A sombre warning
Mervyn King thinks that the government's efforts to fix the financial system have not gone nearly far enough - and could even be founded on a delusion. That's the not-very-hidden message of his speech to Scottish business organisations in Edinburgh.
It's not just this government that is being too timid. King thinks the entire G20 approach to reforming financial regulation may eventually have to be re-thought. Why? Because it's partly based on the assumption that once you have told banks that they are too important to fail, you can somehow prevent them from taking crazy risks on the taxpayers' dime.
"It is important that banks in receipt of public support are not encouraged to try to earn their way out of that support by resuming the very activities that got them into trouble in the first place. The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the 'too important to fail' question."
This cri de coeur does not come out of nowhere. For some time now, policy makers and regulators around the world have recognised that rescuing the financial system had left them with what we economists might call the mother of all moral hazard problems.
In the past, bankers might have suspected that the taxpayers would bail them out if they got into trouble. But thanks to last autumn, they now know for sure.
This is what has been keeping a lot of central bankers awake at night the past few months: if they took all those risks before, when they couldn't be sure they had a safety net, what on Earth are they going to get up to, now that the insurance is there for all to see?
Mervyn King has voiced many of these concerns in the past. But never this bluntly, at least in public. Here's another killer paragraph:
"To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform. It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector. Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don't, distorts the allocation of resources and management of risk. That is what economists mean by 'moral hazard'. The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history. The 'too important to fail' problem is too important to ignore."
Logically, there are two solutions to the "too important to fail" problem. One is to accept that such institutions exist, but to impose tough regulations to reduce the chance that they will actually fail. That is broadly the approach being taken by the G20, with a belt, braces and chewing gum approach that will require banks to hold more capital, including more liquid capital, and put caps on total leverage (debt).
The governor says this approach "has attractions but also problems". We never hear about the attractions. But there are two pages of problems, the most important being that you never really know how much capital a bank is going to need - and we've been chronically bad at guessing it in the past. He says that requiring banks to issue "contingent capital" is an important way to beef up this approach. That is debt which turns into equity once certain emergency trigger points are reached. But you still have the basic incentive problem created by the belief inside the banks that they are too important to fail.
We knew that King favoured the more radical alternative - which is to "find a way that institutions can fail without imposing unacceptable costs on the rest of society". In essence, this comes down to separating out the essential, humdrum utility side of banking from the speculative, more casino side that has got us all into so much trouble. We taxpayers only underwrite the bit that's crucial to the broader economy, and by its nature doesn't involve so much risk.
Respectable voices such as the economist John Kay and Paul Volcker, the former Fed Chairman, have put forward suggestions along these lines. But it's fair to say that it has been dismissed as unworkable by the most mainstream opinion, including that of the chancellor.
The Conservatives have rushed to applaud the speech, and to remind everyone who will listen that George Osborne has said he thinks there is a case for separating some of the riskiest investment bank activities from plain old vanilla banking. But he only wants to pursue the idea at an international level. As a unilateral UK policy, the Tories have also dismissed it out of hand.
In his speech King says "it is hard to see why" it would be impossible to distinguish between different types of banking. After all, regulators do so all the time. "What does seem impractical, however, are the current arrangements".
In his blog, Robert Peston has often pointed out how un-radical the post-crisis reform agenda for banking has turned out to be.
For his part, Martin Wolf recently wrote a remarkably radical column in the FT, arguing that the financial sector has emerged rather less secure than the one we had before, and urging greater boldness. "The financial system is so inherently fragile that radical reform cannot be pronounced dead. It is only dormant."
Now Mervyn King has used his bully pulpit as Bank governor to turn up the volume on this debate. I doubt he did so lightly. But quite simply, he thinks that with the current approach, we will only have tackled the symptoms of the problem. The ultimate cause will come back to bite us - perhaps rather sooner than we might have thought.
The governor may not get his way. But in a week when policy makers and ordinary taxpayers are reading in disbelief of a forecast 50% rise in city bonuses, just 12 months after the biggest financial bailout in world history, his speech will add fuel to the fire.
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PS: An earlier version of this post mentioned a line which was in the text of the governor's speech, but not in the speech as delivered (an extract of which is now embedded above).
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And Mervyn is absolutely right on this one.
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Banks have no choice but to lend longer term than the theoretical term of the current accounts and deposits (retail and wholesale) that fund the lending. This is their bread and butter business not speculation.
If confidence goes then no bank can withstand the withdrawal of current account cash (subject to instant withdrawal and the failure to renew deposits.
Banks can protect themselves against interest rate changes (eg 25 year mortgages can have interest rates which change monthly in line with base rate) but then can never get enough 25 year deposits to match 25 year loans.
So provided banks have sufficient capital, governments should move to help them with liquidity when public confidence is lost and funds are withdrawn from a bank. This is in the national interest and although saves shareholders facing a bank failure, does not actually improve the shareholders position beyond where they would have been without the loss of confidence.
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That was quick! Bravo Stephanie.
The banks are too big to be left to their own devices, is Mervin getting round to telling us that?
Right now several governments in Europe are announcing measures to tax banks on their outrageous profits, but this news has trickled out, seemingly as unrelated decisions. I reckon governments world wide just don't have a clue how to handle the banks, but are trying to sneek up on them somehow…
Our elected leaders had better sort out the banks, retail and merchant, before they suck the life out of everything.
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Retail and investment banking will never be separated.
Why ? Because this allows the rich elite to gamble with money, safe in the knowledge that if something goes horribly wrong the taxpayer will bail them out.
In fact it's not a gamble. It's a win for them and a loss for the British public in general.
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cri de coeur Stephanie.
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Hats off to Mervyn King for saying what many must be thinking.
I was incredulous listening to the Today Programme that lenders are to take more responsbility for their lending. From where I am sat the banks seem to have adopted a similar to model those in the US peddling subprime mortgages. It was just their jobs to sell the credit and watch the money come rolling back in?
When these people failed so spectacularly why are the governments and the inept regulators giving the financial industry another blank cheque book?
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Why is separation impractical exactly? I'm sure the banks will provide many reasons against it but why are we listening to them ?
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I can't believe how calmly this speech is being taken. This story is absolute dynamite.
Can you imagine the depths of frustration that have driven Mervyn King to this very public rebuke of all other parties involved in reforming the financial sector? He has until now remained diplomatic, but has finally come to the conclusion that his diplomacy was winning no concessions. Reform, if it is to happen at all, must be forced through with the strongest of strongarm tactics.
Well, Mr King has now lit the blue touch paper. Let us hope, for all our sakes, that this does not turn out to be a damp squib.
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I don't see the issue with a unilateral UK attempt to enforce something along the lines of the second Glass-Steagall Act.
What needs to be taken is a carrot and stick approach, apply the regulation along with regulatory and tax carrots on the investment side, and you minimize the risk of them moving east - which the prospect of increased regulation is already doing.
I can appreciate the Tories can't just be seen to be 'helping the rich', but the fact remains that taxes on those banks and bonuses form a large part of the UK's tax income, and prior to the bail outs not many were complaining when they funded the schools and hospitals, we need to retain the UK as a banking centre whilst re-balancing the constituents of GDP, not to start throwing the baby out with the bathwater.
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We need to learn lessons from the Islamic banking system...i.e. the interdiction of usury.
Now...I just wonder why our troops are in Afghanistan...fighting for democracy perhaps?
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No amount of regulation and intervention will achieve what can be achieved by making banks behave like any other business. Let’s allow banks to fail, with retail depositors fully protected and shareholders and debt-holders left to carry the can. That will focus a few minds in the financial services “industry”.
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Pensfold, it appears that you have been living in a cave on an otherwise uninhabited island in the Outer Hebrides, and the entire financial crisis has passed you by.
The situation you are describing is a run. The banks that failed or were rescued did not get into that position because of a run. There was only one run in the entire financial crisis, namely on Northern Rock. However, even in that case the bank was already long since doomed. They failed by overstretching themselves: primarily through relying on wholesale finance rather than retail deposits and purchasing instruments that they did not understand, but also in RBS's case through hubris-driven expansion plans.
No, banks were not innocent victims in this crisis, they were front and centre, causing all of the problems. It amazes me that anyone should need this explaining to them in 2009.
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Why is nobody in Westminster listening? Is it because Gordon Brown simply wants to micro-manage every aspect of the world economy? Is he scared of telling the banks to put up or shut up? Or is he more interested in making political capital by ranting on about bonuses (but doing nothing) than actually preventing the next banking crisis?
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I'm having a problem with all this. For me a bank is there to provide a utility service, rather like water, gas and electricity. But Pandora's Box had been opened, at least by Thatcher, and so now we have any tom, dick and harry competing with any dick, harry and tom. Nothing ever in moderation of course, excessive competition demands excessive risks. Result? The cheapest vacuum-surviving, law-breaking (but all laws are removed) Amoeba wins!
We can now certainly forget regulation because the resultant complex array of 'products' and their complex inner-structures means that we have a 'loop-hole at every neural-node'. It will not be possible to blame the banks next time - and they know it!
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The whole cheap credit boom made a false economy and the only idea these people have is to do it again, repeating the same old 'supply and demand' mantra.
Professional footballers made be paid obscene amounts, but when they gamble it's with their own money and the global economy.
We could all see it was a bubble, but we're supposed to pretend it wasn't and was just one of those things that happen and couldn't be foreseen? It's all quite depressing.
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@ 12 BankSlickerminustheR
Quite, beautifully put, nearly good as Polonius.
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Mervyn King is slowly edging towards going what he (and his predecessor) rejected doing on several occasions in the past decade and that is to actually tackle the structural problems.
The problem with actually tackling the banking problem is that the solution inevitably leads to a recession, but we now have no choice.
Banks must be broken up. The banks must be induced to break themselves up. We cannot have just 4 (four) banks we need 50 (fifty) or more - so the 4 banks must de-merge themselves. This will re-establish banks that can fail which is essential for a market in banking.
Money must again become valuable and have a real cost to borrow and pay a real return to lend. (This will inevitably cause house prices to drop substantially.) Without doing this there can be no rebalancing of the economy and improvement in the savings ratio.
Mervyn King (and the Treasury, FSA and the MPC) is an abject failure as he rejected advice (from many sources including me!) that there was a problem of an imbalance in the economy for a decade or more. He now is frightened by his failure, but this is too late - he is not fit the be the Governor of the Bank. He has a five million pound pension pot so in all decency he should resign NOW.
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If Brown and the government wanted to stimulate the economy rather than the failed banks decide which businesses survive, he should have lent out a few £million via Zopa?
Mandelson seems to be banging the competition drum over Royal Mail. Surely the UK government lending via Zopa would get money into the economy at the grass roots and provide some competition to the limited number of merged banks now controlling the market in our High Streets?
Disclaimer. I lent out £100 via Zopa this year as much to make a protest against the banks. Now online discussing King's statement and Zopa with a chat friend via IM in California.
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Its wearying to have to wait for the people in power to just catch up with common sense.
Creating fake money that Bankers recycle into huge bonuses built on a foundation of fresh air---even Goldman would be bust if the taxpayer hadn't stopped BoF,Morgan Stanley, Lloyds, RBs, HBOS from collapsing--- is ' a delusion'---oh! really?
Personally, I wouldn't bother with regulation finely constructed: The Americans always cuff up one or two 'pour encuorager les autres'---it's a complicated situation, so cuffing up a couple of prominent bonus gatherers, and getting the Police PR dept to invite along a few web-video and stills camermen while investigations continue-- may well do more to acheive the desired end, than the next 24 months of aimless musing on possible regulation ...
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"but the fact remains that taxes on those banks and bonuses form a large part of the UK's tax income, and prior to the bail outs not many were complaining when they funded the schools and hospitals"
Imagine that burglary is legal.
Pro burglars, who declare their takings as taxable income, might well provide more tax than anyone else in the economy. However, they are actually providing nothing at all, because their tax "contribution" is merely the appropriation of existing wealth created by somebody else. So the "bankers provide loads of tax" argument isn't any kind of knock-down argument on its own. You need to demonstrate that the bankers create wealth and give some of that created wealth to the tax base, rather than merely moving other people's created wealth onto their ledger and then passing some on to the government.
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I cannot help but wonder: Is it not the case that this crises was brought about by what amounts to excessive bad-debt burdens? Regardless of due-dilligence and related issues - then if this is so, is that not also saying that an excssively large proportion of borrowers were in fact delinquent? I ask myself this because in any rational review of an economic climate conducive to the growth of new businesses, full employment and a contented population, easily available, low-cost credit must be a feature. Does not this crisis really reduce to the fact that the banks were convinced that the majority of their bad-debt exposure would be covered by their better quality borrowers, and other profit-making activities such as trading?
Whilst I believe that there are certainly some working within the financial sector who have - from time to time - been less than properly diligent, I do not believe that this crises could have been avoided by any form of regulatory action, government intervention or similar. Ultimately, the lesson we all have to learn is one of personal responsibility, on the part of lender - but also borrower, which latter I believe will always comprise of a majority who are inclined to adopt a careless, even cavalier attitude towards such matters. I think we are suffering now because of this culture of blamelessness, this ability to deflect personal responsibility without batting an eyelid had finally reached epidemic proportions, the like of which has never before seen outside of a communist regime.
Look at it this way. If the government (any government) were placed in charge of the Sahara, we would have a sand-shortage within a month. They would run out of money in a year due to the expense of recruiting sand safety specialists, sand movement, preservation, distribution, and marketing consultants, despite never being in danger, needing to move it, preserve it, distribute it, or create logos and strap-lines for it.
The creators of wealth in this country are almost entirely small to medium sized businesses. They provide the fundamental means of generating employment and revenues on which banks and others are able to build large financial services businesses. Yet more of that money goes to pay for govt. than goes to banks. UK business people already suffer under a huge economic burden which effectively means that we work 3 out of 5 days a week in order to pay for a super-sized, over-paid horde of incompetent civil-servants, most of whom have quite literally spent our money employing each other in order to find new and ever more sophisticated yet fascile ways of blaming someone else, or just saying 'no' to the rest of us, about almost anything you can think of. Think about it for a moment and you will realise just how many of these pointless jobs there are. If you are unsure about this, google government employee salaries, and take a look at your local govt. website, then look at the growth in personnel and other expenditure over the last 10 years. You are on the internet, if you google it you will probably find it. I guarantee you will be shocked at the figures.
With any luck, Brown will soon have to make the cuts we all know have to be made, and many of those pointless jobs will finally go. Whilst I know that the country's real workers (the small-to-medium sized businesses) will not benefit financially from such an event, at least we will have the satisfaction of knowing that this recession will probably have routed a substantial number of individuals whose main claim to fame is their remarkable ability to shrug-off all forms of personal responsibility, and their deft use of meaningless phrases such as "we have this under review pending an on-going process of evaluation".
Perhaps best of all, with funds drying up, those govt. employees will be fast running out of their ignorant, passive-aggressive strategies designed to redistribute the the wealth that the silent majority of us generate for this country as a result of the creative, industrious and diligent work ethic that our country is often accused of lacking because of the high profile occupied by the wasters we somehow manage to employ in local and central government.
Rant over (for now). :-)
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The current (old version) financial structures are no longer fit for purpose - this was evident from the start of the crisis. Their (the banks etc)sole ambition at present is to recreate the past because that's what they feel comfortable with irrespective of the insult it presents to those they so badly damaged (remember that many will die as a result of the credit crunch, it is not a victimless crime). Intellectually no government is yet ready to make the leap forward in thinking that must inevitably come in stripping out the power of the banks and whilst they dither they inevitably continue to loose the ability to shape the future to the Chinese and the other resurgent economies of the East.Time is now running out. They have perhaps less than 18 months to play with before change will be forced upon them rather than guided by them.A lack of outstanding leadership is perhaps the West's greatest problem. The general public is not impressed !
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Mervyn King may warn but he will not save you. All non oligarchs are headed for debt peonage and serfdom at best, catastrophic meltdown at worst.
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One of the main causes of the financial meltdown in 1929 was that banks had been combining low-risk deposit taking ('high street banking') with the highly risky activity of underwriting and trading in stocks and shares ('investment banking').
To prevent a recurrence of this disaster, the Americans passed the Banking Act (often called the Glass Steagall Act) in 1933, which separated high street banking from investment banking and a similar separation was imposed in the other main economies.
For 66 years the separation of investment from high street banking was highly effective but, after many years of intense lobbying by the banks, the Banking Act was finally repealed in 1999. Within 10 years, one of the main causes of the financial meltdown in 2008 was that banks had, once again, been able to combine high street banking with investment banking.
Of course Mervyn King is right. Of course we should go back to regulatory position that worked perfectly for 66 years, until 1999. How can this possible be described as "unworkable", as reported in Stephanie Flander's blog? Those who ignore history are condemned to repeat it.
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The provision of credit in a society is the most basic of utilities. In "Western" societies, this has been in the hands of private banks with their mega-rich dynasties for hundreds of years.
People are beginning to realise that it is the banking system itself that is the problem (see Fractional Reserve Banking & Modern Money Mechanics).
Research the system and you will find that the only logical solution is for the people (through an institution like the already nationalised Bank of England) to create and control credit for the benefit of all in society, not just the very few.
Taxes could even go down.
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Mervyn was at the helm when all this kicked off, he is only saying this now as it is too late and he can see the Tsunami coming.
Bottom line the bankers and the brokers et al ran off with the cream and left us with the merd, why all these people have not been rounded up and jailed is beyond me as it is clear it was all a big fraud, and yet they have the temerity to say it was Mr and Mrs J Bloggs fault for running up their credit cards and borrowing too much, yeah right
these stories are now like groundhog day and how long is it now over a year and nothing has changed.
I tell you another thing Cameron posturing that we get some of the dunkirk spirit to get us over the hard times is as offensive if not more than the BNP using wartime images.
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One for JJ followers...
'William Hague under pressure from US over Conservative allies in Europe'
http://www.guardian.co.uk/politics/2009/oct/20/tories-eu-allies-us-pressure
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WJNMoore in message 26 is absolutely right.
Why is everyone ignoring the lessons from history? Retail and investment (casino) banking should be entirley seperate. If we fail to do this, how long before the next credit crunch and crash?
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Mervyn King (many times over the last 18 months) as well as post nos. 4,5,7,10,11,18 and 26 above (as well as stanilic regularly) + Stephie tonight + many many others over the last 24 months, have identified the necessity to separate the 'utility' retail banks from the 'risky' investment banks is what is required...as Evan Davies said on Radio 4 this morning...'Even rocket science is not that complicated!'
GLASS-STEAGALL NOW!
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KaitainCPS - having read your post, I can't resist asking what you feel the difference between a 'pro burglar' and the government is? I suspect the pro-burglar will not take quite as much of your wealth as the government. More seriously(?!), on the 'banks contribution' - the reality is that no system (of any kind) is 100% reliable and consistent in operation. Most UK banks use money wisely - many for hundreds of years without major mishap. Sooner or later, all systems fail, whatever their nature - e.g. cars, telephones and political systems. For the banks, increasing volumes of trade, and the necessity of dealing with ever more complex, hence expensive and yet often pointless regulatory issues (for which you pay the govt. to create and then pay the banks to work around - and if you still aren't happy you pay an IFA or a tax or pension specialist to work out for you.....), a great deal of pressure has been placed on the systems operated by the banks. Not just pressure to make profits, but pressure to provide free banking services and meet unreasonable employment criteria, etc.. It is a matter of public record that for 99.9% of the time, the banks have been very succesful at creating profits from their available resources. Those profits have provided pensions, investment returns, profits for shareholders and much more besides. They have enabled cheaper, more easily available credit terms for those that need it and were genuinely committed to repaying it. Sadly, many borrowers weren't, and aren't. Though it is true to say that the banks have traded instruments that were in a complex way, 'tainted' with suspected bad-debt, the reality is that the wealth created by the financial sector in the UK is almost entirely responsible for keeping this country's economic head above water, and given Brown a massive amount of money to waste. The contribution made to public funds by other sectors is individually very small by comparison, especially when you factor-in the unseen effects of the compensation paid to bank employees, who more often than not spend that money on mac-mansions and other 'stuff' - just like a footballer or anyone else making a lot of money - numerically you may see this as just a small but necessary part of the cycle that has kept the economy functioning - until it dissappears. Then you notice house-builders, car showrooms, restaurants and other small businesses in danger of failing in some areas, until these funds begin to flow again. It is a fact that every other sector relies upon the services delivered by the banks and financial institutions in order to survive and grow. If you want a demonstration, of banks ability to create wealth, just take a look at the FT. Remember that wealth is expressed in terms of ownership; money is merely the vehicle by which same is more easily exchanged. Without efficient, profitable and trustworthy banks (intermediaries), such wealth as exists would be concentrated in very few hands, leaving the rest of us with little if any opportunity to leverage whatever capital (intellectual, financial or otherwise) that we may have - in persuit of that wealth. Anyone that visited the former USSR or other E.European communist regimes will recognise this all too readily. These intermediary functions are of course the fundamental source of the profits made by banks. However on there own, these profits would not support a modern high street bank, let alone one that delivers basic services free of charge. Hence over time, the banks sought (and continue to seek) to create investment instruments, and to create the markets within which to trade these instruments for profit. I'm sure you can see from this that the banks don't pass on other peoples wealth to the government.
As for the latter, on a lighter note - it's worth remembering that the only reason that most people give them half of their cash is because they have a bigger stick than they do. If you don't believe me, and you don't want to go to jail, you could try not paying your taxes, and then refuse to go with the police when they come for you. On the other hand, put whatever you can in the right kind of bank account, and the bank will at least give you more back than you put in.... :-))
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We had this a few times now. The governor is talking sense, publicly. Great one thinks, things must be moving in the right direction then. But then all that happens is the printing a more money and the use of taxes to stuff it right into the damn bubble and damage everybody's future even more. Labour can't win the elections, so why don't they just say okay, we had it all wrong and we have contributed to this mess, but we now use our final days to do something unpopular but inevitable. We let the damn bubble collapse and kick of the reforms that this country needs to overcome its debt addiction.
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34 I hope the moderators understand playin english
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O NO NOT AGAIN !
PREJUDICE AGAINSTS DISSLECKSICKS MUST STOP
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The Newsnight contribution on this was disappointing. A brief mention was given of the (rather uncertain) position of the Tories, but no mention of what was the really significant congruence - that Mervyn King was now saying _exactly_ what Vince Cable of the Lib. Dems has been arguing for months - that the two types of banking _must_ be separated.
The BBC has been criticized recently for sticking to a 'two-party' approach to political commentary. Here was an ideal opportunity to demonstrate that the BBC recognizes that the third party has different, clearly-articulated views - and it failed the test!
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#2 Pensfold
And you think basic deposits are what banks use to lend?
The collapse wasn't due primarily to a run on the banks by depositors.
It was due to dodgy assets created by excessive lending being considered risk free and used as a supposed solid capital basis for yet more lending and then the shattering of that illusion when there was a downturn.
The analysis of government replacing deposits withdrawn shows a complete lack of understanding of the circumstances and is quite frighteningly naive.
As to the timing issue, there are financial instruments around, such as bonds which can be issued over a 25 year period.
But you will actually find that the core period of many mortgages is 3-5 years... after that reversion rates apply.
The problem we do have is that some of those rates are tied to the artificially low base rate rather than commercial rates i.e. LIBOR.
Offering base rate trackers can certainly create risk exposure without someone being stupid enough to provide cheap money to offset them.
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Mervyn King's comments seem to show pretty clearly why he's much better thought of than the treasury and the current mismanagers of the economy in government.
What he's saying seems to be a statement of the obvious, yet those with the ability to fix the problem fail to do so, apparently as it might upset some of their pals in the city.. and would probably make them less employable in later life.
Mr King's statement and the actions of the FSA seem to show pretty clearly why the FSA should be broken up ad its duties covered by the BoE (even if that is something the BoE would prefer to avoid).
Of course with a clear over-riding perspective, capable people should be able to make things work... but they haven't done, there must be a deficiency somewhere.
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41 I endorse every word you say. Further the time is NOW. We need our big banks broken up so that their separated casino arms are in totally separated PLCs. We need regulation to stop the new utility banks setting up casino departments and to stop them lending money to casino bank PLCs.
I am dismayed that George Osborne has not grasped this point. We will sleep walk into another crisis while we concentrate our fire power on bonuses.
Incidentally, regulating what casino banks may do seems singularly pointless.
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And now for my favourite mantra - When are they going to split the retail banks from the casino banks ??
All of Mervyn King's blatherings will come to naught if this one thing is *NOT* done !!
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No 11 "I can appreciate the Tories can't just be seen to be 'helping the rich', but the fact remains that taxes on those banks and bonuses form a large part of the UK's tax income, and prior to the bail outs not many were complaining when they funded the schools and hospitals, we need to retain the UK as a banking centre whilst re-balancing the constituents of GDP, not to start throwing the baby out with the bathwater."
Interesting thoughts, especially in light of the still general usage of the term "banks" when what should be referred as "Retail or High Street banks and Merchant or Casino banks. Also,there seem to be *NO* distinction in most people's minds between the "nationalised" banks and the ones who haven't needed the Queen's shilling !!
You mentioned "minimize the risk of them moving east". Have you wondered where the majority of profits for both HSBC and Standard Chartered come from ?? They are, to all intents and purposes, "Eastern" banks moving West !! Both these banks have operated under very stringent regulatory regimes in the East. Hence they tend to have less of the toxic stuff. The "strict" regulations still being bruited about here, have been in place in the East for some time now !!
Merv the Nerve didn't "invent" those regulations. It's about the same as saying Christopher Columbus "discovered" America, oh, and there he found people there too !! Thurprise, thurprise, said Puddytat !! (Sorry, I'm a great fan of Tweety Pie !!)
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Wise words Mr King and this is from a banker by the way. He is absolutely right, separation of the core businesses must occur so that the failures of part of the organisation cannot be plastered over by the successes of the others.
Clarity and transparency must be the order of the day, something that (paradoxically) we lost when regulation came in. I am not saying that regulation is wrong, just not done effectively.
The answers lie within the system, it's whether those in charge have the will to sort it.
I am convinced that an 'aftershock' from the recession will come soon - I hope I am wrong.
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No 14 "...but also in RBS's case through hubris-driven expansion plans."
And oh, the hubris, the hubris !! Not satisfied with swallowing Nat West Bank like a minnow swallowing a whale, they tried to swallow ABN AMRO as well and got choked on it !! The joys of "leveraged buyout" !! Wonderful Americanism !!
Next on the agenda, the Man U leveraged buyout !! At least Roaming Roman bought Chelski with his own cash. In fact, rumours had it that his various ex-wives probably cost him more than Chelski did !! Ah, to be so rich.....
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No 12 "We need to learn lessons from the Islamic banking system...i.e. the interdiction of usury...."
...and conspicuous consumption beyond your means....
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No 19 John "Banks must be broken up. The banks must be induced to break themselves up. We cannot have just 4 (four) banks we need 50 (fifty) or more - so the 4 banks must de-merge themselves. This will re-establish banks that can fail which is essential for a market in banking.@
Perhaps we should start with banks that *HAVE* failed rather than a blanket curse on all banks especially on the ones that are still viable !!
BTW which bit of Hendon are you in ??
- your neighbour from just North of you !!
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No 21 "The Americans always cuff up one or two 'pour encuorager les autres'"
Well, the Chinese "encuorager les autres" even more by taking a few "economic saboteurs" out and shooting them !! Nothing concentrates the mind better than the possibility of a bullet in the back of the head !!
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No 22 "Imagine that burglary is legal.
Pro burglars, who declare their takings as taxable income, might well provide more tax than anyone else in the economy."
Well, prostitution is legal in the Antipodes and they do declare their takings as taxable income !! Nothing like the "sneaking around in dark alleys" in "Puritan" Blighty !!
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DOUBLE-TALK
BankSlickerminustheR (#29) And there we see them at it again, describing National Socialists as extrem right-wingers, when in practice, as statists, they are left-wing - the clue being the word socialist! It's neoliberals and neoconservatives (anarchists) who are extreme right-wingers. They go abaout fightig statism both at home and abroad. This should be obvious to anyone who can think about what they see logically. But sadly, the educated are usually verbally educated. They learn to bleat/repeat what they are told. It's a feminiozed brain thimg. The more going to university the better of course, even though it is dramatically dumbed down and dumbing down too. Only scientiosts see through this verbiage, and science is not de rigusr these days, it is 'geeky' or 'autistic'.
This intenSional confusion sets up a mental state within which all sorts of other pernicious propaganda and double-talk penetrates.
Here's one of the anarchistic think-tanks on the deception, spinning it for all it's worth mind. They are anti-state. That means anti public ownership of everythning, anti NHS, anti Royal Mail, anti state schools, anti....
i.e. Anarchists .......with thoroughly modern makeovers.
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Given that the Glass-Steagall Act was only repealed in the 1990s it seems a bit much to claim that "it can't be done". It was done. So what has changed in the last ten years to make it impossible?
The answer, I suspect is that the casino banks have become dependent on their retail arms, and probably also the taxpayer guarantee that comes with them. To suggest that the banks are now to complex for this simple solution to work is, to my eye, special pleading (if not just blowing smoke).
As for the idea that this could only be done internationally. This looks like the result of more special pleading, if not threats, to decamp from London if the UK goes it alone.
More proof, if more proof were needed, that we are politically chained to the City of Londaon - and that our Regulators do not control the banks: the banks control them.
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Another great article! This topic is really much more in line with what needs to be thought about to address this crisis and reform society away from the antiquated institutions of post-WW2, US-centric Bretton Woods.
It goes back to the conversation recently I had with Reaper of Souls - that banks need to be reigned in and regulated, in some cases fully nationalised and made accountable to the taxpayer, to address the moral hazard problem and to allow private debt write-downs (through loan interest rate caps) without incurring further moral hazard.
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It's really down to the people now. They must make it clear to the politicians that they won't get voted for unless they sort this problem.
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Mervyn King is right. And the "attraction" of the present course of action is that it requires very little action on the part of the authorities. The Chancellor and the PM are not renowned for prophylactic, energetic and difficult actions to solve problems - just let 'em accumulate and sort themselves out seems to be their philosophy. The PM has always been most imprudent - he bangs on about prudence (wethinks he doth protest too much) yet on the Andrew Marr show a couple of weeks back he admitted the most prudent and stable period in his time in government had been ... 1997-99 ... when he slavishly followed the spending plans of the previous Conservative government(but he did not add that bit). After that it was all downhill, with spend, spend, spend - and for what effect? The Government was as irresponsible as the banks - something that is overlooked in this current lynch-the-bankers climate. The Government should be lynched as well. The question now is - would the Conservatives act on Mr King's advice? I doubt it.
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Mervyn King also launched a scathing attack on Goron Brown, first of all for the big part he played in allowing the crisis to happen when he removed the need to separate retail and investment banking (before we let Gordon Brown loose on our regulatory systems banks could not use current / deposit account holders money to fund risky investments - this alone would have obviated most of the need to bail out banks using tax payers money) and secondly for not learning the lessons and doing very little to prevent banks returning to their old ways. He also condemed labour for their mismanagement of the public finances generally. No mention of any of this in this article. Why not ?!?!?!?!? Sure the banks themselves played a part in this and should be condemed accordingly but this article gives the impression that the crisis in our banking industry and public finances is solely down to the banks which is a complete distortion of the facts.
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errata (#51) apologies for typos, sticky keyboard - must be all the frustration. How the freedom-loving USA has 'helped' the UK over the years? ;-)
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The answer is very simple. The general population should withdraw its savings from banks that refuse to curb bonus payments, and put their savings into institutions which agree to comply. This would create a run on many of the banks and force them come into line.
The government is very close to beig complicit in a situation whereby we're going to rob the poor to pay the rich. And if they won't protect the citizenry, we need to use this simple but effective tool to protect ourselves.
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It is about time that someone in a senior leadership position in the UK society calls a spate a spate. We live in an unaccountable, injust financial system, where most banks can only win and the consumer (in the long-term) can only lose (via high debt interest charges, inflation, loss of pension funds, etc.) Currently, the biggest banks are not controllable by the government, they seem to live in a political space of their own. If any institution in a country is beyond political control, its democracy is severly damaged. Effectively, the government has no control over the direction the UK economy will take over the medium to long-term. Another bust or inflation spike could, and will, at any time ruin the governments planning.
Please find many more arguments why this sad situation has to be changed now on the following web site:
http://globalinsights.wordpress.com/
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"But quite simply, he [King] thinks that with the current approach, we will only have tackled the symptoms of the problem. The ultimate cause will come back to bite us - perhaps rather sooner than we might have thought. "
Just what is the ultimate cause then?
Too big to fail, the ultimate cause?
So if we split banking into 'utility' and 'casino' banking the problem is solved?
There will never be another crash?
Again, it seems so-called economists cannot understand the workings of the economy.
The financial sector is seen in insolation from production, and that somehow the financial sector can be looked after and so not impact the real economy.
Deeper analysis will show that the ultimate cause lies in production and that the financial crises merely express the underlying contradiction of capitalism, that is, that capital accumulation itself creates the downward pressure of rates of profits and so the devaluation of capital.
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JJ
"i.e. Anarchists .......with thoroughly modern makeovers"
or militarists....one thing I have noticed amongst "Libertarians" and other free market extremists is that they may rant and rail against the state, but guns and the military are fine.
Naturally, if the pressure is to/for private 'ownership' - what does ownership depend on? Property rights and their enforcement.
In short, anti-statism is pro-military. They just want the relative budget for the military and police to be upped.
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Does it really matter what Mr. King says? - no-one has any intention of taking his advice seriously, much less acting on it. Surely it could not be clearer; the political apparatus has been captured by oligarchs.
If the population just sits around passively watching events unfold then who is really to blame?
There is no way out, and stultifying passivity will likely turn to mass panic some time soon. Take a look at this, and understand the hopelesness of the situation
http://seekingalpha.com/article/167538-greater-depression-for-u-s-rebuts-recovery-talk?source=feed
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"We shall all be paying for the impact of this crisis on the public finances for a generation."
Hence the importing and high breeding of lots of low-skilled, uncritical via cogntive scotoma, but ever so grateful 'slaves' (of all colours and nationalities)?
Now, if this is not so [see ETS (2007), Leitch (2006) and OECD PISA (200,2003,2006) NAA/QCA/'DfES' (2001-2009)], please show me the data which refutes it.
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#48 Ishkandar. No banks are viable absent massive state aid. Why do you think interest rates are zero? Why do you think the normal rules of accounting have been so disfigured and twisted? Why do you think there is a massive money printing operation under way? Why do you think 99 banks have collapsed so far this year in the US?
It is this kind of fantasy thinking that guarantees the worst possible consequences from the forthcoming full spectrum meltdown.
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Ofr course Mervyn is correct in what he is proposing. But what are the acttractions of the status quo remaining? Having looked at some analysis of the profit generation of the big US banks by sector, it seems to me that you cannot strip out the investment/casino banking businesses of these banks as the other parts do not generate sufficient profitability to cover the anticipated losses to come in from loan defaults etc. I suspect the same is true of the big UK banks. As I see it, the investment banking arms of the big US and UK banks are making mega-profits from speculating in the stock markets and commodity markets with the cheap money provided by the US and UK governments. This is creating another bubble(s). In the meantime, the profits that are being made from investment banking are in part being used to cover losses being generated in other areas of banking and improve the capital base of the banks. What of course is offensive is that much of these profits are also being used to pay bonuses to bankers. What frankly irritates me is bankers claimimg that they are worth any bonuses - they are riding on the back of another bubble. I bet that even I could make lots of profits if you give me lots of cheap money to bet on a rising market and without any personal risk if I fail (Of course, when the market is falling, the poor returns are not to do with the poor performance of the bankers, but all do to with the markets). I'm afraid that in my view the big banks have got us by the you know whats. Splitting up the banks will create huge problems. However, the risk of leaving the status quo is that when the current bubbles burst, the whole financial system will be irretrievable.
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FrankSz (#61) "one thing I have noticed amongst "Libertarians" and other free market extremists is that they may rant and rail against the state, but guns and the military are fine."
Look into the recent Armed Forces Act and the size of the UK military. Surely you have also seen the procurement issues? The libertarians may say nice things about the military, but what do they do? For that, see the Act. They have nobbled it with changes to rules of engagement and reponsibility, Human Rights etc.
I mislead you not - I hope. In fact, I am happy to have an alternative explanation given for the full picture I paint across Public Services. One might be short-term anarchism and Balkanization of Britain in pursuit of a Greater EU. This is the only positive gloss which I can come up with, but even this doesn't ring true to me given the anarchistic 53 Article FCHR in the Lisbon Treaty...(and how long will it stay red-lined befoe the EU Court says such red-lining is illegal by majority vote?) :-(
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An excellent speech. Why have we not heard it months ago from any of our political leaders (Vince being the honourable exception)?
Like many others who have commented, I am still looking for an explanation of why the UK cannot act unilaterally with its own form of Glass Steagal? Yes, people could still choose to put their savings with casino-type banks elsewhere in the globe, but then it would not be UK taxpayers doing the bailing out. Or am I missing something?
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Are the new set of MP's going to listen? Is proper reform going to happen?
We can know the answer and I reckon the MP's rules will still be abused.
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No 23 "...and many of those pointless jobs will finally go."
I wouldn't be too sure about that. It is the modus operandi of the Civil Service that it's the ones who suck up to their seniors least or are "too" efficient that are the first to go !! They are followed shortly by those who can be bullied into going !! It's usually the ones who spend more time politicking than actually doing what they were paid to do, that usually are safest in their jobs !!
"...a substantial number of individuals whose main claim to fame is their remarkable ability to shrug-off all forms of personal responsibility, and their deft use of meaningless phrases such as "we have this under review pending an on-going process of evaluation"."
These are known as Teflon-coated and another of their stock phrases is "Lessons have been learnt" when it is clear that the lessons have *NOT* been learnt at all !! Example - The Baby Peter case in Harringay !!
"Rant over (for now). :-)"
Good !! Now go back to bashing them !! :-)
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The general flow of our collective blogs seems clearly to be in the direction of a return to the perfectly feasible separation of 'casino' from 'high street' banking.
Apart from avoiding moral hazard, separation would do us all a huge favour by making the issue bankers' bonuses irrelevant. If 'casino' banks were allowed to fail and were not subsidised by taxpayers' deposits, the casino banks would make far less profit and the bonuses themselves would shrink overnight. What a relief!
No wonder the bankers are putting up such strong and determined resistance to a return to the status quo ante.
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No 25 "Mervyn King may warn but he will not save you. All non oligarchs are headed for debt peonage and serfdom at best, catastrophic meltdown at worst."
...or off to pastures new !! :-)
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It's one thing for Govt to be forced to step in from the outside and take controlling stakes in over half the high street banks, as well as issuing guarantees, insurances and other methods to stabilise them. Our eyes might water at the scale of the cost, but it's still safe to keep our money in British banks.
It would be another thing entirely to effectively control those same institutions and THEN watch them go down again without hope of rescue from a too-indebted Govt. The controlling stakes should be exercised to ensure that what the Govt. (as owners) want to happen actually happens.
As outsiders they were 'White Knights', riding to the rescue. As insiders with controlling stakes they are institutionally culpable if history now repeats itself. They will not be forgiven if they fail to exercise such control to ensure that this can never happen again. That's a political threat that no Govt. could ignore.
The case for splitting the universal banks along the lines King describes is unquestionable. The question which DOES need an answer is 'Who has the moral and political will to enforce the split'.
Osborne is disingenuous when he says that Britain cannot go it alone. If a universal bank (call it the Bank of Ruritania) is forced to split into retail and investment parts, the retail part being offered the usual Govt. insurances but not the investment part, which can fail. Next the Govt. refuses to guarantee deposits in unreformed universal banks. Everybody will flock to deposit their cash into the Retail Bank of Ruritania. The momentum generated will surely lead all the other banks to split rapidly, to avoid losing their customer base. The Govt. owns enough of the high street banks to enforce it's will.
There is a downside, of course. Non-British banks will flock for the exits to avoid the split. There will be less credit available than there is even now. But many non-British institutions have left already since the Crunch began. The withdrawal from the market of their lending is a principal cause of the credit squeeze in Britain. And if too much easy credit was the cause of the bust then a return to sensible credit is a good thing.
Investment banks will find domiciles more amenable to their type of risk-taking and the taxes on their profits (which they minimise anyway by use of offshore vehicles in tax havens) will not be taken by the British Treasury. So Govt. will have less to spend.
Question for the public is this; Is this a price worth paying for an old-fashioned, Govt. backed, safe-as-houses banking system?
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Mervyn is on the button.
It's a massive change and may reduce the GDP by 5%. But it is going to be worth it in the long run. Its going to take us 20 years to get us out of this mess, but the next one will finish us off for sure...
The banks don't get it and never will, it is NOT in their interest to shut shop...
I have doubted Mervyn's convictions in the past, but he has come through. Well done, brave speech and enjoy your retirement next year...
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No 26 "...For 66 years the separation of investment from high street banking was highly effective but, after many years of intense lobbying by the banks, the Banking Act was finally repealed in 1999."
For many countries in the East, the terms and conditions of the Glass-Steagall Act still apply !! Just look at who came out of this mire earliest !!
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#61 FrankSz
As you rightly say the private ownership of property (the means of production) requires state enforcement.
Capitalism requires the State.
The State is the rule of one class (capitalists) over another class (labour) through the threat and use of violence.
This is why communists are against the State, as strange as that sounds given the history of the 20th century and the behaviour in the Soviet Union and all the other Communist Party dictatorships.
Lenin understood the difference between government and the State, as his book 'The State and Revolution' makes clear.
(I'll leave to one side his misunderstanding of Marx's two stages of communism).
There have been a strand of communists who were always critical of the Bolsheviks and Maoists who look to sieze state power.
An isolated nation in a capitalist world will become a one-party dictatorship no matter how well intentioned the individual communists may be, for without the power being in the hands of the party, the imperialist powers will take over (just look how the CIA operates).
That is why there can not be socialism in one country and why they become one-party States where the party dictates to the people.
Now that we have globalisation (the interdependence to a much greater extent of all the capitalist powers) revolutions in any one country are much less likely to be isolated affairs and world revolution much more likely.
Then power will ultimately rest with the people in their local councils, even if delegates are sent to a world government body.
The state does not equal government.
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I object the the Governor of the Bank of England quoting Churchill, who does he think he is, the BNP? Does he not know that certain things have been patented and copyrighted by the British army? At least, that's what some of its generals think.
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No 34-38 AmaM - Nothing with prejudice at all !! A(non-)I *cannot* be prejudiced !! They are simply using a program that rejects posts with words *not* programmed into it as acceptable !! A bit like the firewall rejecting emails from addresses not in its "acceptable" list !!
Oh, the joys of computing in the hands of the computer illeterati !!
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Most people don't understand that when Glass-Steagall was brought in, it was in Roosevelt's era, and Roosevelt said he would work with Uncle Joe. In the 1930s Mussolini and Hitler were gurus, even in the USA!
A return to traditional banking will mean a return to socialism. What we have seen since the end of WWII is subversion of Keynesianism. Those doing well in recent decades will fight any such return with all the ingenuity that they can collectively muster, and these are the cognitive elite (they are alas, low on agreeableness and conscientiousness ... which spells what?)!
Most people here are just not thinking.... except 'magically' like kids.
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No 40 "As to the timing issue, there are financial instruments around, such as bonds which can be issued over a 25 year period."
Long Gilts used to be the least favourite of the markets !! I'd bet that's changed a bit now !!
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ishkandar (#74) "For many countries in the East, the terms and conditions of the Glass-Steagall Act still apply !! Just look at who came out of this mire earliest !!"
Interesting. Care to list them and their incumbent parties?
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duvinrouge (#75) "Capitalism requires the State. The State is the rule of one class (capitalists) over another class (labour) through the threat and use of violence."
You write nonsense and you need to grasp that. Look to Stalinist USSR and the PRC today. The state runs the means of production it does not progressively sell it off to private (international) investors. You don't know what you are talking about, and that is an accurate description, it's not abuse or unkind. Governments in liberal-democracies roll back the state through making the state less effective. They keep telling you this. They also try to do so abroad, using NGOs and Human Rights, which clash with duties, which are key to statist forms of government.
Capitalists are those who live via capital (and what it earns - see usury) rather than through productive labour. Workers include doctors, engineers. teachers etc i.e intellectuals and technicans.
You don't understand the words that you are using, so you end up writing rubbish. What's more, you reject what you are told only because it doesn't match the nonsense that you believe. You believe nonsense because you have been unselfcritically introjected anarchistic propaganda, i.e. double-talk.
What I've explicated for you and others is how things are really working. Just because that's alien to you doesn't make it false.
Try to look more carefully and describe what is going on.
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I am still waiting for Democractic party of Japan to drop the bombshell with their bonds/yent thing. Can't wait for the next headline "USA DEFAULTS ON BONDS. WORLD REELS"
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Mervyn King's assessment is spot on. Alas he is too late. Due to his and the Government's myopic and naive idea that the banks were too big to fail and needed to be bailed up to stop the economy collapsing, their actions will actually facilitate the very thing they were trying to avoid, i.e. the collapse of the whole economic system. Of course it would be bad enough if this stupidity was confined the UK politicians, but Obama, following directly on from his predecessor, is simply pursuing the self-same policy across the pond.
To be fair though, whatever they do now is too late, what we are actually seeing is the end of the line for an economic-based system of which, up until today, capitalism was the best method available.
Alas, it was built on an illusion and required ever more phony money to keep the illusion going. This facilitated businesses, jobs and lifestyles, i.e. the way of life we have come to expect in the west, which our friends in the eastern bloc and developing world want to now experience for themselves. Unfortunately, for them - and for us - it cannot happen. We borrowed from the future to live for today and now the future has caught up with us. Capitalism ultimately met its match when it was confronted with a more sophisticated and technologically proficient world that demanded too much too soon.
However, there is a positive knock-on effect to all this. We might have just saved the planet. For it is impossible to solve the world's environmental crisis by being wedded to a production/consumption (economic) model as the bottom line will always be about maintaining businesses, jobs and lifestyles first and foremost, with the consequences coming a poor second. Hence, the focus on taxing the consumer for consuming, rather than simply stopping the producers from producing in the first place, e.g. they want you to buy the car - they just don't want you to drive it!
It will take the collapse of the way of life we have come to expect since the onset of the Industrial Revolution to confront the new challenges of today's world. As Einstein is attributed to have said "The significant problems we have cannot be solved at the same level of thinking with which we created them."
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FrankSz (#82) Can you elaborate please?
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We have been in the smoke and mirrors realm since John Law invented paper money and the banks took over the world.
Coming off the gold standard was probably the final straw and we've been in la la land ever since.
As long as everbody believes in la la land we don't really have a problem. Unfortunately for some, there are always people who will insist on showing how the conjurors tricks work...
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@ Lepus_Madidus
Declaring a vested interest (I am Zopa's CEO) but hope the general point allows this past the mods. We don't even need government to lend at Zopa we just need a level playing field for Zopa vs banks in the tax treatment of lenders' losses. Our lenders are currently disadvantaged in that unlike banks they can't offset bad debts against their income from lending at Zopa. This doesn't seem remotely reasonable and certainly doesn't do anything to promote the growing P2P lending sector which offers a real alternative to the banks (for personal lending) without the pitfalls highlighted so clearly in Mervyn King's speech, and all without any taxpayer support. We have gained cross party support for this endeavour and are working hard on it but any further grist to the mill helpful....
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81,
Can you SPELL it out?
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So the banking and political classes are being slowly dragged kicking and screaming towards a division between retail banking and investment banking.
This is inevitable and one wonders why it is taking so long. The delay can only be due to vested interests. May I postulate the possibility that if the investment bankers do not have the substance of all those retail deposits behind them then their bit of the bank might implode like Barings did? Is this the nasty bit of the Credit Crunch that dare not speak its name?
It is quite apparent that to allow the bubble to reinflate will create the conditions for at least one other crash. It would seem that the prevailing desire on the part of the state apparat not to cut their coat according to their cloth, the preference of the political class for their precious expenses and the bankers for their fat salaries and grotesque bonuses will lead to all the real sacrifices being made in the real economy. Do they have no idea as to what happened to the Bourbons? Or is a bourbon to them just another biscuit on the plate in the meeting room?
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Horse - bolted - stable door spring to mind.
The Bank of England by all appearances seemed to do a proper job until many of its powers were taken away and given to jobsworths in the Treasury and FSA by this crooked government of ours.
One can only guess at their reasons; increased tax take on the back of crime seems the most obvious.
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Mervyn King rightly raises the issue of Moral Hazzard and whether the banks are to big to fail. But is this the right question to be asking ?I would like to understand where is the moral hazard to those who in the BOE, FSA and major audit firms who stood by and watched, and made speeches in the Guildhall about how important it was to the health of the Uk economy that we maintain the city of Londons competive advantage whilst, we were clearly heading straight into the financial buffers.
Gordon Brown, Adair Turner, Mervyn king et al are all still in their jobs and are now lecturing us on the "fact" that the whole crisis came about as the result of "greedy bankers and their bonus culture and imprudent lending practice"
Nothing to do with 10 years of government monetary and fiscal policies or the failure in regulation, accounting and credit rating agencies practice reform.
What is frightening is the professional commentators have seized onto this simplistic narative with its clearly defined villans and prattle on about bonuses whilst ignoring the fact that the majority of banks balance sheets are still not a true reflection of their assets market value.
That the accounting system allows this "mis reporting" to continue is the real scandal If the banks were forced to write down their toxic assets the so called profits on which bonuses are being paid would in the main dissappear.
Those calling for the banks to be broken up and the return of Glass Stegall Act seem to be missing the point that Glass Stegall only applied in the US and was repealled in the USA in response to pressure from US Banks who felt that NY was losing out to the deregulated markets in the UK and Japan.
They also seem to forget that if the Uk banks are broken up they will just become takeover targets by said foreign banks.
Back to Mervyn King and moral hazard. Moral hazard for bankers can be achieved if we implement a system whereby the risk that a bank runs is made transparent such that both share holders and depositors are aware that they run a greater risk of losing their money with bank A as opposed to bank B. to achieve this we need a better system of auditing of the banks and much greater financial transparency plus removal of the implied 100% safety net given to depositors and shareholders by the government.The role of the regulator would be to approve / disapprove all new financial instruments released into the market and publish an independent assessment of risk that investors and depositors in individual banks take rather than try to set out rules on lending and bonuses.
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There is no Mr King is ansolutely right in observations. The difficulty is the practical application of the split. If the UK goes it alone banks in other countries will exploit the weaknesses exposed by the breakups.
The case for making bankers on obscene money 'leppers' in modern society is also now beyond question. These are the people who got not just us but also our childeren into this mess, yet they carry on as if nothing has happened.
If we tax alone without international support then most of the decent business will run abroad. if we impose limits on the state owned banks then the talent will leave and the government shareholdings will suffer. This the mess of all messes. Its all we can do is give bankers the cold shoulder in social circles and turn them in the modern equivelant of the 'unclean'
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StephenBlencowe (#85) "As long as everbody believes in la la land we don't really have a problem. Unfortunately for some, there are always people who will insist on showing how the conjurors tricks work..."
True. But the price for la-la land (and it is wider than the economics) is that it genetically selects, reinforces and rewards some of the darker dispositions in human behaviour - which is demonstrably self-defeating - looking at Liberal-Democracy's and their TFRs stripped of immigrants.
In the end one has to make a choice - reality and its austerity vs. la-la land and extinction. In the long run it's about progeny vs short-term self-interest. Hedonism is beguiling/deceptive/misleading.
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@ zopagiles
Do your lenders have the same business risks as banks? e.g. do they employ thousands of people, over hundreds of branches, using local services, creasting wealth for people other than themselves? If not why should the general taxpayer subsidice their extra risk for what is undoubtedly an extra return?
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Merv can be as sensible as he likes - it won't make a difference.
Already the lobbying by banks against the Glass_stegal type seperation has started - what else did you think they were going to spend their QE 'free profit' on?
Even bettter MP's are claiming poverty - so they will be only too happy to fill their boots with alternative forms of income.
You're all wasting your time, the implementation of this will cost the taxpayer money and it will be removed within the decade following banking pressure and of course, any return to boom times when so many things are conveniently forgotten.
Glass-Stegall was a good idea in the US - why don't you ask them why it was removed?
Merv is on a one way ticket to getting fired - he's actually started telling the TRUTH - and that's not popular amongst the LIARS of politics and banking:
"To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many."
....and soon we will collect, just as soon as the rest of the country realises how much we're talking about.
The NIESR have come up with a number - 7p in the pound increase on income tax.
I think people will start to get it when they see their tax bill rising by a whopping 31%.
Remember, if it's not a simple income tax raise then it will be taken indirectly - which is likely to impact some more than others (depending on the indirect tax used)
This situation is merely worsening - not getting better as claimed.
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YOU SET IT UP MERV, WE'LL APPEAR TO COME TO THE RESCUE
Electioneering. We have a very naive electorate. Verbally well trained to hear propaganda but not smart enough to see through it. High verbal skills are nothing more than versatile tongue-wagging and keyboard prancing. These are feminized-brain skills, not male. Able males make things and do things. We are rather short of those these days, alas. See manufacturing etc.
It's a subversion, dysgenesis thing :-(
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Still nobody in the government has provided a satisfactory explanation as to why these bank bonuses are being allowed in banks where we have a major shareholding. Caledonian Comment
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There are 2 issues both of which need to be dealt with at an international level - this effectively means UK, US, Japan, Germany and Switzerland because in banking no one else really matters - you could make a case for the French being part of this (SocGen) but they will only cause trouble.
The two issues are division of banks into retail and investment along lines of Glass-Steagel and the application of normal anti-trust rules to break up the banks that are too big to fail - although I think once you hive off the retail banking then it is only the investment banks that need to worry about being broken up.
I can speak about US and UK (maybe someone else can comment on Japan, Switzerland and Germany) but at a retail end being loans to consumers and companies whilst there are some dominant players the market has a lot of competition already. In the US you have the big players: BofA, Citi, Wells Fargo but also super-regional banks and lots of local banks, in the UK we have the big 4 (Barclays, HSBC, Lloyds and RBS/NatWest) but loads of building societies and smaller banks (Co-op, Clydesdale Group etc).
I think King is right but who is going to get the politicians to start the process. In UK we have a further problem in that the EU will want to control this, for reasons of power (and the French wanting to do over Albion again) nothing to do with whether it is right or not
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The situation for the US, UK & to some extent other western economies:
". . . a major contributing factor to Japan’s 10-year “Heisei Malaise” was the prevalence of “zombie finance”, where Japanese banks continued to provide support for highly inefficient, debt-ridden companies, commonly referred as zombie companies, and the government effectively allowed the banks to simply ignore their festering bad loans with lax accounting practices, including the absence of mark-to-market. Zombie financing in turn prevented the creative destruction necessary to clear the dead wood from various industries and prevented more productive companies from gaining market share."
Banks like RBS, Lloyds, Citi & BofA are replicating the Japanese experience. Real western economies will suffer the same fate as did Japan's in the 90s. These banking zombies MUST be broken-up before they bust the whole system.
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I do not work in the financial services sector and have a completely unbiased view.
Points:
Why are we listening to a man who has got so much wrong during the course of this crisis, (left it too long reducing interest rates and has undermined sterling all too often to name but two), in fact why does this man even have a job?
The two UK banks that actually failed were Northern Rock and HBOS, both of which did not have investment banking divisions.
The widely believed cause of the crisis was retail lending, specifically in the mortgage market, loans made to households, not the normal activities of investment banks in mergers and acquisitions or supporting fund raising for large corporations.
The majority of people believe the cause of the problem lay in loans being made to people who couldn’t afford them on unacceptable terms. These losses on sub prime loans were containable, what brought the global financial system to it's knees and lead to a global recession was the mass panic and total loss of trust that ensued from the realisation of the interdependency of the global financial system.
The causes of this crisis are manifold and complicated and will not be resolved in anyway by a separation of investment banking activities, they lie with: Flawed macro-economic policy ignoring the effects of growth in the money supply in monetary policy, poorly conceived regulatory systems(the tri-partite system in the UK), manipulation of the exchange rate by the Chinese authorities, the ignoring of structural economic imbalances by certain countries, speculation in the oil markets, the fact that governments dictate the price of money which means you can never have a truly liberal free market economic model nor a fully privatised banking sector.
I hear a lot of talk about King being an eminent economist very much in the same way as Brown was touted around as a towering intellect, both suggestions are folly and probably the result of their own PR spin, we seem obsessed with viewing the people in positions of power as exceptional even when none are really worthy candidates of this accolade.
N.B. Stephanie are you happy with your reporting of statistics in you previous blog entry?
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#91
Of course putting this into force faces issues, but then retail banking isn't seen as being the most profitable business, so restricting licenses to carry out retail banking operations in the UK (or into the UK - if it can be got through the EU) would seem to offer an angle.
I'd suggest retail operations could be run separately from the merchant banking, within the same organisation but "chinese walls" although a nice idea in theory tend to be circumvented in practice whenever there's something to gain.
Perhaps we'll see mutuals develop once again and the likes of the Co-op continue to grow.
Demutualisation and the carpet baggers didn't exactly help with the robustness of the system.
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I read the first 50 posts and virtually without exception all (bar 3, I think) sided with Mervyn King's views that if banks are too important to fail then the problem is too big to ignore and that resuming the very activities that got us into this "mess" (peculiarly British understatement,) are bound to lead to a similar, if not far worse, situation next time. And on that basis it is hard to see how banks being too important to fail, is consistent with them even remaining in the private sector!
If the vast majority of ordinary people, as evidenced by the comments posted, can see the sense in what the Govenor of the Bank of England has to say about this, why on earth can't the Treasury, The F.S.A, our Politicians and our fabulous elite?
Actively taking measures to "reform" banks in this way would clearly reduce the amount of money/debt sloshing round our economy in a way I suspect that would have economically destructive consequences. It goes without saying such a situation might not be a popular vote winner - but we'd be in it together? (Well not quite, at least 20%, or 1 in 5 of the UK poulation are wealthy enough to buy their way out of such harsh conditions.)
But the problem with our Government is they don't even seem to want to talk in aspirational terms about changing the power of Banks in future and that's just quite pathetic!
We know Mervyn King has got it right. It's time that our bone-headed politicians, treasury officials and the fabulous elite woke up to this.
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#93 equitableinterest. The question is not why should the general taxpayer subsidise Zopa lenders but why Zopa lenders should subsidise the general taxpayer - i.e. You. But you don´t get it do you?
If you think banks creqate wealth for people then Oh boy are you going to be surprised. Reality is heading your way, and it weighs 1500 tonnes.
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# 93. At 11:49am on 21 Oct 2009, equitableinterest wrote:
"@ zopagiles
Do your lenders have the same business risks as banks? e.g. do they employ thousands of people, over hundreds of branches, using local services, creasting wealth for people other than themselves?"
The banks we bailed out actually seemed to be doing less and less of that over the years.
..and even after those costs they made massive profits - although of course we got some of that back in the form of tax (although banks are pretty good at reducing the tax they pay) and through pension scheme shareholdings.
You seem keen to portray the banks as a social service, when they're a business, others may profit from their presence, but they provide services to the bank for that.
The excuse that what may be seen as a less efficient way of doing something is better because it pays more to others due to that inefficiency is akin to the argument for throwing more and more at the public sector and getting nothing more for it.
If at the end of the day there's no additional gain, surely resources could be put towards doing something more useful.
In many ways, the inflated interest margins exploit borrowers (other than those with loans tied to base rate) and especially savers to fund the cost base and create those nice profits [although most are from merchant banking] and go towards paying bonuses.
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# 96. CaledonianComment wrote:
"Still nobody in the government has provided a satisfactory explanation as to why these bank bonuses are being allowed in banks where we have a major shareholding. "
That will be the... "its a management decision" and "we agreed not to get involved in management" get out.
Of course a shareholder isn't a manager and can exert significant influence over directors - i.e. do this or we'll remove you.
Its the "bonus culture" people are used to bonuses being paid and the organisations are used to paying bonuses... but surely the question has to be asked, does paying bonuses lead to increased performance to justify them?
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#102
'and it weighs 1500 tonnes'
more Clash references from one of my favourite posters??
WMIHP
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He still doesn't get it, does he.
Crashes occur in 'safe' banking as well. However does he think this crisis was caused?
Try
http://www.bbc.co.uk/blogs/pm/2009/10/the_am_glass_box_102.shtml#P87340843
and ther link it contains.
The usual way to organise a crash here is via extreme currency exchange movements causing rapid inflation, fueled by the self fulfilling belief that government spending/borrowing crowds out investment and causes inflation.
Everyone is affected adversely by the inflation, the government panicked (or delighted, depending on persuasion) and so cuts hugely causing the contraction. Unemployment, loss of confidence, withdrawal of international credit etc does the rest.
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PS I thought you'd like this. It's where Mervyn used to go round in circles. Every day.
http://www.flickr.com/photos/duncanleong/367120128/
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If former politicians were not allowed to become directors or hold any other position of responsibility in a bank, Merv Jing's comments would through on the nod. Currently directors of the banks are not just names in Who's Who, but also a list of same old same old.
Do Turkeys vote for Christmas?
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#99. totally agree with you.
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POLITICS AND THE MEDIA UPDATE (#95)
Sure enough, Darling gave a speech at Canary Wharf! One of the questins put to him after he mande his mini-manifesto speech was, and I paraphrase: 'Last year there were 93,000 working in Canary Wharf, this year there are 93,000'.....
Get it. With 6 billion in bonuses too.....
When you listen or read what they say bear in mind the logical quantifers ranging over their variables....
Some(x)=Not(all(x))=at_leat_one(x)
All(x)=Not(Some(x))
In other words, they can spin whatever they like and it may sound true, but generally what they say is inscrutible referentially.
They can spin a disaster and they can spin a recovery, all the while, nothing changing at all. :-(
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OK ask yourselves these questions
Where was Glass Steagal enacted?
Did Northern Rock, Bradford and Bingley and Alliance and Leicester have casino banking operation?
What sort of casino banking operations did RBS and HBOS have? Lloyds?
How many of the fund managers have retail banking operations?
How many fund managers are there? How much is being managed?
What are your unit trusts, isas, pension funds blah blah invested in or who by?
Was AIG a bank despite its AIG Financial Products division? How much did it get in TARP funds?
When was Morgan Stanley established as an investment bank? Were Goldman Sachs and Morgan Stanley bank holding companies before September 2008? How do the regulatory bodies in the UK change that right now?
What were Washington Mutual, Wachovia etc doing? Casino banking? Really?What about the smaller banks that have failed?
What was actually being regulated in the wholesale money market?
Who was dependent on this money? Here in the UK, Mervyn King's territory, who failed?
OK, I can answer these questions and I understand that there are some enormous institutions, but you know, I don't think anything Mervyn King says will affect them, they are out of his reach.
Finally, ask why now? What's in it for him?
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This comment was removed because the moderators found it broke the House Rules.
The need for separation is obvious. The worry is that any country that has rules imposing restrictions on corporate structures while there are other countries that do not have any such restrictions... won't see much activity.
But that's probably not a real concern - will a bank avoid being in the world's financial centres? They may try to find a loophole offshoring the real business into a notionally split business onshore, but that doesn't sound hard to legislate against (althogh the failure of government to collect tax from these multi-nationals suggests the will may not be there for governance of complex issues).
What we do know is that capitalisation won't work. Even if a bank is 100% capitalised by deposits, those deposits are fickle - they can disappear as quickly as a queue of worried savers can form outside your branch doors.
Good on Merv - telling it like it is! Now if we could just get a government that knew what it was doing...
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Well, lets hope in the near future we all at least have the undoubted pleasure of seeing that po-faced puppet who spouts all the PR rubbish from the bankers assosciation put up against a wall and shot.
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If you are to beleive the hype, the failures leading to the crisis were due to the retail banking side not accounting for risk sufficiently particularily with mortgage loans.
Lets go back to the beginning, Northern Rock failed not because it made huge losses on it's mortgage porfolio, this had already been hived off into a securitisation vehicle so any losses would have been taken by the bondholders of this vehicle(pension funds other banks etc.). Northern Rock failed because it could not roll over it's short term commercial paper which all banks need to do and because someone created a panic and a bank run ensued. No bank no matter how well capitalised or robust can withstand a bank run. It would need to recover loans at the same rate as depositors removing their money, impossible.
How would separating investment banks have prevented this scenario? Once the panic started it mattered not whether you were a retail bank an investment bank or a bit of both, the separation of investment banking would not have changed Northern Rock's business model one bit and nor would it have changed the way mortgages were securitised and sold off to unfortunate investors.
This was a systemic problem of liquidity, which has more to do with how regulators and central banks managed the financial system than with the structure of the individual banking operations. It appears that king is trying to deflect the blame and responsibility for his part in this entirely into the hands of the bankers. He probably needs to relieve the guilt to help him sleep better at night.
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Strange how many people think this was just caused by irresponsible lending and miss the domino effect of bundling the resultant iffy loans together and selling them on, only for someone else to consider those loans as a solid asset on which to base yet more lending.
And of course lending being considered profitable and more "capital" being there as a basis for more lending, there was a push to lend more and more.
Defaults on over extended loans, triggered by a downturn did cause the first dominoes to fall, but they're not the structural problem.
The interconnectivity is the structural issue.
Northern rock was destabilised not due to a mismatch of long term lending to short term finance and that short term finance drying up due to a loss of confidence in the value of financial assets.
Take away the links and use of 2nd hand loan books, over valued due to poorly conceived risk ratings, as a basis for additional lending and some of the multiplier effect may be removed, and the risk of total financial collapse from 1 organisation failing is reduced.
Then of course there's the addiction to debt, which is another but related issue.
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#110 Jadcedjean. For someone who knows so many words and cites so many obscure references you can be remarkably unknowing.
Once you understand that government and its agencies have been captured by oligarchs there is no need to have any further interest in the utterences or actions of politicians. They will do as they are instructed, or they will be replaced. Because they are obeying the commands of the oligarchs whilst pretending to represent the people they will often appear foolish. You can laugh at them if you wish, but it is probably best to simply ignore them.
Ignore their words, for they are without meaning. Look at facts - the one thing they cannot spin, hide or obfuscate is tax revenues. Collapsing tax revenues, especially in the US, tells you all you need to know.
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No 57 "...apologies for typos, sticky keyboard"
If you stop eating sugared doughnuts while typing, your keyboard might not be so sticky !!
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The evidence has already been proved that having a separation of investment banking from retail banking would have made no difference in this crisis. Lehman brothers were a pure investment bank, arguably their collapse was the catalyst for the subsequent global recession. As a pure investment bank the authorities deemed it acceptable to be allowed to fail given that they didn't hold retail deposits and it would therefore only be professional investors that loose out(NB behind every institutional investment are a majority of small private investors). In fact it may be a counter arguement for having hybrid banking institutions, if Lehmans had retail depositors perhaps the US gov would have been forced to support it and we wouldn't have had the catasrophe that's followed with all the unemployment, de-leveraging leading to contraction of the money supply, loss of wealth, burden of public debt, increase in third world poverty that has happened.
If governments and central banks knew that they were going to act as lender of last resort for all banking institutions they may more carefully supervise and regulate these institutions to prevent the domesday scenarios.
Just like after the great depression, if there is a mass panic and you have an effective bank run on the entire financial system it wouldn't matter what kind of bank you were, money is money and the same economic laws apply regardless whatever you call the institution.
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NeedaFilip (#99) Interesting post. We could do with some hard statistics intead of all the rhetoric we're fed, but the really insteresting statistics will be commercial secrets presumably?
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#115
Of course Northern Rock wasn't "too big to fail" and as such should have been allowed to.
The situation with other banks and the potential domino effect was a bit different.
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#116 Reaper_of_Souls. If interconnectivity was the issue then that implies that the globalisation model was dangerously unstable.
Do you not remember being told that globalisation was not only good for you it was also an inevitable manifestation of progress. If you could work hard and work smart then you too could enter the nirvana of the globalised economy and eat your fill from the finest globalised fruit trees.
Perhaps you remember anti globalisation protestors being routinely baton charged by riot police and mocked and vilified for their luddite ignorance by corporate media talking heads.
Interconnectivity will bever be recognised as a cause because that would expose the unprotected flank of the globalisation shock troops. If you will not recognise the cause then how can you implement a cure?
Whether they know it or not the mass of the people are now standing where the German 6th army once stood. All avenues of retreat are severed, crazed idealogues urge victory through nothing more than the force of their own twisted will and the endless sacrifice of other peoples money.
The analogy with the 6th army will continue to the very end. Soon the final reduction of western citizenry will commence in earnest.
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armagediontimes (#117) "Once you understand that government and its agencies have been captured by oligarchs there is no need to have any further interest in the utterences or actions of politicians."
When it comes to 'oligarchs' most of them are Jewish. Terms like 'capture' are Trotskyite, another being 'entryism'. Those who do this are economic anarchists - neocons - see Austrian School (e.g. Von Mises and Hayek) or Chicago School (Friedman). Look at the frequency of Jewish Nobels in economics relative to their population base rates.
Clever (anarchistic) people, very much into appearances and makeovers (cf. Hollywood).
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EDITOR, REPORTER OR OPINION MAKER?
Hutton has just been on BBC NEWS saying he doesn'tw nat to disagree with Brown or SF but... Now, as I understood it, Flanders is a journalist. Hutton is announced as an economist. He was asserting that the Brown positinn that the problems were caused by poor regulation (a good part of which was his doing of course) and that the 'Northern_Rock_was_not_an_investment_bank' line is misleading, as it was massively over leveraged at 50-1, even more than Lehman Brothers and Goldman Sachs. In other words Basle was circumvented. Which takes us back to the FSA and it being a sinecure as designed by Brown-Blair just as the SEC was a sinecure over in the USA.
What we're hearing from politicians and journalists alike, alas, is more pass the buck mumbo-jumbo. It's economic anarchism which is at fault, anti-statism. That is what they won't acknowledge becasue it will put all three parties out of the running and send votes the BNP way (heaven forbid).
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The real failure has been the lack of accountability. Now we all understand that the politicians were culpable in the process, but not a single insititution or head of those institutions has been held accountable. Not only has the world economy been negatively impacted, throwing millions out of work, but personal accounts were greatly diminished creating great hardship on families and those thinking about retirement or being retired. The general position of, oh well, hidi ho, let's move on is the most disgusting example of governmental detachment from the citizens in world history. The idea that these institutions after been saved by taxpayer dollars would have the gaul to pay out bonuses without any shame tells you of their future intent and attitude about the public interest. Captialist, only concerned about making money, no national interest, no economic interest, no public interest, simply the aquiring of money. They are pirates in the general sense of the term and should be treated as such and not embraced by the government and academics. The governments need to control their activities and punish them severely when they attempt to create schemes in the system. Karl Marx was correct about them and we should recognize that the persuit of money for self-enrichment alone is not a model we should endorse. They are the money-lenders in the temple of public legislation and they should have their tables over-turned and thrown out for they have no public interest and decent political figures should be relunctant to have them as associates. National interest will never be secure as long as the financial interest have influence in the political arena..they should be banned from any policy or regulatory discussions. Apparently suggestions as to the types of punishments that might be fitting for such treasonous and criminal acts are moderated....rules for the rich and rules for everyone else is still in fashion, hiding behind some misplaced sense of civil behavior...Napolean had less of an impact and he was placed on an island alone...I would not oppose them being placed on an island together...so they are justly punished for their misdeeds.
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JadedJean Fails again?
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I just want to put some left field thinking out there and see what it triggers........
1. Money is an abstract concept ... it doesn't really exist. It was initially created as a means that a days labour could buy food, accommodation, fuel and so on without the need for bartering.
2. The concept of money only works if its value remains relatively constant to things in the "real economy." If it didn't you wouldn't risk taking money for your days labour: you want to be sure it would still buy you your food, accommodation and fuel etc whether you spent the money today or in the future. Significant monetary inflation / deflation becomes a major challenge in any economy hence the need for an intelligent and coherent monetary framework to maintain overall price stability.
3. So, for a monetary economy to work it is essential that the Government, Central & Other banks create and operate a regime that keeps the monetary value of "real things" relatively stable. Yes, you'll have supply & demand variations which should trigger an efficient redistribution of resources but what you don't want are asset price bubbles (or their inverse) as this triggers an inefficient use of economic resources.
4. So the controversial point. Say, I've saved up £25k deposit for a 4 room flat which cost £100k and I've borrowed £75k from a lender. So, in real terms I own 25% of the physical property and the lender owns 75%. Then one day, I find that the monetary economy is in "meltdown," My flat is now worth £75k. It still has four rooms they still provide the same functionality and I now find my lender has, in effect, title to 100% of my property if I default or try to sell to move elsewhere.
5. So why is this just? As an ordinary citizen I didn't create the imbalance between monetary and real values and yet I'm expected to protect the lender. Why? If I had physically built one room and a friend had physically built three rooms and then demanded occupation of the lot without recompense we would regard that as theft. Wouldn't we?
6. Surely, the lender should only be entitled to three rooms worth of my accommodation which in today's monetary terms is £56,250. Yes, he has a monetary right off of £18750 but he is no worse off in real terms and as money doesn't really exist because it's an abstract concept who gets hurt?
7. So why have we let the monetary economy (the tail) wag the real economy (the dog)? Why is protecting monetary balances more important than keeping people in homes or people in work?
8. Is it because the monetary economy is protected at the expense of the real economy that banks continue to coin handsome profits and pay huge bonuses at the expense of the rest of us?
9. And did the banks knowingly hype up the markets with stupid lending knowing that they'd be protected at any cost because the government had got overly dependent on the tax revenues they generated?
10. And if banks could only demand what they contributed in real terms (in my example 3 rooms out of 4) would they be more prudent with their lending and would we have a more stable monetary economy?
11. I know they are lots of practical challenges to overcome but isn't it time for a paradigm shift?
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Banks, like everything else in society, should be subject to regulation to encourage decent and sensible behaviour. However, the people who must be protected are the depositors, whoever and wherever they are. My feeling is that so much money has been thrown at banks because that was the only staightforward way for UKGov and BoE to protect the depositors.
For themselves, banks have no more right to public money than any other industry. Indeed, it could be fairly argued that they have a lot less. What should ideally happen is that bad banks should be allowed to go down, but there structure should make it possible for all accounts to be immediately transformed into accounts at the Bank of England (or an equivalent national institution).
The question is how could such a system be made to work?
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JavaMan1984 (#126) "JadedJean Fails again?"
Keep it up - you're grist to the mill. A useful illustration/instantiation as to how we got ourselves into this mess.
Tolerance of all things has absolutely nothing to do with democracy, it's the hallmark of anarchism which is essentially anti-statist subversion Peddled unwittingly via Arts intelligentsia through universities for decades. They usually don't see themselves as having been used as 'useful idiots' until later in life when they end up clinically depressed having seen the role they've played in pulling the rug from under their own, and their childrens' feet.
Jahilliyah.... :-(
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#123 Jadedjean. How do you know oligarchs are disproportionately Jewish?
In any event they have all long ago abandoned any traditional religious affiliation in favor of the God of Money.
Who cares anything about who gets Nobel Prizes - It is just one more captured institution. They can do what they want and award things to who they want, it makes no difference to me, or to you either. I´m very keen that the Nobel sycophants don´t bother me - but I think the risk is very small!!
Terms like "capture" appear in the OED and I´m not about to surrender my use of the language to any clique.
You are wasting your time with stuff like the BNP. They have been captured by the oligarchs as well - they just don´t realise it. There is no chance that they will be taken seriously and there is no chance they will be elected. Even if they overcame their series of no chances the first thing that would happen (assuming they didn´t immediately sell out to the oligarchs) is that all money would be withdrawn from the UK in a matter of moments. The population would be left to wander around in the dark and die.
They have all the angles covered. For the moment the BNP serve a useful but marginal purpose of distraction, and are entirely irrelevant as are all other political entities.
Think on this:
The voices in your head are calling
Stop wasting your time there´s nothing coming
Only a fool would think someone could save you
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The lack of understanding of the speech by many is astounding.
The Governor states restricting but when you read his speech, he means economic restructuring where we produce more than we consume now. In addition, this is not helped by too many of the youthful population, wishing to be reality show stars or sports stars, under impression of the wealth and easy life this brings and not realising the talent and hard work, and also sometimes the element of luck that is required. This could well be directing the new workforce needed to produce to undertake education (or not undertake education) that would lead to net consumption, probably financed by credit in the hope of stardom.
He also expounds moral hazard regarding banks but this is pure common sense that should not allow an institution to become too big to fail. He also says that if this route is decided upon, there should be a capital imposition to make this event of failure remote and the level would be impossible to calculate accurately. In any case, the cost of this to the man on the street would be higher overdraft costs, current account servicing costs and higher loan rates.
The imbalance he speaks of has been exacerbated by the technique of securitisation, which had become something like the Emperor’s New Clothes. It is a sound technique that was over used under a misconception that risk can be distributed and redistributed ad infinitum, just like that of the reinsurance industry that hit the Lloyds Names.
Securitisation trading on the secondary market caused enormous errors as the models and theories used were flawed in the application to finance and economics. Loans were cross-correlated but any A-level maths student will tell you (I hope) that if the price of an underlying changes the correlation with another in the pool of loans may or may not have significant change and this event will feed through into the trading price of the securitised product. The correlation is no more than a spurious relationship that was relied on for pricing. It gave a price but did not really say anything about value and therefore risk. Furthermore, many of the pricing of complex instruments were done using non-classical and classical physics models where price movements were predicted rather than forecast. So again, there was a lack of robustness and the existence of explanatory power. Pricing models had become so complex that they evolved from something containing one major factor into model have this factor and another two and the differential this reflected was 6/10000 of a percent from the original one major factor model. Banks would employ physicists and mathematicians to create a library of such models which were used to create a market-clearing price but the seldom reflected value. This would imply that the risk department will have a different model and thy would have to examine the product before they came up with the model so the time taken for this would represent a long time lag where the risks of the trading done were not really known and in the meantime more trades were being done.
Northern Rock did not set up a “traditional” securitisation company. They set up an entity that used longer term securitised products they had invested in as collateral for short term loans that were re-invested into longer term securitised products. Why? This is because the return on credit in the longer term appeared to give more value than the risk at which that credit was perceived at. Why? The answer is in the previous paragraph. One reason for the strategy used was that Northern Rocks business was in housing and mortgages and the securitised products they based their strategy was totally to do with this, even though a lot of this was exposure to the US market. The business model was flawed and the regulator charged with duty of supervision failed. The regulation then did not delve deep enough to require more capital for this as the problems in the pricing of securitised products were not known. Similar reasons drove Halifax and RBS. Furthermore, one could lend, as it was thought then virtually infinitely, and securitise the risk away to speculators. This facilitated low interest rates and the supply of apparently never-ending credit that was taken up again and again by members of the public and promoted by media showing where the best deals were and how one could get lower rates or save by card hopping. This kept increasing the accumulating credit. I am amazed that people were financing their lives not once but in multiples and not taking responsibility for it. The call, “the bank did not tell me” in many cases (not all) is akin to the statement “the devil made me do it”. However, wages seems to been imbalance. In parts of the country the minimum wage does not reflect the minimum disposable income required to live. This means that the government is taking too much money from this stratum or is allowing the necessities for basic living to become too expensive or subsidising businesses that should have gone under by supporting their workers with government credits.
The focus on wages brings the comment to bonuses. Firstly, the high level of profits would have been mitigated if the Basel 2 accord was in force. The Accord was held up by the Office of the Comptroller of Currencies in the US. Indeed, the global, and it has to be global to work, adoption would have reduced the level of profits announced by the banks, in particular, the US banks. One should also realise that the banking industry in the US pays their staff low base salaries but motivates them through the potential of high bonuses. This results in working long hours and experiencing internships where the hours are even longer, not to mention undergoing education and further education over a longer period where money is flowing out rather than in. In fact in spite of the bonus feature, in the UK, on average, workers in the public sector get the highest wage per hour when compared with hours worked. The counter officers and the managers at the retail high street banks do not receive high bonuses.
The other effect would have been to reduce proprietary trading, which was governed by less sophisticated risk assessment tools than what would have been required by Basel 2 as it currently is and took no consideration of what is described by Professor King as tail risk, where the likelihood of an event occurring is very low but the effect if it occurs is punitively high. If proprietary trades were subject to full and proper costing for risk, the incidence of this occurring in banks would be considerably lower. While there is more proprietary trading in banks that what a properly risked system should allow, commentators should realise that casino trading happens at hedge funds and not so much in banks!
Finally, one has to ask what drives these banks to motivate their staff by the potential of high bonuses. This would obviously be the returns to their shareholders. If they did not get their returns, they would sell off and reinvest elsewhere. So who are these shareholders? In the large majority, they are pension funds and insurance companies. Why do they want high returns? The insurance companies can build buffers to protect them from the regulatory needs of their industry to provide cover for their customers and also offer their customers cheaper deals. They have to make payments to cover the excess contained in with-profits policies. The pension funds need buffers and a warehouse of high priced assets so that they can pay out pensions to an aging population where this younger workforce putting money in is shrinking. They need to ensure that they have enough to make payments to their customers to negate the effect of increasing inflation. They have to pay out increased amount on final salary pensions where the computation of payouts is therefore effectively higher than the payments made during the working life time.
The noise made on speculation of high bonuses is not justified here. The announcements of high profits and bonuses were for the US, not for the UK, where the talent still resides. The accounting rules adopted by the US are different, at the moment, and therefore perhaps the profits announced would be affected by this. British banks have not yet announced results. The US has not signed up to the bonus agreements that the G20 recommended. While regulation of activity is governed by the regulator of the country where the bank is licensed to operate in, the bonus setting is governed by the authorities of the bank’s parent country. Therefore, there may be those in the UK bank industry who work for US banks who may enjoy high bonuses.
So it is not only the rich elite who are gambling, it is not just the banks being greedy or high bonuses being paid to undeserving bankers. Finally has anyone thought about the amounts the government has committed to in PFI/PPP programmes that are off-the-government-balance-sheet. If the public sector, which currently has its own special accounting rules, switches to that which is now being used by the private sector, all the off-balance-sheet amounts will have to be brought onto the balance sheet and increase the national debt. The other potential problems is that many banks are appearing to not only hire people who made the mistakes that caused the crisis but adopting the same flawed models, when completely fresh thought and approach should be applied.
As for comments on HSBC and Standard Chartered, HSBC has only moved, relatively speaking, only recently to the west and is likely to focus on the east again. Standard Chartered has moved east. However, these two banks indulged minimally in the practices that caused the credit crisis and they were quick to bring these back from segregated specialised companies into their balance sheet and take the pain. They were able to take the pain because there wasn’t as much to take.
As for usury, the charge for usury may not be applicable if money is a medium of exchange but once it becomes a commodity, which is has now, it has its own value because of the different currencies in the world, reflecting economic flows not only domestically but between different countries; and hence a currency gains it own intrinsic value. Once this happens, I am not sure if the usury situation applies.
There is an interesting development in the US, where people were not envious of the rich because they believed that hard work and study would give them the potential of being rich. However, with the banking and corporate scandals, this seems to have lessen possibly because it may seem that one has to be dishonest to be rich rather than hard work, education and skill.
Finally, if banks only lent the money that was deposited with them, they would not be lending much.
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If the citizen mattered and banks and financial services did not own the votes of politicians, the correct action after the financial crisis became apparent would have been to repopulate the individual accounts. The individual would then decide how the money would be invested and the banks would have been responsible to provide some assurance they would change the way they were conducting their business to attract depositors. But power is concentrated with the wealthly and they wanted to be compensated for their bad decisions and certainly did not want to be left to the decisions of those whose trust they had just violated. Wrong decisions bring wrong results and the powerful and wealthy take care of themselves at the expense of everyone else and usually will have a cluster of academic lapdogs to endorse these ancient relationships. After all, if it is funded by taxpayer money, why is it not being placed in taxpayer accounts? Greatest transfer of wealth from the bottom to the top in the history of the world and no one seems angry at this grand international theft.
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armagediontimes (#130) It isn't a religion, it's an endogamous, socio-economic/political, group. Begin with the Russian ones. Then move on to NYC. Pleqse don't tell me you didn't know this or that it isn't important. :-)
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No 67 "Like many others who have commented, I am still looking for an explanation of why the UK cannot act unilaterally with its own form of Glass Steagal?"
As I have mentioned, much of the East still believed in the concepts covered by the Glass-Steagall Acts. The "people's" money is carefully sequestrated from the casino banks. Revolutions constantly bubble just beneath the surface in much of the East and the last thing they need is to trigger one by losing the people's hard-earned savings; especially since savings are considered sacred and not to be messed with so cavalierly !!
Therefore, all casino-type operations are considered fallible !! There is not such creature as a "too-big-to-fail" casino bank out there !! You fail, you die !! End of story !!
This lesson was hammered home when the Japanese tried to bail out their mega-banks and brokers. Many major banks "merged" in the same manner that Lloyds TSB "merged" with that toxic waste dump, HBOS !! I think the biggest bank in the world by capitalisation now is Tokyo-Mitsubishi, which was formed by a "merger" of six big banks !! Anyway, the result was a decade or more of stagflation for the Japanese !!
Will we see a similar thing happening here ??
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No 72 "There is a downside, of course. Non-British banks will flock for the exits to avoid the split."
I have not seen any viable non-British banks with retail arms flocking to the exits !! Of course, the Icelandic banks were not exactly very viable were they ??
"The withdrawal from the market of their lending is a principal cause of the credit squeeze in Britain"
Since they were non-viable, they will be *in demand* for more credit and, thus, in competition with British banks who also need the extra credit !! They will be in no position to *supply* more credit !! The credit squeeze came from the international money markets and not from non-viable banks, and those guys are still squeezing !!
"Investment banks will find domiciles more amenable to their type of risk-taking and the taxes on their profits (which they minimise anyway by use of offshore vehicles in tax havens) will not be taken by the British Treasury. So Govt. will have less to spend."
If they are non-viable, they'll *NOT* be paying any taxes !!
"Question for the public is this; Is this a price worth paying for an old-fashioned, Govt. backed, safe-as-houses banking system?"
Answer : DEFINITELY YES !!
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The world economy IS still shrinking. There is no growth and the current financial cycle is one huge 'short'. Commercial property values in the U.S. declined in August as job losses and the recession cut demand for offices, retail space and rental apartments. The Moody’s/REAL Commercial Property Price Indices fell 3 percent in August from July, bringing the market’s decline to almost 41 percent since its peak in October 2007, Moody’s Investors Service said in a statement today. Prices fell 8 percent in both April and May, according to Moody’s. “We can’t call a bottom at this point, but it’s an encouraging sign to see the deceleration in the decline,” said Connie Petruzziello, a Moody’s analyst and co-author of the commercial property price report.U.S. Commercial Property Values Fall 3% in August Japan's economy in record plunge
It is slowly dawning on a very few people, that, oil price is headed north again above $100 a barrel. That IS going to happen during the next few months. The supply is reduced drastically since 2008. China has launched a huge infrastucture stimulus and will be gobbling up oil supply. Everything in place now, guarantees a rerun of the 2008 crisis 'surprise'. This time around though, there will be no bailouts from government - the Banks will miraculously save themselves - haha!
As the FASB valuation rules were implemented, they changed the measure of value. The way value was assessed changed. They result was a devaluation of assets. That is what happened. There was a flaw in the actual mechanics of FAS 157 BUT further - there was a flaw in the implementation process. Finance arranged before FAS 157 was valued one way and that afterwards the new (devalued way). As each and every one of the pre FAS 157 contracts comes due over its term, the contract price is as signed for but the asset values have been arbitrarily revalued to FAS157 and the starting point difference is -30%. The pre to post FAS157 valuation (Asset Price) difference broke the world economy. It just has not worked through the system yet because the problem is constrained by contract length.
The IMF know financial balance sheets have a continuing disaster onboard - they know there is a disaster unfolding but cannot lay it out for all to see. There is no growth, only cotinuing asset devaluation. Their is decreasing equity and rampant liquidity. The world economy is one huge 'SHORT' bet there is no growth in prospect, just huge profits in prospect from asset stripping which will not turn the problem of devaluation around. Liquidity will exacerbate the disaster that is taking place and leave an eeven larger business debt burden without funding growth. Catastrophe beckons.
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The current Financial lending cycle was turned into an ongoing train wreck that is accelerating economies into oblivion. There is good news, ice cream prices should remain constant.
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130 Army
'The voices in your head are calling
Stop wasting your time there´s nothing coming
Only a fool would think someone could save you'
You grow up and you calm down!
Exactly
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ishkandar (#134) Whilst HSBC is essentially a Brtish bank in origin, it was for years a safe, East Asian/world bank. That being so, and given its non US/UK exposure, why do you think its share price fell so far earlier in the year?
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129, Jaded Jean.
I asked you a simple question at 87, I asked you again (I expected you to work my comment out, not take it literally).
For someone as enlightened as you claim to be, this was a simple task. Why therefore did you chose to avoid answering my question and instead go on a ramble?
Can you answer my question...........Please?
Thanks in advance JM
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Finance creates (funds) business. How do you obtain finance?
Devaluing assets on the scale that has taken place is pure genius. Unfortunately the genius was a fool.
http://www.sysopt.com/forum/showpost.php?p=1486978&postcount=198
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I just want to put some left field thinking out there and see what it triggers........
A response from me
1. Money is an abstract concept ... it doesn't really exist. It was initially created as a means that a days labour could buy food, accommodation, fuel and so on without the need for bartering.
It is not useful to try and make ontological distinctions between money and other things. Red, blue, gothic, strawberry flavoured, baroque or money? Which is real and which not? Today money is mostly patterns of electromagnetism in RAM and magnetic disks. Is this real?
2. The concept of money only works if its value remains relatively constant to things in the "real economy." If it didn't you wouldn't risk taking money for your days labour: you want to be sure it would still buy you your food, accommodation and fuel etc whether you spent the money today or in the future. Significant monetary inflation / deflation becomes a major challenge in any economy hence the need for an intelligent and coherent monetary framework to maintain overall price stability.
Money is like a rumour. People have expectations about what it can bring. The rumour must not be discredited, and must not become too wholly trusted. As people believe in the rumour more (have stronger expectations of it), then money becomes more valuable, and as people believe in it less it becomes less valuable. A complete loss of belief is called hyperinflation. Deflation is the belief that prices will drop, which is the same as saying that money becomes more valuable. Frameworks are necessary to keep the rumour alive, the economy, the flame burning, but not too brightly and not to let it extinguish.
3. So, for a monetary economy to work it is essential that the Government, Central & Other banks create and operate a regime that keeps the monetary value of "real things" relatively stable. Yes, you'll have supply & demand variations which should trigger an efficient redistribution of resources but what you don't want are asset price bubbles (or their inverse) as this triggers an inefficient use of economic resources.
There is more to it. In a society where money was materially limited in quantity, and asset bubble would quickly result in a depletion of money, as a black hole sucking in investment - a microclimate Ponzi scheme that would rapidly burst. In today's world money is not materially limited. Money is created when someone goes to a bank and asks for a loan. The bank credits the deposit account with the amount of the loan, and debits the newly created loan account with the amount of the deposit. The two total to zero, as if nothing exists, but the deposit is real money. You spend that money on something and off it goes into circulation. The bank is unlimited, effectively (or has been up until the crisis and since about 1971) in the amount of money it can create. Yes the new volumes of money are inflationary in that the additional quantities dilute the supply, but they are accompanied by the threat of force if you fail to repay the loan - and thus the debtor places demand on money as well as supply. Where the limitation comes in is in the form of interest repayments. If the debtor borrows money to start a factory that improves GDP, improves production, reduces costs, or otherwise contributes to the 'real' economy, then fine: the debt level rises as well as GDP. If the debt is incurred to speculate on assets, then debt levels rise but GDP does not. After a long time the ratio of debt to productivity becomes unsustainable. The interest rates become too high. The perceived risk becomes too high. This is what underlies the current crisis. It is as though the amount of money has dried up in a world where money is materially limited. It is deflation on a massive scale.
4. So the controversial point. Say, I've saved up £25k deposit for a 4 room flat which cost £100k and I've borrowed £75k from a lender. So, in real terms I own 25% of the physical property and the lender owns 75%. Then one day, I find that the monetary economy is in "meltdown," My flat is now worth £75k. It still has four rooms they still provide the same functionality and I now find my lender has, in effect, title to 100% of my property if I default or try to sell to move elsewhere.
5. So why is this just? As an ordinary citizen I didn't create the imbalance between monetary and real values and yet I'm expected to protect the lender. Why? If I had physically built one room and a friend had physically built three rooms and then demanded occupation of the lot without recompense we would regard that as theft. Wouldn't we?
You are correct. It is not just, and the only real solution to this crisis is for the banks to write down the debt. Remember that because we live in a society where money is debt, and vice versa, the value of money (think about the word value) comes directly from the value the debtor attaches to his property the loan is secured against in the face of a threat of repossesion and credit blacklisting. Simply: if I give you a million tiddlywinks to go and buy a house from a friend, who accepts tiddlywinks, on the condition that for the next 30 years you bring me 10000 tiddlywinks per month or I kick you out of the house and take it from you, how valuable do tiddlywinks become? Exactly. This is how modern capitalism works. One solution is for the debtors to collectively refuse to pay back te banks - this is what will effectively happen, but via an elected government who will nationalise banks and write down debt
6. Surely, the lender should only be entitled to three rooms worth of my accommodation which in today's monetary terms is £56,250. Yes, he has a monetary right off of £18750 but he is no worse off in real terms and as money doesn't really exist because it's an abstract concept who gets hurt?
7. So why have we let the monetary economy (the tail) wag the real economy (the dog)? Why is protecting monetary balances more important than keeping people in homes or people in work?
It's not - this will change. The banks will be reigned in. It's just a matter of time. Wait and see.
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Well the pound is up to 1.67 from 1.44 in February so everything must be looking Good in the UK and Mr Browns QE Solution working a treat and its refreshing to know you are all 16% better off than Eight month's ago!
It must be just me that thinks its all a big spin and that we are going to face higher taxes after the election either that or the bankers forex desk have already had their bonus and are out spending them!
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127,
Well put, I've had that very same thought.
Also to JadedJean,
I am looking for an answer to my original question, nothing more, and I meant no offence.
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#138 superiordeny. Yeah I left that line out because I have always tried not do either - I am told I have been quite successful.
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I must say that these comments of Mervyn King are incredibly rich, coming from a man, who I consider to have as much an understanding of the laws of economics as 'George W's dog Millie.'
Wake up and smell the coffee Mr King. The banks only did what they were allowed to do. They were aided and abetted by your very own monetary committee and it's commitment to keep repo rates far too low for far too long. As the committee in charge of making sure monetary policy adequate and rates were maintained at the correct level you failed miserably.
In my experience most people follow their leaders. If their leaders are irresponsible so are they. If you want to stop recklessness then you need to act with a modicum of responsibility yourself. Printing money (or a knee jerk, hair-of-the-dog response to a crisis which was largely your making) and maintaining the repo rate at a ludicrously low level are hardly the acts of a responsible governor.
As a wise person once said, "First remove the log from your own eye...."
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Evening Stephanie,
ah yes another speech from Merv the swerv.
This is being portrayed abroad as "King falls out with Brown over policy".
I have a couple of suggestions for Mr King to consider:-
I think that every citizen of the UK should have a right (in law) to have a bank account if they so wish (not a privilege bestowed by the bank). I say this because much of our infrastructure relies on access to the banking system. Many people are still denied bank accounts even now and that is a wrong which the Government should right.
Mr King may like to propose the formation of a new retail only bank and see how much custom will flow to it. All banks that currently exist are, I believe, insolvent. We keep our current accounts with banks because of inertia and we believe them to be useful for a reference.
If Barclays et al are so healthy why are they moving toxic assets abroad and why are the foreign investors liquidating their shares?
The FSA is paid for by a levy on the banks, so any meaningful regulation is just a pipe dream and isn't needed/doesn't work anyway.
I propose that we do nothing at all about bank structures, lending criteria, salary and bonus arrangements. Just let's carry on for another year as we are....it will all be over soon (one way or another).
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FrankSz re #142. The matter is beyond logic.
It is contractual. An obligation based upon trust. It used to make the world go around.
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No 82 "USA DEFAULTS ON BONDS. WORLD REELS"
...in all probability, due to the results of over-celebration !! :-)
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142,
'One solution is for the debtors to collectively refuse to pay back te banks - this is what will effectively happen, but via an elected government who will nationalise banks and write down debt'
'It's not - this will change. The banks will be reigned in. It's just a matter of time. Wait and see.'
You really believe that?
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#133 Jadedjean. Why don´t you try reading some Figes to get an idea of pre-revolutionary Russia. The Czarist regime was uniquely incapable of surviving the strains of the Great War - so it didn´t. Something had to replace it - the Bolsheviks just got lucky.
If the first premise of a theory is wrong then it is likely to misinform the rest the theory.
Even if the theory was correct then is it important? What has happened (the basic smashing of society) has happened. You can´t go back in time. Understanding why is interesting from an intellectual perspective. There is no real practical application as we have entered the end game, and should be concentrating on survival.
Casting around for scapegoats is not conducive to survival. Understanding that those who claim to lead have no power, no competence, and most probably despise the general population is a pre-requisite for assessing the actual options available.
The future does not look bright - see how people lived in the 1930´s and then look around you today. How many of the people that you see could likely survive in analagous conditions?
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#132 ghostofsichuan. Yeah I struggle to understand the complete lack of outrage. I guess a lot of people either cannot or will not see what is in the process of happening. The media will not report the truth, and will not hold decision makers to account.
Popular action would have been the best last chance. As it is full spectrum meltdown awaits. It will not be pretty.
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No 85 "We have been in the smoke and mirrors realm since John Law invented paper money and the banks took over the world."
Just to be pedantic, paper money was first invented in the 7th Century by the Chinese who had also invented paper in the 3rd Century !!
By the 10th Century, the Song Dynasty were issuing government-backed paper money. However, due to the cost of incessant wars with various "barbarians", the Song treasury was seriously depleted and by the 13th Century, the Chinese invented inflation !! (Strange how history keeps repeating itself !!)
When the Mongols marched in and took over China in the late 13th Century, they, too, discovered the "delights" in issuing paper money and did so in such vast quantities that they invented "quantitative easing" and virtually destroyed the Chinese economy by inventing hyperinflation !!
All that ended when the Mongols fell to the Ming Dynasty who curtailed the issuance of notes and funded the Seven voyages of Sambao the Sailor and his magnificent treasure ships, which expanded trade enormously, thus revaluing the currency. (Please take note, G. Brown esq.). That saved the Chinese economy at last.
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No 88 "May I postulate the possibility that if the investment bankers do not have the substance of all those retail deposits behind them then their bit of the bank might implode like Barings did?"
Actually, Barings was destroyed by Nick Leeson gambling recklessly in Singapore !! There are other merchant banks that deal very conservatively and very secretively and are rarely heard of except by those in the know !! When was the last time there were articles on the Rothschild banking empire, as opposed to the assorted Rothschild individuals and their shenanigans ??
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#152 Arma
The Exploited. "Politicians". Lyrics. Chorus
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Addendum to No 153 For a comparative timescale, at about the time of the Seven Great Voyages of the Chinese treasure ships, the English and Welsh were busily sticking sharp pointy things into the French outside an insignificant little French village called Azincourt !!
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142, Frank I think you may find this interesting ?
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100001459/dollar-hegemony-for-another-century/
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When the oil price sped to well over $100 as the financial crisis was 'coming', analysts rationalised it with theories of an imminent supply squeeze caused by fast-growing Asian economies.
In reality, a huge supply of ready money – from commodity funds and industrial buyers – ruled the market. Something similar is happening now. If the liquidity keeps flowing, one result is likely to be triple-digit oil.
Views will differ as to the value of this occurence. It will take place. Soon. Several trillion in cash says so.
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25th October should be a National Holiday.
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No 99 "The two UK banks that actually failed were Northern Rock and HBOS, both of which did not have investment banking divisions."
It's not "investment banking" per se that's at fault !! It's casino banking that's at fault. Both the banks you mentioned gambled big time in the money markets and they lost !!
Hence, if the retail banks are prevented from "gambling" in the markets through stringent regulations, perhaps this crisis will not be repeated !!
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#158 herosrest. Analysts say what they are paid to say or they are ex analysts. Enquiring minds are interested in this:
http://seekingalpha.com/instablog/390373-chris-cook/18923-oil-the-market-is-the-manipulation
Remember also that the several $trillion in cash came from taxpayers, who are essentially giving money to oligarchs so that they can use it to ramp up the everyday living costs of the same taxpayers.
...and some people still think that meltdown has been averted!!
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Stephanie, regulators will tend to try to define the debate from their standpoint. Here we see that Mr King defines the relationship between regulator and bank/sovereign govt as one of bluff and counter bluff. This neatly steps around the systemic faults that took us to where we are now. At the heart was a system where regulatory arbitrage was the game. Basel 1 and Basel 11 are central. Capital penalties were imposed on banks for holding non rated securitized positions taken in the market. If Fitch, Moodys or Standard & Poor placed good ratings on these market positions capital charges were lower to banks. It was thought that credit ratings provided transparent, timely and objective measures of credit risk in RMBS, CDOs and all that stuff. Good ratings encouraged the view that that these assets were good and marketable and banks' liquidity became tied in to them. Regulators made the same assumptions and allowed funding models to thrive on this innovative approach. Off balance sheet vehicles were used to duck and weave the regulation. Participators devised ways to side-step the system.
Let not the public anger against banks be used to fudge the real problem, for which regulators take their fair share of responsibility. What I think really worries Mervyn King is that clever bankers will find ways to step around future regulations in similar ways.
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Hi armagediontimes, it's the Classical Dicotomy at work. Supposedly. Profit though in our new economy, is not growth.
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Re-read Liars Poker - it all happened a quarter century ago (bar the massive property frauds in the US and the reckless self-interest of the credit agencies)
"In January 1980 ..the mortgage market surpasses the combined US stock markets as the largest capital market in the world"
"They were no longer trading mortgage bonds, but the raw material for mortgage bonds : home loans... [this] was an act of faith"
"Instead of focussing on profits, trading managers focused on revenues. They were rewarded for indiscriminate growth....."
"In June 1983 when the first CMO was issued by Freddie Mac...none of the money was invested in home mortgages. By the middle of 1986 they held about 30 billion dollars worth ...and that number was growing fast"
"Still, the tale has a happy ending. Lehman Brothers evetually went belly up....the firm collapsed in 1984....the name of Lehman Brothers was forever struck from the business cards of Wall Street."
Consider the warnings - eg Barings collapse - must raise the question to all Bank Boards - Do we understand our business ? Do we control it ?
In spite of the warnings, clearly the Boards of most of the major banks did not - they even all said "sorry"
So where was the Bank of England ? If it is to act as lender of last resort the Governor must be omnipotent in relation to UK banking and, so far as possible, omniscient. Was its power diluted by the FSA "Can i see your ID? How much of your income goes on booze ?" and the Treasury "I'll have to come back to you on that" ?
Back this man or sack him, but unless you can show him in error, I would treat everything he says as the closest thing to godlike. More power to the governor!
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Its seems like Mervyn King, Alistair Darling and the rest of them supposedly in charge are just playing a game of Jenga with our economy. Darling and Brown are scared that touching the wobbling tower will bring it all down. Unfortunately for us all, it is completely inevitable that it will crash, we just don't know who the player will be that pulls out that last brick.
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http://www.sysopt.com/forum/showpost.php?p=1466507&postcount=27
"The unprecedented global nature of this crisis and its impact on the global financial sector is affecting every single economy in the world.
"The Bank of England agrees with this analysis. As the deputy governor of the Bank of England, Charlie Bean, said in October: 'This is a once in a lifetime crisis, and possibly the largest financial crisis of its kind in human history."' October 2008.
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No 139 "Whilst HSBC is essentially a Brtish bank in origin, it was for years a safe, East Asian/world bank. That being so, and given its non US/UK exposure, why do you think its share price fell so far earlier in the year?"
While I have not been tracking HSBC in any detail, I would hazard a guess that there had been some major trading or news that affected the *Perception* of the price of HSBC. This does *NOT* reflect the true value of the company per se.
One possibility that I can think of is that they announced a very good dividend and the price rose. When they paid that dividend, the lower price is the ex-div price !!
This had been known to happen to many shares in the days when shareholder value had some meaning and the company's policies were to enhance dividends instead of paying out massive bonuses to jumped-up salesmen pretending to be directors or to go on ridiculous buying sprees with borrowed money or to gamble in the casino markets !! In other words, it is possible that HSBC acted in the time-honoured manner with regard to the shareholders' value instead of treating them as yet more muggins to be fleeced for personal gain !!
One indication of just such policies is their move of their HQ operations out of Britain, where the economy and the regulations are in such a mess, and into HK, where the economy was the second to emerge from the recession and the laws and regulations are sensible and stringent !!
The next to do so may be Standard Chartered Bank, who has a very strong presence in the Far East, too !! As hard-headed businessmen, they will place far more emphasis on doing proper business and making proper profits than on jingoism and political correctness. They will also try to avoid reckless gambling in order to secure and safeguard the trust and confidence of their customers !!
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#157 Superiorsnapshot
Yes interesting but a false dichotomy. As you know, I see Asia and the US as two sides of a coin. Similarly OPEC and the US are two sides of a similar coin. That is, there is a huge trade imbalance involved. This trade imbalance is the ever churning recycling of dollars. I think you understand that.
What economists fail to grasp, many of them that is, is that this financial crisis is a result of these trade imbalances. Until Asia can divest itself from the US, and until the US can divest itself from OPEC and Asia (smart grid, local manufacturing), a collapse in the dollar will kill both sides.
I think what is happening is that these players are all teetering on a knife edge of dollar collapse, trying to divest from each other as fast as possible, not fast enough to spark any kind of run.
The dollar will eventually cease to be the world's reserve currency, I am convinced of it, sometime in the next 10 years I reckon, but probably as a result of coordinated divestments by the g20.
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No 111 "Did Northern Rock, Bradford and Bingley and Alliance and Leicester have casino banking operation?"
Yes, they all gambled on the fact that they can roll-over short-term debts long enough to cover their long-term loans. That they were invincible and everyone will *love* to lend them cheap money which they then out at much higher rates !!
Their deposit-taking operations didn't cover a fraction of their loans out !! That means that they were gambling that they could borrow forever from the money markets !! Their gamble failed and they went *splat* !!
"What sort of casino banking operations did RBS and HBOS have? Lloyds?"
RBS died of hubris !! Their management thought that they were Gordon Gecko from the movie Wall Street !! They could borrow forever to buy up companies many times larger than they were (leveraged buy-outs). They gambled the future of the bank and the shareholders equity on a get-rich-quick scheme based on massive borrowings, in the hope that they could turn what they bought into a greater profit maker or a more attractive package to be sold on !! As the saying goes, they bit off more than they could chew and choked on it !!
HBOS was in a different situation. They gambled on sub-prime mortgages and grabbing market share to boost their market perception and, therefore, share price probably in order to enhance their directors' mega-bonuses !! Again, their deposit-taking could not match their loans out and they had to borrow heavily to fuel their grab for market share. They were the kings of the 125% mortgages and self-certified mortgages !! They also gambled that the property (both private housing and commercial property) prices will keep rising forever and the good times will never end and everyone will live happily ever after !!
When the crunch came, they got mashed and no one lived happily ever after !!
Lloyds, i.e. good old Lloyds TSB (as opposed to Lloyds of London) was a staid, boring, very conservative (with a small "c") bank. The Captain Mainwaring-type of bank !! When HBOS went splat, they were forced into a shotgun marriage with Britain's biggest toxic waste dump and, now, glows in the dark !! They now serve as a lighthouse to warn other banks of the joys of merging with toxic waste dumps !!
"How many of the fund managers have retail banking operations?"
Pure fund managers are not licensed to be deposit-takers.
Fund managing arms of licensed deposit-takers are different creatures altogether !! They are (supposedly) there to manage the funds of their depositors, i.e. placing those funds in equity and other means that *may* make more money than simply leaving them in savings accounts. Normally, the funds they manage are in to order of £1/4 million and upwards !! They may also manage trusts and trust funds for minors and others !!
Two very different sorts of creatures altogether !!
"How many fund managers are there? How much is being managed?"
No idea and no idea. However, for those interested, a diligent search *may* uncover the facts. However, it must be borne in mind that much may be hidden from the view of great unwashed since the "beneficiaries" of those funds might not wish for the unwelcome attention(s) of various governments for various reasons !!
"What are your unit trusts, isas, pension funds blah blah invested in or who by?"
Details too numerous and varied to list in a blog. They would probably constitute a dissertation for a PhD !! They will probably be available to those who seek diligently !!
"Was AIG a bank despite its AIG Financial Products division? How much did it get in TARP funds?"
AIG was never a bank !! It is, in fact, a rather schizophrenic insurance group !! Bearing in mind that it is an American company, it was also the largest and only foreign insurance company in China during the Mao decades !! As such, it also thinks it's Chinese !!
To give credit where credit's due, it had been and probably still does good business in both the life and non-life insurance markets !!
What really hurt it was when some bright spark (probably an Ivy League graduate) thought that AIG should also get into the financial insurance market, hence the "Financial Products division" !! So they insured the completions and/or delivery of financial products. Because they had little or no prior experience in this casino, they relied on the rating agencies for the accuracy of their ratings of the products !! When the rating agencies rates re-packaged sub-prime mortgages as AAA++, they were taken at face value. All this was driven by the "salesmen" who focused mainly on the commissions and the target-busting bonuses and *NOT* on the viability of the insurance contracts !!
Along came the crunch and they discovered that they were insurers of the last resort to a load of toxic deals !! They were slaughtered in the CDSs !! They had priced their premiums wrongly and they didn't have enough capital to cover the losses arising from the toxic deals !!
As one of the largest, if not the largest, insurance companies in the world, they were bust in a big way !! The US had a very simple two-way choice. Save it by throwing loads of money at it or let it go bust and, very probably, crash the value of the $ and the American economy !! The rest, as they say, is history.
As for the amounts thrown at it, I can't remember off-hand, especially at 06:00 and suffering from a serious caffeine and nicotine shortage. It's all there in the news !! All I remember is that it's humongous !!
Meanwhile, my coffee pot is bubbling and my fingers are twitching towards them ciggies !!
....to be cont.
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It is a chaotic system we have, that is the nature of modern trade. It is the nature of freedom. Where things seem to have gone awry is the intrusion of trading practice into economic management. Price is the Trader's tool and it rules the world. Hence "all around the world there are fully-loaded tankers in safe anchorage waiting for orders once prices rise." http://www.thisissouthdevon.co.uk/news/Tankers-duty-free-swoop/article-1391526-detail/article.html Ridiculous and chaotic and an incredible temptation and frustration and RISK. Crazy to a majority but not those in that game.
Traders and trading are a unique troupe, when they moved from commodity trading pits to trade electronically and thence into Finance and Banking, nought but chaos was going with them. That is the game today and RISK is actually the life blood of it all. No more 3 6 3, it is all down to profit - which is a traders tool and mentality. They have changed Finance, they are changing the world and they do not care what is involved in turning profits. Trading practice though is not economics and yet has crossed into that territory where they bully and bustle for advantage. Traders are fearless bullies hooked on risk and adventure and present a matter that must be resolved. Reform is very definately required and perhaps a few of the pits could be brought back for these guys and gals and several bears tossed in with them. They are quietly and ever so politely out of control and ......... arguably, running the show. That's the way they are.
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ishkandar #170. AIG did not hedge their risk. That was the problem. Cassano came from the paper trade that was Burnham Drexel Lambert and Greenberg who brought him in and set it up, was ushered out. Cassano ran the sales and commision, Greenberg who understood the risks, didn't get to cover them. The rest is history and more than half a billion in bonuses.
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for iskander: There was a note I think in HBR about AIG. They hired the latest 'rocket scientists', (financial slang for modellers of financial risk) who were quite good but the CEO became over exited and upped the ante and lost the pot.
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The government need to make such things as ZOPA more attractive to individual leanders, by sorting out the crazy tax regime.
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169, Frank.
If globalisation is viewed as an evolutionary process,( and this is the way I see it,) then the tendency towards a global reserve currency is implicit.
On an empirical level there is huge vested interest, on all sides, in maintaining ability to manipulate currencies. Financial engineering and market orchestration is possible by the very technology that enables global trade. This is used to the benefit of those ruling elites - Oil oligarchs, US megabanks, and Communist/capitalist plutocrats. All would wish to maintain power.
I agree that dollar hegemony will go, but it may be a long goodbye ?
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armagediontimes (#151) "the Bolsheviks just got lucky"
I have documented and explained this many times. The Bolsheviks were Jewish anarchists sent into Russia by the Germans in 1917 to get the Russians off the German Eastern front. They were just anti-statists. Churchill said this in Hansard in 1919. It was also said in Hansard in 1919 that the revolutionary government was essentially Jewish. This was kept quit in Britain so there would not be retaliation against the Jewish community in the East of London given that a consequence of the revolution was the killing of more British soldiers on the Western Front.
Judaism plays a class game, a game of befuddlement over cotermuns classes. Bolshevism (an anarchistic political movement) and Judaism (a religion). Another class is Zionism. The trick has been to make Gentiles feel guilty of persecuting poor innocent Jews, and then get away with colonization and oppression or economic predation under another class e.g. free-market libertarianism - think Alan Sugar and his Apprentices). It's just clever group politics. This is a cognitive elite. It is not the cognitive elite, but they do consider themselves The Chosen Ones - this is the Narcissistic Personality Disorder aspect. This is not scapegoating. Many Jewish people are not like this. But a lot are. It's a prevalence thing, and it shows up in the statistics if you look.
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ishkandar (#168) Pretty much as I saw it, perception, which says a lot about the reality of the stock-market, alas.
As an aside, the fall from nearly 10 UKP to 3.75UKP (at one point) was no post-dividend dip. ;-)
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#168 Iahkandar & #177 Jadedjean. You need to look to the west for an explanation of HSBC. See the table in the attached and note how they are second only to Goldman, but unlike Goldman they do not have placemen in the US Government.
The precipitous share price decline was broadly coincident with a general market decline coupled with their announcement of a rights issue - almost certainly required to shore up their US operations
http://www.moneyandmarkets.com/alarming-news-bank-losses-spreading-32910
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#175
I think up to the ten year kind of time frame, maybe less. In the meantime there is the risk that the USD might suddenly and surprisingly collapse.
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A sombre warning - 'For some time now, policy makers and regulators around the world have recognised that rescuing the financial system had left them with what we economists might call the mother of all moral hazard problems.' - Stephanie Flanders.
To my mind the situation is jeopardy that lacks jeopardy, a fidelity fiddle. Yes rescue the banks (this time), take shareholders to the cleaners for recompense and compensation, renege bonus, let heads roll, name & shame. What do you call Investors who cost taxpayers tens of billions? - Responsible. The blame lies with the shareholders and investors. The entire matter is a Fidelity Fiddle.
There is in this modern day, no need for private banking - Finance can be provided cheaply and efficiently by government which has just spent the last 12 months proving that point. Cut out the fat middleman and give everyone a break from the feeding frenzy of finance and banking. £1 a day now for agreed overdfarft, £5 a day for unarranged excess. It is probably time for customers to start billing their own costs back to the banks. It will be fun queing with the stop watch and on 'Please hold' phone calls. Customers services are very expensive and should be passed on. :)
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Banks too big to (excessively) bonus, FSA says.
http://ftalphaville.ft.com/blog/2009/10/22/79171/banks-too-big-to-excessively-bonus-fsa-says/
I expect we can expect another round of Turner bashing from the City 'hoi palloi'. This gent deserves our full and unabashed support. He walks a difficult line quite sensibly and has been mauled savagly by people who can afford to know better, our nations Fidelity fiddlers have fangs bared protecting their system of remuneration and bonus. It's a cultural thing.
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Finally and before i am admonished due to misinterpretation of the aboves, l do not fiddle with my own fidelity, l self regulate. It is so cool.
Here is an interesting news break on genius at work, a 'real' bonus earner. 'Write-ups' are in. Hmmmm..
http://www.bloomberg.com/apps/news?pid=20601109&sid=azZrwv0uRzpo
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RHETORIC AND THE STUPID BRITISH PUBLIC
herosrest (#181) "This gent deserves our full and unabashed support."
Why? None of them regulated in the past. This is all nonsense. It's like the bank CEOs apologizing and then taking millions in 'compensation'.
Wake up!
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Self regulation is best - try it sometime. It is though a troublesome little devil prone to all the foibles and temptations that are humanity. Crucifixion could be reinstated as punishment for first offences in finance. That would include matters such as stuttering, sneezing, not crossing T's and failing to log off. However, you have to spot this stuff first and 'mum' is a tiny word of huge significance. Hang in here a moment, now........
183 is a seriously interesting number. The stuff that absolutely makes those after dinner evenings and is easily skimmed at http://en.wikipedia.org/wiki/183_(number) . Delightfully, 183 is equal to the sum of its iterated totients, it is a perfect totient. The totient function, called Euler's 'phi function', denoted by the Greek letter Phi, was the result of study by pioneering Swiss mathematician and physicist Leonhard Euler, the preeminent mathematician of the 18th century and one of the greatest of all time. He also introduced modern mathematical terminology and notation for mathematical analysis, such as the notion of a mathematical function. 'Phi' relates the Golden Ratio, a topic that has stunned those engaged in after-eights irrationality. Those following this topic thus far are proven fans of Pepsi, unlike this chap who had trouble blowing his nose.
http://www.bloomberg.com/news/marketsmag/mm_1109_trim2.html
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The unrealised value of hedge carry income is a great basis for any major economy. We could go on for years whilst supported by these derivatives.......
It's a another happy time for those submersed huntsmen.
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herosrest (#184) "Self regulation is best - try it sometime."
Did you have a TIA in the midst of that post? ;-)
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There is so much more than meets the eye with risk management. I hope those oil tankers bobbing about in the Channel are properly insured. They may not be, which is why there has been no disaster yet, ecologically speaking.
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Ashen spears avenged Priam and brought Agamemnons fall. ISilence is Castor's shadowed dichotomy.
http://upload.wikimedia.org/wikipedia/commons/9/97/Actaeon_Caserta.jpg
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JadedJean (#186) No, but the they are close to home. :-( Be well. Be free. Hug a tree.
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But what happens if the USD suffers a surprise collapse??????
I'm worried about this, as I'm borrowing in dollars at rock bottom interest rates, then lending it out at a higher rate to businesses and consumers located abroad, and the loans I make are denominated in non-USD currencies.
If the dollar undergoes a surprise collapse, the value of my USD liabilities will decrease relative to the value of my non-USD denominated assets. I don't want to be in that situation........
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No 171 "and perhaps a few of the pits could be brought back for these guys and gals and several bears tossed in with them."
Perhaps a few cobras might make things more interesting. I'm sure India will be willing to trade a few King Cobras for a load of gold !! :-)
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No 172 "The rest is history and more than half a billion in bonuses."
Not a bad job if you can get it !! I could do with 1% of that !! :-)
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My sombre warning. What you see is what is happening.
Japan logs largest trade surplus since March 2008 - http://www.japantoday.com/category/business/view/japan-logs-largest-trade-surplus-since-march-2008 states the following, "Japan’s trade surplus in September was the largest since March 2008, supported by a steady recovery in exports, the Finance Ministry said Thursday. The trade surplus was registered for the eighth straight month, up 472.3% from a year earlier to 520.64 billion yen, with both exports and imports recovering to the highest levels this year, the ministry said in a preliminary report." This is chirpy, cheepie, upbeat, things are ok. Wow, a large Trade surplus. Japans trade results are a disaster, a catastrophe. It's the same all around the world but of course this is a set back from which we will grow our way forward. It isn't going to be that way unless people realise that there is actually something wrong with the numbers. The theory is broken.
In simple truth, on a year-to-year basis, Japaese exports fell 30.7%, Imports shrank 36.9%. Those numbers are repeated everywhere, even China now! Whatever each of the diffent views, politics, policies, administrations, governments and representations are thinking, doing and saying THEY HAVE GOT IT WRONG. This happening now is like nothing ever before. That is because it is impossible to GROW back the losses, they will not stabilise into renewed growth, they will not stabilse, they will continue to fall, year on year rather than grow. The devaluation that occured reached a critical mass. The size of it, negates all known unserstanding and expectation. This is not like before, not like 1929/32 it is unique and utterly misunderstood. That a devaluation may be the worlds best kept secret for our future benefit may have been the intention. What has happened may be worrying but we will recover through growth................ NOT so. That will not happen, the opposite will. It is a formula programmd into the system now. Devaluation is what is occuring and it is primal, it has taken over. No economy can survive a 30% devaluation.
Now the good news. It is all an accounting error. The accounts, the way the audit was done is flawed.
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#190
Why don't you take out a future or option to protect your position? It shouldn't cost too much.
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No 177 "As an aside, the fall from nearly 10 UKP to 3.75UKP (at one point) was no post-dividend dip. ;-)"
It was just a guess but as No 178 said "The precipitous share price decline was broadly coincident with a general market decline coupled with their announcement of a rights issue - almost certainly required to shore up their US operations"
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No 194 "Why don't you take out a future or option to protect your position? It shouldn't cost too much."
Perhaps he did but the other way. It's quite normal to hedge against a rise in the cost of liabilities and against the fall in the value of the assets. :-)
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Hi, hope this helps:
http://www.bbc.co.uk/blogs/pm/2009/10/the_pm_glass_box_91.shtml#P87425279
(For you exchange traders, there are winners and losers. A credit crunch freezes that ebb and flow in time.
Equally every additional risk is an additonal security to the other party.
The real problem is inflating assets arbitarily, not risk attitudes, during booms. Overheated economies don't happen. Demand gets switched to China, Japan, India.
Self fuelling and self financing speculative booms keep going, Ponzi-like, until someone decides to pull the plug.
Subprime mortgagees who make payments by borrowing against equity are good economists. They save what they would otherwise pay to landlords. Such systems work fine until someone pulls the plug - Greenspan
Just like the Japanese Finance Minister did, in bringing on the Dead Decade. Such signals result in everyone closing credit lines down. As Keynes and Marx knew well.)
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ishkandar (#195) Allegedly, they didn't do the Rights Issue for that, they did it for acquisitions, as I understood it.
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IMHO, the increases in government spending were self fuelling speculative booms
So can someone please explain why GDP is a now an effective measure of product when
a) government spending is nearly 50% of GDP
b) much of that spending is fuelled by debt
c) debt payments are influenced by interest rates which may go up or down
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No 198 "Allegedly, they didn't do the Rights Issue for that, they did it for acquisitions, as I understood it."
It might be that too !! However, I have not been tracking them very closely these last few weeks. It's not a stock that I need to track closely since I had no intention of speculating in them !!
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No 199 "So can someone please explain why GDP is a now an effective measure of product when
a) government spending is nearly 50% of GDP
b) much of that spending is fuelled by debt
c) debt payments are influenced by interest rates which may go up or down"
GDP is whatever the government wants to call it !! It is not an accurate reflection of the real earnings of a country. The real reflection is the total exports (physical as well as invisible) less the total imports (same as exports above).
All else is a churning of statistics through bean-counting !!
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184. At 3:25pm on 24 Nov 2008, stilllitterarty wrote:
Retail therrapy must not fail! ,we must act now before its to late to stabilize the sinking titanic by shopping till we drop .
Monuments will be errected in shopping malls to commemorate those selfless types who ,though maxed out ,still went over the top into a hail of special offers with faith that "Your country needs you"Gordon will bail them out.
,On memorial day each year there will be 10 minutes silence, as future generations ponder the sackrifice of the fallen and will still hear their forlorn cries "beam us up scottie", "ive forgot my pin number"and "wheres my fiscal stimulaaas"
Never was so much spent by so many, to save a few
Go out and shop ,you know it makes no sense ,loonyland economics awaits you
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Mervyns been studying stilllitterarty again
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#190 - So you're shorting the dollar like everyone else?
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ishkandar (#201) So how does one get an accurate measure of exports, especially when we are told that 'Financial Services' are one of our big exports? ;-)
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SpartacusmartyrAAAs (#202) "On memorial day each year there will be 10 minutes silence, as future generations ponder the sackrifice of the fallen and will still hear their forlorn cries "beam us up scottie", "ive forgot my pin number"and "wheres my fiscal stimulaaas"
Excellent stuff (as usual)!
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Save the banks by all means, but do so without saving the bankers in the process. If a bank, or any other financial institution, has to be bailed out by the taxpayer, all its senior people (those responsible for its problems) must be sacked and all their assets confiscated. There are plenty of bridges for them to sleep under and rubbish bins for them to eat out of. If the prospect of abject poverty does not discourage reckless financial behaviour by the 'masters of the universe', nothing will.
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Britains greatest exports [invisible aaairninks]are pictures of the Queen on small pieces of paper, why infiddles would wish to pay such a high price in barter for so many chealply produced copies is astounding, particularly when they are exchanged for [among other things real] lazer printers....now thats just taking the mickey out of johny foreignerr.
It is only an infinite capacity for self delusion greed and stupidity that gives fiat currencies backed by nothing their supreme hold over the immaaagi naaation
Suposing tomorrow the Queens head was replaced with noddys ,how many caaannon copiers would we then get.
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Its ironic that the lntrickAAAte colors curls and swirls on feeaaart currencies that sujest the immutaaable value therein to the bearerr on demand are themselves the product of the greatest counterfiating scaaam of all time now being run by the faking QE'rs atop their broke buck mountain shouting
ITS THE electronic DIDDLE DOE STOOPID!
EVEN THE DEBAUCHERY IS BEING DEBAUCHED.
At some point a paaainful Gordonoscopy will have to be performed and the diddle doe removed before the moment of inebriaaated billitz becomes an eternity of bondage.
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Stephanie Flanders:
Mervyn King is very much correct and truly making an
just statement regarding giving this sombre warning...
~Dennis Junior~
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