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Europe's dangerous contempt for markets

Robert Peston | 23:41 UK time, Wednesday, 21 July 2010

The stress tests of 91 European Union banks - whose results we'll be given on Friday - are built on a paradox that some will see as delicious, and others as insane.

Greek flagThat paradox relates to the treatment of sovereign debt, the borrowings of governments like that of Greece that have taken on financial commitments way beyond what looks prudent.

Now these assessments of the financial strength of banks allow that the market price of sovereign debt may fall. In the case of Greece, banks have been instructed by regulators to factor in falls in the price of that debt of around 23 or 24% (a bit more than regulators first indicated).

So if banks hold government bonds, such as those issued by Greece, in their so-called trading books, then those banks have to prove that they are strong enough to withstand fairly substantial losses on those bonds.

But the European Union's governments, central bankers and financial regulators are not prepared to admit the possibility that an EU government could actually default on its debts - even as part of the totally theoretical exercise of the stress tests.

So if banks hold government bonds, such as Greek government bonds, in their "banking" books - and thus intend to hold those bonds till they mature or come up for repayment - then those banks would not have to recognise even 1% of potential loss on their bond holdings.

And never mind that analysts fear Greece will ultimately be forced to write off some 50% of its national debt.

Now I've highlighted this contradiction in an earlier post (see Eurozone stress tests that stress investors). And I made the point that this refusal to admit the possibility that Greece (or Spain, or Portugal, or Italy, or even the UK) could default means that it's impossible to be confident that Europe's banks hold enough capital to withstand potential future losses.

But what's worse, in a way, is what this dichotomy reveals about EU attitudes to markets. On the one hand, the leaders of Europe concede that the price of government debt on markets may rise and fall by very significant amounts. But if a steep fall in the market price can never be the precursor of default, then Europe's governments and financial authorities are implying that any movement in the price of European sovereign debt is always based on a fallacy.

Now it's all very well to argue that markets are frequently wrong. There's plenty of evidence of market prices overshooting in boom years and undershooting in lean years. But it is something different altogether to say that when the price of Greek debt falls by a quarter, that can never betoken a possible default by the Greek government.

Even the IMF, run after all by a Frenchman, seems somewhat bemused by the extreme anti-market bias of the most powerful EU country, Germany.

In its latest assessment of euro area policies, it criticises the German government for failing to address the weaknesses of some of its banks. But more tellingly, it says that "Germany's unilateral ban on selected short selling does not appear well-founded in the absence of proven market abuse".

The IMF says the great variations in the price of insuring the debt of different eurozone members that we saw in the spring was "well explained by fundamentals, ie deficit and debt ratios and EMU membership (with a discount for peripheral countries and Italy) in most countries, including Germany".

In other words, the German allegation that these variations were the result of rapacious speculation - short selling of these insurance contracts in the form of credit default swaps - is a canard, according to the IMF.

All of which is a roundabout way of saying that there is a potentially fatal flaw in the European Union's rationale for conducting the stress tests of banks.

EU states have carried out these evaluations of their respective banks in order to reassure investors and markets. But if in the very act of trying to reassure these investors and markets, EU governments and regulators are in effect saying that these investors and markets are always misguided, then it's very doubtful those investors and markets will derive any reassurance from the stress tests.

Far more likely is that they'll take one look at the results of those stress tests and conclude it's all a tawdry attempt to pull the wool over their eyes.

So the consequence of the stress tests - not immediately perhaps, but progressively as summer turns to autumn - may be to rattle and unsettle the institutions that provide vital finance to Europe's banks. And as I've noted before, the stress tests may ultimately lead to catastrophic real-life stresses on banks vital to the prosperity of Europe.

Comments

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  • Comment number 1.


    But the European Union's governments, central bankers and financial regulators are not prepared to admit the possibility that an EU government could actually default on its debts - even as part of the totally theoretical exercise of the stress tests.


    Who are these people? They are like a bunch of hysterical kids!

    Could any of them play a game of monopoly and face the very idea that they might not be the banker?

    Even the worst computer programmer can cope with if-then-else or for-each...

    I'm so glad none of them are involved in anything difficult like cloning dolly the sheep or designing a submarine because they don't seem to be able to think about the what if question. It's poor management, nothing more than spineless spivs at the end of the day. The only thing that seems to be getting stress tested is their own bottle - and it has broken at the first test before they picked up a pen to start designing the test!

    Have they got any ex-oil industry or finance execs involved?
    They can't do if-then-else either, can they (chuckle, chuckle)?

  • Comment number 2.

    Central banks and govts bluster and experiment but none of it changes the truth.
    A long time ago Warren Buffet pointed out "recessions end when asset prices fall and wages rise".
    3 years in and the fall in real wages is accelerating.

    Current policy in the UK isn't working. Propping up asset prices, especially private and public debt, has failed to stimulate growth. Time to change tack.

  • Comment number 3.

    'So the consequence of the stress tests - not immediately perhaps, but progressively as summer turns to autumn - may be to rattle and unsettle the institutions that provide vital finance to Europe's banks. And as I've noted before, the stress tests may ultimately lead to catastrophic real-life stresses on banks vital to the prosperity of Europe.'.... Don't worry yourself too much Robert...if that looks remotely like happening then billions more of taxpayers money will be handed to them on a plate.

  • Comment number 4.

    So, Markets are King. Personally, I regard that as problematic, as too the recent stench of Europhobia.
    And when do we start banging on about the US, it faltering federal economy, bankrupt states and huge deficit? Or is it that Europe is being targeted and talked down on purpose, so that the limited money there is to service huge world debt will be directed to 'Anglo Saxon' nations?

  • Comment number 5.

    Robert, so what you are hinting at is, when are the "largest" asset holders - amongst them being RBS, HBOS, Barclays - going to "dump" their asset and importantly, property portfolio's?

    Depressing asset prices further in order to "cause a correction" in the differential between wages and assets might, some suggest, trigger a recovery of sorts.

    This won't work in the long term, as the market will be flooded with properties, causing it to stagnate. Back to the 1970's and early 1980's.

    Anyone who wants a home (rather than investment) has two choices, buy now and risk a drop in price or wait until after January and pay more in hefty fees, due to VAT rises.

    Either way, in your lifetime, you will not lose on bricks and mortar as you buy and sell in the same market conditions each time. Think LONG.

  • Comment number 6.

    If the stress tests were robust they would show a pack of cards ready to fall and markets would panic. The alternative is a soft stress test that papers over the cracks, which wont reassure the markets and they will still panic. The fact that the UK banks will have to repay £390 billion next year, more than double what they made during the boom speaks volumes to me. The credit crunch never went away, it was simply delayed, and the end game is getting nearer. Robert keeps hinting at this but wont say it, so he doesn't get accused of causing the impending crisis and panic. I am concerned that WOTW's postings yesterday got pulled though. Not a good sign.

  • Comment number 7.

    Perhaps while they are about it a 'stress' test should be carried out on the Everest of private debt including PFI's which are simply another and very inefficient way the public sector funds the development of its assets.

    One suspects that the reason interest (ie BoE) rates are kept low in the face of significant inflation is the catastrophe that would ensue in the real economy with so many maxed out with debt or maybe the MPC no longer believe in the holy grail of monetarism!

  • Comment number 8.

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

  • Comment number 9.

    http://www.bbc.co.uk/news/business-10720032
    This speaks volumes. The sub text should read, "I've tried everything that I've done before captain, but nothing is working, I canny give you any more power!" (Scotty, SS Enterprise)

  • Comment number 10.

    It seems to me that the EU only agreed to stress tests to placate the US and China. Having done so it is now doing everything it can to reduce their impact. It is a classic example of the EU muddling through at a time when leaders actually need to confront problems head on. It also shows once agan the EU's problems with transparency.

    It seems to me in Europe we have a microcosm of the world during the "roaring noughties". The Germans are the Chinese building a fantastically succesful economy on the basis of exports. Southern Europe is like the US. Enjoying an orgy of consumption funded by cheap credit provided by the Germans (and French and UK) banks.

    Little wonder that the Germans do not want to consider the possibility of default by Greece et al. The bailout of Greece was in fact a bail out of the German (and French and UK) banks. Just a shame Ms Merkel refuses to explain this fact to her citizens.

  • Comment number 11.

    Many European politicians and officials have absolutely no grasp or understanding of how markets behave at all

    My favourite example is the Emissions Trading Scheme, when allowances for emitting CO2 were initially allocated free to electricity generators. It was obvious to everyone in the UK that electricity prices would go up by whatever was the traded market value of these allowances, because they have an opportunity-cost, which would naturally be passed on.

    But the German government firmly assumed that free allowances = no increase in electricity prices, and when the inevitable happened, mounted an official enquiry to establish what could possibly be going on.

    This lack of understanding runs very deep.

    Nick Drew, http://cityunslicker.blogspot.com/

  • Comment number 12.

    RBS is reported to have placed a £5 billion order for 95 passenger aircraft for its aviation leasing unit.

    Now if I'd gone to RBS with a proposal to set up an aviation leasing unit and a request to borrow £5bn would they have lent it to me?

    This is the banks lining their own pockets again rather than doing what they should be doing which is to support the UK economy. Proof indeed they haven't learnt their lesson.

    Remember - we don't build aircraft anymore either.

  • Comment number 13.

    12. At 09:29am on 22 Jul 2010, Wee-Scamp wrote:
    RBS is reported to have placed a £5 billion order for 95 passenger aircraft for its aviation leasing unit.


    Hip hip horay!

    They are leaving!

    Party around ours tonight, and drinks are on hubby!

  • Comment number 14.

    Your penultimate paragraph

    "Far more likely is that they'll take one look at the results of those stress tests and conclude it's all a tawdry attempt to pull the wool over their eyes."

    Almost true but I would like to substitute "our" for "their" as the market professionals already know the fragility of worldwide banking.

    The tests are a cynical attempt to raise confidence in the financial system. The trouble is that few of us have faith in that system because there has been little evidence of fundamental changes in behaviour, not to mention expressions of regret, since it all blew up.

    If the financial system is shown to be in good order will we still need to implement an austerity budget and the promises of worse to come?

  • Comment number 15.

    Part of the stress test is to ensure that banks can cope with a 50% fall in house prices.

    This is key. For two reasons: first it indicates that those in the know with a sense of and understanding of economic history appreciated that house prices are well about sane supportable levels and second that 50% is an underestimate of the potential fall. The reason for my second statement is that stress tests were designed to be passed and therefore made too easy deliberately to instil confidence.

    The reality is that house prices and the payment for house prices as a proportion of economic output is still absurdly high in most of Europe. The unfortunate lenders are desperate to prop up prices to avoid damaging their balance sheets by having to admit that the security that they profess to have is not as good as it appears. They (the bankers) should not have been allowed to lend in the way that they did during the 1990 onwards - to rational and impartial observers this was blindingly obvious at the time. As soon as the central bankers deliberately ignored this problem the die was cast and the depression was and is inevitable. (Blame Mervyn and Ben!)

    Step 1: acknowledge the problem. Step 2: persuade(economically - put up interest rates etc.) the overly indebted into selling to repay their 'security'. Step 3: watch as house prices fall by 50% to 60%. Step 4: ensure that in every area that the local average wage is capable of supporting a family - including somewhere to live. Then, and only then, can economic activity be re-established on a stable basis. Time-scale (on the basis of historical analogy) 20 to 25 years.

    It would also be a good idea to progressively penalise employers who employee staff who live an overly long distance from their place of work as this will reduce the need to cover the country in concrete for roads and generally increase efficiency in the economy and reduce uneconomic waste.

  • Comment number 16.

    Government debt by way of bond issue is a means of increasing or reducing money supply to an economy. There are no practical circumstances that would prevent bond redemption at par although if redemption relies upon seigniorage, inflation might be an outcome. In regarding government debt as a secure asset, the current stress tests are correct and it is mischievous to suggest otherwise.

  • Comment number 17.

    Releasing them on a Friday afternoon? - You know they must be bad!!!

    As I explained at length yesterday, the tests are pointless, a 27% haircut on the Greek Debt is well below the 50% haircut which is the lobg term average for sovereign defaults. The current average is about 70% haircut (since 2008)

    I think Bernanke has let the cat out of the bag - to translate for us mere mortals what he meant was...

    "we've tried all the usual tricks, they didn't work, I don't know why not and I don't know what's going to happen now - we're totally guessing at future policy because all our Economic models are in the bin"

    This is because everything they have done so far has been based on a fundamental contradiction of Captialism. They believe you can re-inflate the lost surplus value in the Economy - well it didn't work in 1929 and it's not going to work now.

    For the first time in this crisis even I, mr prepared, am starting to wonder if I have done enough. When the cracks start appearing at the Fed - things must be dire - they don't give up anything easily, most certainly not the truth.

  • Comment number 18.

    @ kathystephen at 4
    I agree wholeheartedly with your sentiments and a bit more. What I have written earlier on may not be approved, so here is a rather different version.

    - read all about it - read all about it - read all about it -

    (in the Telegraph of 26.2.2010 no less)

    CALIFORNIA IS A GREATER RISK THAN GREECE, warns J P Morgan chief.

    California is of course known to be the seventh largest economy in the world. Is anybody in the position to tell us what spot is Greece in? Other than having the 'misfortune' of being in the 'EURO' rather than the 'Dollar'.

  • Comment number 19.

    Remember, that if it were allowed to do so, the European Central Bank could step in and support any Eurozone member's public debt by open market operations, just as the Bank of England can do for the UK.

    A rational interpretation of the EU position is that the financial authorities want to continue to expose eurozone members' public debt to market fluctuations in order to pressurise governments into making the cuts in expenditure which right wing dogma says are necessary. But they know that they cannot allow a default on repayment of any government's EUR denominated bonds, because of the damage it would do to confidence in all such bonds.


    The basic stupidity is in allowing the stability of the eurozone to be so easily threatened by refusing to control the market.

  • Comment number 20.

    #13

    Sadly they aren't actually leaving. Sorry!

    They're just using taxpayer's money and the profit they make from us to make money for overseas aircraft manufacturers and increase the trade deficit.

  • Comment number 21.

    13. At 09:40am on 22 Jul 2010, copperDolomite wrote:

    "12. At 09:29am on 22 Jul 2010, Wee-Scamp wrote:
    RBS is reported to have placed a £5 billion order for 95 passenger aircraft for its aviation leasing unit. "

    Not only is this true - but it show the total idiocy of the people in charge of our bank

    So we're about to suffer about 10 years of austerity, at the very least air travel by Government will be slashed. On top of this the increasing number of staycations (denied at first by a bullish airline industry) mean air travel over the next decade is going to be much reduced - and of course with the number of travel agents failing and likely to fail will impact this further.

    Does this really sound like a good investment? - Has this been thought through or is it simply to support another industry with taxpayers money?

    Even if you discount all of the above (because you're a wild optimist about the economy) - what does it sat about free market enterprise, profiteering and morals?

    RBS don't run an airline, so they are purchasing these planes today in order to sell or rent them out to airlines in the future at a profit. So why is this allowed? - if this isn't merely skimming off the passengers of those airlines - I don't know what is!!!

    They do the same with the railways - most of the rolling stock is owned by banks - or combinations of banks - for no other reason that to profit unfairly. This is part of the reason the railway never progresses in this country because the vampire banks are sucking the life out of them.

    ...and before anyone starts any fantasy talk of 'risk' - they aren't taking any!!!

    If I were rich enough (like a bank) and I bought up all the countrys wheat supply and immediately raised the price by 150% - pushing the cost of a loaf up by the same amount - would that be legal? would it be moral? would it be fair?

    ....of course not - but this is exactly what the banks are doing with other essentials to the Economy - transport being one of them.

    By any other measure it's simply blackmail - cornering the market, call it what you like - it's profiteering at our expense.

  • Comment number 22.

    15. At 09:49am on 22 Jul 2010, John_from_Hendon wrote:

    "Part of the stress test is to ensure that banks can cope with a 50% fall in house prices."

    ...and just where did you find that out from? - I understand that whilst thre are rumours - there are no definites and I certainly haven't heard any mention of house prices.

    I'm not denying it's not true, I'd like to know where it came from.

  • Comment number 23.

    16. At 09:54am on 22 Jul 2010, letterstojune wrote:

    "Government debt by way of bond issue is a means of increasing or reducing money supply to an economy. There are no practical circumstances that would prevent bond redemption at par although if redemption relies upon seigniorage, inflation might be an outcome. In regarding government debt as a secure asset, the current stress tests are correct and it is mischievous to suggest otherwise."

    In other words - you'll always get your money back - it's just that your money might not buy as much as it did when you invested it!

    Banker talk for "come on in suckers, we're saved you a table"

    Government debt is not a secure asset - it's only backed by the FIAT currency behind it. When faith is lost in that, the bonds become just as worthless.

    I do hope you don't work in finance.

  • Comment number 24.

    11. At 09:24am on 22 Jul 2010, Nick Drew wrote:

    "Many European politicians and officials have absolutely no grasp or understanding of how markets behave at all"

    Which is jolly convenient as most of the people who work in finance have no idea either (including you Nick drew)

    ....or do you propose that the participants of markets have acted rationally and sensibly over the last decade?

    ...don't forget all those (now admitted) bad lending practices...

  • Comment number 25.

    9. At 09:04am on 22 Jul 2010, Averagejoe wrote:

    "This speaks volumes. The sub text should read, "I've tried everything that I've done before captain, but nothing is working, I canny give you any more power!" (Scotty, SS Enterprise)"

    ...you canny expect me to re-write the laws of Economics Cap'n.

    And yet it's not re-writing that's required, it's unwriting - going back to Marxist theory - which at the moment seems to be the only one which can explain this crisis of Capitalism.

    They tried Keynesian, they tried monetarist - neither have worked. The Austrians can only solve the problem by allowing corporations to fail (causing total chaos as so many people rely on them now) - although at least they recognise that things are not going to be fixed with the current patches.

    Oh dear, what a state of affairs - the leader of the biggest rivate bank in the world throws his hands up in the air and starts praying.

    ...I think it's time we did the same.

  • Comment number 26.

    I'm suprised no-one else has challenged wee-scamps rubbish post about the UK not building aircraft anymore. It is, like the myth that we don't build cars' simply untrue. The facts are that UK airlines need new aircraft and the finance to buy them. That's why banks have aircraft leasing units. How else do posters think the teaxpayer will make a return on its cash? Oh, and writingsonthewall - the long term average of sovereign default should be a percentage of all nations that have issued debt not how much the write-off is for any given defaulter (which is what you have quoted). Please try and learn economics and math.

  • Comment number 27.

    "But the European Union's governments, central bankers and financial regulators are not prepared to admit the possibility that an EU government could actually default on its debts - even as part of the totally theoretical exercise of the stress tests."

    They also refuse to believe that lighting isn't the devils forked tongue, the concept of a round world or that those "great steel birds in the sky" don't eat up humans in one place and spit them out in the next.

    Denial get's you everywhere these days...

  • Comment number 28.

    19. At 10:20am on 22 Jul 2010, stanblogger wrote:

    "The basic stupidity is in allowing the stability of the eurozone to be so easily threatened by refusing to control the market."


    ...but isn't that what the Austrian school want? - lets see how non-interference of the market pans out shall we...

    If these markets cannot stand on their own two feet - then they are not fit for purpose.

  • Comment number 29.

    Not really into economics much but interested in the discussion. Looked up opportunity cost on wikipedia and Bastiat's broken window theory.

    "Keynesians argue that in some circumstances the little boy may actually be a benefactor, though not the best possible one. Facing severely underutilized resources (as in the Great Depression), John Maynard Keynes argued that it may make economic sense to build totally useless pyramids in order to stimulate the economy, raise aggregate demand, and encourage full employment."

    Given resources are increasingly being concentrated in the hands of a few is it time to, metaphorically speaking, break a few chief executives windows or at least get them to build a few BIG pyramids??

  • Comment number 30.

    Re RBS: The order included Airbus, for which the UK, as part of the consortium, make the wings I believe. To that extent, therefore, it benefits our economy. Plus, would people rather have the old planes falling out of the sky.....

  • Comment number 31.

    10:28am on 22 Jul 2010, writingsonthewall

    Good to see a lack of understanding on many things as usual.

    The banks have the money to buy the rolling stock. They then lease to the companies that run the networks - air or rail. It is cheaper for the companies running the network to lease rather than buy otherwise they would have bought in the first place. RBS will get a bigger discount buying 95 planes or trains than individual operators could get buying say 5 or 10 units each.

    Yes, the banks are making a profit in just the same way that the operating companies are increading their profit through lower costs.

    So what's the problem? You want higher fares?

  • Comment number 32.

    > the European Union's governments, central bankers and financial regulators
    > are not prepared to admit the possibility that an EU government
    > could actually default on its debts

    If an EU government could default, then strong tests are needed to reveal the banks with problems.

    And if a government truly could never default, then weaker stress tests could be used which would not show problems.

    The worst situation is that governments, central bankers and financial regulators pretend that no default could happen but one does materialize. The weak tests would have left broken banks unexposed, and they would collapse when default occurred.

    To avoid this, we must fastidiously ignore governments, central bankers and financial regulators, and use strong tests anyway. Forewarned is forearmed.




  • Comment number 33.

    @26 Peter Bench
    "...Please try and learn economics and math."

    Please try to learn grammar, punctuation and spelling: it's maths or mathematics. We're not American

  • Comment number 34.

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

  • Comment number 35.

    #22. writingsonthewall wrote:

    "I understand that whilst there are rumours"

    Yes rumours from many sources in the UK and throughout Europe - so why do you then go on to say you haven't heard them - when in the previous statement you stated there were rumours? - You are, are you not, being logically inconsistent?

  • Comment number 36.

    26. At 10:51am on 22 Jul 2010, Peter Bench wrote:

    "The facts are that UK airlines need new aircraft and the finance to buy them."
    Do 'we' - well with airline travel falling - how do you make such a bullish assumption?

    "That's why banks have aircraft leasing units. How else do posters think the teaxpayer will make a return on its cash?"

    Oh - I see - the taxpayer makes it's money back by extracting money from the taxpayer (consumer)

    Absolutely brilliant - totally unsustainable. Even better - why don't we buy them with printed unbacked money too! - You really are a genius.

    "Oh, and writingsonthewall - the long term average of sovereign default should be a percentage of all nations that have issued debt not how much the write-off is for any given defaulter (which is what you have quoted)."

    Not when you're talking about default recovery rates you melon head. The stress tests are based on the assumption that there will be a Greek default - but they chose a recovery rate of 77% (according to rumour) - which is not in line with existing recovery rates

    [Unsuitable/Broken URL removed by Moderator]


    "Please try and learn economics and math."

    For crying out loud - do I really have to listen to ignorance like this? - surely this can be moderated out? (like you moderated out half of what I wrote yesterday)

    No wonder we're in trouble as a nation - there are some really gullible people out there...

  • Comment number 37.

    32. At 11:32am on 22 Jul 2010, Jacques Cartier wrote:
    > the European Union's governments, central bankers and financial regulators
    > are not prepared to admit the possibility that an EU government
    > could actually default on its debts

    If an EU government could default, then strong tests are needed to reveal the banks with problems.

    And if a government truly could never default, then weaker stress tests could be used which would not show problems.

    The worst situation is that governments, central bankers and financial regulators pretend that no default could happen but one does materialize.


    just like:
    the Gulf and how the oil companies have only now decided to set up a rapid response unit (I do hope it is not like this stress testing and is made of a huge freeze of a beach to make everything look dandy and fine)

    ....or my summer student poking himself with a pasteur pipette...

  • Comment number 38.

    @ 33. At 11:38am on 22 Jul 2010, sciencemonkey wrote:

    >> @26 Peter Bench
    >> "...Please try and learn economics and math."
    >>
    > Please try to learn grammar, punctuation and spelling: it's maths or
    > mathematics. We're not American

    Speak for yourself, sciencemonkey - I am North American!

  • Comment number 39.

    31. At 11:19am on 22 Jul 2010, yam yzf wrote:

    "Good to see a lack of understanding on many things as usual."

    Oh another one - here we go...

    "The banks have the money to buy the rolling stock. They then lease to the companies that run the networks - air or rail. It is cheaper for the companies running the network to lease rather than buy otherwise they would have bought in the first place. RBS will get a bigger discount buying 95 planes or trains than individual operators could get buying say 5 or 10 units each."

    ...and the reason the rail companies cannot buy up front is.....?

    Do you ever think what you say through first? Did you not realise that in a system based on Capital accumulation (that's capitalism to you) that the end result is that everything we need will be bought by a few and loaned out to the many? How does this play out - don't you think it further improves the position of those who have already accumulated vast amounts of Capital?

    I bet Isambard Kingdon Brunell didn't have to lease his trains for the GWR from a bank. No - he bought them. Did he run the best railway in Britain - YES. Did the GWR fix it's own trains with it's own engineer? - YES

    "Yes, the banks are making a profit in just the same way that the operating companies are increading their profit through lower costs."

    What a load of horse manure - straight out of an Economics textbook. Just think about what you're saying, and then relate it to the example I gave above where I corner the market in something and then force people to pay more. Don't you realise that the only place the extra 'profit' comes from is the end consumer?

    IF IT WEREN'T FOR THE BANKS DEMANDING THEIR POUND OF FLESH (INTEREST) FROM THE OPERATING COMPANIES THEY COULD BUY THE ROLLING STOCK THEMSELVES - THE SCARCITY OF THE ROLLING / FLYING STOCK IS TOALLY ENGINEERED TO PRODUCE A 'PROFIT'

    "So what's the problem? You want higher fares?"

    We get higher fare anyway!!! - What did you think that the more middle men we put in a process the cheaper everything gets? Surely even if the roling stock manufacturers leased them out directly to the train companies - that would be more efficient - yes?
    ...oh but they can't do that - why? because they owe the banks interest so the goods have to be sold on - they could not afford to lease them out.
    Where did you go to school? - Has it been closed down by Ofsted yet?

    What value does the bank add in this process? - I mean it gets rewarded but does nothing other than abuse it's market position. A position which it's other activites and abuses have created (or don't you ever join the dots?)

    Now stop wasting my time with your spoon fed economics which you clearly haven't questioned since the day it was fed to you.

  • Comment number 40.

    @ 30. At 11:13am on 22 Jul 2010, yam yzf wrote:

    > the UK, as part of the consortium, make the wings I believe.

    Wales makes the wings, and we don't want the rest of you to get any credit whatsoever for that!

  • Comment number 41.

    35. At 11:49am on 22 Jul 2010, John_from_Hendon

    This is a rumour.
    http://www.eyeofdubai.com/v1/news/newsdetail-46288.htm

    ...so is this...

    http://uk.reuters.com/article/idUKTRE66A0X620100711

    Which is what I refer to - however I haven't seen a runour that the tests include a 50% fall in house prices.

  • Comment number 42.

    Napoloen Sarcastic, Mussolini Bearsascar and Chancellor Miracle will be at it no doubt - all under stress to pull the euro over the eyes.

    There is only one certainty in this

    The FFranc
    The Lira
    The Psta
    and the Deutche Mark

    Bye bye Euro

  • Comment number 43.

    Europe's contempt for the markets? Where is the level-playing-field for the 'markets'? How about that 'player' China? They, the Chinese are sitting at the table and put their bets to protect their industries, their workers through keeping their currency stable and indeed can influence the currencies of those that purchase their goods. They are simply protecting their interests. Some call this market manipulation. How big a 'vilain' is Greece in the market compared to China?

  • Comment number 44.

    21. At 10:28am on 22 Jul 2010, writingsonthewall wrote:
    13. At 09:40am on 22 Jul 2010, copperDolomite wrote:

    "12. At 09:29am on 22 Jul 2010, Wee-Scamp wrote:
    RBS is reported to have placed a £5 billion order for 95 passenger aircraft for its aviation leasing unit. "

    Not only is this true - but it show the total idiocy of the people in charge of our bank


    So they have our homes, our money, our transport, privatised our genes through patents and even our water but the IMF isn't here yet. All we've got left is social work, police and schools (don't tell them about the NHS ir the state pension or they'll have them too - oops, forgot, they have a security firm at their beck and call called Blackwater, the elder brother of Group 4).

    When they (IMF) did that in Argentina there were riots in the streets for days until they were given the big heave-ho.

    Boy, am I glad it rains a lot here and strangers will never cope with the wretched midgies for more than 48 hours! That way I can breathe without having to hand over money to some finincial robber baron! Time to buy up all that special pink bottle stuff from the avon lady and flee.

  • Comment number 45.

    31. At 11:19am on 22 Jul 2010, yam yzf wrote:


    So what's the problem? You want higher fares?

    By involving banks you can guarantee higher fares, afterall they want to make a nice big cut for themselves. Dont you get it? Banks add NO value, they simply take a large cut for themselves. There's one born every minute.

  • Comment number 46.

    http://www.bbc.co.uk/news/business-10726444
    ha ha ha ha ha ha ha
    I note that gold is on the way back up, and my supplier has run out of gold sovs!

  • Comment number 47.

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

  • Comment number 48.

    39. At 12:08pm on 22 Jul 2010, writingsonthewall wrote:
    31. At 11:19am on 22 Jul 2010, yam yzf wrote:
    --------------------------------------
    British Rail first leased rolling stock around 1970 from a manufacturer (English Electric) but this remained unusual until privatisation. At that point all existing rolling stock was divided up between a handful of leasing companies (ROSCOS).
    This led to some bizarre arrangements with ancient assets. The most ridiculous of these was the rolling stock used on the Isle of Wight. Until a few years ago the leasing company involved was paid £100,000 a year per carriage by the train operating company. These were built in 1938!!! Did this keep fares down on that line?

  • Comment number 49.

    #7 couldn't agree more.

    Trouble is, the holy grail of monetarism was never applied to asset inflation throughout the boom. Since it's the consequent asset deflation that causes the problems at the end, you'd think that was quite an oversight that the clever people at the BoE/Treasury ought to have picked up on.

    Now we're in to pumping air into a balloon that can hardly resist deflation, while the CPI is hung out to dry.

  • Comment number 50.

    "12. At 09:29am on 22 Jul 2010, Wee-Scamp wrote:
    RBS is reported to have placed a £5 billion order for 95 passenger aircraft for its aviation leasing unit. "

    So where, exactly, did RBS get this £5bn? And while we're at it, where did they get the £9bn to lend to Kraft? That's £14bn splashed about by RBS in a matter of months....

    Have they borrowed it on the money markets (at 0.5%)? Nice work if you can get it - but who'd want to lend to RBS?

    Have they got it from the BoE? £14bn is mere drop compared to what the BoE lent to Northern Rock.

    Have they conjured it out of thin air (whilst simultaneously increasing their capital ratio in a gravity-defying act)?

    I think we should be told...

  • Comment number 51.

    12:08pm on 22 Jul 2010, writingsonthewall

    Point proven methinks.

    "Surely even if the roling stock manufacturers leased them out directly to the train companies - that would be more efficient - yes?"
    No. The unit cost for the operating companies would be higher. Just the same way that when you order 1 of something it costs more per unit than when ordering 100 of something

    "I bet Isambard Kingdon Brunell didn't have to lease his trains for the GWR from a bank. No - he bought them"
    I believe he designed and had them built in a specially constructed factory in Swindon as he was using broad guage rather then Steponson's narrow guage. And the money to set up the factory came from..... (I'll let you work it out)

    "Did he run the best railway in Britain" No, he didn't run it. He designed it and had it built as he was Chief Engineer

    "Did you not realise that in a system based on Capital accumulation (that's capitalism to you) that the end result is that everything we need will be bought by a few and loaned out to the many?"
    All systems, whether feudal, tribal, marxist or capitalist are thus so. Capitalism is just a bit more honest about it

    Where did you go to school?
    the local comprehensive.

    Has it been closed down by Ofsted yet? No, thankfully, for it taught people how to debate in a mature way eg without shouting (caps lock usage), ignoring other views, keeping the mind open...

    What value does the bank add in this process? The same value that supermarkets add to the cost of food.

    "Now stop wasting my time with your spoon fed economics which you clearly haven't questioned since the day it was fed to you." ahh, the last resort of the ideologist, make out that the other person is too stupid to understand when they question a belief. A trait we see in religion, climate change believers etc.....

    Like I say, good to see nothing has changed

  • Comment number 52.

    31. At 11:19am on 22 Jul 2010, yam yzf wrote:

    Yes, the banks are making a profit in just the same way that the operating companies are increading their profit through lower costs.

    So what's the problem? You want higher fares?

    ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

    Call me simple, but if everyone is increasing their profit at each level, how does that keep fares down? Surely all this profit is coming from me, the passenger?

  • Comment number 53.

    Re stress test rumour

    The FSA used a 50% decrease for residential and 60% for commercial properties in the UK based stress tests but as yet I have not seen any suggestion for figures for the 'EU' tests.

    http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6383107.ece

  • Comment number 54.

    I think the most worrying sign at the moment is not the bank situation. But the fact that major investors are moving into the commodity markets, http://www.bbc.co.uk/news/business-10682433
    If the financial system melts down, commodities will always hold their value, as they will always be needed whether it is grain, beans, gold etc etc. We should be watching for major players buying up large amounts of commodities so that they can corner the market and set the price, thereby preserving their profits for the future no matter what happens and exploiting the rest of us in the process. And where is the monopoly and mergers commission stand in all of this?

  • Comment number 55.

  • Comment number 56.

    You have to laugh dont you, stress tests on banks?

    I mean, they are in charge of the money supply and STILL they fail.....Just goes to show how much of a Ponzi scheme the entire corrupt system is.

    Imagine having the licence to Print money, and still going bust.....Stop It Robert its too much, I can't take anymore.....

  • Comment number 57.

    Flawed stress tests risk future panic measures. The poor will be called upon yet again to prop up extreme economic inequalities.

    As for aeroplanes, bankers should not buy aeroplanes or engage in other such adventures. We have witnessed, #31 yam yzf, the consequences when bankers use their judgement and should be less accepting of their wisdom. I don't share your faith in such people. I think it comes from being far too deferential.

    Banks owning aeroplanes is a victory for bean counting over common sense.

    PS Hope the grammar is OK, folks - we don't want *inferior* people making comments, do we? ;-)

  • Comment number 58.

    47. At 12:35pm on 22 Jul 2010, JavaMan wrote:

    "so WOTW was right again?
    http://www.bbc.co.uk/news/uk-england-london-10723274
    Now if that were you or me who did this.....No chance of a conviction even in the presence of video evidence?"

    Ssssshhhhhh - we don't talk about when WOTW's right - we only talk about when he's wrong.
    This was an obvious outcome - the question is whether this is the spark or not. How many people will die at the hands of the police territorials before the people say no more?

    While we're all worrying about the kid knifers on the street - the IPCC don't want to reveal how many complaints are outstanding against the enforcers.
    http://foia.blogspot.com/2010/06/enforcement-action-taken-after-ipcc.html

    So there you have, just to summarise the last couple of years.

    The rich (through the banks) paid themselves large amounts of dosh extracted from the productive labour of the poor.
    When the game was up and there was no honey in the pot, the tax payer was told to foot the bill as the rich had all fled to tax havens.
    When the tax payers complain about this in their legal right to protest they risk being battered to death by the constabulary.

    .....just remind me which bit of Democracy this represents again?

    All I'm waiting for is the Reichstag moment - a new terror threat which means we cannot draw cash from the bank for some reason.

  • Comment number 59.

    @50
    "RBS is reported to have placed a £5 billion order for 95 passenger aircraft for its aviation leasing unit. "

    So where, exactly, did RBS get this £5bn? And while we're at it, where did they get the £9bn to lend to Kraft? That's £14bn splashed about by RBS in a matter of months....

    Have they borrowed it on the money markets (at 0.5%)? Nice work if you can get it - but who'd want to lend to RBS?"

    They borrowed the money.

    In case of the leasing company, it issues debt securities that are related to the leasing assets (aircrafts) to fund the purchase of these assets. Repayment of this debt will be from the leasing cashflow. So in fact so long as there are leasees for the aircrafts, not a penny will come from RBS or whoever is funding or investing in the bank.

    For the loan to Kraft, it was probably a US$ acquisition finance, which means RBS would have borrowed the money in the US$ market. Again, as long as Kraft has the ability to repay or to borrow from elsewhere, in the end, not a penny will come from the taxpayer.

    This is how banks work. Welcome to "Banking 101".

  • Comment number 60.

    ''They were unprepared to be torched,
    By lighter kleptomaniacs.''.
    Remind you of somewhere. ???

    ''Selfish,smiling and sullen, frowning.''.
    Remind you of anyone??

    Why aren't our Conservative leaders speaking up ??? ??

    91 banks eh?
    ''They were big,
    panoramic.
    'Same again Sir ?'.''.
    If there was any significant danger they wouldn't bother with stress tests.

    More money down the drain.
    Why aren't our Conservative leaders speaking up ???

    ''Both be thought wise.''.


    [''So Called Dangerous''.The Fall]

    Only A Spash.
    [Wink]

  • Comment number 61.

    It appears there is a face off going on between governments and markets.

    Who will blink first and who has got the most to lose?

    The markets appear to be the main losers for if governments are prepared to act together and that includes the US the UK and the Eurozone if one defaults then they all default.

    Catastrophic for those holdiing government debt.

    Has anyone got a plan B apart from printing money?

  • Comment number 62.

    " 51. At 1:01pm on 22 Jul 2010, yam yzf wrote:
    12:08pm on 22 Jul 2010, writingsonthewall "

    Point proven methinks.
    ........................
    Not from I've read, for example you clearly know nothing about Marxism, but I'll leave it to WOTW to respond in detail.

  • Comment number 63.

    #39:

    "I bet Isambard Kingdon Brunell didn't have to lease his trains for the GWR from a bank. No - he bought them. Did he run the best railway in Britain - YES. Did the GWR fix it's own trains with it's own engineer? - YES"

    "IF IT WEREN'T FOR THE BANKS DEMANDING THEIR POUND OF FLESH (INTEREST) FROM THE OPERATING COMPANIES THEY COULD BUY THE ROLLING STOCK THEMSELVES - THE SCARCITY OF THE ROLLING / FLYING STOCK IS TOALLY ENGINEERED TO PRODUCE A 'PROFIT'"

    Isambard Kingdom Brunel was a very competent engineer, project manager and visionary. However, he was no financier. While he put his own some money, the main source of financing were West Country merchants, who by the way, knew a thing or two about running profitable businesses.

    The whole point about banks lending money to TOCs is that the TOCs do not have the necessary funding, so they have to borrow. To lend to the TOCs is a long-term commitment and few people are willing to providing that kind of financing to such risky ventures for such long time. So, it only make sense that the banks charge an appropriate interest rate for the funding.

  • Comment number 64.

    #21:

    "Not only is this true - but it show the total idiocy of the people in charge of our bank."

    Do you seriously think that they would order the aircrafts without commitment from the leasees to lease the aircrafts? If you don't understand the market, you should at lease do some research before making such sweeping statements.

  • Comment number 65.

    #45:

    "By involving banks you can guarantee higher fares, afterall they want to make a nice big cut for themselves. Dont you get it? Banks add NO value, they simply take a large cut for themselves."

    That is not true. If the train operating companies don't borrow the money from banks, they would have to raise it from the equity market (ie. selling shares). For equity investors, they typically seek a return on equity of 15% to 20%. So the cost of equity funding is quite high. On the other hand, if they can be funding via debt, either via bank loans or the bond market, the cost of debt capital is much lower. Lower cost of capital means better efficiency, which if the TOCs do it right will lead to lower prices.

  • Comment number 66.

    51. At 1:01pm on 22 Jul 2010, yam yzf wrote:

    "Point proven methinks."

    Oh confidence before a fall is it?

    No. The unit cost for the operating companies would be higher. Just the same way that when you order 1 of something it costs more per unit than when ordering 100 of something

    Yes - you're assuming the rail companieees can't afford to buy 100 - don't you wonder why that is?
    It's down to the accumulation of Capital - if you are the best at it - like a bank - it means you can corner the market in whatever you like. Didn't you study monopolies at school? - and no - I don't mean the board game.
    Ok - so we play your game - Economies of scale is it? - so why doesn't the Government buy all the rolling stock and lease it out to the operating companies?
    Surely under the Economies of scale this would be most efficient - why do you allow a few big private companies the opportunity to profit at the rail users expense?

    "I bet Isambard Kingdon Brunell didn't have to lease his trains for the GWR from a bank. No - he bought them"
    I believe he designed and had them built in a specially constructed factory in Swindon as he was using broad guage rather then Steponson's narrow guage. And the money to set up the factory came from..... (I'll let you work it out)

    ....but did he lease his trains or buy them? - that was the question, I wasn't asking about the history of railways in the country. They were private companies but they didn't have to feed a thousand middlemen vampires in between who do nothing for the process of putting trains on the track other than abuse their market position.

    "Did he run the best railway in Britain" No, he didn't run it. He designed it and had it built as he was Chief Engineer

    Oh - so you have no argument about the economics of this and you want to turn it into a history of GWR - well I'm afraid I don't claim to be an expert in that.

    "Did you not realise that in a system based on Capital accumulation (that's capitalism to you) that the end result is that everything we need will be bought by a few and loaned out to the many?"
    All systems, whether feudal, tribal, marxist or capitalist are thus so. Capitalism is just a bit more honest about it

    ??? - what??? - I htink you're showing yourself up now and should stop it. 2 of those systems are not around anymore (for exactly the same reasons that Capitalism is struggling with - INEQUALITY) and the Marxist 'system' - by which I presume you mean Communism - the state takes the role that RBS are - as I exampled above - and they don't do it for profit - the state in communism is the people, the people are the state so profiteering is only against yourself and therefore will be obviously pointless.

    Where did you go to school?
    "the local comprehensive."

    So a working class lad and still sticking up for the Bourgoisie - I can never understand why anyone in that position would do that. Have you no self respect? Do you always assume that there are 'betters'? - I've met these betters - and they're not.

    Has it been closed down by Ofsted yet? No, thankfully, for it taught people how to debate in a mature way eg without shouting (caps lock usage), ignoring other views, keeping the mind open...

    What it clearly didn't teach was 'thinking for yourself' - because everything you said is exactly the same rubbish I was taught at school - it's simply not true. The claim that RBS in any purchase and leasing role is doing anybody any favours - except themselves - is a complete nonsense.
    I am debating with you - I have shown how and why what you said was wrong - and so far you have said nothing to prove an alternative. In order to believe your concepts we would have to first believe there is value added by simply adding a middleman into the equation and that the theory of Economies of scale only apply in 'chosen' circumstances

    i.e. discounting the biggest economy of scale altogether (the state ownership of everything) as not being the most efficient.

    What value does the bank add in this process? The same value that supermarkets add to the cost of food.

    WRONG - the supermarket provides a location for the goods to be bought, it collects them together for convenience, it distributes certain foods around the country. Banks do not provide a market place for rolling stock - and even if they did it wouldn't be necessary. It's the same thing with the planes. The volumne of turnover and width of the market does not warrant a marketplace like a supermarket.

    "Now stop wasting my time with your spoon fed economics which you clearly haven't questioned since the day it was fed to you." ahh, the last resort of the ideologist, make out that the other person is too stupid to understand when they question a belief. A trait we see in religion, climate change believers etc.....

    I'm not talking about beliefs - I'm talking about facts. Can you demonstrate where the added value of RBS is in this process?

    If the airlines clubbed together and bought the same 1000 planes and stored them in the same way - would the costs be greater - or less than RBS?
    The answer is they would be exactly the same - so where does the profit that RBS 'make' come from then?

    "Like I say, good to see nothing has changed"

    ...and nothing ever will in your world until you start thinking about things practically and not regurgitate what you heard elsewhere.

  • Comment number 67.

    53. At 1:20pm on 22 Jul 2010, Squarepeg wrote:

    "The FSA used a 50% decrease for residential and 60% for commercial properties in the UK based stress tests but as yet I have not seen any suggestion for figures for the 'EU' tests."

    Thanks for clearing that up - I wasn't denying it was part of the tests - I was just saying I hadn't seen it reported.

    I presume the FSA tests are irellevant as they're about to be disbanded!

  • Comment number 68.

    56. At 1:43pm on 22 Jul 2010, JavaMan

    I look at it like this - it's a nice sunny day and it's time for a BBQ.

    Junior Bernanke - "Dad - the BBQ isn't lighting"

    Dad Bernanke - "well put some lighter fluid on it son, that usually sorts it out"

    Junior Bernanke - "Dad, it's not working"

    Dad Bernanke - "Try the parrafin"

    Junior Bernanke - "It's smoking a bit, looks like it might....no it's going out again"

    Dad Bernanke - "Get the petrol out of the garage"

    Junior Bernanke - "Dad I poured the lot on and nothing"

    Dad Bernanke - "Stand aside son, let me get at it with this matc......WHOOOOOSH"

    Junior Bernanke - "Dad - where are your eyebrows, clothes, hair and half your skin?"

    Hyperinflation - the quickest way to lose your shirt.

    I'm about 80% certain the US (and probably the UK) are about to man the presses and start printing again.
    (that's the petrol can out of the garage folks)

  • Comment number 69.

    57. At 1:52pm on 22 Jul 2010, PacketRat wrote:

    "Banks owning aeroplanes is a victory for bean counting over common sense."

    I think that it possibly the best way of putting that.

  • Comment number 70.

    21. At 10:28am on 22 Jul 2010, writingsonthewall wrote:
    13. At 09:40am on 22 Jul 2010, copperDolomite wrote:

    "12. At 09:29am on 22 Jul 2010, Wee-Scamp wrote:
    RBS is reported to have placed a £5 billion order for 95 passenger aircraft for its aviation leasing unit. "

    Not only is this true - but it show the total idiocy of the people in charge of our bank

    So we're about to suffer about 10 years of austerity, at the very least air travel by Government will be slashed. On top of this the increasing number of staycations (denied at first by a bullish airline industry) mean air travel over the next decade is going to be much reduced - and of course with the number of travel agents failing and likely to fail will impact this further.
    ------------------------------------------------------------------------
    UK Banks and finance companies have been involved in leasing, on and off, for at least fifty years. Sometimes profitably, sometimes not so profitably and sometimes very profitably.

    The pressure is on airlines from three directions. Environmentalists, fuel prices and to retain low fares to maintain passenger growth. The 'beauty' of the infernal combustion engine and the jet engine is that (up to a point) increased fuel efficiency, lower production costs, cheaper maintenance is always on the cards. Same for airframes, come to that. Plus, 'planes get old, so buying/leasing new ones also sends out a positive 'message' to potential customers.

  • Comment number 71.

    61. At 2:09pm on 22 Jul 2010, virtualsilverlady wrote:

    "Has anyone got a plan B apart from printing money?"

    Yes - plan C....which is.....printing money.

    Sadly even this is going wrong for the poor old BoE - well at least they will boost one industry - COUNTERFITTING!

    http://www.telegraph.co.uk/finance/newsbysector/epic/dlar/7901018/De-La-Rue-shares-tumble-on-bank-note-concern.html

    P.s. - Guess who De La Rue's biggest central banks are? - The BoE and the Bank of Iraq.
    ...no you go figure out the rest...

    What's also noteable about this story is if you search online for it you will see the true compilation of the news we're 'fed'. Nearly every story contains almost exactly the same paragraphs - because it's all put together from a PR statement from the company.
    Don't take my word for it - look yourself. Journalism is dead if this is how we're getting our news.
    What was wrong with the notes, did any make it to circulation, what effect will this have on cash availability - all important questions not even looked into by our 'suck it up' media hoovers.

  • Comment number 72.

    63. At 2:27pm on 22 Jul 2010, spikegifted wrote:

    "The whole point about banks lending money to TOCs is that the TOCs do not have the necessary funding, so they have to borrow. To lend to the TOCs is a long-term commitment and few people are willing to providing that kind of financing to such risky ventures for such long time. So, it only make sense that the banks charge an appropriate interest rate for the funding. "

    A situation created by the capital accumulation of the banking system
    Some people seem to find it really hard to accept any argument which requires them to think differently to the status quo.
    The situation you describe of "the TOCs do not have the necessary funding" is because all the funding is being sucked up by the banks (and has been for a long time) - can't you see that obvious cycle?

    It's some half baked free market model - the TOC's are allowed to fail (and frequently have over time) and are not allowed to grow to a size where they can afford to buy the stock outright.
    However the banks can grow as big as they like, and the bigger they get the easier it is for them to leverage their position to accumulate even more.

    If you cannot see why that situation is totally wrong then there really is no hope for you.

    The point about Isambard is that he worked to build a railway - the greatest of it's time - he did not do it for profit, he did it because the country needed it (and possibly some self enjoyment).

    The banks and the financiers at the time all did it so they could protect and improve their position of power. So they don't have to roll up their sleeves and work for a living.

    Nothing has changed, the financiers are the banks now and they still don't roll up their sleeves and work for a living.

    What seems to make it acceptable to so many people is that RBS is a faceless bank. If the role of RBS in the leasing operation was in fact an individual - let's make someone up - Sheik Faizal Meatcleaver - would that be seen as OK?

    Would the country be happy knowing that their travel by train is ensuring that Sheik Faizal Meatcleaver can live in the manner to which he is accustomed? Knowing that the TOC's have to pay whatever the Sheik demands in lease costs because they simply don't have any other choice?

    I do think there would be complaints - and yet RBS do it (and other banks) and nobody bats an eyelid.

    So many suckers, no wonder they get away with it.

  • Comment number 73.

    64. At 2:32pm on 22 Jul 2010, spikegifted wrote:

    "Do you seriously think that they would order the aircrafts without commitment from the leasees to lease the aircrafts? If you don't understand the market, you should at lease do some research before making such sweeping statements. "

    Do you seriously think that banks would buy up packaged debt, keep some of it, sell other bits on - without enquiring as to what makes up the package?

    If you don't understand bankers - you shouldn't try to defend them.

    It hasn't gone unnoticed that the most common phrase the banking defenders use is "if you don't understand the market"

    Well fella - the market is the people, the people are the market. The people understand the people - bankers don't.

    Do tell me - what is a commitment to a lease worth from an airline that subsequently goes bankrupt?
    1p?
    £2
    or nothing?

    Oh dear - did you forget about DEFAULT RISK? - Well that's a shame because that's what the bankers did in the last decade.

    You really shouldn't try to defeat WOTW with that flashy stuff you whizz your friends with. I've been doing it far to long to get caught out by such nonsense.

    Commitment to leases indeed...in a recession too! - ho ho ho ho - hillarious stuff.

    It's lucky I am a landlord with 40 empty properties, because I got 40 commitments to leases in the pub last night - this time next year Rodders we'll be milwionairres.

  • Comment number 74.

    65. At 2:38pm on 22 Jul 2010, spikegifted wrote:

    "That is not true. If the train operating companies don't borrow the money from banks, they would have to raise it from the equity market (ie. selling shares). For equity investors, they typically seek a return on equity of 15% to 20%. So the cost of equity funding is quite high. On the other hand, if they can be funding via debt, either via bank loans or the bond market, the cost of debt capital is much lower. Lower cost of capital means better efficiency, which if the TOCs do it right will lead to lower prices. "

    ...and why do the TOC's have to borrow in the first place?

    All you're doing is explaining why 'within the current system' this is the best operating model (which I don't even think is the case, but I'll let it pass) - what I am saying is if this is the best operating model - then the system needs changing as it clearly does not add any value to the process to have banks involved.

    I'll ask again, why is it that the TOC's cannot afford to buy outright? Could it be because throughout the history of railway in this country (except when it was nationalised) - the banks take profit (interest) from the TOC's in the good times - and then lend it back to them at a greater cost in the hard times - constantly empowering them and making it even easier next time.

    I cannot believe the madness that some people actually think this is a good thing. If you don't work in banking then I really do fear for you - only someone profitting from such a situation could hold such a view.

  • Comment number 75.

    70. At 2:50pm on 22 Jul 2010, Up2snuff wrote:

    "UK Banks and finance companies have been involved in leasing, on and off, for at least fifty years. Sometimes profitably, sometimes not so profitably and sometimes very profitably."

    ...but always profitably - right? A constant divertion of the flow of money into the banks coffers - thereby increasing their monopoly position.
    If nobody believes me - then why is it that you really can't do anything in this country without it at some point relying on the banking system. This has been demonstrated when it nearly failed - suddenly all the activities we engage in were in jeaporday.

    "Same for airframes, come to that. Plus, 'planes get old, so buying/leasing new ones also sends out a positive 'message' to potential customers."

    Now we get into alienation - which setup is safer?

    Planes owned, maintained and flown by the airline
    Planes owned, maintained by a lease company and leased and flown by an airline.

    Think BP, think contracted out, think lines of responsibility, think consequences, think endless expensive arguments about who's fault it was..

  • Comment number 76.

    65. At 2:38pm on 22 Jul 2010, spikegifted wrote:
    #45:

    "By involving banks you can guarantee higher fares, afterall they want to make a nice big cut for themselves. Dont you get it? Banks add NO value, they simply take a large cut for themselves."

    That is not true. If the train operating companies don't borrow the money from banks, they would have to raise it from the equity market (ie. selling shares). For equity investors, they typically seek a return on equity of 15% to 20%. So the cost of equity funding is quite high. On the other hand, if they can be funding via debt, either via bank loans or the bond market, the cost of debt capital is much lower. Lower cost of capital means better efficiency, which if the TOCs do it right will lead to lower prices.

    ................
    I note you do not comment on my key point, that banks do not add 'any value' to the process. What you present is two options for sourcing the money and present one as being least worse. How about another, the Government buys up all that is required and leases it at cost. That would be a lot cheaper and the banks would not make a cut in the process.

  • Comment number 77.

    WOTW "So a working class lad and still sticking up for the Bourgoisie - I can never understand why anyone in that position would do that. Have you no self respect? Do you always assume that there are 'betters'? - I've met these betters - and they're not."

    No, I am just not a believer that there is always someone else to blame. I believe in work for a fair wage - which is what I do :)

    "the state ownership of everything" has been proved many times - and still is being shown - to be the most wasteful of all economies. The scale is inverted. We could use USSR, N. Korea, Cuba or a number of other places as examples for this

    "WRONG - the supermarket provides a location for the goods to be bought, it collects them together for convenience, it distributes certain foods around the country. Banks do not provide a market place for rolling stock - and even if they did it wouldn't be necessary. It's the same thing with the planes. The volumne of turnover and width of the market does not warrant a marketplace like a supermarket." - The volume is small for the air and rail market but the value is high, so the discounts for independent operators are very hard to come by - as it would be for a consumer to go direct to Heinz, for example, to buy one tin of beans.

    "??? - what??? - I htink (sic) you're showing yourself up now and should stop it. 2 of those systems are not around anymore " All those systems still exist.

    "Can you demonstrate where the added value of RBS is in this process" I'll keep the numbers small: if small airline buys jet it cost £5. If RBS buys 95 jets, they cost £3.50 each. RBS then leases the jet two small airline for 60p per year over 7 years. Small airline saves £0.80, because of leasing through RBS whilst RBS makes £0.70. Ergo, value added. This is one of the ways the small budget airlines manage to keep their fares lower than the big carriers who tend to own their jets

  • Comment number 78.

    65. At 2:38pm on 22 Jul 2010, spikegifted wrote:

    That is not true. If the train operating companies don't borrow the money from banks, they would have to raise it from the equity market (ie. selling shares). For equity investors, they typically seek a return on equity of 15% to 20%. So the cost of equity funding is quite high.

    =========================================================================

    Aren't you ignoring the fact that equity capital doesn't have to be repaid? There must be a large capital element in these loan/leasing payments. And where are these 10/15% yielding companies? I would happily buy shares in a TOC with a guaranteed 10% dividend yield, especially if the TOC owned its own rolling stock. I don't see how such a TOC could fail to make loads of money. I'm afraid this leasing model just doesn't add up to me. Maybe I "just don't understand markets"- that's the mantra, isn't it?

  • Comment number 79.

    WOTW is on fire today!

    Stock market investors appear not to be concerned about the imminent stress test results. Perhaps the hedgies are placing their bets today.

    The hints for extra QE by both the Fed and BOE are the early warning excuses in readiness to put some more hot air into the system should the speculators attack any weaknesses shown up in the stress test.

  • Comment number 80.

    76. At 3:34pm on 22 Jul 2010, Averagejoe wrote:

    "I note you do not comment on my key point, that banks do not add 'any value' to the process. What you present is two options for sourcing the money and present one as being least worse. How about another, the Government buys up all that is required and leases it at cost. That would be a lot cheaper and the banks would not make a cut in the process."

    Don't be silly - who would pay all the bankers bonuses? What about those upset little banker children who will only get 50 presents each this christmas?
    THINK OF THE CHILDREN - WHO WILL STOP THEM CRYING?

    Aristotle first mentioned monopolies in roughly 300Bc - and yet some people still think that the petrol prices rising together is just 'coincidence' and that the fact they never get a decent transport system has nothing to do with the value being extracted by the financial sector which is not re-invested back into transport, or that the idea that free and fair competition exists anywhere in our mixed economy.

    It's shocking but in nearly everything you use or consume a tiny fraction is being shaved off and passed back to the banks.

    As the banking defenders call out - "how else can you start up a business without borrowing from the bank".

    - Exactly my point - the real question is why did we allow this to happen?
    They're actually supporting my point without even realising it.

  • Comment number 81.

    47. At 12:35pm on 22 Jul 2010, JavaMan wrote:

    "so WOTW was right again?"

    http://www.bbc.co.uk/news/uk-england-london-10723274

    Now if that were you or me who did this.....No chance of a conviction even in the presence of video evidence?"

    -------------------------------------------

    This decision regarding the whitewash of the manslaughter of Ian Tomlinson is a double tragedy for the Tomlinson family.

    Small wonder that the likes of Raoul Moat received so much public sympathy.

  • Comment number 82.

    54. At 1:23pm on 22 Jul 2010, Averagejoe wrote:
    I think the most worrying sign at the moment is not the bank situation. But the fact that major investors are moving into the commodity markets...

    ================================

    indeed - what is under that rock?



  • Comment number 83.

    77. At 3:43pm on 22 Jul 2010, yam yzf wrote:

    "No, I am just not a believer that there is always someone else to blame."
    I don't either - and that's a bit unreasonable considering all we discuss here is Economics - the failure of which I do blame on those who participate without understanding, those who support without understanding and those who extract wealth in the full knowledge they haven't earnt it.

    "I believe in work for a fair wage - which is what I do :)"

    ...so how do you justify the RBS position then - are the bonuses a fair reflection on the work undertaken? Especially when the 'profit' taken from such a leasing arrangement has got nothing to do with skill or ability - it's totally produced our of monopolistic behaviour.

    "the state ownership of everything" has been proved many times - and still is being shown - to be the most wasteful of all economies. The scale is inverted. We could use USSR, N. Korea, Cuba or a number of other places as examples for this

    Proved? - Which one of those states represents the people? By the same argument I could say that it's 'proven' that all Capitalist countries are unstable and volatile Economically - but I don't take proof from the number of them which are - or more poignantly the currrent situation where they're all volatile.
    I didn't start that part of the argument - you did - by trying to use the Economies of scale as a justification as to why any banks involvement is improving the process - I merely retorted with the biggest Economy of scale of all - EVERYONE.

    "The volume is small for the air and rail market but the value is high, so the discounts for independent operators are very hard to come by - as it would be for a consumer to go direct to Heinz, for example, to buy one tin of beans."

    ...you're still missing the point, if airlines, TOC's or anyone else cannot afford to buy what they need outright - it's because banks have moved themselves into the position of gatekeeper for the release of funds.
    However - I am certain that if small shops got together they surely would buy their beans direct from Heinz - once again the wholesaler provides a location marketplace. Which is why I suspect shops close to the Heinz factory can probably buy their supplies from there (I know the shops near the HP factory could get their sauce direct)

    "All those systems still exist."
    .....well the ZX spectrum still 'exists' - but unfortunately very few people use it now as it's obsolete. Are you floundering or something?

    "I'll keep the numbers small: if small airline buys jet it cost £5. If RBS buys 95 jets, they cost £3.50 each. RBS then leases the jet two small airline for 60p per year over 7 years. Small airline saves £0.80, because of leasing through RBS whilst RBS makes £0.70. Ergo, value added. This is one of the ways the small budget airlines manage to keep their fares lower than the big carriers who tend to own their jets"

    Ok, try this for an example - I'll keep the numbers small too.

    If small airline buys 1 jet it cost £5
    If RBS buys 95 jets, they cost £3.50 each.
    If the small airline buys 95 jets they cost £3.50 each
    If RBS buy a jet it costs £5

    The value of 95 jets is still £332.50 - whether RBS or a small airline buys them. So to presume that because RBS purchase them they become 'worth more' is unbelieveable. The only thing that 'adds value' is the desperation of the airline for a plane - thereby having to agree to whatever terms RBS dictates. I mean what happens if the airline only wants to pay 50p a year - does RBS agree - can the airline survive without the jet (an airline with no planes isn't a very good one) - RBS on the other hand can afford to let the plane rust until it get's it's price - similarly to how they can keep repossessed houses and businesses empty until they are offered the price they require. You see houses are also a need as well as a speculation - which is why it works.

    Now the Government buys 3000 jets, it buys them at £1.50 each. It then leases 1 to the small airline for....well about 21p a year (for 7 years) - and hey presto the cost of air travel just got cut by 64% and the only losers were the banks (who were all losers anyway) - the Government get's it's money back and because we're in a centrally controlled system (well the Government is buying the planes) - there's not even any loss for the Government through inflation!
    Win, win, win.

    Gosh - what a wonderful world that would be - I wonder who or what would want to stop that happening....?

    In your example, one day the only people who would be able to afford to fly are people who work for banks. The rest of us would be squeezed out by the blood sucking going on in between.

    Now please let it rest, I really have more important things to do than to point out the blindingly obvious to people who refuse to believe it anyway.

  • Comment number 84.

    78. At 3:48pm on 22 Jul 2010, jeelypiece wrote:

    "Maybe I "just don't understand markets"- that's the mantra, isn't it?"

    Of course - because you have understandable questions - you simply don't understand it. Those who have no questions understand it perfectly.

    This is why only the inquisitive boy points out that the king has no clothes on - everybody else 'knows' that he clearly does and therefore do no need to question it.

  • Comment number 85.

    81. At 4:04pm on 22 Jul 2010, DebtJuggler wrote:

    "This decision regarding the whitewash of the manslaughter of Ian Tomlinson is a double tragedy for the Tomlinson family.

    Small wonder that the likes of Raoul Moat received so much public sympathy. "

    I look at it like this - the people are so desperate for the spark that they are prepared to get behind someone like Moat (probably not the best candidate).
    It's not just here, what about Oakland?
    http://www.youtube.com/watch?v=IKy-WSZMklc

    ..and the result?

    http://www.guardian.co.uk/world/2010/jul/09/oakland-riots-oscar-grant-shooting-verdict

    ...but of course it was the 'anarchists' who did this - not the angry people of Oakland, now living in poverty and oppression.

  • Comment number 86.

    82. At 4:19pm on 22 Jul 2010, 24law wrote:

    "But the fact that major investors are moving into the commodity markets..."
    "indeed - what is under that rock?"

    They're getting their hands on the things you need.

    You see what they know is that when the realisation comes of how bad it really is, people will grab the things they need for survivial (food, water, commdities in general) and won't be bothered about the other investments (stock market, bank accounts, ponzi schemes, Government bonds) - I mean great investments, but you cannot eat a Government bond and nobody is going to swap their last loaf of bread for it (unless it's a Russian Oligarth - but that's another story)

    The wealthy are trying to corner the commodity market so they can charge what they like when we all turn to it - profiteering from our situation - as only those amoral low life's can.

    In 12 months time you won't give a monkeys about the price of BP - you'll be more concerned with the price of bread - and that's what they're positioning themselves for.

    Now please don't anyone say I didn't warn you when it happens.

  • Comment number 87.

    54. At 1:23pm on 22 Jul 2010, Averagejoe

    Apologies - I missed this post saying the same thing

  • Comment number 88.

    81. At 4:04pm on 22 Jul 2010, DebtJuggler

    ...at least we know a good job was done on the autopsy though eh?

    http://www.bbc.co.uk/news/uk-10729545

    Top man on the job - I wonder if he gets a bonus too as we seem to be great at rewarding failure in this country.

  • Comment number 89.

    It only took 30 years to get an admission for this....

    http://www.guardian.co.uk/uk/2010/apr/27/blair-peach-killed-police-met-report

    ...so I reckon we should get an admission from the Met about Ian Tomlinson in about 2040.

    Blair Peach was killed as I was born - one is admitted to and another covered up.

    Come on sheepole - throw off your wooly coats and show the wolf within. It's going to be too late soon - remember the man wasn't even protesting - he was on his way home from work!

  • Comment number 90.

    I find this drive to deflation by the BoE and Govt comical. Do they not understand the UK's debt structure.

    Lets get back to basics here.
    A sustainable everyday economy is one in which I exchange my work for the basics I need to survive and reproduce myself. Growth is the "something left over" after my basics are met, it's the cash I have which is available for discretionary consumption, saving or an extra child.

    In all market economies, since the first city, and probably before that, a small grp has sought to concentrate a portion of that "something left over" in to their own pocket. And every once and a while this concentration grows beyond the "something left over" and starts to appropriate a portion of the basic, making the everyday economy unsustainable.

    I've been dropping my prices, but instead of increasing turnover it's falling. Others like me are doing the same. For those with debts, and that's the majority but not me, this process, deflation, is increasing the real value of those debts, making the everyday economy even more unsustainable.

    In the past, when faced with this same problem, the only solution that has re-started growth has been debt destruction. From ancient greece to 30's america it has always been so. Failure to take this course always ends growth and ushers in oppression, war, dark ages, etc.

    The BoE has tried 0.5% interest and it hasn't worked. They've printed £200 billion and that hasn't worked. They've guaranteed bank assets and that hasn't worked. Now they are trying a fiscal reduction, a deflationary measure, to keep interest rates low. Will it work. No.

    Every policy tried has sought to protect debt capital. That's why none have worked. A normal interest rate of 5-10% is only a concern when too much has been borrowed. And thats the problem.

    I see no prospect of this being addressed by policy. Deflation is here and it will stay. The real everyday economy debt burden will grow and crush us. We are not Japan with a leading edge manufacturing base. We are a little island whose main industry sold rip off investments to the world, populated by mugs who borrowed more then they can afford to pay back, governed by an elite with it's head in the sand.

  • Comment number 91.

    Could you re name have your say as "writingsonthewall has his/her say"?

  • Comment number 92.

    54. At 1:23pm on 22 Jul 2010, Averagejoe wrote:

    'I think the most worrying sign at the moment is not the bank situation. But the fact that major investors are moving into the commodity markets,'

    http://www.bbc.co.uk/news/business-10682433


    ... but why buy cocoa? It only seems to be an ingredient of things that some people want, not need.

    http://en.wikipedia.org/wiki/Cocoa

    Wouldn't wheat have been a better investment?

  • Comment number 93.

    81. At 4:04pm on 22 Jul 2010, DebtJuggler wrote:
    ..This decision regarding the whitewash of the manslaughter of Ian Tomlinson is a double tragedy for the Tomlinson family.
    --------------------------------------
    The family should be helped to bring a private prosecution or a claim for civil damages, or have they been bought off?

  • Comment number 94.

    Ah.

    They did not print the money the right way.

    The only way printing money works to restart an economy is if it is given to the right people.

    In other words Pay Rises.

    The Gov't and Private sector have done exactly the opposite of this.

    They have bailed out their City friends, relatives and future Employers whilst crushing Domestic demand with pay freezes, job cuts and austerity measures.

    The wrong medicine.

    The patient (country) is therefore not going to get better.

  • Comment number 95.

    Hmm, writing on the wall suggests the Banks are the problem.

    Well, it is the entrenched aristocracy of the Banks (and other multinationals) who have created these problems.

    Remember the Bank Shareholders have lost huge proportions of their investments, whilst the Traders employed by the Banks take home huge bonuses.

    The Senior Management of the Banks run the operation purely for their own benefit.

    The Investment Bankers are worse, running the Stockmarkets purely for their own enrichment.

    Capitalism has lost credibility because of the dishonesty of these people, who are part of the entrenched aristocracy.

    Of course most of them have no blue blood, but they like to think and act like the Lords and Masters of the World.

  • Comment number 96.

    How about Mr Cameron reviews the UKSA's calims regarding Bradford and Bingley ?

    He could show us whether the Conservative Party really approves of Small Shareholders, and Capitalism accessible and fair to every Citizen ?

    Now there's a challenge and an opportunity for him.

  • Comment number 97.

    86. At 4:49pm on 22 Jul 2010, writingsonthewall wrote:
    82. At 4:19pm on 22 Jul 2010, 24law wrote:

    "But the fact that major investors are moving into the commodity markets..."
    "indeed - what is under that rock?"

    They're getting their hands on the things you need.
    ================================

    yes thanks WOW

    However, what I need is new

    I do not believe in capitalists, socialists, communists, marxists, revolutionists, survivalists... or any other 'ists' - even, economists.

    All these are from the past and will not suffice, we live in an interconnected world of billions and billions of people and our whole civilisation totters like a house of cards...

    I dont think we are in a recession, or even a depression, I think we are in
    'a reckoning' - its coming!

    Greed consumes it does not add, and is a pestilence (morally corrupting, a plague)
    So time to choose something better - to choose - Honesty, Decency, Humanity... all things that add value to life
    there is a tidal wave of change coming, time to choose

    time to be the things we believe in

  • Comment number 98.

    Keep stirring things up WOTW! :-)

    Many good comments today - too many to applaud as deserved, but...

    @15 John, re house prices - well said. There have been a few comments here about cornering of the market - something which often ends in tears. This is what the banks engineered with the house price boom. THEY created the momey, THEY bought the houses, which THEY then effectively lease back (until people can't afford the repayments). It always was a FALSE market based upon dodgy credit.

    As for Robert's comments on contempt - I respect the power of the markets, whilst having very little respect for their activities. 3% up one day. 3% down the next. Commissions all round at the expense of the productive and the pension funds.

    FIGHT BACK! Partly with ridicule:

    http://www.taxpayersalliance.org/news/hedge-fund-manager-and-other-non-jobs

    http://politicalscrapbook.net/2010/07/spending-challenge-facebook-group/

    http://www.facebook.com/home.php?#!/pages/Can-this-goat-get-more-followers-than-HM-Treasury-Spending-Challenge/136456463054031

  • Comment number 99.

    #90. sizzler wrote:

    "Every policy tried has sought to protect debt capital. That's why none have worked. A normal interest rate of 5-10% is only a concern when too much has been borrowed. And that's the problem."

    I have long held the view that the only way that depressions end is when the excess debt leaves the economy and money again returns to a realistic price. (see my # 15)

    I also agree with you about the reasons for this depression - excess debt - both private and public.

    I also understand why those individuals who have borrowed excess debt are panicking over their problem.

    All of these things are an inevitable consequence of the bubble and directly the result of non-regulation and the light regulation philosophy brought in by the last Tory Government.

    I stick to the points I made in #15 above.

    On Stress Tests: - the rumour mill suggests (see you favourite search engine) that the part nationalised German bank Hypo Real may have failed the test - but given what they used their Irish subsidiary (Depfa) for it is not really surprising (in Northern Rock parlance Granite with knobs on!). I guess the the old Northern Rock would have failed too - but as only 4 UK banks are being tested as I understand it we will never know.

  • Comment number 100.

    Never mind Europe this is all the work of th Britsh Empire.....


    www.larouchepub.com/other/2009/3610stop_brit_assault_usa.html

    I didn't think that existed anymore???? LOL

    Beat that wotw!

 

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