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A bubble, or 'stubble', of our own design

Robert Peston | 09:53 UK time, Wednesday, 2 December 2009

Have we reduced the pain caused by the pricking of the mother of all financial bubbles by creating a new financial bubble?

That is increasingly a fear that stalks markets and haunts policymakers.

A row of terraced housesThe unease stems from the following too-good-to-be-true (perhaps) combination:

• a 50% surge in share prices since they hit bottom at the start of the year;
• yields on US and UK sovereign debt that are close to all-time record lows (the lower the yield, the higher the price);
• a consistent rise in house prices (according to the Nationwide, UK house prices are now not much more than 10% below their bubblicious all time highs);
• and a return by bankers to some of the ostensibly reckless lending practices of two years ago.

OK, I know that if you run a small business, and are having difficulty obtaining credit from the bank, you'll think it laughable or insulting that the economy is awash with too-cheap money.

What's happened is that much of the cheap credit and new money created in the US and the UK has leaked - as it was always going to do - into financial speculation (a big hello to all our friends in the investment banks, whose bonus pools are rising faster than the globally warmed seas).

So we may be suffering from a combination of still sluggish growth (or recession if you happen to be British) and bubble, a mixture of stagnation and bubble. Shall we call it a "stubble"?

It's got to have a name, since it represents a bit of a problem for central bankers and finance ministers - who have somehow got to keep the growth going without pumping up the bubble to really dangerous proportions (or may, at some point, have to try to deflate the incipient bubble without tipping us back into recession).

The stubble is non-trivial for businesses and households too. Should they scrimp and save, and batten down the hatches, or borrow to invest as though there's no tomorrow?

The putative stubble is already causing the chief economist of the Bank of England, Spencer Dale, to scratch. This is what he has said this morning, in explaining why he recently voted against creating another £25bn of new money:

"I was also concerned that further substantial injections of liquidity might result in unwarranted increases in some asset prices. I should stress that I do not think there is any strong evidence to suggest than any of the increases in asset prices seen to date are out of line with the improving economic outlook and the desired impact of our asset purchase programme. Rather I was conscious that the current stance of monetary policy - in which Bank Rate is very low and substantial amounts of liquidity are being injected into the economy - increases the likelihood that asset prices may move out of line with their fundamental values and that this could be costly to rectify were it to occur. It is a risk that we need to be alert to."

That nagging fear that markets may again be overheating lay, I think, behind the somewhat hysterical global reaction to Dubai World's decision to suspend payments on $26bn of its debts - in that the direct economic cost of rescheduling the debt is trivial, in a global context, and certainly did not warrant many tens of billions of dollars being wiped off the value of shares.

The FT pointed to another ill augury overnight ("Fears grow about overheated US debt market"): bankers - especially US bankers - appear once again to have had their common sense removed by the prospect of deal fees.

Some bigger indebted companies are again able to borrow with few strings attached: the cov light loan is back.

There has been a revival of Pik toggle notes, which allow borrowers who suffer from cash-flow hiatuses to pay interest as a promise rather than in cash, by increasing the value of the debt they owe (thank you Father Christmas).

And some businesses are even paying fat dividend out of increased debt rather than profits.

Hooray. The holidays are back.

Or perhaps we should take a deep breath and question whether such deals constructed on dubious risk assessments are healthy.

When bankers start behaving like Santa or the fairy godmother, it's normally a sign that the party has been going on too long.

But perhaps more serious is the heated argument taking place between professional investors on whether two of the great economic and financial shifts of this year are bubbles or represent a rock-solid, newly formed, eternal mountain range.

First there's the row over China.

On one side are Goldman Sachs and Anthony Bolton (the guru of Fidelity), arguing that the astonishing revival of Chinese growth is unstoppable - and that you are ninny if you don't buy into it.

But there's also a lot of smart money, especially from hedge funds, betting against China. They fear that the growth is too dependent on an unsustainable Chinese stimulus programme equivalent to 13% of GDP together with an injection into the economy of bank loans equivalent to almost a third of GDP (see George Magnus of UBS in Monday's Times).

And then of course there's that mountain of new public-sector debt which has been created in the US and the UK.

At the moment, that sovereign debt is priced in the market on the basis that it'll be paid back without any difficulty at all (which is what those record low yields mean).

But I have been struck in the past few days by the number of big City banks agonising in public about whether British government debt, in the form of gilt-edged stock, is too expensive.

There have been notes to that hand-wring effect by Morgan Stanley, by Citigroup's Richard Saunders and by UBS's George Magnus (him again).

Their cue has been the recent opinion polls indicating an increased likelihood of a hung parliament as the result of next year's election: they fear that a minority or coalition government would find it almost impossible to take the tough decisions on public spending or taxation that are widely perceived as necessary to restore the health of Britain's public finances.

To put it mildly, it will be fascinating to see whether the price of gilts starts to rise and fall in the coming weeks with changes in the Tory party's lead over Labour.

See also Stephanie Flanders' post Three-way on the MPC.


  • Comment number 1.

    The Sunday Times - May 20, 2007

    Sidebar: European shares set for 20 years of growth

    Goldman Sachs predicts that European stock markets will continue their bull run for the next two decades.

    Even though the European equity market has soared by over 150% since the trough of 2003, Goldman points out that it is only now reaching the peak that was achieved in 2000. This is despite profits rising by almost 60% since 2000 and returns on equity almost doubling.

    The bank raised the prospect of sustained economic growth akin to that in the era after the second world war.


    Goldman said that Europe's equity markets today were mirroring earlier periods in which the markets had moved almost invariably upwards for up to 25 years.

    The strong pound and euro had helped deliver a new era of growth.

  • Comment number 2.

    This was always the obvious danger when interest rates reached record lows. It's good to see that the world's economists have lived up to their usual levels of incompetence by not planning for it.
    I do often wonder if "degree in economics" means "I couldn't pass any other exams".

  • Comment number 3.

    Thank goodness the City is fighting the regulation of bonuses,otherwise we might hemorrhage all those top finance execs,... and then no-one would know what's going on!

  • Comment number 4.

    The City really are ‘up-in-arms’ about Sarkozy and the new EU finance minister (Mr. Barnier who happens to be French) wanting to regulate out the excesses of financial capitalism caused by the US and the UK. Sarkozy clearly stated that he feels the problems experienced within the financial markets were directly caused by the now discredited ‘free-wheeling Anglo-Saxon’ model of capitalism and that the European model should now be the one to follow.

    Sarkozy’s condemnation must have really touched a raw nerve. So much so that on Radio 4 this morning that some jumped up, big mouthed Yank named Bill Russell (from Future Options, UK), was gagging at the leash to denounce Sarkozy and Barnier. I sincerely hope that the EU can leash the vultures that inhabit our capital city once and for all.

    All this talk of the 'talent' in The City leaving the country if the regulators clamp down too much really is utter nonsence. The UK would be a far better place if all the blood-sucking parisites were banished for good.

    I think I may be coming round to this EU thing now.

  • Comment number 5.

    You are quite right, the cost of unwinding the Stubble is going to be different by reference to each type of QE adopted. In the US they have prioritised private market operations with a view to incentivise the easing of the provision of credit to the private sector. In this country the BoE and Treasury have put most of their eggs in the secondary gilts market basket to expand the monetary base with Central Bank money. It must be right that when it inevitably comes to unwinding UK QE the UK gilts market is going to be that more sensitive to the loss of its Government-indemnified buyer ( BoE). Investors will then turn to look very closely at the fundamentals of the UK public deficit rather than ride a tide of QE-inspired confidence.

  • Comment number 6.

    Apart from slowing changes in the two active parts of the economy down, property and shares, the unreality of paying a real tax with real money on a paper profit of perceived value of a property seems oddly spurious.

    The same idea could be applied to paper profits on share movements?

    The tax point and length of time to pay would determine how people reacted to this, and it could turn everything into a more turgid situation.

    It might be necessary to hedge against the potential tax due?

  • Comment number 7.

    Mr Peston wrote:
    'Have we reduced the pain caused by the pricking of the mother of all financial bubbles by creating a new financial bubble? That is increasingly a fear that stalks markets and haunts policymakers'.

    Well its not the fear that stalks and haunts the average working Joe & Jane I can tell you that. Our fear is more mundane, trying to keep a roof over over the family's head and food on the table.

  • Comment number 8.

    John Maynard Keynes said, "markets can remain irrational far longer than you or I can remain solvent."

    Were he alive today, he might have ventured the thought that, "governments and central banks can remain irrational far longer than their countries can remain solvent."

  • Comment number 9.

    What is more speculative in an uncertain market than Lloyds plans to raise billions from a share offer that looks increasingly overpriced? The original plan was to offer discounted shares at around half price for 'loyal investors'. Now that discount is closer to a third and is getting less by the hour. Don't know if it's a bubble but it's certainly froth.
    The point is that a deal like Lloyds are attempting would not even be contemplated if the Banks and Market were not so determined to pretend that it is all 'business as usual'. Most of what I see in the Market on a daily basis is little men blowing air into bubbles that have already burst.
    The fact is that 'the money has left the building' and until we all wake up to that fact there is not going to be any genuine recovery in the economy... just bubble, stubble... and rubble...

  • Comment number 10.

    Interesting report.

    Seems to illustrate that the financial markets seem to have applied for a divorce from the real economy (that one which most of us live in) and like many a petty or vindictive putative ex are trying to shaft the other financially before the paperwork can be sorted out.

    Who is going to act as RELATE?

  • Comment number 11.

    Robert, I fear you are being too simplistic re the signs of recovery.

    Firstly re share prices yes they are up 50% since March but are still 21% below the pre Northern Rock high. Also as interest rates are at an all time low the yield on shares looks much more attractive to investors so you would expect share prices to rise.

    On UK and UK government yields surely this is likely to be expected in a period of uncertainty as the cash flys to the relative safety of UK & US government debt. People believe that us and Uncle Sam will at least pay the interest and maybe even the debt back. In the light of historic low interest rates on deposits then surely givernment debt becomes more attractive and the price will rise.

    Finally the misnomer re housing prices prices are rising. This needs to be viewed against the backdrop of a lack of supply (lack of supply pushes up prices remember!) as many people in negative equity or without sufficent equity to get a good deal from lenders cannot afford to sell. Again historically low interest rates make borrowing against property more attractive as a long term investment.

  • Comment number 12.

    Dempster #7 Absolutely right. I did do some economics to A level but so much of life is about common sense but that seems to have escaped both the politicians and the banks.

    We're not talking about real money anyway, as all that disappeared with the gold standard, all we're talking about in Robert Peston's comments is promissory notes based on perception of value.

    Unfortunately these do not apply to buying food, and the rest of real life.

    Robert - could you relate your high-level observations to reality?

  • Comment number 13.


    The threat of a Sovereign debt crisis is clear and present.

    Reading between the lines in your blog you are saying what I have suspected for a while.

    The markets are maintaining our AAA rating because they expect a change of government at the next election.

    If this looks any less likely or moves toward a hung parliament then they become jittery.

    The $56,000 question is what would happen if it were to change to a Labour win?

    My frustration is that our politicians know that they can't tell us the truth about the financial mess in the banks balance sheets the government debt and the measure required to fix it as the truth would mean they would not be voted in.

    Labour have systematically mislead the people so now they want to remain unaware of the real situation

    Ultimately this is because of the stupidity of the British electorate and our failure to face facts.

    They want to be told that this will be a painless recession and are hoping that we can come out of it without dealing with the thing that has caused it spending and debt. Until we deal with this any recovery will be a phony recovery.

  • Comment number 14.

    Nationalisation is the only solution to banks, a culture of greed will always lead to recklessness. Splitting up the banks would only lead to a series of banks all taking the same reckless risk equating to the same macro effect.

    Not withstanding the above, entrepeneurship is and always has been vital for the UK economy, although i can understand why bankers are public enemy number 1, the role of sensible investment and support of business is clearly a vital one.

    Finally you talk of a 50% surge in share prices since they hit bottom at the start of the year, as i recall at the time you rightly highlighted that shares are valued more on estimations where the economy will be in 6 months time rather than currently, this has a lot to do with sentiment. valuations of banks , miners etc were often based on pure hysteria at the beginning of the year, maybe it was the gloom and doom merchants forecasting global meltdown who lead to share prices being too low at the bottom.

  • Comment number 15.


    No one clearly has a clue what's going on... and the bankers who seem to be the first in the queue for this QE cash are having a great time...

    With the amount of destruction our politicians and 'financial experts' are causing.. I think 'Rubble' is a better term to call our current and foreseeable future

  • Comment number 16.

    You have put into words what many are thinking and fearing. We have a government (and an opposition if they could) still talking about regulation and still running away for responsibility for managing an economy in trouble. Perhaps we could ask the MPC to meet fortnightly as obviously they have the answers!

  • Comment number 17.


    You also have to factor in having Sarkozy junior become head of the body overseeing La Defense, the intention being to create a financial centre to rival (replace?) The City of London as a world financial centre.

    With the French states famously selective interpretation of EU rules to suit themselves as opposed to the UKs blind adherence, I bet Sarkozy was just a little bit over joyed, perhaps he will take to wearing a funny hat sideways in the near future?

  • Comment number 18.

    'Stubble' - excellent stuff RP.

    Whether they/we like it or not, consumer confidence is weak. Very weak. My instinct screams that the man on the clapham omnibus is watching the pennies. He feels the need to start paying off his credit card.

    So that really begs the question- how on earth are the markets, bar a little wobble here and there, able to inflate prices so effectively in such a short period of time.

    We ask such a question at a time when the BofE has effectively been printing money to the tune of billions of pounds.

    I'm sorry to burst the bubble but this has double dip written all over it. The next logical step is for a sovereign state (and I desperately hope this isn't the UK) to default or request a delay in repayments, some sort of failure in gilts etc as a result of their over extending themselves in the bailout phase. It might be Dubai- though Abu Dhabi may have something to say about that- it might be Ireland, though they're less exposed to QE (and have suffered more immediate pain for it) or I suppose perhaps Iceland though I hear very little about them at the moment. Of all nations I feel that the UK is vulnerable so the Morgan Stanley [et al] reports are no great surprise.

    Failure of any such state will undoubtedly make the Dubai World fallout look like the sideshow that it really is.

    I find myself repeating previous thoughts and sentiments here. Taxes need to rise. I hate the thought like everyone else but creating monopoly money to lend to Peter to lend to Paul so he can lend it to someone else is even worse than robbing Peter to pay Paul in the first place. We need to feel the burn, and bonuses should be liable for a separate (and significant) tax unless and until all monies spent at taxpayer expense are received back, with interest accrued.

    Quite aside from the economic consequences of a hung parliament, politically and socially it would be a disaster also.

    But why can I not vote by text, by email, by phone? Receive some unique identifier code linked to me alone? The simpler the process the greater the turnout and the greater the turnout the lower the prospect of a hung parliament. Someone needs to get a grip of this and actually get something done. And no we don't need a public consultation followed by a review followed by a white paper followed by a review followed by a report followed by proposed amendments followed by a review followed by a debate. Access to parliament, and parliamentary accountability needs a shake up in exactly the same way as the financial industry (lest we forget expenses).

    Finally people talk about limited liability in the previous blog entry...benefit and burden should not be detached. There are corporation taxes which increase income to the treasury, as well as income taxes on the directors. If dividends reduce the net payment to treasury/can be avoided, then VAT certainly can't be. A company is a separate legal entity and to confuse the division between a company Director and/or company entity is not something which is relevant for preventing the problems leading to this recession.

    Lets keep our focus on the real issue of financial stability by effective regulation with teeth. New financial products licensed, lending ratios limited/restricted and longer term views encouraged. We don't need to collapse the system and head to the fields, we don't need to hang all the bankers, we don't need to give up on our service based economic model. We need to keep hold of the bankers' reins and limit credit so that the risk assessment of any/all lending can be quantified.

  • Comment number 19.

    Whistling Neil

    I think the partner in the marriage has been playing away from home for many a year. Being caught hasn't stopped the behaviour. No guilt. No apology, and a refusal to spend a week or two sleeping on the couch.
    In that sense you are correct. In another sense, the masters of the universe are behaving like spoilt teenagers who need a good kick up the backside. Our government (the parents) know their little darlings are no angels, but can't bring themselves to admit just how far out of control the brats really are. There has been no suitable punishment, no lessons learned, no remedial class, and no modification of behaviour. Inept parents.
    Labour is frightened and doesn't want to upset the kids, while the Tories will punish everyone except the guilty.

    Unless the EU can step in and give the parents a lesson on how to raise teenagers, then sit back and watch the teenagers enjoy yet another party, wrecking the house and seriously distressing the neighbours. It'll go on longer than one night this time.

    We all know what is coming, and it is not rational. We will pay yet again, not the bankers.

  • Comment number 20.

    I posted this on another blog line, but I think it serves to illustrate how far removed from the average working Joe policy makers truly are:

    Adam Posen, a member of the Bank's Monetary Policy Committee, reckons that the Government should consider extra taxes on British homes, suggesting that in future homeowners should have to pay an extra tax if prices rise too fast.

    So if you, the Bank of England increase the money supply by Quantitative Easing, we then have to pay more tax on the home we already own because you have increased its price by printing more money.

    Well having considered the point at great length, I hereby tell you Adam Posen to go and whistle Dixie.

  • Comment number 21.

    Hubble, bubble toil and trouble
    Let QE burn, and cauldron bubble.

    Don't worry if you missed the last crisis as there will be another one along in a minute. Only the next time there will be no money to pay the fare!

    In the end we are going to have to separate retail banks from the casinos, verify the actual size of the global debt, let the casinos go bust, return our economy to added value activities and shrink the size of the state. So why waste any more time, let's get to it!

    The only problem is that all those people who have been told they are now middle class will all of a sudden find themselves as defenceless as any other employee, mortgagee and debtor. Nothing is for nothing any more. Merry Christmas: ho, ho ho!

  • Comment number 22.

    14. At 11:25am on 02 Dec 2009, Kudospeter
    .....shares are valued more on estimations where the economy will be in 6 months time rather than currently, this has a lot to do with sentiment.
    What has always puzzled me about all markets is that price seems to be a purely herd driven thing. The very fact that we do not know at any particular point whether markets lead the economy or vice versa means it is still all just a big experiment trying to prove whatever theory of the time is in vogue.
    Most of the activity is down to human nature so perhaps the big names that do well are astute at knowing how herds work rather than following indicators.
    Apart from insider knowledge.....

  • Comment number 23.

    The rising asset prices, and previously reported anecdotal stories that lending is depressed because of lack of demand rather than lack of supply would seem to imply that we are no longer in a 'credit crunch'. I.e. economic activity is not being artificialy depressed because of a lack of access to money - so the increases in the money supply *may* be leading to asset price inflation.

    In this light, this quote is particularly scary:

    "And some businesses are even paying fat dividend out of increased debt rather than profits."

    I guess it just rams home the points Robert made in the second half of his blog - if the Chinese don't save us by spending their savings then the next crash will make be a tsunami compared to this ones windy day in Skegness...

  • Comment number 24.

    #2 twworthington wrote:

    I do often wonder if "degree in economics" means "I couldn't pass any other exams".


    At the university where I studied, I can remember somebody had scrawled on the bog roll dispenser in the library toilets...

    'Politics and Economics Degree...please take two!'

  • Comment number 25.

    "Have we reduced the pain caused by the pricking of the mother of all financial bubbles by creating a new financial bubble?"

    Taking a simplistic view, that seems very likely. Considering that we can be certain that there is less credit available to all, there is no logical reason why house prices should rise from what were already historically high levels. Energy and share prices seem to fluctuate wildly due to speculation rather than demand (anybody care to explain why else share prices in Dubai property companies would rise (even temporarily) following the recent events in the region??). BoE members getting nervous in public suggest that they really don't know what the outcome of QE will be. I suspect it will deliver no benefit in the long term, but plenty of pain. When has it ever proved otherwise?

    All of the above sound like the makings of bubbles to me...

  • Comment number 26.

    "It's the debt stupid"

    See this lucid overview from Steve Keen:

    All that has happened in the last 18months is a desperate attempt to prop up the Ponzi lending that has been happening for the last 20-30 years.

    At some point the game will be up. Our debts will be unserviceable "Can't pay, won't pay". And the house of cards will come crashing down.

    P.S. Regarding your point that "there's also a lot of smart money, especially from hedge funds, betting against China." The last thing I would do is describe this as smart! Are we so dumb as to bet against such a fearsome industrious nation?

    If we do end up losing out to them in real terms, we'll get hit double as we gambled the house that we wouldn't lose! Shafted from without and within.

  • Comment number 27.

    Finance capital struggled to find productive returns on capital and via sub-prime mortgages, etc fuelled an asset boom to maintain interest/profit rates.

    The debt-ladden consumers could take on no more debt - the asset bubble popped, house prices & stockmarkets fell.

    The banking system had to be rescued by government money.

    Government debt is borrowing from future generations.

    The stimulus fuels another asset boom and so banks' profits and bankers' bonuses.

    But the fundamental problem is unresolved, the profit rate on productive capital is supported by ficticious capital, i.e. rises in asset prices not genuine increases in the value of productive capital.

    Now the problem is the government debt is reaching levels that are not sustainable.

    Just as the consumer became saturated in debt, so too now the government.
    Certainly in the UK and also probably in the US, the rate of return on government debt will have to increase, that is the rate of interest will need to go up.

    As desperately as they try to avoid the necessary capital devaluation they can't get away from it.

    Come the bursting of the next asset bubble the authorities can only print money and debase the currency.

  • Comment number 28.

    18 P or P

    Yep, you've hit the nail on the head.

    Unfortunately, due to the timing of our forthcoming Election, nothing will be done in the next few months.

    The "Malcolm Tuckers" in both main parties will be frantically making sure nothing is done to rock the boat and prevent them winning.

    Meanwhile, the nation suffers as the bubble is blown up again, by borrowing from our children.


  • Comment number 29.

    Is it possible that the increase in asset prices, at least in the UK and US, reflectss to some extent the devaluation of both currencies over the past year? For example, a house worth 10% less than the high of a year or so ago, is actually down by something more like 35% or more against the Euro. Ditto shares in UK based companies.

  • Comment number 30.

    Things that appear too good to be true nearly always are.

    In the manufacturing world (now only 12% of UK GDP and falling but regularly trumpeted as the saviour) it is interesting that following a brief revival of fortunes the tap has turned off again.

    What has happened is that companies have run down stocks to point when they needed to reorder, hence the brief revival when those reorders have taken place, however now there is still no ned for the end products they are using that stock to produce so things have stalled again.

    It is last year all over again and January will see more casualties both in retail and manufacturing which will further dent fragile confidence etc etc etc etc.

    Come March, april or May there is not a cat in hells chance of Labour being reelected against this backdrop.

    I don't count this as a good or bad thing just a fact (Tories or Libs would be just as bad). What I would like is truth in politics and there is not a snowball in hells chance of that!!

  • Comment number 31.


    It would appear Robert has discarded his fear of the establishment and started to ask the right questions - welcome to the party Robert.

    "Or perhaps we should take a deep breath and question whether such deals constructed on dubious risk assessments are healthy."

    Risk? What does the world of finance know about risk? Insurers know about risk, not banks and investment houses - they have proven that with their 'CDO Squared calculations' and their 'out of control CDS exposures'

    Much as it pains me to disagree with Anthony Bolton, but being right previously doesn't mean you're right all the time - I mean look at Warren Buffets decision to call the bottom of the market earlier this year (however Mr Buffet is in the fortunate position to be rich enough to 'ride out the losses')

    ...but China's growth is very much export based - and their biggest customer is / was the US - or in fact the West in general. So how do you expand further without your biggest customers?

    In addition to this there is the currency and politcal questions about China, if it is manipulating it's currency then is that a wise place to invest? - and what happens if the Communist party decide that they're going to nationalise the industry you invested in - without compensation?
    There is also the danger that China falls out with the US as it's currency is devaluing rapidly and China holds a lot of Dollars - this could upset the apple cart, especially if the Middle East decide that oil will be priced in 'non-Dollars' in the near future (which looks likely)

    ....still this would all be accounted for in the Risk assessment of the investor - if they actually knew what that meant.
    I see the 'China hope' as being the 'only hope' and that's why so many are looking in that direction for salvation.

    As for bubble popping - well isn't this the pattern? We have our big bubble pop to start us off (October 2008) then a series of bubbles are created (FTSE, property, car sales) as Governments scrabble around in panic throwing our money at everything - and one by one those bubbles pop too.

    ...and that's where the confidence goes - after the first shock we have been convinced that was it, but when the after tremors come thick and fast confidence will be damaged further until there is very little left.

    - it's more about Human pshycology than Economics.

    The size of the rebound should be scaring the pants off everyone - it's bigger than the 1929 / 1930 rebound. Strangely the wizards in the city are proclaming victory over the beast without having any evidence for it - preferring to read inaccurate but positive car sales data and house prices than looking at the overall pictures.

    Job losses - coming thick and fast. Remind me - was there ever a recovery when net employment is on a negative trend?

  • Comment number 32.

    I'd dispute that house prices are rising.

    Sign up to Rightmove or Primelocation to get daily updates on your choosen area. What I see (because I'm thinking about re-entering the property market and so am paying quite a lot of attention) is a significant percentage of re-listed properties with reduced prices and many properties that have been on the market for a very long time.

    [Disclaimer : This may be different in the banker bonus areas.]

    Still not going to buy one though...

  • Comment number 33.

    A few interesting comments!

    #2 twworthington:
    A degree in economics is only of use in a perfect world where all variables can be contained or controlled. When the real world gets involved, all those terribly smart predictions which you've bet your house on gop straight out of the window.

    #10 Whistling Neil:
    Yup, spot on, the bankers and economists are now living in la-la land. The average man in the street is out to protect himself and pay down his debts. This will blow apart all those predictions based on increasing growth and confidence in the High Street. Mortgage payments or a new flat screen tv. No contest here I think.

    #18 Pawns_or_players
    Completely agree too feel like I'm watching lemmings hurtling towards a cliff

    #28 Elduderino01
    Were one to be extremely cynical one might want to explore the correlation between the number of repossessions last year and the number of repossessions this year and then add in the fact that many such banks are now state owned. When I say repossessions, I mean the ones that have gone all the way through and evicted the previous owners. My sources tell me that the number is actually down by this index - have the Malcolm Tuckers been leaning on the banks to go a bit easier for political reasons? Not good for state-owned banks to be chucking families out on the streets before Christmas.

    And there is a general election coming.....

  • Comment number 34.

    32. At 12:36pm on 02 Dec 2009, StephenBlencowe

    Do you use propertysnake? - well worth a look as it shows how often a property is de-listed and re-listed by estate agents in order to distort the true picture of the market.

  • Comment number 35.

    #32 StephenBencowe,

    you are quite correct, increases in average house prices is not the same as house prices are rising. The statistics do not take into account renovation work or new properties being built while old demolished. If currently existing owners are tending not to sell, then its supply shortages and the fact its new build properties being sold which are the cause of average house prices to increase, not that house prices are rising

  • Comment number 36.

    I just hope the election runs on schedule, then the conservatives will get in. Rightly or wrongly the pound will rally on the international markets and I can move my money abroad before they figure out exactly how labour have papered over an abyss of debt and liability...

  • Comment number 37.


    And therein lies the reason to spend EVERY penny you ever earn and THEN SOMEONE ELSE’s !!!

    I’ve said it before I’ll say it again, the bankers do not want your children to inherit anything from you. The reason for this is that eventually further growth will be impossible (Oil and resources are limited). When this point is reached and everyone is mortgage free, the bankers will be out of business FOR EVER!!!

  • Comment number 38.

    Here's a new problem on the horizon for savers....

    The crucial part is this paragraph:

    "The £50,000 limit is per saver, per institution, not per bank.

    So, for example, if a saver had £50,000 with HSBC and £50,000 with First Direct, then only £50,000 of savings would be protected as HSBC and First Direct are different brands of the same institution. " we are going through a period where banks are merging for safety (Chelsea and Yorkshire announced today).

    Eventually, when there are only 5 UK institutions left - which is looking more and more likely every day - where will people with over £250k put their savings?
    Whilst I'm not too fussed about those people who have £250k lying around, for some people this might be transitionary - i.e. after selling up your business, or house etc.

    When (and I mean when, not if) - the next bank fails in the UK, it's likely there will be more people loosing out than before...and that situation will get progressively worse as the options are narrowed by further failures and mergers / takeovers.

    I already have a problem with my diversification as I have an A&L and a Abbey National account - both now owned by Santander.

    Strangely Santander are saying these are seperately covered - which contradicts the statement above.

    So who has it wrong?

    This is where the Credit crisis meets main street - check your accounts and make sure you don't get caught out.

    In addition to this you might find that switching to another bank is much more difficult than before 2008. For some reason banks are looking very closely at your credit score and items which would have been acceptable previously are not acceptable now - it seems something has rattled their cage - I wonder what that might be?

    I am having the same trouble at the moment, and quite bizarrely I am only trying to open a current account without an overdraft!

    It seems the reaction from the banks is an over-reaction. I don't know if I am an isolated incident but I am suspicious the 'rules have changed' - which is further amplified by the secrecy around credit scoring (you can see it, but the banks don't have to tell you what specific reason they turned you down for)

    The mattress is looking more and more appealing every day....and loan sharks will be rubbing their hands with glee.

    Don't trust a politican to protect you - protect yourself, it's the only way...

  • Comment number 39.

    Nationalisation of the banks is the only practical solution for the government as it is the only way that it can control day-to-day bank policy and the bonus culture.

    No matter what legislation the government brings in the banks will always be looking for a way to circumvent the regulations.

    Interesting that in the good old days of prudent banking when bank staff were paid a fixed salary and banks used common sense when giving loans we never had crises that would lead the UK to the verge of bankruptcy.

    All our public services are suffering from the same problem.Because of increasing salaries and associated costs, the money being spent is not going as far as it used to forcing the services to spend more. However, logically, since governments and public services do not have unlimited financial funds this cannot go on forever.

    In essence we need to be reducing and fixing salaries and prices now in a phased way so that we do not bankrupt ourselves as a nation.It needs to be done carefully so that the poor and vulnerable are protected and so that the distribution of the national wealth is more equitable.The days of astronomical salaries are gone because the government and public services cannot afford them and quite frankly no-one is worth the exorbitant salaries paid today.

    We need to get more of the unemployed back to work but in a way that does not incur greater expenditure.We need to recognise that we have been overpaying ourselves for years and that some salaries paid are completely over the top.

    Other economies are coming out of recession quicker because they have realised this. They have also realised that it is the relationship between prices and incomes that determine the financial quality of life.

    Using the same amount of expenditure but spreading payment amongst more workers means that there can be increases in production and economic gains related to that.

    Government and companies need to recognise that the answer is not to make workers redundant, but to negotiate wage reduction agreements with unions which allow workers to continue in employment producing goods and delivering services rather than draw unemployments benefits, which worsens the problem.

  • Comment number 40.

    Mr Darling, writing in The Times today, says that it would be a “recipe for confusion” if firms were supervised by the EU as well as national watchdogs and that Britain would not accept new laws that could lead to taxpayers picking up the bill for bailouts ordered by Brussels.


    He's taking the p!ss...isn't he?

  • Comment number 41.


    Good to see you back blogging again. I'm (slowly) slugging my way through David Harvey's Limits to Capital. The key thing that strikes me is that Marx was clear in his acknowledgement that money is not the same as REAL value. Indeed this disconnect is one that appears as a common thread through a number of unorthodox views (e.g. Soddy, Minsky, Georgscu-Roegen, Herman Daly, even James Tobin I believe):

    Whether it fundamentally rests with the Labour Theory of Value or not, the key message should be that Money CAN and DOES get disconnected from reality.

    Seems a bit like an inverted version of Scrodinger's cat:
    - At any one point in time, Money is neither real or imaginary (it is actually capable of being both at the same time)
    - So long as everyone believes it is real, it can be treated as if it is actually real (i.e. paper promises can buy REAL goods /services)
    - However, if there are concerns over the credibility of the money to work in the future, then it will evaporate before your eyes

    From reality to imaginary in a puff of smoke. This is the truth that none dare speak of. We have a monumental credit system layered atop an already debt based Fiat money system. Therefore rendering the modern concept of money as nothing more than a mere faith. (Why else do politicians keep saying that we need to pump confidence into the system to restart it?)

  • Comment number 42.

    As Christmas is drawing near perhaps someone from the toy industry could now invent a new game, as a sequel to 'Monopoly'. Perhaps it could be called 'The City'.
    Here you can buy and sell whatever you want as long as you borrow for the tax-payer. Unfortunately they would have to remove the 'Go to Jail' card, as you will be working offshore.
    The aim of the game is to borrow as much as possible, and be the first to go bust!

  • Comment number 43.

    38 WOTW

    I sold my house right at the peak of the crisis and was just a little bit concerned re the 50k limit. Our solution was to rent a safety deposit box and put all the cash above the limits of our accounts in that.

    As the interest rates were *** all it was no great loss and had the benefit of annoying the bank when we withdrew the money.

    Might have been an overreaction but at least I slept at night.

  • Comment number 44.

    #1 - great post. I also like to look back and see all the banks/investment adviser gave buy/hold recommendations on NR before the meltdown. This is the 'talent' that we may drive away if we regulate finance too much - where will they go- Dubai?!

    RP - I agree the bubble is inflating all over again!
    This whole thing is a scandal of epic proportions but the city have got away with it - problem is they (and the gov) believe their own hype.

    Its like an alcoholic going back to drink to stop their hangover. Problem: We've got a debt bubble thats unsustainable?
    Solution: Lets just make it cheaper to borrow!!!!

    Sadly its probably the retail investors and pensioners who will suffer when it crashes as the low interest rates have forced them to find some sort of yield in bonds and shares resulting in their overvaluation.

    HM Treasury employed 'consultants' to work out how to bail out RBS and HBOS etc. The issue to me isn't the price they paid for these consultants its the fact that these people are bankers themselves - an issue with idependence of the advice here I think?! - Turkeys don't vote for Christmas!

  • Comment number 45.

    Property Prices.

    Is the increase in the average property price is evidence of the flight of capital ?

    I mean, if a few large houses are sold in a stagnant market it will drive up the average price for all.

  • Comment number 46.

    though with the divorce analogy you can liken the behaviour of our governments/populations response to these events to that of a victim of domestic abuse. Despite it being obvious that they should leave the relationship to avoid the regular battering they don't.

    Our response (governments and general populace) is precisely the same as the partners of these serial adulterers and batterers - they fear the unknown alternative and so take them back time after time until in the very worst case the partner batters them to death.

    This is very much the process our financial whizzs are engaged in. Whether this beating is the fatal one or merely another in a series of hospitalisations remains to be seen.

  • Comment number 47.

    #39 newshounduk

    What was the name of that car company that went through a rescue, the directors made a mint and the workers got a P45?

    Yeah, lots of people have been getting pad too much - these are the well-off people who tell everyone else to take a pay cut. It is the cleaners, the shop assistants, the waitresses who will be asked to take less. Not the hospital admin/manager earning 80K, or the BBC executives. Cutting wages at the lower end, as will ceertainly happen, will result in increased welfare payments in the form of housing benefit, child credit, etc. The whole system needs to be assessed.

    That is one of the reasons why so many people are so angry. We need a more equal society, and until we do we will go around and around in circles.

  • Comment number 48.

    39. At 1:18pm on 02 Dec 2009, newshounduk wrote:

    Some very good points, however I do disagree with this one:

    "Government and companies need to recognise that the answer is not to make workers redundant, but to negotiate wage reduction agreements with unions which allow workers to continue in employment producing goods and delivering services rather than draw unemployments benefits, which worsens the problem."

    This is the worker paying for the crisis in a different way - a less obvious one than redundancy and one that will avoid civil unrest. It will also result in a decline in workers wages which will either start a long slow steady decline, or workers eventually end up slaves - i.e. simply working to ensure you can continue to work!

    I don't see this as a solution as it will not prevent the banks doing the same again in future and removes the consequences of their actions from their collective conciences.

  • Comment number 49.

    I'm not an economist, so I started to try and work this out from first principles. Please bear with me, the answers are interesting...

    Imagine an island with 100 people, all working for the same company, who provides all their needs. If they get paid GBP10 a day, the company needs to sell it's stuff for a minimum of GBP1,000 a day (100x10), assuming all materials are free. Unfortunately, the only people they can sell it to are it's workers: There cannot ever be any profit. None. Ever.

    You can expand this to lots of companies, add banks etc, and assuming that the banks need to be paid back, what you find is that is everything has to balance, and you can only generate profit on a temporary basis, by taking it from somebody else. And you can't hold on to it, becuase there is no spare money in the economy. Banks don't make a difference, because the money needs to be paid back. Profit today, in the red tomorrow.

    You can add other islands, and one island can make profit, seling to abother island, making that island poor, but again the total amount of money in the system remains the same.

    So is the only way to generate profit, so we have discressionary spending, is for central banks to inject money into society for free? I think so. This needs to be done daily, a one off amount of money isn't enough. This is what seems to qualify as global growth.

    If this is right, it means that:

    a) the only way for the UK to get out of it's long term problems is to export more than we consume, so we make someelse poorer for every pound we bring in. Obvious, but no MP/Party gets this fundemental point.

    b)Every bank trade that takes money out of the UK population and transfers it to a foreign country is making our country poorer, forever.

    c)QE may be the only way for us to get balance our books in the short term. As long as none of it goes abroad. In this instance we're helping somebody else first.

    This may be a bit basic, and could be flawed, but is does illustrate the need for some fundemental change in UK policy. We became rich through 19c exports, and we seem to now have used all this money up through forgetting to continue to export.

    Hey Ho.

  • Comment number 50.

    Money is not the same as Value

    Value is not the same as Effort

    Effort is not the same as Work

    Work is not the same as Production

    Production is not the same as Consumption

    Consumption is not the same as Value

    Value is not the same as Money

    Money is the same as Religion

    Marx is a Religion

    Marx is the same as Money

  • Comment number 51.

    #42 - I like it.

    Imagine a game of monopoly where when you start one person is given all the hotels - if you land on their hotel you pay. If they land on their hotel everyone else left in pays a share but the person who owns the hotel pays nothing.

    They could call the game 'Screw the peasants'

  • Comment number 52.

    Yes, there are going to be two interlinked British crises when the IMF forces the political class to address what it would rather ignore: one fiscal, one sterling.

    Asset bubble: of course. I can't believe the estimated value of my house when I log onto the Nationwide house price calculator: it is more than double the reasonable price I paid in 2000. Some correction!

    When will the madness end? As Keynes wrote, and Newton is rumoured to have said, it is impossible to know and it is in the interests of market participants to overlook the reality, however stark. But it is obvious that when the IMF demands massive cuts in public spending house prices won't look cheap.

    How to realign bankers' incentives? I've said this before on this blog, and I'll say it again: the FSA, Sarkozy, the Bank of England or whoever will not succeed whilst speculative financial institutions enjoy the privilege of limited liability. Utility banking should be highly regulated and can enjoy limited liability as a reward.

    However, until speculative bankers are threatened with the loss of everything they own in the event of catastrophic failure through unlimited liability and are forced to invest the vast majority of their gambling winnings back into their firm, this situation will happen again. We can't allow greedy individuals into the casino with money that isn't theirs - particularly when it is ours! The only effective way to regulate the intelligent and greedy is with their own greed.

    PS It was, of course, a mistake post-Enron, to extend limited liability to the professional firms of accountants and lawyers too. When the auditors were signing off the accounts or the lawyers were creating the off-balance sheet vehicles of Lehman Brothers, HBOS, etc. would they have been so careless if it was their houses at stake?

  • Comment number 53.

    How anybody thinks that the Chinese can safely ride out a Global downturn is beyond me, they think that they can rely on internal consumption, they (like our politicians) seem to think that this is just a temporary blip on the road to ever greater wealth.
    That China can consume the vast wealth they have saved up over a period of time is without doubt. Has anyone bothered to ask them what they will do when the money runs out, are they going to borrow some more to keep them going and who will they borrow it from ?
    Is that a Chinese wheelnut I see lying in the road before me ?

  • Comment number 54.

    #38 WOTW

    Again it seems the BBC reporting isn't too thorough.

    the reason HSBC and First Direct guarentee is limited to £50k is because they share the same Banking Licience.

    RBS and Nat West are in essence the same institution, but as i understand it, as they have two liciences the limit is £50k for each.

    I'm not aware of the A&L and Abbey National situation, but if it affects anyone i would certainly get chapter and verse from them.

    The limit is also £50k for each holder so Joint accounts are up to £100k

    You have me thinking on Escrow accounts when you buy or sell a house, again i would get crystal clear advice from the laywer.

    For people with over £250k of cash, i suspect the answer may be that its already been moved to Ireland

  • Comment number 55.

    It seems the golden goose of recovery was in fact a mirage after all.

    I did wonder why Germany was number 3 on the world list of 'most likely to default' seems the CDS speculators knew more than I gave them credit for...

  • Comment number 56.

    51. At 1:47pm on 02 Dec 2009, GRIMUPNORTH77 & 42

    ....and the chance card could be 'bailed out by Government' - like HBOS, or 'Not bailed out by Government' - like Lehmans.

    Of course all the pieces would have to be fast cars - no boots or hats and stuff, just Porsche's, Ferrari's and Aston Martins.

    What a great idea - get on the phone to Hasbro before someone pinches it and 'creates wealth' by stealing your good idea and selling it to someone else!

  • Comment number 57.

    Presto asks, 'Have we created a new bubble...'. Has he been reading our comments and learnt something?

    It's pretty obvious that we have. It was obvious to most of us, who post here, that the government measures to tackle the crisis were going (even intended) to do exactly that.

    If the crisis arose from excess borrowing and badly secured credit, resolving it by more borrowing and printing money is like throwing petrol to extinguish a fire: a momentary lull from lack of oxygen, followed by .....

    A recurrent theme in many comments is the UK's need for genuine wealth creation from manufacturing. It's four decades since I read Adam Smith's 'Wealth of Nations'. As I remember, the role of capital (or 'financial services') was to support the production of wealth rather than inflate bubbles. It seems the book is now on line. The following link may be of interest (especially to Flash G and co.).

  • Comment number 58.

    #38 WOTW

    Banks are businesses and as long as you expect them to try to make money from you you won't be too disappointed. As with any business they don't have to trade with you. A person can walk into a shop, try to buy something and still be turned away by the owner. Would we want it any other way?!

    One of the reasons you may have an issue is that on the content of your own entry you already have a number of accounts. The query then raised is why do you need another? Given that banks provide retail banking for 'free' are you not arguably abusing the system leading to charges being levied almost inevitably against the remainder who only have one account?

    Your comment concerning the £50k cap changes and mergers is interesting. However I don't accept that the treasury could politically afford to let voters' savings eat dirt in any circumstance. Look at Iceland- UK depositors money was held in banks regulated abroad and located in a foreign country and the money was still returned to UK residents when those institutions went belly up.

    In any event- how many people have £250k sitting in an account which they can't afford to lose?

    Re a conveyance- are you saying that at the moment people instruct their conveyancing Solicitors to split any proceeds of sale into £50k accounts/accounts limited in that sum?! I can assure you they don't. So there won't be any change there.

    People don't appreciate but your credit rating is like your house need to look after it. More and more information is being collated, updated and relied upon when making decisions concerning credit and risk assessment with lending and all manner of financial products. Your rating is related to your conduct so I can't really see how or why we would want it any other way- unless you plan on, or have a habit of, defaulting on payments in which case those people should remember what created this bubble and burst in the first place, i.e. imprudent lending and credit management leading to increased defaults.

    The point where the credit crisis really hits the high street is with job losses, not with bank accounts. Job losses lead to lower disposable income which leads to slower/lower spending.

  • Comment number 59.

    #49 If one island can produce useful product A for less effort than it would cost Island B to make it and Island B can produce another useful product cheaper than Island A can make it.
    Both can gain by exchanging the goods assuming they want both products.
    This is wealth creation.

    Money is a different kettle of fish. If you have a fixed amount of money which the islands use as a means of ecchange then great it works and the price goes up or down in money units depending on which products are popular.

    Think about what happens if you increase the money supply and think about who spends the new money first.

  • Comment number 60.

    Very interesting article. I have no doubt we are in a weird position right now. I tend to think of it as the artificial recession or artificial economy, but stubble is just as good. Whatever we call it we are in a weird place right now. Basically GB's policies blew up a giant bubble - and when the bubble burst, as bubbles do, he used tax payer's money to try to keep the bubble inflated (car scrappage scheme etc). So what we have now isn't the "real" economy - it's a kind of Frankenstein monster created by a multitude of policies that range from how banks are regulated to the air passenger tax.

    So where does that leave Britain. Let's have a look at the fundamentals:

    - infrastructure
    - education
    - unemployment
    - levels of benefit dependency
    - government debt
    - trade balance
    - pound
    - reserves
    - social health
    - wars (and other tax payer black holes)

    When we look at these areas it's not too difficult to see why we are only slowly coming back into a growth situation - and bear in mind a lot of that growth is artificially created.

    When you look at Labour's key policies over the last twelve years the omens are just not good. The thing is Labour's policies were never going to be sustainable. Having said that I doubt the Tories will make much difference either. Despite 12 years of Labour we have declining social health and social stress symptomatic of high levels of immigration and increasing state dependency. Labour's master stroke has been making the middle classes increasingly state dependent. Working is unaffordable for many without state help such as child care vouchers.

    Yes, it's difficult for the individual to know what to do. I decided my strategy back in 2003 when I saw the bubble would burst. I battened down the hatches, reduced (mortgage) debt like crazy and decided to vote with my feet by leaving Britain. Best decision i ever made.

    My prediction is that things will actually go from bad to worse for the tax payer. In particular there's no doubt brits will see higher taxes, less for their tax pound (as more is diverted to Iraq and Afghanistan and in paying off government debt), and a weaker pound. The weaker pound will result in higher cost of imports, rising inflation and rising interest rates. I reckon in two years or so Britain will be in a very bad place.

    The most serious problem by far is social decline. the system is starting to mass produce people who are unemployable and whose only hope is a life on benefits.

    Back in 2003 I said Britain would be bust within a decade, and a third world country within 50 years. Looks like it might not take that long.

  • Comment number 61.

    The word "stubble" already exists. Could I suggest either "staggle" (as in "the economy is staggling (staggering)" or "stuggle" (as in "the economy is stuggling (struggling)".

  • Comment number 62.

    38 WOTW

    Bank Guarantees

    At first sight it seems you are okay as A+L have their own licience seperate from Abbey.

    However if anyone held money in Abbey and Bradford + Bingley and Cahoot then the limit of £50k would be for all three of these names.

    If anyone's interested if you google bank liciences you soon get to a few good sites showing who shares the same licience

  • Comment number 63.

    just to be clear, my last point (poorly put) wasn't an attack on the welfare state! What I want to see is the wealthy taking the hit ad paying for the mess they made, not the ordinary man and women on mediocre or worse wages.

  • Comment number 64.

    #41 Hawkeye_Pierce

    Good to see that you are reading David Harvey.
    He seems to have a good understanding of ficticious capital.

    I suspect he would say that the authorities will attempt to inflate their way out of the crisis.
    The main objective to lower real wages to restore profitability.

    I would think Limits to Capital is an intermediate text, easier to read than Capital, but still not for beginners.

    Have you read Joel Kovel's The Enemy of Nature?
    This is a relatively easy read.
    He's on the socialist wing of the Greens.

  • Comment number 65.

    Everyone likes a good conspiracy every now and again and in this case I am reading between the lines of your post: why would you more or less pour oil on the green shoots theory and even highlight what the bankers are sprouting about a hung parliament, my theory is that you like what it is doing to the Sterling with the view to parity (or if I am really naïve, you might want to up our export opportunities)? I share the view that things are not what spin will have but what is it, green shoots or not

  • Comment number 66.


    Thank you for the wealth explanation. I was more interested in the actual money stuff. I can't see how anybody can create wealth without there being a surplus of money to pay for the item. And this surplus must be got from somebody else. Where this money comes from and goes to seems to be the mystery. Banks can temporarily create it, but it also appears as a liability on their books, so it's effect is zero.

    At the moment, some surplus money has been removed from the world, as the banks reduce their liabilities. This is the bubble bit deflating, but what is left after this? Is there enough for everybody to function without central banks printing the stuff? If not then is QE a good idea?

    Sorry if I'm being naieve.

  • Comment number 67.

    #60 ByeByeBritian

    Can't argue with a word. Lend us a fiver will you?

  • Comment number 68.


    '#60 ByeByeBritian

    Can't argue with a word. Lend us a fiver will you?'

    So you can pay your tax bill?

  • Comment number 69.

    We are definately back where we started. Whatever happened to the last twelve months? It seems the bubble is back as far as the financial world is concerned bolstered by QE,

    What is different is high unemployment and bust businesses. They aren't back where they were and won't be for many years to come.

    No-one has found an answer to the world's problems apart from to go back to where we were but this time someone had the brilliant idea of using the ordinary taxpayers to stand as guarantors for printing billions of notes instead of borrowing it.

    So what if it causes inflation they won't care they'll have it stashed away in some hideaway abroad somewhere. All short-termism and not in the interests of us poor mortals who will be left with the rubble as someone aptly put it.

    But Hey Presto! Do we actually have the magician Sarkozi to the rescue?

    Looks as if he's got one over Gordon who 'he loves' and pulled a right fast one over him. He and his high commissioner for the EU are going to sort out the City. We don't even have an ordinary commissioner for finance in the EU so who slipped up there I wonder?

    I am certainly no fan of the EU but someone or anyone who can sort out this country's mess is something I would support. Well perhaps only temporarily.

  • Comment number 70.

    58. At 2:01pm on 02 Dec 2009, pawns_or_players

    "One of the reasons you may have an issue is that on the content of your own entry you already have a number of accounts. The query then raised is why do you need another? Given that banks provide retail banking for 'free' are you not arguably abusing the system leading to charges being levied almost inevitably against the remainder who only have one account?"

    No, I am protecting myself to ensure I don't have more than £25k with any single provider (the previous limit on savings). Is it abuse to have an account that I use regularly? I could understand if these were dormant, but one is the 'joint account' (i.e. hers) the other is IA savings, the next is the 'holiday account' - because that account bares no charges from foreign cash machines, the next is the interest baring current account - I mean if all the accounts provided are all slightly different then surely we as 'rational participants in the market' are going to take the best from each?

    ....or is this another case of free market Economics not being as 'free' as we think.

    "In any event- how many people have £250k sitting in an account which they can't afford to lose?"

    As I said, some people in transition from selling up their business etc...or maybe even a lump sum from a pension.

    "Your rating is related to your conduct so I can't really see how or why we would want it any other way"
    I don't want to get into the in's and out's of credit scoring, but I can assure you I got to great lengths to maintain my 100% record - even after one of my cards was used fraudulently recently and due to an administration mistake at the card supplier I was assigned a default (which took 3 weeks to rectify)....and the very fact (as I mentioned) that banks keep the reasons for decline secret - indicates that their decision making is not consistent nor fair. (in the same way MP's wanted to keep their expenses secret)

    The point of my post was that there is uncertainty about how much is covered under the guarantee scheme - and there are loosers. How likely is it that no Icesave saver had more than 50k in the account? - so someone will have lost out already.

    Only someone with reckless abandonment for their money would risk any Government guarantee at the moment.

  • Comment number 71.

    @ 31

    Oh no, writingsonthewall- you've let me down. So much of what you have said has been right on the money (excuse the pun) up til now!

    "- it's more about Human pshycology than Economics."

    Here you miss an important point I thought you had grasped. Economics includes human psychology- that's the entire point! If it didn't then none of the exploitation we see on a daily basis would be possible. Cold hard maths doesn't allow for it. You can try and obfuscate numbers and equations, but ultimately mathematics is the laws of numbers.
    It requires the fuzzy parts of being able to assign fake numbers and the allowing of such things as short selling, bubbles and inflation itself to have economics. This is achieved by utilising an ability to influence the public opinion that these things are either good for us (short selling, inflation) or not true and therefore not to be worried about (bubbles) in order for those who work in finance to justify making vast quantities of money by exploiting the invention and work of others.
    To put it simply, economics is little more than a merger of maths with psychology. I refer the readers of this blog back to Eddie Murphy in Trading Places, the scene where he describes the rise and fall of commodity prices based on what the traders on the floor are thinking. It might be for comic effect, but if you think those sort of things don't affect the stockmarket prices then you are a fool!

  • Comment number 72.

    No surplus money has been removed from the world.

    The double entry for the reduction in wealth, in banks accounts is :
    Debit profit & Loss £10billion
    Credit previously ludicrously valued asset £10billion

    Money goes round and round the economy sometimes fast sometimes slow.
    You spend it, the person you buy something from spends it and so on.
    At the moment its going very slow and our masters have printed loads of it to encourage us to make it go faster by spending.
    The smart chaps on this blog are sticking 2 fingers up at this idea becuase they realise that it's not the money thats important it's what is going to happen to peoples lives when it does speed up as it surely will.

  • Comment number 73.

    72, rvaucbns

    'The smart chaps on this blog are sticking 2 fingers up at this idea becuase they realise that it's not the money thats important it's what is going to happen to peoples lives when it does speed up as it surely will.'

    what do you mean by that?

  • Comment number 74.

    I have lost the plot somewhere, Robert. Where is the money coming from that these incredibly stupid bankers are lending?

  • Comment number 75.

    #67, rvaucbns, wrote:

    > Can't argue with a word. Lend us a fiver will you?

    A fiver? That would cost me 275 Baht! A few years ago that would have cost me 375 Baht. I could have a days scuba diving on Koh Lanta for that! (Or three large ice-cold Singhas at my favourite beach bar!)

    Hang in there buddy! :)

  • Comment number 76.

    71. At 3:03pm on 02 Dec 2009, LeviticusS

    Don't worry - I haven't slipped.

    Whilst human behaviour is a large part of the market - it's not all of it - maths still plays a part.

    ....otherwise 'restoring confidence' would be enough to see off a recession - and yet that doesn't seem to be the case - simply because underneath there is a huge unwinding / devaluation / capital destruction going on - which no human emotion can prevent.

    MArxist overproduction is not a figment of the mind, it's very real and very obvious (now) - however the random actions of a panicking market are all down to human behaviour.

  • Comment number 77.

    74. At 3:20pm on 02 Dec 2009, Henry_Quimper wrote:

    Q. "I have lost the plot somewhere, Robert. Where is the money coming from that these incredibly stupid bankers are lending?"

    A. "You and any future taxpayers you produce"

    Who's stupid now (and I don't mean that personally as I am you too - as is everyone else who has been mugged by the banks)

  • Comment number 78.

    #77 WOTW

    I think that people are only just waking up to that fact.

  • Comment number 79.

    32. At 12:36pm on 02 Dec 2009, StephenBlencowe

    None of the sources you quote are reliable.

    I work for a Chartered Surveyors in London and in the areas I work in - Tower Hamlets, Hackney, Islington etc. there has been, in my opinion, about a 5% rise in values since the start of the year.

    I speak from researching the latest transactions in this area on an onging basis for valuation reports for various clients.

    I cannot however, speak for other areas, particularly outside of London. Although I suspect some are rising and some still falling.

    Furthermore, I would agree that some areas in London, particularly those with an oversupply of newly built apartments, falls in values from the peak are far greater than the average. Stratford and Woolwich are examples of this.

    In my opinion part of this apparent rise in prices is down to low levels of transactions - pent up demand chasing the smaller number of properties on the market. Of course the big developers have done their best to keep values up, by delaying completion on what they have in the pipeline and the only new development going on is in affordable. (BTW using our taxes as grant, essentially propping up land values)

    All the best,

  • Comment number 80.

    #73 Javaman
    I take your point. It is a personal opinion. Apologies
    My basic economics tells me that significantly higher inflation is to be expected as a result of QE.

    Quatity Theory of Money MV=QP
    Demand side M=money supply, V=Velocity of money
    Supply side Q=output, P =Price level

    M has gone up. Q is same or reducing
    V has gone down P Not much change

    I am suggesting that when QE reaches households and businesses
    V will go up and consequently P will (Inflation)

    I am then saying that this inflation will have a very bad effect on peoples lives but I should not have assumed that others have the same view or that this is the main point people were expressing.
    Looking back on my previous post, I can see that it is somewhat patronising and I apologise again.

  • Comment number 81.

    #70 WOTW

    Regarding an 'abuse' perhaps that is slightly too contentious. But the principle is bang on. You're being a savvy consumer- you're playing them at their own game and it sounds like (by cherry picking the services you want/need without paying any fee/charge) you're winning.

    I reiterate however that a bank is a business- it is there to make money and there is nothing to be gained in their allowing you to act as you are. They want you to pay for their services!

    Similarly regarding their reasons for refusal. Its upsetting, but they can refuse anyone they want and for any reason- why should they tell you?

    The point with Iceland wasn't that consumers were ever indemnified by HM treasury for their loss. They took a risk in investing in Iceland in the first place, but the principle is sound- those people were a degree.

    I was proud of the gov's action in that (rare) instance.

    When talking about state guarantees we have to remember that we absolutely don't want a Japan type stagflationary period. The powers that be want us to spend, but in a prudent(ish) way, hence only a limited guarantee.

    'Only someone with reckless abandonment would risk their money with the government at the moment'

    I feel you're just going too far with all of this- its all a question of degree. By your own argument you've got nowhere to put your own money. Savings? Guarantee=uncertain. Gilts/bonds='reckless abandonment'. Stockmarket=vulnerable. Property=inflated(even now).

    The question with gilts/QE and the like is whether there is an appropriate level of reward at present for the 'risk' in the investment- not that there will be an entire default and the money will never be repaid. There may be a default, delay and/or refinance via IMF but the money will be paid out.

  • Comment number 82.

    80, no apologies are necessary, I was merely interested in what you mean. Thanks for sharing your views.....

    re your point

    Quatity Theory of Money MV=QP
    Demand side M=money supply, V=Velocity of money
    Supply side Q=output, P =Price level

    M has gone up. Q is same or reducing
    V has gone down P Not much change

    Are you sure M has gone up (i.e. the demand side)?

  • Comment number 83.

    Pretty sure. I've just charted M4 total figures each month since 1982.
    The increase is exponential.

  • Comment number 84.

    Parrasites.... Let them walk if they want,someone will fill their boots that will eccept an annual salary indext linked to inflation, this will sane a fortune in accouts fees as a computer will work it out and pay their wages into their bank account tax and nat-ins deducted.

  • Comment number 85.

    #64 Duvinrouge

    Thanks for the recommendation. It's on my Christmas wishlist!

    You may want to check out this article that I stumbled across recently:

    "the astonishing naiveté of leading orthodox economists — even those specializing in environmental issues — arising from a distorted accounting that measures exchange values but largely excludes use values, i.e., issues of nature and public wealth. The dominant form of valuation, in our age of global ecological crisis, is a true reflection of capitalism's mode of social and environmental degradation — causing it to profit on the destruction of the planet."

  • Comment number 86.

    Are the government and the BoE creating a new asset price bubble? Yes of course they are. Look at it like this, we are told that in the future we will not have the ability to get into such high levels of personal debt, but look at house prices, 10 years ago you could buy a 3 bedroom detatched house in the south east where I live for £90k and a 1 bedroom flat for £30k, a total of £120 thousand. Today the flat on its own will cost you £120k. But those people who bought 10 years ago also have car loans, credit card debts and bank loans, and they are in the kind of debt that won't be allowed today if it is true that personal debt levels will have to fall. But the person buying the 1 bedroom flat today has to get into £120 grand of debt just to get a roof over their heads, no doubt they will be given the mortgage because the banks and the government seem to want to re inflate the property bubble, but will they get the car loan, credit card or overdraft? Maybe in the future we are going to be an economy where people get into more debt not less, how can it all be sustained otherwise?

    Our economy is built on cheap credit being freely available, its what the system is designed to run on, however much we fight against it the economy wants to pull itself back into that way of going on, too many vested interests have too much influance for it to be any other way. The result....boom and bust asset bubbles....forever....ultimatly underwritten by you and me.

  • Comment number 87.

    Lets have some real comparisons. Go to some source data. Not just comment on what's presented to you as if that was the be all and end all.

    According to the website, In July 2007 the average house price was 218,479 and in September 2009 it was 199,303. They also state that on average prices in September were 4.1% lower than a year earlier. The Land Registry is a better source of data than the building society referenced. Its based on completions, even if it is a little delayed.

    Look at 10 year data for stock market indices. Or draw a strightline through all data since say 1989. Things look very different in that context.

  • Comment number 88.

    #47 copperDolomite #48 writingsonthewall

    Cutting government and company expenditure is not just about cutting the wages of lower paid workers, its about major cuts in management and directors' pay too.

    The government relies on tax and national insurance to pay out unemployment benefit so if there are fewer workers there is less tax and thus less money available for benefit.

    If you follow the logic to the situation to the point where nearly everyone is out of work then the government has insufficient funds to pay out benefit to everybody who needs it and in time the government goes bankrupt.

    It's not about workers just working to keep working, it's about keeping the economy going so that the government can support those who need it and get out of the recession.

    The biggest salary cuts would be among managers and directors and there would be large reductions too in the dividends to shareholders.

    If we don't have a fair reduction in expenditure in the government and in the companies that support them, most people will be out of work,the economy will be non-existent and everybody will be on the breadline because there will be no monies for benefits.

    The simple truth is that in order to survive we all need to get used to working for less and living on less. I know it's an unpalatable truth but if we selfishly carry on the way we are doing the country will go bankrupt and then we really will have problems.

  • Comment number 89.


    'Maybe in the future we are going to be an economy where people get into more debt not less, how can it all be sustained otherwise?'

    Quite correct IMHumbleOpinion, some poeple on here comparing our situation to that of Japan's have forgot one thing.

    the 200 year 3 generation mortgage, we have some way to go...............

  • Comment number 90.

    Regarding price rises, I'm looking to buy a property in SE England but am very wary of getting caught in a bubble. Is this really happening or are prices actually much flatter than is being publicised? Certainly, propertysnake and globrix website data seems to provide no conclusive answers either way to me.

  • Comment number 91.

    Ref rbs directors. How many of the directors are part of original 'talent pool' that created this banking crisis. If they were to resign i don't see the problem. In fact i'd say, hurry up and leave. Do we have any Polish bankers perhaps who'd like to work for a slightly more 'competative renumeration!'Or dont the laws of capitalism apply to those who are most in favour of it.
    These bankers need to be brought to justice for the mess they have caused, they are not talented, they are stupid and greedy, hence the mess. Pre crunch everyone had to put up with their sickening bravado of survival of the fittest, winner takes all, and when it all goes wrong suddenly they want to embrace the web of life and we are all in this together. To end on a more positive note i will say this, given the amount of infra structure that Africa could benefit from, is that not enough to kick start an economic recovery.

  • Comment number 92.

    Two reasons for the bubble:
    1) Stupidity - some idiots think that what failed last time will succeed this time somehow.
    2) Pre-Xmas goodwill - its just the time of the year when the punters are told that everything is a lot better than it is so that they are parted with their last vestiges of cash before they're thrown on the scrapheap in the new year.

  • Comment number 93.

    Why not use the existing term, stagflation. Because all a bubble really is is inflation - of asset classes rather than retail prices.

    Why the-powers-that-be fail to realise that inflation is still inflation, and instead insist that some forms of inflation (such as house prices) is desirable, I will never know.

  • Comment number 94.

    No.38 WOW
    "The £50,000 limit is per saver, per institution, not per bank.

    So, for example, if a saver had £50,000 with HSBC and £50,000 with First Direct, then only £50,000 of savings would be protected as HSBC and First Direct are different brands of the same institution. "

    Writings, I think if you delve a little deeper you will find that it depends on the banking license. In the example above First Direct is covered by the license granted to HSBC. However, you can hold £50k in each of Lloyds and HBOS as they each have a license despite both now being a part of Lloyds Banking Group. I would suggest the same is probably true for the Santander owned banks in that although essentially part of the same group they each hold a banking license in their own name.
    Apologies if anyone else has pointed this out but I have not yet read all the comments.

  • Comment number 95.

    It's only a matter of time before things are back to how they were pre-credit crunch. How long before we see 100% mortgages back? We had a massive debt/housing bubble caused by low interest rates and reckless lending but the answer has been to drop rates even lower and try and get lending going again.

    Funny how despite all the tough talk about not letting it happen again not much seems to have actually changed except we now have even lower rates plus QE for extra measure. You couldn't make this up. Nothing has been learned from what I can see.

    The fact that house prices are booming again defies belief and we should be trying to stop this madness happening all over again.

  • Comment number 96.

    It's funny how the accusations of greed are aimed solely at the bankers. Surely anyone who bought property (particularly buys to let) banking on making a killing from the ridiculous price inflation before the crunch is just as guilty of greed, and of pumping up the bubble.

    The irony of the situation is that those of us who saw something like this coming several years ago and who therefore did not get way into debt, because we expected that those who got into trouble would end up suffering, have instead had to pay so they do not suffer. And because they have not suffered, they have not learnt. Government actions failed to burst the house price bubble because, not only was RBS to big to fail, but there were also too many indebted and greedy property 'owners' who could not be allowed to go under. They have been insulated from the consequences of their actions.

    The moral message from the government is to be reckless, be bailed out and then have another go. Is this in our long term interests?


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