'mon gives us a business plan that shows you trebling turnover in 5 years (it can be fantasy if you want), and we'll lend you a bucket-load;
this crisis came about because of lack of control and lack of judgement. Our problems didn't start in America, they started right here at home because a new government with no experience, was conned into loosening the controls over a greedy banking sector.
We will pay for Blair & Brown's incompetence for a generation.
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115. At 00:22am on 06 Nov 2009, brownloadofrubbish
I'm guessing by your username you have already decided who was at fault for the crisis - I presume in the 80's you would have been 'Thatcherloadofrubbish' and maybe 'wilsonloadofrubbish' before that. To blame a single person for the Economic downfall of a nation is a little simplistic for me (that's not to say he didn't play his part).
Lets analyse your response for it's own version of 'rubbish'.
1) I don't have an axe to grind with Barclays, but the reality is that it's been sold off - they chose foreign investment, other chose (or rather had no choice) - the Government. However your pointing to the 'killing' people made on the Barclays share price - I presume this was down to great management and nothing to do with the billions used to bailout the entire system? I would also point out to those 'making a killing' that the will be some big losers coming up - just as there were in the early days with other banks......just before they got Nationalised. Remember RAB Capital? - they were expecting to make a killing on Northern Rock - and now they're fighting legal battles with the Government.
I would also excercise caution when talking about 'avoiding the Govt. APS' - because it's not over yet, not by a long shot.
2) Where do you think the 200 Billion of QE money went? Where did Barclays make their profit? - rising stock market perhaps? - and why is that rising? could it be to do with the profits from the gilt markets being diverted into Equity markets? - Do you ask yourself these questions - or do you rather just take someone else's word for it?
How can you trust a firms books after Enron?
...and if you have been paying attention you will know that most institutions are NOT paying tax at the moment as they are offsetting losses from previous years against the gains of today - as the Inland Revenue has allowed during this crisis.
If the reward for bringing the world Economy to it's knees is a bit of corporation tax from the banks - I think the world would politely decline thanks. It's arrogant to expect us to be grateful.
3)I have listed the majority shareholders of Barclays (as at October 2009) at the bottom for you to read and come to your own conclusions.
4) It seems your defence for job losses is based around pointing out that 'other banks are worse'. I'm not here defending other banks, far from it - the question you should be asking yourself is "how could so many expert bankers be so wrong". If Barclays are so well managed, why didn't they see this coming avoiding the need to make compulsory job losses? Please don't use 'financial winds' as a reason, especially when a book written in 1867 explained how and why.
Having seen you last sentences I can see why you so vehemently defend the banks - you are simply defending your own selfish interests. Well here's a piece of news for you, what I campaign against is tantemount to my own downfall, the decimation of my own 'success'. You see not everyone is like you and purely guided by self interest - because what self interested people don't realise is that there simply isn't enough room for everyone to be self interested - and that is why mankind is on a path to self destruction.
QATAR HOLDING: Still owns a near 7 percent stake.
CHALLENGER: Owns 2.8 percent
Challenger, an investment vehicle of Sheikh Hamad bin Jassim bin Jabr al-Thani
ABU DHABI: Owns warrants
CHINA DEVELOPMENT BANK: Owns 2.3 percent.
SUMITOMO MITSUI BANKING CORP : Owns 1.5 percent.
GOVT OF SINGAPORE: Owns 0.6 pct.
INSTITUTIONAL SHAREHOLDERS: A number of major institutional investors own significant stakes, including Legal & General , which has a 4.2 percent stake.
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RBS announces £2.2billion loss for 3 months.
RBS shares go up.
Same thing has happened with BA.
What is it about the markets that I don't understand - surely these figures are not a lot better than expected?
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122. At 10:50am on 06 Nov 2009, allmyfault
I agree with your analysis - but isn't that how competition works?
The banks are all pushed to gain market share, in order to do this as a lender you must find more customers (borrowers). The rate of decline of profit as your margins are squeezed (by more efficient operators) is faster than new entrants into the market.
Your choice as a bank is to either lend more to those who already have borrowed plenty (risky) or widen your criteria for lending terms (even more risky) - otherwise you're out of business.
It's what happened in the 80's and it's what happened over the last 10 years. It's very consistent.
With regard to the 'controls' the Government let slip, well this is because the Government is the banks 'biggest customer' and has been for the last 50 years.
Do you as a borrower dictate to your bank the terms and conditions of lending - or is it the other way round? The Government finds itself being told what regulations are suitable by the banks - otherwise your lenders can make life very difficult for you by cutting your income through tax reduction (off shoring)
Don't forget that Labour are traditionally 'regulation heavy' - so the alternative would have been even less regulation - not a pretty picture to paint.
This is why the system we operate in can never work properly - unless you find a way of removing competition - without impacting the choice so many see as a sign of their freedom.
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@124 GRIMUPNORTH77
Presumably BA and RBS shares have gone up because those failing organisations are in line for government handouts.
No doubt their directors will be awarded bonuses for getting our money in due course.
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Writingsonthewall
I dont blame the Government for trying it on with Blank and Daniels. They both went in with their eyes open and were undoubtedly looking for the main chance having (I seem to remember) earlier been rebuffed on competition grounds over Abbey. But there is no way you could convince me that Brown (and probably Darling and the Treasury after Brown reported back what had happened at his evening meeting with Blank) didn't make some sort of offer to Blank and Daniels that the rules on competition would be ignored if they would bid. That must have also been tested with the FSA, the MMC or whatever it is called now, and with Europe. Thus not only were Blank and Daniels greedy but people who should have stuck to the rules on competition blatantly ignored them. I can only deduce from that that they saw it as the chance to avoid the collapse of HBOS and the NRock queues being repeated. Thus the takeover was politically inspired (not necessarily for bad reasons) and gone along with by the Board of Lloyds, and, when they were consulted, by the institutional shareholders of LLoyds and HBOS, who had shares in both banks.
I think you posted earlier somewhere that the shareholders had gone along with the deal, and not turned out to try to influence it. There are 2.8m shareholders in Lloyds but I bet the discussions in the first months from September's meeting to the deal finalising on 18 Jan 09, were restricted to less than 100 Lloyds people said to represent Lloyds shareholders interests. The fact that they were trying to save their HBOS bacon shows how little regard they had for Lloyds shareholders. Incidentally, these same people have just been consulted over the funding issue, but the other 2.79m had to learn about it from the press. I know that is the way that capitalism works, but it defeats the argument about shareholders sticking up for their rights. They have none and the pictures at the EGM showing Blank and Daniels looking condescending when the lowly sounded off showed why..
Neelie Kroes was nowhere during all this, even though a monopoly was being set up with state aid in front of her very eyes. She had from Sep 08 to Jan 09 to do something about it, but didn't. Why was that?
Probably the biggest crime in all this is the due diligence issue. It is not about capitalism or any other ism except a failure to protect the investments of 2.8m people by not doing what they should have done. Any real inspection of the books must have revealed gaping holes and impending doom from toxic assets lurking there. They were out in the open just days after the deal finalised and yet the Board of Lloyds went gaily on sealing the deal long after they ought to have withdrawn their offer. Why was that? Were they stupid? Greedy? Both? Why did the Government put their money in without insisting on knowing what they were buying? Surely due diligence would have been in the public interest too? Except had they insisted on it we (the taxpayer) would have inherited the lot, instead of allowing the bulk to come from prudent Lloyds.
The bank and support staff of HBOS probably gain a little from the deal in the long run in that less jobs might go than would have gone had HBOS collapsed in Sep 08.
I am a Lloyds shareholder, but I do not intend to come across as what you describe as a whinging shareholder. I have been investing since 1965, and am quite well aware of the pitfalls - Queens Moat, Bond Worth and Marconi to name just three. This is a cynical exercise which has been perpetrated against the 2.8m people a lot of whom like me just invest in shares, and have been encourgaed to do so by successive governments introducing PEPs and ISAs with tax breaks as encouragement.
There are two issues here which I believe illustrate that you and I are running on two separate tracks. My posts are restricted to the rights and wrongs with this deal. If wrong has been committed it is not sufficient to say that it is a fault of capitalism or that shareholders should have been aware of the dangers of owning shares etc etc. Your points are much more philosophical - nothing wrong with that always provided that the philosophy does not cloud the need to distinguish between them. Daniels is still in post and people are sdaying that he has saved the bank by avoiding the APS. They are not saying that we, the company, have to pay 2.5bn to avoifd the APS that we wouldnt have needed had we not taken over HBOS.
Someone posted on here earlier that Lloyds would have been broke under its own steam - I disagree with that view and think that a good bank has been ruined by all the above. Not something to be proud of by the perpetrators?
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bill
As I am sure you know it happens all the time. You see some sparkling results and the shares go down. A company like BA posts a dog and yet the shares go up. The trouble is two-fold. First as you know the analysts get ahead of themselves and predict what the profits will be. If they are less worse than predicted then that is sometimes seen as a sign to buy, particularly where short-sellers have to buy shares they have sold on the prospects of doomsday but dont own and have to deliver. As if BAs losses (apparently the first in the important summer period when they make all their profits if any) and strike proposals make them anything but a basket case.
In the second case like RBS the market predicts the world is coming to an end, and even the merest hint that there might be some possibility of profit in the future is enough to send the shares up, again probably in the face of trying to nail the short sellers.
It all sounds a bit immoral, and certainly it is for ordinary investors who simply want to own shares for either income or for the possibility of the shares increasing in value somewhere in the future. If you could end short selling then perhaps the market would be a safer place for widows and orphans.
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I don't thin the world is coming to an end but I think I should move to a different country. I guess I need to sell these stocks.
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As Alastair Darling was taking questions on Gordon Brown's proposed financial transaction levy, which Alastair said must be agreed by all G20 countries if it was to be implemented, the news flash at the bottom of the screen was saying that the US Treasury Secretary would not support Gordon Brown's levy proposal. Just an hour or so earlier Gullible Gordon had fallen in the 2.50 at Wincanton, which just about sums it up.
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Gordon Brown, national embarrassment.
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Glad to hear that it is all ok now. Aren't the very people that are telling us this the same ones that never saw it coming?
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Wot no Tobin tax? Just big bonuses.
More to the point no Peston to explain it to the masses.
The conspiracy theorists will of course put Roberts absence down to him being told to keep schtum to prevent a run on banks and Sterling.
I do not believe that.
However. If there is a run then various other folk will be able to say "See Robert has not been the culprit all along".
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Prudeboy
Since you and I seem to be the only two still on this board I wonder if you would let me know what you make of the piece in the TIMES today about the debt levels at LLoyds (all inherited), and the piece somewhere else about the possibility of them being sued over the last HBOS rights? Unless your real name is Eric Daniels, in which case I wont to expect to hear anything...
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majorroadaheadagain2
Have no fear, Eric Daniels does not stalk these boards.
I have a theory about bank debts. Essentially most UK industry is broke, including banks. The government meanwhile has to keep up the pretence of ruling over something worthwhile. So it gives, loans or whatever you want to call it, money to the banks so that they in turn give that money to companies that are in turn in big debt to the banks.
Call it real politik.
The exception to most industry being broke are small businesses that did not take on loans when the going was good 5 years ago.
Those small businesses are feeling the pinch, just like all other businesses, but they will not get loans since it does not suit the banks to build up competition against the companies that are now bank owned.
Neelie really needs to look into the way that bank owned property companies are being constantly given get out of jail free cards.
Where is the competition?
Where are the new boys on the block picking up cheap property?
Are banks and their debtor companies now nationalised in all but name and future profits? And of course without any safeguards or public scrutiny.
But it suited Lloyds to pick up HBOS as a "favour" to GB in order to stop the whole facade from collapsing a year ago. It could have all worked out profitably for them and there would not now be awkward questions being asked.
That is the risk that banks take.
Meanwhile I'm off to the pub..
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Prudeboy
Hope you emjoyed the pub. I found your comment interesting and challenging. The only thing about it is how do they single out which ones go bust? I can understand that HBOS couldn't go bust after NRock because of the queues outside the banks and the way in which the whole edificce would have come tumbling down. Your final para sums up the Lloyds situation in a nutshell. The real scandal of that is the blatant way in which they allowed the competition laws (here and with Neelie)to be bust wide open. Neelie said nothing for the best part of nine months, and then came in with all guns blazing. Governments act high handed and in a way that appears to be against the public intereest (like the referendum) but they seldom go out on a limb as they did with LLoyds/HBOS. And since the scandal had it all been alright and Lloyds had been allowed to walk away with the profits from having 30% plus of the mortgage and savings markets would have been very loud suggests to me that they had a good idea Lloyds was buying a dud. I thibk Daniels and Blank were just chumps.
You ask where the boys are picking up cheap property. I think the vultures are circling, and will be in in good time to take us to the cleaners again. It is the first time, and it wont be the last.
Incidentally, I had a small interest in Blacks Leisure but managed to get out in 2007, which was fortuitous. It fits in with your model of a smallish company virtually owned by a bank (Lloyds) and it will be interesting to see how they manage to groom it (minus almost all of the things previous management thought were exciting but turned out to be fads). In the end it will just be about the Milletts part of the business from which Lloyds ought to get something back. It will be an interesting case study.
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Actual exposure, or “money at risk” is roughly $60 trillion - http://www.bearmarketinvestments.com/here-there-be-big-nymbers-sic
http://www.zerohedge.com/sites/default/files/images/OTC%20Derivs%202.jpg
An informative snapshot article detailing some numbers with loads of trailing zero's. Theta beta's. It is stirling stuff that doesn't seem to make page 3 anymore. Still it's only US numbers, no way UK would b outdone on such a level playing field - " with you in moment!, i'll just mark this to market....... hmmmm, yey, just slap on 30%. tehe. "
In totality, the “sidebets” on everything from interest rates, to F/X to corporate default risk, amount to about $1.3-$1.4 quadrillion (that’s 15 zeroes before the decimal comma) in terms of uncollateralized liquidity (think inflation buffer):
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Our banks are not threatened. Governments around the world have exposed themselves to private ridicule for the support given. They are correct in giving support. The Banks are fine, they learnt several valuable lessons and were ahead of the game anyway, with the exception of a couple of idiots.
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Please, oh please , use GAAP codefications to revalue that lot (#137) again, even just the stuff being brought on to balance sheets this year end quarter, the stuff that was left off last time. What a jolly roger!
Here we go again and everyone will be wondering wtf happened!
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There are so many excellent posts on this and Stephanie's related blog, I've learnt a lot. But the conclusions are terrifying. The UK's major source of income is or was banking and finance and it's basically bust. And it seems doubtful if it generated real money, it just re-distributed it, rather badly. The government is surviving by borrowing, printing money and devaluing the pound. The consequences of both are a future of inflation and huge tax bills. As we have negligible manufacturing industry, devaluation gains us little advantage. The only remaining apparent wealth is the housing stock, which is very doubtful wealth anyway, because it's fixed in quantity and location, you can't export it and if you sell one you have to buy another.
Does the UK'a long-term rely on Manchester United selling players to Real Madrid?
Tell me that I've got it all wrong.
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131. At 9:43pm on 07 Nov 2009, JavaMan1984 wrote:
"Gordon Brown, national embarrassment."
...and the man has the handwriting of a 4 year old child to boot.
Shame, shame, shame...
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127. At 11:05pm on 06 Nov 2009, majorroadaheadagain2 wrote:
In your first paragraph you are working on the assumption that 'rules and law' are there to protect people like you and me - when they are not.
They are there to protect US from THEM.
The fact that Brown and Darling waived those rules is no surprise to me, their concern was that 'a lot of our friends are going to be made poor' and that 'the people might be a little peeved when they find out their savings went up in smoke'.
With regard to the rest, well I do feel a little sympathy for the small shareholder, but only if they were given those shares as an employee (or ex-employee).
Your point about the discussion and who was party to the facts is totally valid - only a few large shareholders pull all the strings - the small shareholder is simply 'cannon fodder' for when things go bad.
Don't confuse your interests with theirs just because occasionally they are aligned - when the decision was made to buy HBOS the large shareholders could have prevented it - but they didn't, possibly because they were also HBOS shareholders and they worked out that doing nothing with HBOS was going to potentially cost them more - a position which would never be the case for the small shareholder.
My point is as a shareholder (big or small) you cannot complain when you're railroaded into a bad decision through the collusion of the board and majority shareholders - to think otherwise is naieve.
I see share ownership as much as a con as voting in a Democracy. You think you have a say in matters, but really you don't.
In electoral voting the media control who gets elected from the small choice of candidates (re: Sun and band E floating voters) and in shareholding it's the majority shareholders who make the decisions at the expense of the little man.
My advice is always - don't be a small shareholder unless you are of the understanding that you have no say in matters and things can often go against you - and not to complain when they do.
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Post 140 sadly even selling Wayne Rooney to Real Madrid or Barcelona, come to that, would do little to assist the UK as Man United are owned by the Glazier family who are Americans.
Before the pedants have a go I do know that United is effectively in hock to a group of banks who lent the Galzier's the money in the first place.
It was interesting that the two American's (Messrs Hicks & Gillett) who have a huge loan out secured on Liverpool had to pay a lump sum back to their banks in order to rollover their debts to RBS & Wachovia. I wonder if most of the profits on Chrisiano Ronaldo went on keeping the Glazier's bankers happy?
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Such a good deal that the majority of hedge funds have NOT bought in. This is fiddling while rome burns. Why dont you start intellectualising and analysing Mr Peston. You are intelligent enough. You dont need to feed the family THAT much.
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Wriingsonthewall
Fair enough. For my part I have never complained as a shareholder about any treatment I may receive on the principle of caveat emptor, but I do always complain about the system and how it led to what is one of the worst stitch-ups in corporate history. Step foward Gordon Brown,. Alastair Darling, Eric Daniels, Sir Victor Blank, the Institutional shareholders, Neelie Kroes, the FSA, the MMC, the Treasury, the media, the analysts, and worst of all the Board of HBOS, who dd all the really terrible deeds long before any of this came to light.
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In the US they called their assest protection scheme "TARPS" and earlier this year many US banks paid back their troubled asset protection funds to the state and the state made a profit of 17%.
I have floated an idea that may be naive but it goes like this. We have a national debt approaching £1t and interest payments will be £1,000 per head next year. 20% of our current paper issue has been bought with QE funds. My proposal is that the G20 central bankers meet and agree an equitable reduction in QE that would leave most countries with no deficit. Just like coordinated interest rate cuts allow rates to be cut to near zero around the world with no impact on FOREX, capital movements and import costs, so, coordinated QE cuts would not impact on balances.
I would just like to say something fundamental about banks and interventionism.
Banks are owned by shareholders, everything they did had to be approved by shareholders and shareholders are smart because they are pension funds employing professionals. We may ignore this fundamental and attack the bank directors but the truth is that society at large was convinced that the national and global economy was on the up when it wasn't.
We so often use the word "capitalism" to describe first world economies yet capitalism was replaced by interventionism some 150 years ago. The state intervens; first preventing children chimney sweeps, taking 50% income tax plus 11% NIC, spending more than the rest of the country put together, etc. The interventionist here were so busy taxing, borrowing, spending and hiring that they took their eye off their real business, that of governing. They so stimulated GDP by taking PFI and tuition fee subs and removing pensions tax credit that most of us did not know we were having jam today. Banks lent on the back of false economic growth and a subprime government. Only Patience Wheatcroft of the Times was telling us that the interventionists had taken £2000b from pensions and we have yet to feel the consequence when we realise we have no jam tomorrow.
We may have one committee room where we berate banks for lending too much and another committee room where we berate them for not lending sufficiently. We can hold this contradiction without smiling because we don't have a position on the line other than looking good to our voters.
Whilst we are busy talking about the ghost of capitalism we are not putting checks and balances on the out of control interventionists. The first check should be to stop them spending the next generation's income today. The next generation should decide how to spend their income.
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With reference to Lloyds latest moves vis a vis preference sharholders, it would seem that the small shareholder is to be disadvantaged again!
Does anyone remember the disgracefull action taken by o2 to force small shareholders to sell their shares because of the administrative burden on the company? These small shareholders were paid the current market price plus I think 10% and were removed from the register. Some time later the company was taken over and many large shareholders made a handsome profit.
This could happen again to any company with a large number of small shareholders.
It would appear from the article that one of the consequences of the Lloyds fundraising is that preference shares will be bought back by the bank to improve its cash holdings.
The advice from professional writers in the papers seems to be to take your rights allocation in Lloyds, my feeling is just to wait and see what happens. The rights issue will be underwritten so Lloyds will get their money (less fees of course). The market will determine the ex-rights price and if there is a positive sum that will be returned to the shareholder if it is a negative sum then the shareholder can always buy on the open market.
I also have this sense of foreboding with yet more billions of shares being issued (what will they ultimately be worth)?
As an aside, I notice that the credit card industry seems to be in a bit of bother with a 6% deliquency rate. I was always taught that if less than 95% of borrowers were honest with their debts then the whole industry would implode. Predictions for 2010 are a 9% deliquency rate.
Seems like the credit card industry will have to invent more ways to get your money to flow to them.
It looks like 2010 will be an interesting year!
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Splendidhashbrowns
On your thoughts about wait and see on the Lloyds rights issue. I am not sure I would go along with that, although a lot will depend on what Daniels says at the EGM on 26 November. The real difficulty is getting a handle on how much Lloyds may be worth after the rights, and what they propose to do with the 13.5bn. The first rights at 1.73 was a no-brainer and virtually nobody took it up (except the Government). The second rights at 38p was a steal for shareholders, particularly as they traded all the way up to 115p ex rights. Even today at 85p ex that rights there has been a more than doubling for those who were in on the 38p. Of course, it is small beer to the losses incurred before the HBOS deal, but a bit back nonetheless.
I have shares in Lloyds in PEPs/ISAs and ordinary shares, and the only advice I would give as an amateur shareholder is to make sure one has the funding in place in case one do want to take up the rights. The time between the EGM and the closing date will be days rather than weeks, and even shorter for LLoyds own PEPs and ISAs and the Share Centre ones. I have application forms already to hand from these organisations, and it would be wise to be ready rather than forced into taking any small profit there might be from leaving your shares with the underwriters. That is not advice on what to do but about what I see as good personal administration.
Incidentally, we took up another rights recently, and it is quite frightening to see how the whole process has been truncated in recent years - not favourable to small investors.
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re: #123
my my, someone doesn't like to be contradicted. Your way or the highway! (which I totally understand as I think your wrong on some things.
I'm unsure why you think the username means something - its no secret I think Brown is an idiot. But then I think many politicians are. I also think he played a role in the economic failures we have, but its not all his own fault.
Bank played a role, as did large corporates, misleading lendors, media and of course the end consumer (no one forced us to take a loan)
Lets revisit some points
1. Regardless of your comments, the point is that Barclays has no direct taxpayer investment. The route chosen was painful for smaller shareholders, yet saved taxpayers cash. Who-ever made a profit, thats good for them. As it happens I've made both profits and losses on shares, it comes with the territory.
2. Barclays isn't offsettting tax as far as I can see, nor are a number of organisations in which I invest. Looking at the Barclays interim figures this morning I see a large amount set aside for tax.
3.
- Barclays has not been sold off. Your own list covers less than 15% of shares in foreign hands. Thats hardly the majority is it? My point was meant to focus on this, and also on the point that those shareholders are likely to have the same performance demands as others.
Equally, I'm unsure why you have something against foreign shareholders. Are you suggesting they shouldn't be able to purchase them. I was also trying to make the point that if Barclays took Govt money the market would react negatively.
4. You missed the point completely. The losses at Barclays are nothing to do with foreign investment, its simply laying off people to protect its bottom line. I suspect a lot of these would have happened in a boom as well (e.g. certainly IT roles being offshored etc). It is the same at many other organisations.
As to your comment about a book written in 1867 - depends if you happen to believe the book, its theories and whether its actual works.
Self interest - perhaps. But there is nothing wrong with that in moderation.
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146. At 8:24pm on 09 Nov 2009, dlilley wrote:
"We so often use the word "capitalism" to describe first world economies yet capitalism was replaced by interventionism some 150 years ago. "
Interventionism was only created to counter the continual collapse of Capitalism. It wasn't created out of a theology, it's simply efforts to control Capitalism.
Central banks are blamed by the Austrian school for not controlling Capitalism, whilst Free market heebies think we should all stand back and see what happens.
They are all based on Capitalism - it's the underlying system. Intervention is a neccessity, not a desire for Capitalist countries.
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149. At 1:58pm on 10 Nov 2009, brownloadofrubbish wrote:
"Bank played a role, as did large corporates, misleading lendors, media and of course the end consumer (no one forced us to take a loan)"
Well this is the first mis-conception amongst the majority of people in this country.
Due to the diminishing wages in real terms some poorly paid workers are forced to borrow money in order to survive
This has been an ever increasing problem for years - it's called western poverty. Despite the media's claims, not everyone borrowed money to buy a Plasma TV and a new car - that's mis-information. With the credit scoring system this forces more into the hands of loans sharks as they are unable to get credit elsewhere.
To answer your points
1 - I haven't loked into Barclays results today but I would not be at all surprised to see the majority of income is from share activities - underwriting rights issues, share dealing income etc. All boosted at the moment by a taxpayer funded QE experiment boosting the stock market.
2 - All businesses have been allowed to offset losses of last year against this years tax - Barclays are not stupid, they will be taking up this option in due course.
3 - Most of the institutional shareholders are actually foreign owned, but you're right, it doesn't matter foreign or not - except where the profits end up. Will Shiek Ala Mohammed be interested in investing in Durham - or Dubai with his Barclays dividend? If labour was allowed the freedom to follow the moving capital then it wouldn't be an issue - but immigration and employment restrictions ensure they cannot.
4 - "The losses at Barclays are nothing to do with foreign investment, its simply laying off people to protect its bottom line."
Is this how you really feel? Don't worry about loosing your job mate, Barclays are simply 'protecting their bottom line'. Don't worry that they offered you a permanent job (which you thought meant permanent) but because of their collective irresponsiblity and mistakes they made - sorry pal, you have to pay the price. Never mind you have a family to feed - it's called TOUGH.
....bet you wouldn't feel like that if it were you being 'offshored' would you?
.....ah, but of course, self interest, in moderation of course - I don't care who loses their job, or their house, so long as it isn't me.
However when it is I shall complain as loudly as the rest - and probably be indignant to the fact that nobody bothers to listen to me.
Finally:
"As to your comment about a book written in 1867 - depends if you happen to believe the book, its theories and whether its actual works."
I don't need to believe it's happening all around you
Look up overproduction
Look up Alienation
Look up Diminishing profit
I will never understand how people so readily defend a system in which they cannot answer 1 simple question.
Where does the profit come from
If you can answer that then I shall admit defeat in the argument against Capitalism and walk away. However to date, not one person has been able to answer this - for all the brains on here you would think one person could answer this simple question.
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No one can or will argue with the accountants. It will be interesting, who will be the first company boss refusing to sign off accounts which place them in moral jeopardy and a conflict of interest with share holders interests. I have several discounted 'Get out of Jail' cards in stock at the moment, going cheepie cheap, marked to market. Any takers???............ (more anom)
The finanacial crisis is the result of GAAP accounting rules which were applied to derivatives, the rules moved trades from of to on balance sheets, that was the intention of the exercis. To improve accounting and transparency, laudable effort it was. Unfortunately a huge hole runs right through the practice of implementation and is the cause of continuing problems today. Had the implications of effecting the accounting changes retrospectively, to existing contracts been realised, it would not have been done as it was. According to its former CEO Robert Willumstad, AIG's CDS position only had a loss of US$900 million, as measured by its proprietary valuation model. However, after PWC pointed out major defects in the model, AIG had to own up to a loss of US$11 billion. The GAAP impositions upon derivatives were a Black Swan event. Thet are the cause of the continuing crisis and it is not over by a long, long chalk.
12 Nov 2007 - Wall Street banks will have to slash valuations on a further $400bn (£190bn) of risky assets as new US accounting rules come into force this week, triggering a likely wave of fresh writedowns. http://www.telegraph.co.uk/finance/markets/2819381/Rule-change-sounds-alarm-on-Wall-Street.html
FAS166 &167 bring a load more 'assets' on balance this quarter. That's correct - it didn't all come on board in one hit. That is how one can make sense of this IMF forecast. [Unsuitable/Broken URL removed by Moderator] If business auditors decide the assets brought on balance sheet this quarter are Tier 3, it heralds a rerun of the problems AIG experienced. Do not doubt for one second that this also brought down Lehman's. The accounting rule changes were implementd and the world fell apart. The causes of the problem are straight forward. Misstrust, between shareholders and those running businesses. Despite the rarified heights and lofty individuals concerned, all of them at arms length, this is a pure and simple argument based in GREED. GREED. GREED. GREED. It is NOT about the way business is conducted. http://www.cfo.com/article.cfm/10091783?f=related http://www.cfo.com/article.cfm/10097878 http://www.chinadaily.com.cn/world/2008-11/21/content_7229070.htm
Arbitrary changes to valuations - they know not what they do, up, down, sideways.............. Good news, bad news, disaster, Black Swan. Pension fund deficits 'slashed' - http://news.bbc.co.uk/1/hi/business/8352225.stm The collective deficit of the UK's private sector, final-salary, pension schemes has been slashed by 34% in just one month. The combined deficit of 7,400 schemes fell last month from £149bn to £98bn. The change has been caused by the Pension Protection Fund (PPF) altering the assumptions it uses to calculate scheme surpluses and deficits. There are more bad asset writedowns to take place in UK, than have already occured. The ONLY reason they are considered porr or bad assets is because of the way accounting rules are implemented.
Fair value accounting, mark to market accounting IS NOT accounting, it is PRICING assets, which does not reflect their VALUE. This is madness and someone must put and end to it. These derivatives have no value - they are Termed lnsurance. They cannot be priced - it is a flawed concept that undermines the underlying asset AND guess what........ the derivative counter parties have no right or claim to the underlying asset. It has no contractual relevance what ever to the derivative which has Loans as its underlying asset, not the property or asset underlying the loan. This is fraud taking place. An argument between Business, its shareholders and the regulators is what is taking place, yet it has undrmined the entire housing market upon which it has absolutely no claim or rights. Former FDIC Chair William Isaac placed much of the blame for the subprime mortgage crisis on the Securities and Exchange Commission and its fair-value accounting rules, especially the requirement for banks to "mark-to-market" their assets, particularly mortgage-backed securities. It is as simple as the term, mortgage-backed - the mortgage is the asset. The mortgage is in play as an asset and not the asset the mortgage is based upon.
There is a further twist that has not yet sunk in. GAAP, effective since September this year has the following littl twist - 'Whether a margin call is involved is not part of the accounting standard itself; it is part of the contracts negotiated between lender and borrower.' So, since Sept 2009, unlimited contingent liability exists upon the shareholders of troubled business. They proxy and vote officers to manage their interest and therefore are exposed to the consequences of GAAP accounting which is destroying the economy. They are very brave men, these company officers, CEO's who are signing off this quarters accounts in the brave new world that is GAAP accounting unbridled. What do you call a Dierector in the middle of a financial meltdown - Responsible. :) What happens to his shreholders, after some legal wragling? They are into unlimited liability. With the swings, the roundabouts and brikbats. The government and taxpayer are of the hook. Pay up time for shareholders when it all goes wrong and believe me it is going to. As soon as the accounts for 4th quarter come home to roost, 166 & 167 put them on the balance sheet, then...... 157, 159 and 133 and 31 and all the rest of it just happens............ as though by destiny. No one can or will argue with the accountants. It will be interesting, who will be the first company boss refusing to sign off accounts which place them in moral jeopardy and a conflict of interest with share holders interests. I have several discounted 'Get out of Jail' cards in stock at the moment, going cheepie cheap, marked to market. Any takers???............
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With destruction of banking now firmly a simple matter of time, I note that the lnsurance industry is firmly targeted for similar disdain from mid 2010.
Insurance Contracts—Joint Project of the IASB and FASB - Last Updated: November 6, 2009 - http://www.fasb.org/insurance_contracts.shtml
Yawn........ Black Swan II - AGENDA DECISION ANNOUNCED -At the Board meeting on October 29, 2008, the FASB Chairman announced that the Board has decided to join in the IASB’s insurance contracts project.
PROJECT OBJECTIVE - The objective of this joint IASB/FASB insurance contracts project is to develop a common, high-quality standard that will address recognition, measurement, presentation, and disclosure requirements for insurance contacts. Specifically, this project is intended to:
Improve and simplify the financial reporting requirements for insurance contracts.
Eliminate numerous pieces of current U.S. accounting literature that add to the complexity of accounting for insurance contracts.
Provide investors with more decision useful information.
June 20, 2008 - Insurance—Risk Transfer - http://www.fasb.org/insurance_risk_transfer.shtml
aaaaaaaaaargh Jim lad, you oist thaaat Jolly Roger. Man the oars!
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This comment was removed because the moderators found it broke the House Rules.
There are no rules..... only moderators and GAAP. :) Be well!
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Some people just learn their lessons and move on, http://www.allbusiness.com/government/government-bodies-offices-government/10180202-1.html
Date: Monday, April 28 2008 - NORWALK, Conn. -- The Financial Accounting Standards Board (FASB) and the China Accounting Standards Committee (CASC) have issued a Memorandum of Understanding (MOU) articulating their commitment to strengthen cooperation and communication between the two standards-setting organizations. FASB Chairman Robert Herz and Liu Yuting, member of the CASC and Director-General of the Accounting Regulatory Department of the Ministry of Finance, signed the MOU at an April 18th meeting held at the FASB headquarters in Norwalk, Connecticut.
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ah, its good to have a debate here - I have to respond to #151
The arguement around poorly paid workers taking loans etc is perhaps misleading
I'd argue that while the poorly paid do struggle to get credit, and thus do fall into the hands of the loan shark and the sub-prime business, I do not think that this is the cause of the present issue.
The arguement made is trying to paint me as some uncaring person. Perhaps I am, but I've worked extremely hard to get where I am. I've been through more restructures, re-applying for my job and offshoring processes and so forth over the years than I can care to remember. So yes, I've seen it happen around me and am sure that fairly soon I'll be one of the affected. But I accept it (don't have to like it).
Short of revolution, there is not much I can do. Of course I could avoid the large corporates and go work for myself. I've done that in the past and to be honest the amount of red tape doesn't make it worth my while, and the penalties for getting wrong are just so onerous.
At the end of the day job destruction and job creation are facts of modern life. Nothing is for ever - progress ensures that at some points there are cheaper ways to do things. Some organisations choose to pursue that, others do not.
As regards the point about self interest - of course I have self interest. This is not some socialist paradise where I'll be maintained in a meaningless role. I don't apologise that I take steps to care for myself and family.
I'm not in favour of blind capitalism. I firmly believe that road leads to disaster. However what you seem to be suggesting feels to me to be very close to hard socialism or communism
Im not sure that I go for the Marxist theory that profit comes from the explotation of the workers or that they are the unpaid labour of the working classes.
So - try to persuade me. Tell me what YOU'D do.
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Here is the flip side of the GAAP disaster - http://www.sysopt.com/forum/showpost.php?p=1469180&postcount=9 The reasons for the accounting rules. It has though proven to be the slegehammer to crack nuts. Business people are not ANGELS, they would not last 5 minutes if they were but get away with that game socially. Holier than though regulation has gone completely over the top with GAAP. It is cocked up from start to finish with derivatives. The banks are wrecked and tottering and next the Insurance companies are being lined up like ducks in a row for 2010. Insurance is a massive industry. Mess that up and it will be the end. AIG, anyone remember? Domestic and commercial housing knocked for 6, employment and manufacturing scuppered, Banking and Finance racing to get fit again saddled with government on their backs, huge debt and looking backwards while the valuation problem caused by the GAAP is ongoing. The economy cannot grow as things are, it does not matter what numbers are trotted out - there can be no growth in the real economy all that happens is Finance and the monetary economy are shuffling paper and zero's from pillar to post.
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03-21-2009 - £1.9 trillion of UK household wealth wiped out since July 2007 - you wouldn't believe the US numbers. That's just domestic wealth, negative equity. Just domestic property. That was march this year.
A 28% drop in wealth held in housing and equities has erased £1.9 trillion of UK household wealth since the beginning of the credit crunch in July 2007, PriceWaterhouseCoopers estimates. This works out to around £40,000 per adult, according to PwC, although it concedes that this estimate of loss would vary "considerably" across the UK population. In total, a staggering 13% of Britain's GDP has been wiped out. PwC estimates that this could ultimately reduce UK expenditure by up to £45bn, or 3% of GDP.
The losses comprised a 20% drop in house prices, totalling £800bn, with the £1.1 trillion that has been subtracted from the stock market since mid-2007. The Stocks have turned around, pleasingly, there is nowhere else for money to go, enough said on that score. Rational responses to orthodox economics. This is not an orthodox problem.
I still cannot believe how dumb this whole mess is. UNREAL.
Here's a puddle for yaz, Something takes a year to complete. It will repeat itself but devalue by 30% at each iteration. How long does it take to consume itself? It's a puzzle, wrestle with it.
http://www.sysopt.com/forum/showpost.php?p=1471648&postcount=181
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The solutions to the puddle above are the sort of thinking that cause the mess we are in.
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One thing that not a lot of people have thought about is how state ownership of the banks will change their behavior. I recently received a letter advising me that HMRC have changed their banking provider to RBS. Is this coincedence? Would it have happened if they had not been nationalised? What terms did RBS have to offer? Where they equivalent to what they have to offer the private sector/
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It is imperative the BBC keeps its opinions to itself. It should not break its own editorial guidelines.
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157. At 00:25am on 11 Nov 2009, brownloadofrubbish wrote:
"The arguement around poorly paid workers taking loans etc is perhaps misleading
I'd argue that while the poorly paid do struggle to get credit, and thus do fall into the hands of the loan shark and the sub-prime business, I do not think that this is the cause of the present issue."
...and by that argument you are saying that people 'want' to get into debt. No I'm not sure about every man and woman in the country but I would be very surprised if the majority of people are happy to owe another.
"The arguement made is trying to paint me as some uncaring person. Perhaps I am, but I've worked extremely hard to get where I am"
I'm not trying to show you as uncaring, I am merely pointing out the uncaring nature of your philosphy. We all work extremely hard, but working hard is no guarantee of being successful in Capitalism. In fact the reverse as most of the rich do not work hard at all! We have some layabouts at the bottom, a lot more at the top and you, me and most other people in the middle working hard trying to stay out of the bottom and hoping to reach the top (which is actually extremely unlikely)
"Short of revolution, there is not much I can do."
Revolution it is then.
"Of course I could avoid the large corporates and go work for myself. I've done that in the past and to be honest the amount of red tape doesn't make it worth my while, and the penalties for getting wrong are just so onerous."
I can completely sympathise - this is deliberate because they don't want us to run small and efficient businesses. They've all been seduced by the ideals of Economies of scale, but completely ignore the dis-economies of scale and the social damage large corporations bring.
"At the end of the day job destruction and job creation are facts of modern life. Nothing is for ever - progress ensures that at some points there are cheaper ways to do things. Some organisations choose to pursue that, others do not."
Not facts of modern life - facts of Capitalism. We still produce cars - despite the fact they have been around for more than 100 years - so why have you seen so many people sacked from the car industry in your lifetime - when the number of cars in circulation has been increasing long term for your entire life? - and that argument can be applied to many areas of commodity production. It's very rare that a commodities production requirement will not last 4 score and 10 years of a mans life.
"Im not sure that I go for the Marxist theory that profit comes from the explotation of the workers or that they are the unpaid labour of the working classes."
So where do YOU think the profit comes from?
Does moving pieces around a chess board produce more pieces - or is it only following production by a human does a new piece get added?
"So - try to persuade me. Tell me what YOU'D do"
What I would do is irrellevant - because I have no power to make change - it's what would WE do that matters. We have the opportunity to reject Capitalism (and there is no raw, or mild, it's just Capitalism) and start afresh.
Step one is the acceptance that a system which hides the true underlying value and cost of it's produced items is one that will cause chaos.
You know as well as I do (and I take this from your self-interested comment) that we're all working because of the uncertainty in life - neither you nor I want to stop working because we fear having to go without in the future.
This is very odd behaviour as man seems to have a pretty good handle on 'natural disasters' in 2009, how to predict and how to recover from. The real uncertainty in our lives come from Capitalism.
....if we did not have this problem then you and I would be sitting in a room coming up with the 'perfect economic system' - as it is we're both working (or should be) on a never ending treadmill - kept going by inflation causing constant devaluation of our wealth.
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To the discussion of the merits of the various --isms, the fact is that they all fail in one way or another. A feature common to all is that they, capitalism, socialism, communism, fascism, or feudalism, don't recognise, appreciate or respect individuals. Under one name or another, 're-structuring', 're-applying for your own job', 'treating individuals like dirt' goes on in all these systems and is an inherent weakness of large organisations.
I don't honestly believe that any of the grandiose socio-economic philosophies offer a route for improving our economic or social situation.
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164. At 12:43pm on 11 Nov 2009, WolfiePeters wrote:
"To the discussion of the merits of the various --isms, the fact is that they all fail in one way or another."
...except there has never actually been a Communist state - as defined by Marx - all we have seen in the history of 'Communism' is some failed attempts to force Communism upon a nation - which eventually becomes a simple dictatorship by a party - rather than an individual.
For Communism we need Capitalism to collapse - and that event may, or may not, be upon us right now - nobody actually knows for certain.
"I don't honestly believe that any of the grandiose socio-economic philosophies offer a route for improving our economic or social situation."
....but they have already - we would not understand how important freedom and tolerance are - without fascism, we would all be working in dangerous conditions (as would our children) if we did not have ideals born from Socialism, and of course we would not understand the destruction greed and selfishness cause - without Capitalism, and finally we would not appreciate our destructive behaviour - without Environmentalism.
Ignoring a problem does not make it go away.
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To WritingsOnTheWall @ 165
Have you proven my point?
Are you saying that communism is so good that you cannot even impose it on people? And fascism, socialism and environmentalism have served to show how bad things are? Certainly, if capitalism is what we have, it's not doing very well either.
I'm not ignoring the problem; would any of us bother to comment on this blog if we were? I'm pointing out that a big piece of our troubles, the origin of some of the problems that you have highlighted elsewehere, is the failure to take interest in, have respect and care for people as individuals. We need to escape from systems that lead to a law of the jungle mentality. If I must support an --ism that offers a way forward, I'll have to make education into educationalism.
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If Lloyds is a monopoly and needs to be broken up because it has had state aid then why dont the competition authorities apply the same argument to Tesco? It has over 30% of the grocery market, which is the same percentage that Lloyds has of the mortgage and savings. While Tesco does not get direct state aid it has been argued on here that companies like Tesco have benefitted from quantative easing and all the other state support for business and industry as well as banking.
I am not sure what the relative percentages are between Tesco, Sainsbury, Morrison and Asda, but if the Tesco grocery number of 30% plus applies to general supermarketing including petrol then allowing Tesco to add banking to its portfolio will only exacerbate the monopoly problem.
Why is it that our competition people and Neelie Kroes in Brussels major on Lloyds and breaking it up but let Tesco slip in under the radar?
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WolfiePeters 166
Sorry to intervene, but I would agree with your last point, always provided you are not just talking about schools, universities, apprenticeships etc.
I left school at 15, with no O levels or A levels, but I believe without boasting that I achieved as much in my working career as I could have done had I gone to Oxford and got a first. Probably more, because the six or seven years that I worked rather than being educated in the formal sense helped to shape the other 39 years and to sharpen my perception of what I wanted and what didn't want, and to research how best to set about getting it. My only problem now with our system is that we educate to numerical requirements (the 50% target) rather than for producing poeople with the skills to do the jobs we want done.
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re. #163
I'm afraid that I disagree with you on a number of points
~Your points about debt, while appearing true on the surface are not really based on fact. Of course people do not want to get into debt, but all too many people are happy to do so. The average debt in this country is somewhere around £50K of secured debt, 10K unsecured debt
You can't argue thats level of debt is simply based on people borrowing to survive. That figure excludes the loan sharks you mentioned earlier
~you comment about most of the people at the top being lazy is not based on any fact. Who do you claim the people at the top are? -those who earn above a certain figure, the landed gentry, celebrity..who exactly do you lump in there
I'd suggest that a large part of the wealthy work hard in their own way. Of course you could claim that the work they do is not social useful, and therefore any effort is wasted but thats a matter of opinion
~your comment about the car industry is actually one that I'd make. Except the other way. Of course we still make cars, except more productively. One of the reasons car workers have been laid off in such numbers is the failure of british industry to modernise, invest, accept new working practices and/or respond to competition
Things do change - people find cheaper and quicker ways to do things. 100 years ago many industries were highly man intensive. Now a machines does the job of 10 people, repeatedly and at higher quality.
Are you suggesting that we should have parked development of things in some man-intensive, labourious, unpleasent manner? Simply to maintain the stability of employment.
It seems that you are arguing for a communist state. However, even such a state needs someone to run it. Ultimately, you'd see the same corruption of the system as you elsewhere and the phrase 'for the good of the State' becomes apparent.
At least in the capitalist system I have the illusion of being able to make my own choices in many areas (even if its an illusion), the ability to develop myself, the dream of improving my station should I so choose, and not to be hemmed in by enforced barriers of society
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# 168, majorroadaheadagain2
In education, I'd include everything that widens our knowledge, perception, ability to appreciate and make intelligent decisions. I was fortunate to benefiet from a mostly excellent and mostly state supported education as well as an apprenticeship, but agree that education is not limited to the formal. However, the formal should be the easiest for UK Gov to improve. Yet, in fact, all parties have progressively run down the state system. Shouldn't it be regarded foundation of our future economic strength?
I'd like people at least to learn that there are more meaningful objectives than celebrity, fast money and owning Porsche! I think fast money is where this blog started.
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WolfiePeters
I think in your last sentence you are seeking something that is a tenet of life rather than a goal of education. In my days we were taught things like respect, honour and trustworthyness as a sort of dual approach from parents and school, and then later you put them into action in your dealings with other people and in your work. I am not suggesting the outcome was any better, but at least you knew it was happening. Theuy had the courage to articulate it as a goal, whereas today it is probably not pc to do so.
I share your wish that people could learn about more meaningful objectives than celebrity etc. The trouble is we have embraced a system of sticks and carrots, with a great deal of emphasis on the carrrot side and a distinct dumbing down of the responsibility side of the bargain - the "whats in it for me" mentality seems to prevail. It was probably always there, but never as sharply focussed as now, mainly because of the way that celebrity invades all our lives.
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BBC Panorama Bursting the House Price Bubble PT2 - 04\02\08 - http://www.youtube.com/watch?v=O42nqzUL13k
Here is the problem that GAAP was attemting to address - this was a regulation problem with the top professions due taking down for mal practice and locked up. The compromises have led to accountants running a balance over the world and getting it utterly wrong. Disaster beckons - Mark to Market is to blame, that and the human instinct to steal and manipulate rather than behave decently.Commonly - that practice is celebrated as short trading! Just lock these people up - they are far more dangerous by factors than the starving mums stealing meat for their kids from supermarkets.
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I smell a rat, Bobby. If Nick Robinson can fly in a keen young assistant to take over his blog while he 'is away', then so can your good self.
Presumably you and the BBC make contingency plans about everything (there's enough bl**din' layers of management for goodness sake), or perhaps the good old Beeb isn't really with the great unwashed having a platform to make response and comment.
Hope all well soon on the Peston family front.
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172. At 4:22pm on 12 Nov 2009, herosrest wrote:
BBC Panorama Bursting the House Price Bubble PT2 - 04\02\08 - http://www.youtube.com/watch?v=O42nqzUL13k
Here is the problem that GAAP was attemting to address - this was a regulation problem with the top professions due taking down for mal practice and locked up. The compromises have led to accountants running a balance over the world and getting it utterly wrong. Disaster beckons - Mark to Market is to blame
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If only the Hear0 deafence councel had arrived in the nick of time to save St Bernard Madoff [purveyor of credit cruch to the cerial killer/s] from being overpowered by his barrel of toxic wAAAste and also to put in a word to help the banksterrs who appeared before parliament reinflate what was left of their four skins using sirplus from the AAA's hole,for the bennefit of the nations bott0000000000000000000m line .
Remember if it sounds like mumb0 jumb0 then there is certainly anillaughant in the room ,strAAAining to give dumb00s a pat on the head.
Remember if it looks tastes and smells like Strategicaly Hyped Investment Tranche grade pye in the sky ,then it probably is and you chicken little can cross the road before it falls on you and leave the above big AAAySirs for those with little interest looking for maw.
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A challenge for Peston from a banker.
By way of background, I am looking forward to receiving an attractive and fully deserved bonus this year. I advise clients on M&A deals and have generated in excess of US$10 million for the firm, without taking any risk for the firm (there being no principal capital involved)*. The worst I can do is generate zero, then I would get nothing (or more likely be fired). I'm not going to comment on my trading colleagues since I wouldn't want to give a view on an area I have no knowledge about (unlike journalists).
Obviously it's a travesty and there must be some conspiracy to overpay M&A bankers, since what we do is so straightforward and how could we deserve to make all these millions? I know you won't believe me if I tell you it's extremely demanding, competitive and profitable for the firm.
Well, I have a challenge for you and your fellow journalists. Why don't we give you Goldman Sachs business cards, invite you to some advisory client meetings and let you use some of your written pieces to advise clients on what's happening in the business world and what they could do and see what happens? I simply can't imagine the reaction to trying to win highly competitive client mandates from a CEO by presenting some pitiful news articles -- probably either laughter or stunned silence...
* You're probably itching to bring up the old chestnut about how M&A deals destroy value, which (partially) erroneous view I'm happy to address separately.
I've also emailed this to Alice Schroeder, the Bloomberg journalist.
I hope you'll take me up on my challenge!
Best regards,
Barry
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Re 175
Good lord a tipster claiming to be a banker.
Whatever next?
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#175 Barry
And there was me thinking that you can't polish a turd!...how wrong could I be! Your post is truly priceless.
You remind me of the guy in the film the 'Poseiden Adventure' where the greedy man takes advantage of all the dead people on board the overturned sinking liner ship, desperate to fill his pockets with gold...yet oblivious to the fact that he cannot swim.
An oft mis-quoted phrase 'the love of money is the root of all evil'...oh how I pity you.
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Good on yer Barry for putting your head above the parapet.
Stand outside yourself for a moment, however, and review what happened in all these M&A deals a year or so after they were completed.
If rewards-for-the-boys, asset-stripping, compaction of the businesses and massive increase in debt burdens hadn't occured, then well done to you.
If not, you can still change..........
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This comment was removed because the moderators found it broke the House Rules.
Re 179
Now look Barry, that will just not do at all. Not at all.
You need to let us all know your feelings, not just the moderators.
Meanwhile are you getting cards printed for Alice Schroeder?
Or was she to be a referee?
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I was denied by moderators. I thought my earlier message was quite innocuous, but perhaps not.
In any event, the point I was trying to make is about these Peston's Picks. I did 30 minutes of reading just now and already learnt that Mr. Peston has either misunderstood the situation being addressed in his article, or does not care to delve into the details and detract from more sensational sound bites. Take two points he makes in the article:
* Lloyds' GBP 2.5 billion fee to the Treasury being "reputation destroying". This is wrong. It turned out that Lloyds didn't need to be propped up by the state as much as was initially thought at the beginning of the year, so Lloyds have now decided to exit the government protection scheme (Government Asset Protection Scheme). To exit they need to pay GBP 2.5 billion. If instead Lloyds stayed in the scheme they would be paying the Treasury a much higher GBP 15.6 billion fee. Why not at least mention the logic Lloyds have given, then debate it rather than making something up?
* MH Treasury being the biggest hedge fund. A slightly silly remark and anology that has been true of many government investments globally in this period when budgets are in deficit and incremental funding coming from debt.
I was exaggerating a bit before, but the point I was making was about the quality of these articles which take such strong positions without even getting the basic facts right. Let's give Mr. Peston a pseudonym, a JP Morgan, Goldman, or whoever's business card and let him test his skills by using some of these "Picks" in a real environment and see what happens. I genuinely hope he will take up this challenge.
I'm a cynical as anyone about banking. But let's at least have an informed discussion, rather than a barrage of opinion...
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