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Poetic injustice?

Stephanie Flanders | 20:14 UK time, Friday, 12 March 2010

"First you trash our balance sheets, then you have the cheek to complain about them". If Western governments could talk to the international financial markets, this is surely what they would say.

Think about it. First, everyone in the financial system - especially the banks and bond traders - made a lot of money using complex new financial instruments to lay bets backed by mountains of debt. Then the crisis came, and the bets turned bad, threatening to bring the global financial system with it. Governments around the advanced economies had to spend hundreds of billions of dollars propping up banks and standing behind the likes of AIG, and hundreds of billions more dealing with the global recession which the credit crunch had caused.

Now, economists and traders at some of the same financial institutions have the audacity to look shocked (shocked!) at the amount of debt which has gone onto the governments' balance sheets. And we know they will punish them with high interest rates if the politicians don't show how, exactly, they are going to clean up their act. Talk about poetic injustice.

Of course, no self-respecting expert would ever talk about it in such a simplistic way. They know that the institutions and investors that are now raising the alarm about sovereign debt aren't necessarily the same ones that had to be bailed out.

The experts would also probably point out that "Western governments" and "international financial markets" can't talk to each other, because abstract nouns can't talk.

But I'm surprised that non-experts don't draw the link. After all, everyone gets very upset about bankers in bailed-out institutions awarding themselves big bonuses. But the economists and bond vigilantes who complain about the scale of government borrowing could ultimately cost us all a lot more money and pain.

It was "heads I win, tails you lose" for bond markets before and during the crisis (unless, that is, you happened to hold Lehman Brothers bonds). Now the average punter would say the same thing is happening in the market for sovereign debt: or it could, if governments don't impress the markets with their dedication to slash their deficits.

If any institution has come to embody the skewed odds for the big players it is Goldman Sachs. The New York Times has already skewered them by revealing how the investment bank had helped Greece disguise some of its debt. This week the newspaper reported how Goldmans had last summer started recommending credit default swaps to its clients, as a way of shorting sovereign debt. The article continued:

"One report said the price of swaps "may be too cheap as it may underestimate the risks to developed countries who have recently issued large amounts of debt." "Buy C.D.S. of developed sovereigns," the report said. Again, no countries were singled out.
 
Despite such advice, Goldman promptly went back to work for the Greek government. Since last September, the bank played a role in underwriting more than $33 billion of new bonds for Greece, Spain and Britain, according to data compiled by Dealogic. Those three countries are among the most heavily indebted developed nations, as measured by their debts relative to economic output.
 
Goldman Sachs, in a statement, said its reports merely outlined a variety of trading strategies. The bank said it saw no conflicts in its various roles."

Here you have one arm of an institution recommending to clients, in effect, that they short debt which another arm has helped to sell.

As it happens I don't think there's anything surprising about this. In many ways, it's what being an investment bank is all about.

Greece didn't need Goldman Sachs - or the financial crisis - to mess up its public finances. It did most of the job itself. But if and when things turn nasty in the bond markets for other governments in Europe and the US, there is clearly going to be more debate about the role of the financial markets in making a bad sovereign debt situation even worse.

There's a foretaster in the recent talk of banning sovereign credit default swaps (CDSs). Governments are going to try to stop "speculators" from benefiting from their fiscal woes, even if there is no proof they directly caused them.

If you think some of this sounds a bit radical - I recommend you read the extraordinary interview with Bill Gross, the co-founder of Pimco, in today's Guardian. The world's most important bond vigilante says "Wall Street has had it too good for decades. It's time for Main Street to go on the ascendancy."

Gross wants governments to raise taxes on bankers, and they should ban sovereign CDSs. He would choose Labour if he could vote in the British general election, and he thinks "favouring employment versus the financial markets is a decent policy."

But if any government does seem to be putting the financial markets second, he's also quite clear that Pimco is going to extract its pint of blood. In his day job he still tells his clients that Britain is a "must avoid" area, and says its gilts are "resting on a bed of nitrogylcerine". Crazy guy. Crazy world.

Comments

Page 1 of 3

  • Comment number 1.

    Has use of the words 'Merchant Bankers' as Cockney rhyming slang ever been more prevalent?!

  • Comment number 2.

    The contradictions of the capitalist system!

    It needs the credit system but the credit system cannot resolve the crisis.
    The system is turning cannabalistic as it struggles to find new loot.

    Rosa Luxemburg's The Accumulation of Capital explained what was happening 100 years ago.

  • Comment number 3.

    Surely this is the perfect case for splitting out the investment banks and their complex financial instruments from the mainstream retail banks.

    Before Bill Clinton took an axe to Glass-Seagull it would have been difficult for us to get into such a precarious position. It is outrageous that the High Street banks which we have spent so much to save can still directly or indirectly invest in financial instruments which bet against our economy, our major companies and our currency.

    Why not promote about 12 mainstream, possibly regional, retail banks and use legislation to keep them away from excessive risk. Then if the investment banks make poor investments let them fall hard with no cover from government of any kind.

  • Comment number 4.

    #2 duvinrouge,

    Dog bites man - no story

    Man bites dog - headline

    Debt eats money - true but don't ever admit it!!!

  • Comment number 5.

    refreshing to see this view on the Beeb for its other faults, I do wonder why you choose to tell the real story now

    one thing though and to quote you

    "As it happens I don't think there's anything surprising about this. In many ways, it's what being an investment bank is all about"

    just because something exists as it does, does not make it right.

    but this is not new is it, insider trading, double dealing has gone on for decades limited to the club of the city and their friends, making out that it was a noble and just profession when all I see is greed and sleaze.

    Trouble is you have pointed out the problems, even if they do manage to sort some of the fraudulent dealings and that is what they are, all that will be left is a dried out corpse.

    The vampires will be gorged on the blood, their friends will have had a nibble, dare I say many of those who call themselves our leaders, even the financial journalists will have been given a feed, justifying it by saying well they are all at it, so why not me.

    The plebs who have been conned that their leaders and the regulators where keeping an eye on things will soon wonder why they should bother.

    So come the day when all the debt has to be paid off and austerity is forced on the masses, there may be a few fat pigs grabbed to feed the poor,blessed are the meek for they shall inherit the earth.

  • Comment number 6.

    "Greece didn't need Goldman Sachs - or the financial crisis - to mess up its public finances. It did most of the job itself."

    Can you think of anyone else who falls into this category Stephanie?

  • Comment number 7.

    By some slight of hand the UK's public debt is less than 200bn or so isn't it? How come as we have purchased with public debt many banks some of those like RBS and Lloyds with gigantic debts in the low trillions.

    If the UK was an incorporated business (heaven forfend!) it would have to fully consolidate such liabilities/assets - by thankfully we aren't a business so we don't have to as we can make up the rules as we go along! This is what frightens the horses of the apocalypse! So long as nobody notices that the king is going around in the buff everything is fine!

    There is one thing I am quite safe in pointing out and that is that nothing has actually been done to fix the capitalist system. There has been talk, but nothing has been done. What were the economists in universities (e.g. Harvard) doing - they did know, or we have the right to expect that they should have known. Yet they seemed to be collectively ignorant - don't they read history books these days!

    Aside: #2. duvinrouge I too think that Rosa Luxemburg's analysis holds true today, but each generation has to learn the same things - usually the hard way! I also think that Marx and his associates had a much redder, more obvious, capitalism with far sharper claws that we have today - and indeed the education of the masses was better then that it is today as a far wider group of people understood the fundamental relationships in the capitalist system. I don't think that even many capitalist today actually understand the nature of the capitalist system - otherwise they would have prevented the self-destructive nature of the bubble economy before the crash. So, yet again, our regualtors are shown to have been both incompetent and ignorant - but still have jobs!

  • Comment number 8.

    I read these blogs and what people write in on the news. Now I can see that the news is grim and what the vast majority of people say makes perfect sense and if the markets behaved rationally then they would indeed ditch the pound/dollar and buy into gold. The facts are though that greed is a the oil that keeps this whole ship heading along on a course that should mean disaster and meltdown.
    The whole mess we are in is not down to bankers, MP's or economists and the rest of this self serving breed, they did indeed play their part, but the finger of blame has to be pointed at person you look at in the mirror each morning. Everyone who had a property during the boom was secretly pleased about the rise in their fortunes, if they admitted it or not, this rise was due to no other reason than other peoples need to buy a house and the constant telly programs on buy to rent. This constant growth over and above inflation on an exponantial scale is doomed to fail, even if the rate was just 1 percent, as to carry on the growth year in year out would lead to growth rates of 1 percent of infinity eventually (if the cylcle of boom and bust was finished) and 1 percent of infinity is itself infinity.
    Then there is our demand for every better and complex products these are paid for on the never never, giving our life meaning with the possesions we gather around us. You may question myself as the writer of this, I too help keep this ship of disaster heading on it's seemingly unsinkable course. I have a business, which I want to grow, I'm trying to buy a second house to rent out to give myself a more sure pension than the state offers and I try and help my kids as much as possible so they can be as successful as possible in their own lives. Which if you measure success as most of us do, means I want them to have a house too big for themselves, with more cars and electronic gadgets than they need. Therefore I do my bit to help the circle of greed continue.

  • Comment number 9.

    Steph,
    You are going up and up in my esteem. This is excellent reporting, and just what we need to hear.

    There is some extremely bad stuff going on out there and the ramificactions could be on a biblical scale.

    Keep telling it how it is and if the beeb don't like it then move to a good newspaper. your work is of immense strategic value right now ....please don't let the beeb muzzle you.

    Atta girl!

  • Comment number 10.

    It might be my perception, but 99% of the population thinks that "investment" banks and bankers are greedy parasites that waste our money and are only interested in buying £2m worth flats with only one-two bedrooms in either London or New York and making enough money for a retirement they may never have (greed is bad for your health). CDS and other nice abbreviations to hide the fact that they do not produce anything useful.

    Noone, I mean noone can persuade me that all these "useful" people had no idea that Greece's finances are not healthy, and they realised overnight. And when France and Germany save Greece (so that Greeks can continue buying Porche Cayennes at thei highest per capita rate of any country), they will suddenly realise that the UK has debt. By the way, in Greece the average debt per household is about zero, and the typical mortgage obligations less than one tenth of the UK. It is the state debt that poses a problem, and facing corruption can address it; all is needed is political will.

    When the vultures turn their attention to the UK, that has a CITY that is not "allowed" to perish, no manufacturing or business other than a couple of greedy oil companies that make money by sopporting corrupt politicians in Nigeria and elsewhere, and decide to make it the next easy victim, what fun it will be! (not)

    Greece has sun, sea, the best agricultural products (good soil) and proud people (inc. abroad).
    The UK has young entrepreneurs and innovation and that's what it should sell. Unless someone has the balls to make the bloody banks give small companies the "quantitative easing" money they deserve, rather than keep for their own pathetic bonuses, there is not much hope. And just wait until you host the Olympics for a bit more debt (after 2-3 years of euphoria). Coca-Cola, Nike and Goldmans-Sachs, we are waiting for you here in London, please come and take us. 20% unemployment in Greece and Spain, guess who's next !

    Do not fear about Greece. Do fear about the UK. But then again, everyone seems to be happily paying 30-40% more for holidays abroad, while the bankers are happy with the "recovery" and the "golden men" are preparing for the feast.

    Just to let you know that in Greece when people are not protesting about the new measures ("what debt?") or visiting lovely beaches and rivers in their (shame on them!) Cayennes and Q5s, they are discussing about how badly the UK will be hit by the vultures. My relatives called me really concerned that I live in the UK and told me to save money before the depression.
    Lovely.

  • Comment number 11.

    It's all incredible hedonistic, isn't it? Gods in banks sitting around and rolling dice to see which country they shall bankcrupt next, for a laugh and a few pounds.

    As has been pointed out on this blog, time and time again, all our attempts at regulation, at stopping these large corporations from dominating and subverting any market based system, has failed. They have too much money and too much power. They can control markets, countrys and law makers.

    Perhaps it is really time to just blow it apart, and restart with fresh ideas and a clean slate. We are going to be bankcrupted by them, it would be better if we just collapsed than try and stay alive on indefinite life support, slaves to them. Of course it would be better still to be in some form of control, but with our politicians in denial, this option has been taken out of our hands.

    Perhaps then a hung parliament would be best for the UK?

  • Comment number 12.

    #11:
    Greek solution: get Greeks to pay taxes, most can afford to. Then encourage competitiveness and sell Greek product abroads.

    UK solution: cannot get much more tax from the public, but can get it back from the bankers. If that means they will go to Wall Street, so be it! But get back our money first and give it to businesses and R&D departments. If noone has the guts to do it, perhaps Crookwood is right and a hung parliament is best. IF anything, the fact that the "markets" are trying to scare everyone into voting Conservatives to "avoid a hung parliament" to me says that they probably rely on them to squeeze every penny out of the taxpayer so that the bankers can carry on their greedy games. "Cut the deficit to aid the recovery". Of the Bubble. Perhaps we should all vote the 1st British Woman Porn Director. Any CDSs for that?

  • Comment number 13.

    #9

    Totally agree with you!

    Stephanie the people's champion!

    Keep going Steph - a reporter we can be proud of!

  • Comment number 14.

    Good article.

  • Comment number 15.

    Call in the loans, let them collapse and nationalise the retail side. Manage it this time but only indemnify instant access accounts to 50k.

  • Comment number 16.

    Why are some of you praising Ms Flanders so much? I, for one, am not so happy with her comment. Reasons? There are a few.

    First,
    I count on my bit of this this tasty “not so much but yet” inner circle information that gives me an illusion of possible profit (profiteering?) on it and there is none above.

    Secondly,
    It's nice to give a hint of general nouns as an obstacle in discussion. Just let me elaborate. It's not every Greek that is going to suffer and not every Greek that is going to pay higher taxes and enjoy or curse state of (just for example) the roads after what seems to be an approaching decade of austerity. Generally a Greek businessman wants same profits as a German one makes, notwithstanding his ability to create an actual competitive business securing him such a profit. On his way Greek entrepreneur forgets (in most cases) to support the level of infrastructure conducive to such profits and contributes to social inequality greater than appropriate on Greece's level of development. The public wants benefits and wages affordable only for Germans and a vicious circle begins. Spending deficit money as “oil poured on troubled waters” doesn't help either.

    Thirdly,
    a skill of (a trade of, an art of) economical thinking is (again, nice to give a hint of it in your text Madam) practicable only as a service to business. People like Joseph Stiglitz are few and far between, and even they are largely limited by a national interest. Generally, any business and fiscal comment is good as long as it widens the margin. Margin is a traders headroom. Sow fear, pump the spread, reap profit. I wouldn't be surprised if Pimco used some of the financial instruments to recoup losses, or get profits on low/negative performing bonds.

  • Comment number 17.

    It's difficult to disagree with any of Stephanie's points, however as a Bank worker (not a Banker, there is a massive difference)I am constantly frustrated by the hypocracy of everyone in government. It was the introduction of 'Light Touch' regulation which allowed the banks to get into this mess in the first place. You cannot blame the UK banks as they just followed the rest of the world after Gordon Brown (as Chancellor) allowed them to do....

    Now, you have George Osborne claiming that a part of their election campaign is to have a super tax on the banks to fix the mess.

    To summarise
    New Labour changed the rules which was the catalyst to the crisis in the first place. The Tories plan to punish the banks (anyone who happens to work in the financial sector) as a result....

    Who do I now vote for? On top of the expenses scandal where most MP's have proved to be no better, if not worse than bankers, it's all very hard to swallow.....

    Of course Stephanie is right in that there are probably one or two very manipulative people at the top of banking industry who helped worsen the crisis and are now complaining about it. But as Stephanie has stated in the piece above, largely there are now different people in charge.

  • Comment number 18.

    Now the average punter would say the same thing is happening in the market for sovereign debt: or it could, if governments don't impress the markets with their dedication to slash their deficits.


    Stephanie
    What really amazes me is the obviously irrevocable thesis that our government is or will be in any kind of position to “tackle” that heap of debts in any way. This tackling is discussed as if essential spending cuts and higher taxes would heel that deficit in virtually no time and no side effects.

    In reality the UK is just one fraction of a number of global fatal problems; we need to face the fact that none of our fellow global friends will sit back and “wait for us”; the opposite, the race for the weakest currency, lowest cost and even the most minuscule possible market share anywhere on this globe has long begun and will not change to the better; we stare at a globally irrelevant election which no matter who will win will have no influence on the very same problems.

    So when will who begin to discuss the reality, real solutions?
  • Comment number 19.

    An excellent article, thank you. Isn't it true that financial institutions make more money during times of change? Isn't it therefore true that many will decide to cause change? Isn't that true for global change?
    We need something new. Something 21st century. And that's not new labour or new conservative nor is it new liberal or a new hung parliament. We have an ageing population. We have a reduced manufacturing base. We have little or nothing new to offer the world. Let's call it the new way, for sake of argument, enjoying life as it is. Imagine not bothering with growth and accept we are all lazy wanting an easy life! After all it's in a capitalist society's interest to depress the population so they buy more to become happy. We need to instill a buying less mentality!
    Economists - forget them because they have led us to this. Bankers - nationalise them; we seem to own most of them anyway. Coal mines, reopen them on a big scale - imagine the boost to our economy. If a big oil find is good news then how come the same energy in the form of coal is not good news - isn't the climatic effect the same? Tax - more please but put that tax on the retail side on VAT and do it gradually. If we were supplying our own goods I'd not be suggesting VAT increases but in the main we don't so let's attack our imports by increasing VAT on everything! Sorry for retailers but isn't it time folk stopped buying stuff they don't need?!
    And if that causes a run on the pound then so be it. And if we have to pay more on our debts then so be it. And if in the end we get to a sustainable situation then brilliant and it will have been worth it.
    The new way - let's call it National Government. Let's accept this situation is awful and get the best people for the government jobs in those jobs. Make no bones about it this is the equivalent of a war and in wars we have national governments and command economies. Why? Because they work!
    Sorry this hasn't been about investment bankers but they aren't going to change things. We have to do that hopefully led by brave politicians stating truth not purveying an impossible future.

  • Comment number 20.

    I’d be nervous of investing in sterling at the moment.

    Imagine you buy a 10 year 4½% fixed interest gilt, and the Bank of England decides to re-start quantitative easing again, and Sterling falls in value by 10% over the year.

    You’re going to catch a cold aren’t you.

    And then you’ve got another nine years to go hoping the BOE doesn’t do it again, or things don’t get really out of hand and we default.

    In the event of default, it’s rather difficult to repossess a country.

    Unfortunately I reckon Pimco’s right.

    It’s not about economics this, it’s about plain old mathematics.

  • Comment number 21.


    "First you trash our balance sheets, then you have the cheek to complain about them". If Western governments could talk to the international financial markets, this is surely what they would say."

    Some clarity at last!.... you almost said it : "lying gambling financial terrorists" (http://maxkeiser.com/%29

    With Goldman Sachs etc gambling on the collapse of governments it lent worthless derivatives to...
    The same governments who bailed them out?

    And how are the countries supposed to pay these "debts" to these *"lying gambling financial terrorists" *?
    sorry I mean "respectable financial institutions" of course

    Oh yes by competing in an unregulated international wage and environmental market... making and selling more stuff we don't really need in ways that are destroying the future environment for our selves and our children?

    you couldn't make it up... it would be funny if it wasn't so tragic

    Who is gonna stand up for the people against these gangsters?



  • Comment number 22.

    #7 John_from_Hendon

    "I too think that Rosa Luxemburg's analysis holds true today".

    That is good to hear.

    I know all these references to historical figures can feel a bit like living in the past, but history is important if we are to understand the world of today.

    Adam Smith & David Ricardo were genuinely investigating the nature of society through their analysis of the economy.
    But the neo-classicals were the ideological excusers that buried the science.
    Hence Marx's subtitle to Capital - a critique of political economy.

    The mainstream economists to this day have continuied to be the ideological excusers.

    But even the Marxists have had their excusers - Eduard Berstein, for example, who essentially argued that capitalism had overcome crises.
    There's also a lot of Marxists who have never understood Luxemburg's point that capitalism faces an objective end that is to do with its ability to loot.
    Many still focus purely on the potential limits to the market, i.e. purely from a demand side.

    So my argument for the last decade has been that there are three main elements forcing a crisis on capitalism:

    1. Overproduction & the resulting fall in the rate of profit (the same kind of crisis that has always affected capitalism & can be overcome with a devaluation of capital)

    2. Energy crisis (peakoil) - the demand for oil has reached the point where supply is stretched & prices increase which then impact productivity (this is why Keynesian borrowing from future generations won't work this time)

    3. Supply-side constraints - this includes the energy crisis but extends to the supply of peasant labour & other raw materails (this is the loot that Luxemburg refers to; free inputs into the circuit of capital); this also extends to the ecological crisis

    All this is not to say that capitalism's end is certain, rather the choice is Socialism or Barbarism.

  • Comment number 23.

    ''First you trash our balance sheets, then you have the cheek to complain about them''

    Stephanie, I think you are rather generous in describing them as 'cheeky'.

    I think the vampire squid analogy is more accurate, wrapping its rhetorical tentacles around a food source then repeatedly feeding by jabbing its blood funnel into descent hard working families and small busineses.

    I dont suppose you would be allowed to say that though in the beeb..too controvertial y'know.

    Trouble is what gets priority when the controversial is also the closest thing to the truth?

    That is a dilemma I think BBC journalists should 'more actively engage with' lets say.

    aka guts and a solid moral compass.

  • Comment number 24.

    It seems to me that a fundamental problem that the markets have is the speed at which they are allowed to operate - ie as fast as the technology is capable of. Buying and selling can occure in seconds (for the privelaged few). This allows them to always beat the rest of us. But more importantly it causes the system to be unstable. And the privelaged few are allowed to battle for supremacy among themselves, the rest of us paying when the system crashes.
    My suggestion is that the system be slowed down. For example - equities - make purchasers have to hold on to them for a period of say 6 months (at least) and allow everyone the same acces to the market. This will ensure that anyone that buys will be truly thinking of the performance of the companies. It will elliminate the gambling element, and ensure that the best companies will always survive.
    However, what do I know.

  • Comment number 25.

    Gordon Brown is not solely responsible for the 'credit crunch', though he ignored the credit boom (for political gain), but he will take the blame for the unoriginal and gutless response to it. No seroius regulation, no change in culture, just throwing money (our money and future generations money) at the problem.

    Gordon Brown can take credit, along with HM opposition parties, for effectively bankrupting the UK.

    We are only at the very beginning of the crisis, people should realise that.

    Good article in the Guardian.

    http://www.guardian.co.uk/commentisfree/2010/mar/11/banks-lied-darling-puppet-city

    The bailout was not thought out. It was a knee jerk reaction by politicians not wanting a 'car crash on their watch.

    If only politicians were as good at thinking as they are at taking our money.

    Stephanie, could we have your analysis on whether the 'bail-out' was the best approach.

    The UK is in a worse position than Greece going forward.

    UK deficit 13 per cent AND GROWING
    Greek deficit 12.7 per cent

    Greece has higher total debt but as said before total debt is not an issue if one can service it (German debt is a good example).
    Greece is in the Eurozone which offers some protection.
    UK with a vulnerable niche currency is ALONE.
    Finally the Greek economy is smaller and simpler compared to the UK and easier to re-balance.



  • Comment number 26.


    I am drawn to the Marxist analyses explained by some of your posters: but when people suggest that the credit crunch is a failure of capitalism I have to wonder. If "Capitalism" implies a world based on capital - ie accumulated surplus income - then surely the current world is, at best, post-capitalist: and based almost entirely on debt - ie anticipated future income.

    We then have the repeated recycling of debts masquerading as "asset price inflation". For the most part, it seems that this maelstrom of debt paper is ultimately built on ever increasing levels of mortgage debt.

    Once house price inflation is uncoupled from wage inflation (as it has been for the last ten years) we have a recipe for the theft of people future income on an illusion of increasing wealth. Debt is not wealth!

    The original debt (people's mortgages) are still in place: and most people are still paying. Government's have nonetheless had to take on far greater levels of debt to prevent the system imploding: where is the capital and where is the future income to pay for all this?

    #10 Dimitris: if Greek household debt is currently zero then they are much better place to sort themselves out - provided the Government can get people to pay their taxes. This becomes an overdue debate about the level and efficiency of public services: not a threat to the Country as a whole.

  • Comment number 27.

    What a shame that governments can just borrow as much as they like without having to worry about how it's paid back. After all, they can just put up taxes, slash public spending or leave the mess to the next government.

    Of course, by that time they will have all financially feathered their nests and will be insulated from the mire they have caused and left behind.

    Can there not be limits on the powers of government to enslave the people into debt? Personally I do my best to keep myself in as little debt as possible. Behind my back, the government is racking it up like there's no tomorrow.

    Is it not time for governments to be forced to live within their means and for tax changes/rises to go to referendum. It could only make for better more responsible government. We are not a bottomless pit of money, and it's our money, not the governments.

    I would like to see the party in power responsible for paying back increases in the government debt. I think we would see some changes for the better.

    A rich country like ours, why do we have a debt at all or is it a message to us that it's good to live beyond your means?

  • Comment number 28.

    What a mess.

    It is quite hard to swallow a situation where the taxpayer bails out the banks, who then borrow money from the BOE at 0.5% or less and then lend it back to the Govt at 4% over 10 years. The bankers then claim a "profit" and ask for a bonus based on it, doesn't seem the hardest thing to do, especially as the Govt has crowded out SME borrowers who are unable to get hold of fresh loans because the Govt has got all the cash. So what seemed a good idea (QE) ends up not finding the home that it was really destined for.

    Repeat this on a global basis and it really is a mess. The bankers and their bond sidekicks shoot apples in a barrel and get richer whilst the rest of us get poorer. Sounds like a zero-sum game to to me.

  • Comment number 29.

    #22 divinrouge,

    I agree with JFH that the capitalist system is broken and that no moves have been made to even attempt to fix it. I have said so many times on these pages - much to the myopics annoyance.

    I would like to look a little closer at your 2nd element of capital crisis i.e. Energy.

    Looking at the general indicators regarding energey costs and spending it would appear that the environment is ripe for a major technoliogical shift in energy production. I can't tell you to what, or when and how it is likely to happen but I can have some confidence that it is likely to happen.

    This is the only hope on the horizon for the capitalist model as it presently stands as it would directly address the cost issues.

    For me, it is really a question of values. Ethics if you like to call it so. The problem is that the language that we have to express the ideas of social, and hence economic, fairness are rooted in the language and writings of turn of the last century individuals. Hence the thoughts of Rosa Luxemburg, whilst holding true are difficult to project today in their original form.

  • Comment number 30.

    ....and just so you no where I am coming from and where I am going.

    The only 2 politicians in Westminster worthy of respect over the past 20 years are a Mr Adams and a Mr McGuiness.

    There has been no democratic input into this crisis at all. In 2008 there should have an election and formation of a national government.

    It is no exageration to say the economic crisis facing this country is as serious as the political situation facing us in 1939.

    The Baader Meinhof group in Germany in the late sixties and seventies had an excellent approach when it came to dealing with a corrupt political / banking class.

    I am not trying to give people ideas - honest.

    Don't try this at home kids.

  • Comment number 31.

    #28
    "Repeat this on a global basis and it really is a mess. The bankers and their bond sidekicks shoot apples in a barrel and get richer whilst the rest of us get poorer. Sounds like a zero-sum game to to me."

    ===============================================================
    And people like you will do what about it.

    You might as well get a day return to the City, find a banker and say please sir boot me up the a*s* I really enjoy it.

  • Comment number 32.

    #26. tFoth wrote:

    "We then have the repeated recycling of debts masquerading as "asset price inflation... Debt is not wealth...original debt (people's mortgages) are still in place"

    Absolutely, and until this 'problem' is tackled we can't recover - see the analysis of role of debt deflation and the 1930s and why the 1930s depression was over quicker than the 1870s depression. This is the current crisis of capitalism. Those in change simultaneously know it must be fixed to recover and, can't take the steps to move towards a fix for fear of the short term consequences.

    This inability to do 'anything' is what turns recessions into stagnating depressions. Is this inevitable? I don't know, but I have the feeling that it is.

  • Comment number 33.

    In my view the current system, in this country at least, is not capitalist, it is a system based on debt slavery, capitalism has little to do with it.

    It is a system based on ever increasing promises to pay and have been growing virtually exponentially for many years.

    In fact it has been growing to such an extent, that it now needs to enslave the young with shackles such as student loans.

    Ultimately the debt virus ruins lives and reduces standards of living to poverty level.

    For many this virus multiplies as each year passes until it finally chokes its victims into bankruptcy.

    It is the most destructive system every conjured up.

  • Comment number 34.

    "Faced with a global asset bubble of some $290 trillion about to burst, a frantic Darling started throwing millions, then billions, then a trillion at underpinning the banks' near worthless "casino" debts. He never spent such money on indebted homeowners or indebted manufacturers or indebted African states. He did it to banks because they told him they were too big to fail. Advised by bankers, surrounded by bankers, obsessed with bankers, Darling paid." (Simon Jenkins, The Guardian)

    The above sums it up nicely.

    I would change just one bit.

    'Darling paid' should read 'we paid, our children will pay, our grand-children will pay'.

    Darling won't pay. Darling will get a nice non-executive directorship in a bank; a couple of hundred thousand pounds for 'I see no evil, I speak no evil and I hear no evil'. Substitute 'banking malpractices' for 'evil'.

  • Comment number 35.

    NONE of this wreck would have happened if we weren't hooked on over-pricing property.
    None of it.
    All the "complex financial instruments", CDS, "over-leverage" and all the other financial clap-trap is all about one thing.....property (residential and commercial).
    The clossal debts are all about one thing.....property.
    Wild property asset over-pricing is the single biggest wreck-maker of the modern world.
    We've been building up to this great wreck for decades, but it took blind governments and lack of regulation to light the final fuse.
    "Herd mentality" and banking greed did the rest.
    Ridiculously over-priced houses, decrepit semis going at £100-a-brick, rat-holes re-labelled "buy to let investments", second-rate commercial property, all sold at telephone-number prices, plus US bankers providing mortgages to the poor, then tripling the repayments within 2 years.
    For decades back up to the 1970s the correct valuation of property was respected, but over the last 40 years the Western world has lost it's way.
    Property debt now threatens everyone, and everything.
    It would be nice to turn the clock back and put some sensible people in charge of the banks' property-valuation and mortgage departments.

  • Comment number 36.

    Surely, the solution to this issue is exemplared by our soccer clubs? The government simply has to lump ALL of the debt onto the banks balance sheets. If that means commandeering the banks, then so be it. Take them into public ownership, lumber them with all the debt and then sell them for more than you bought them for in the first place.

    Everybody wins!

  • Comment number 37.

    I am surprised that governments are prepared to put up with the behaviour of speculators that you describe.

    The root of the problem is the floating exchange regime, which was adopted in the days when governments believed that markets could be trusted to look after things.

    A central bank can create any amount of credit required by a government denominated in the currency it controls, and doing so in a recession is beneficial, but this can cause problems in the currency market, where probably 95% of the money traded is for speculative purposes.

    A bilateral agreement between any two central banks to exchange the other bank's currency for its own at a predetermined rate would stop speculation. The crawling peg model could be used, according to a mutually agreed formula, in order to adjust rates to correct for any excessive net flow in one direction or the other.

    Why do governments not negotiate such arrangements? Could it be that they are too friendly with the speculators, or is it that they feel that they cannot forgo the taxes that the speculators pay on their profits. These profits are effectively a privately levied stealth tax on trade between different currency zones.

  • Comment number 38.

    #36
    "Take them into public ownership, lumber them with all the debt and then sell them for more than you bought them for in the first place. "

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

    This would have been a better, fairer and cheaper approach than the one adopted.

    Shareholders in banks have got off very lightly and will reap the benefit of a tax payer bailout.

    Shareholders after all appoint the directors. All the pension funds (the biggest shareholder groups in banks) did it seems was to pocket the dividends and ask no questions; this is very close to aiding and abetting in criminal law.

    The entire banking sector should have been taken over with ZERO compensation for shareholders.

    Against the law. Probably. Then just change the law. That is why we have a legislative chamber.

  • Comment number 39.

    It's all our money and the custodians of this money who keep allowing the 'goldmen with sacks', to creep in at the back door and borrow huge amounts of money for negative trading, are simply not to be trusted and cause immense damage to our financial stability e.g. Black Wednesday and as now ready to attack GB sterling again.

    UK taxes
    UK pensions
    UK savings

    Who are the custodians?

    We're all stakeholders - only root and branch reform and dealing very firmly with these negative hedging betting speculators parasites and vultures will get 'us' - the taxpayers, as the stakeholders; properly involved in the process.

    I don't hear or see any politician or government coming anywhere close, anywhere in the world - except e.g. China where financial regulation is enforced with a type 56 assault rifle in terms of there are own currency - but the same custodians will not only promote attacks on other currencies but also finance these attacks.

    Pres Obama made some noises then one of his aides reminded him of where most of his political funding comes from?

    The Americans are unlikely to do anything until these negative trade parasites attack the US $

    Until the Americans do something about it - very little will change - but the US will try and give itself an advantage (its called 'protectionsism', by the way).

  • Comment number 40.

    #39
    "but the US will try and give itself an advantage (its called 'protectionsism', by the way)."

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

    Actually its called a 'nuclear arsenal' and the next President of the USA Ms Palin will make interesting headlines.

    Unfortunately the end-game of severe economic convulsions is war.

  • Comment number 41.

    Stephanie,
    You missed the bigger story behind this issue. Look at what is unfolding with Lehman's. You will see that this is ENRON infecting Wall Street. Lehman's like Enron was hiding its debt off the books so no one knew. Now Ernst Young, like Arthur Anderson, is going to disappear for approving their accounts.
    http://www.businessweek.com/news/2010-03-13/lehman-brothers-shenanigans-on-hidden-leverage-may-haunt-fuld.html

    You need to get behind the news and look at the depressing state of finance as sketched in the examiner's report.

    http://lehmanreport.jenner.com/

    Just like Ken Lay, Fuld will go to his grave insisting he did nothing wrong. Except he knew what was happening and why he and Skilling need to go to jail.

    The problem for Fuld is htat he did not have enought of his ex staffers in DC to protect him. Goldman Sachs won out big because more of those ex-staffers are in key positions (Paulson for a start) so they knew what was coming.

    If you wanted to write a real story, you would investigate how the Commodities Futures Modernisation Act of 2000 set the ball rolling

    http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

    What infected Enron, from that Act, was caught by Financial Houses. The financial houses understood how to leverage the risk. Whereas Enron (and Lehman's to an extent) kept it in the house, Goldman and others learned to externalize that risk and set it into the market.

    In effect, they used CDS to externalize their risk onto the very people they were supposedly helping.

    My god, Goldman Sachs sells the Greeks a product that is NOT going t help them with their finances and then they and other financial houses have the temerity to criticize the same governments for their profligacy. They sold them a product they knew would not help them. How do you know this? Because the other side of the house was shorting the exact same product. If the product was good, why was someone shorting it?

    What we needed was for the House to follow through with its first vote on the financial bailout. In that moment, we saw the last gasp of main street as they realized what was being done. The Senate then overrruled them because as the most aristocratic branch, and the one leveraged to wall street the most (fewer of them to finance), told the house that this needed to be done.

    If the bailout had not happened, ALL OF THIS would have been washed away. To be sure, we would have had problems, but is that any worse than the slow unravelling that we have now? Instead, the public is now saddled with more debt, Wall street and the global markets remains unreformed, and you tell us about how the Greeks and other Governments need to reform their spending and slow down on entitlements.

    If Goldman Sachs had not been propping up Greece (and Britain) with bad debt advice, then Greece (and Brtain) would have confronted the problem earlier. Instead, we have them limp on for another 7 years and then the problem unravels.

    Now the problem is still unravelling but no one from Wall Street (aside from Madoff) has gone to jail and they continue to make a lot of money, while the average citizen continues to pay more tax and watch their children's future evaporate.

    Like legal drug dealers, the financial houses will make obscene profits all the while telling us that they are helping with the recovery and their work is needed to bring back prosperity. The only problem of course, is what they did to Greece.

    If they did it to the Greeks then, who is to say that they are not doing it now to the US and everyone else? In sum, what has changed? Goldman Sachs is making even more money yet it has not changed its practices.

    That is the big story that you need to investigate instead of tittering on about poetic injustice and how cheeky bankers are. You need to dig into Lehman's and see how that was par for Wall Street and not an aberration.

    You and the other financial analysts have missed the story of the century, it started with Enron and it continues. What is scary is to look at the people who crafted the legislation that allowed enron to exist.
    http://www.huffingtonpost.com/2009/11/03/obama-administration-help_n_344042.html

    Note how two Illinoi politicians are banging the table for the Chicago Mercantile Exchang and praising the Commodities Futures Modernisation Act!!
    http://durbin.senate.gov/showRelease.cfm?releaseId=292322

    Stephanie, please connect the dots.










  • Comment number 42.

    8. greedalwayswins wrote:

    I read these blogs and what people write in on the news. Now I can see that the news is grim and what the vast majority of people say makes perfect sense.... but the finger of blame has to be pointed at person you look at in the mirror each morning.... Which if you measure success as most of us do, means I want them to have a house too big for themselves, with more cars and electronic gadgets than they need. Therefore I do my bit to help the circle of greed continue.


    So am I meant to admire your honesty or mock your hypocrisy ?

    You have an opportunity to influence your children, yet you have chosen to help them perpetuate your own pursuit of greed? Why?

  • Comment number 43.

    There are too many of us, and the notion for dealing with this - making useless stuff and demanding everyone buy it just to keep the show on the road - creates an inevitable exponential curve that equals disaster.

    "Every year every business should increase its turnover and profit" is the mantra. Plot this mantra as a graph and the result is always the same: explosion, disaster. It is ALWAYS the same.

    We KNOW this but are too scared to acknowedge it as it represents the end of all our (imagined) security. Instead we debate who is the most indebted, who will be the next victim of financial terrorism, who will receive the biggest bonus, which currency will be targeted... and so it goes on. But we have lost sight of the reality ball entirely:

    Human society, in its present form, is simply unsustainable and the 'finance' we debate here is but just one expression of that oxymoron.

  • Comment number 44.

    I think that you start from a questionable premise Stephanie
    "Governments around the advanced economies had to spend hundreds of billions of dollars propping up banks and standing behind the likes of AIG,". Whilst you may think this there were many arguments at the time which were different for example the idea that governments should in the main only have protected retail depositors.This moral hazard argument has been consistently proclaimed in the writings on notayesmanseconomics web blog and by Willem Buiter.
    Now the implications of these moral hazards are becoming clear to most people including you in your article.However to some it was obvious from the beginning...
    There has also been some interesting speeches by members of the Monetary Policy Committee on asset bubbles and their roles in creating them which you may be interested in, I for one found the analysis of them fascinating(http://notayesmanseconomics.wordpress.com%29.

  • Comment number 45.

    #41
    "If the bailout had not happened, ALL OF THIS would have been washed away. To be sure, we would have had problems, but is that any worse than the slow unravelling that we have now? Instead, the public is now saddled with more debt, Wall street and the global markets remains unreformed, and you tell us about how the Greeks and other Governments need to reform their spending and slow down on entitlements."

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

    This is the point.
    Business as usual. No change in culture. No new legislation.

    The only difference between before (the crisis) and now is that bankers now know they can get away with it.

    The other difference is that generations will foot the bill.

    History will view the 'bailout' as a huge blunder and missed opportunity.

    The EU should pass laws akin to USA terrorist laws relating to manipulation and abuse of currencies and then extradite these 'finance terrorists' and deal with them.

    Far fetched. You wanna bet.

    Lloyd Blankfein would look at home in a German court.

    Can anyone seriously believe that 9/11 did more damage than Wall Street has done to Main Street. Please no bleating about the loss of life - at least it was quick. The current crisis and its insane solution will maim workers/homeowners for generations on both sides of the pond.







  • Comment number 46.

    The BBC and it economic editors, Preston and Flanders, are seriously lagging behind the speed of events. Further discussions of the current financial system are completely fruitless and whats more it deviates our attentions from the ALTERNATIVES.

    And yes, they do exist!

    Resource Based Economy
    A major theme of Fresco's is the concept of a resource-based economy that replaces the need for monetary economy we have now, which is "scarcity-oriented" or "scarcity-based". Fresco argues that the world is rich in natural resources and energy and that — with modern technology and judicious efficiency — the needs of the global population can be met with abundance, while at the same time removing the current limitations of what is deemed possible due to notions of economic viability.

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

  • Comment number 47.

    #29 foredeckdave

    "the thoughts of Rosa Luxemburg, whilst holding true are difficult to project today in their original form."

    For a more up to date analysis that's essentially based upon Luxemburg's method see Loren Goldner.

    http://home.earthlink.net/%7Elrgoldner/october.html

  • Comment number 48.

    40. At 12:25pm on 13 Mar 2010, Richard Dingle wrote:

    #39
    "but the US will try and give itself an advantage (its called 'protectionsism', by the way)."

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

    Actually its called a 'nuclear arsenal' and the next President of the USA Ms Palin will make interesting headlines.

    Unfortunately the end-game of severe economic convulsions is war.

    >>>>>>>>>>>>>>>>>>>>>>>

    Yes - a nuclear arsenal is the ultimate form of protectionism in the true sense of the word and the UK is well and truly ravelled up in everything internationally and I think that the UK has lost control of its own destiny.

    Well the US has already got that advantage (and on balance I think is a good thing) but you are quite correct - a lot of global GDP 'growth' is actually military spending and ...Why did the US go to war in Iraq - not because it had been attacked by Iraq ... but because it had been re-building a huge military capability for 50 years which until 2003 had been almost completely idle for 8 - 9 years.

    The next phase is financial strain between US and China on e.g. pricing crude oil in US $'s; $ bond prices and US interest rates.

    US interest rates will I think the most significant global issue going forward - but as you say while there are huge weapon systems and well equipped armies there will very likley be more wars.

    Poetic injustice - everything the financial markets do is the responsibility of our politicians - its rights-v-privileges and the complete absence of some stakeholders' rights in the process?

    We either hang on in there or go it alone - the current government is clearly incapable of going it alone and so the UK is just going to be dragged along with its 'dinner jacket caught in the car door'.

  • Comment number 49.

    I’ve always held the opinion that Governments did not (and should not) have propped up financial institutions that were too big to fail. They should have allowed these dynasaurs to fall with a mighty thump, taking their toxic debt with them.
    Instead, Governments bought lock, stock and barrel into “banks too big to fail” - when they should have bought lock, stock and barrel into “let them fail” so that we can estabolish new clean, non-toxic, non-incestuous banks to replace them. (By incestuous I mean banks that are deposit banks one with banks that are investment banks.)
    In fact economists and traders may have looked so terribly shocked because they had no idea how much "debt" had snuck onto Governments' balance sheets, or exactly where it is, or how to untanlge the tangled mess of default swaps and derivative trading.
    High interest rates will not punish the banks as much as it will punish the taxpayer who will get hit with humongous inflation – Zimbabwe type inflation.
    The reason that "Western financial institutions" and "international financial institutions" can't talk to each other is that the west (USA) is totally unregulated - likely doesn’t even know the meaning of the word "regulation", and the international institutions have always striven for banking controls. So the west and the international financial regulators coming together is tantamount to kick-boxers trying to talk to classical boxers while the classical boxers are getting the crap kicked out of them.
    As I said, Governments fell into the trap: “too big to fail”; so, they borrowed and bailed and put themselves into debt situations. They never seemed to recognize the game: heads the western banks won and tails the western banks win.
    Goldman Sachs may helped Greece disguise some of its debt. I’m not sure this is what Greece had in mind, or what Goldman had in mind. Goldman certainly had in mind credit default swaps, shorting sovereign debt, and making more filthy lucre.
    Since last September, Goldman has hit Greece, Spain and Britain (again), as in fool me once, shame on me; fool me twice shame on you. So I'm reckoning that the European financial folk should be ashamed.
    Why do I say this?
    Because you cannot, CANNOT, DO BUSINESS WITH AN INCESTUOUS BANK THAT MIXES DEPOSITS WITH INVESTMENT. Goldman Sachs and other western banks raised $1B in credit for Greece; they did this in a manner that was “off the balance sheet” (extremely bad accounting!) and therefore Greece's big debt woes got hidden from EU regulators.
    Guess what?
    Some of these same western banks are now making bets that Greece will default on its loans. Default or not, who wins? The incestuous, western banks. The US Fed has promised to look into the situation on sovereign debt because obviously, these dervative instruments INTENTIONALLY destabilize a company or a country.So, at least that much has been admitted by the US Fed.
    Without Goldman Sachs, the EU regulators would’ve detected the true picture of Greece’s financial position; it would have dived into a proper plan of action. As Bernanke said. "Derivatives have a legitimate purpose, but if they're used to distort accounting results or regulatory ratios, that needs to be addressed."
    Now to Pimco’ Bill Gross, he and I see eye to eye on many things:
    1. Markets will be downsized by regulation. “It's time for ordinary people to benefit." Let those big banks fail. Replace them with local, banks that are either investment or deposit, but never both.
    2. Governments should raise taxes on bankers, who "don't deserve all this…The bubble was reflective of wealth as a function of house prices and derivatives – that's not wealth.
    I personnelly would like to see a Tobin Tax; I want to tax each and every financial transaction that occurs so that
    - an audit trail is established
    - deviation from regulation are quickly detected and dealt with and
    - it’s the best way to hit the wealthy in the pocket book and
    - rechannel the money from the wealthy into social programs.
    Gross says speculative products - such as the instruments that investors buy to protect themselves against a sovereign default - should be withdrawn. Yes! Germany and France have criticized speculators who use this market to bet against a country, like Greece.
    So, in conclusion, I am so pleased that several of the BIG problems are being recognized, layed on the proper doorstep (western derivative trading and default swaps and CDS), and may yet be dealt with in time to help the poor struggling taxpayor. I have maintained that the EU might have a legal case against what western unregulated "cowboy" banks have done to the EU, especially re sovereign debt.

  • Comment number 50.

    #35. stevewo wrote:

    "NONE of this wreck would have happened if we weren't hooked on over-pricing property."

    I also believe all rational and logical analysis leads to this inevitable conclusion.

    Thus I am led to the inevitable conclusion that we MUST undergo debt deflation and re-price property at far lower levels before we can recover.

    The property bubble can quite fairly be put at the door of Mervyn King and his predecessor who did not raise interest rates to suppress the bubble earlier. I, and many others, wrote to him several times in the previous decade urging him to take action. I even suggested non-interest rate mechanisms to bear down on irrational property prices - but no body wanted to listed all I got back was a load of irrational nonsense. This is why he should be sacked.

  • Comment number 51.

    Hi Stephanie

    Thanks and keep up the good work!

    "... there is clearly going to be more debate about the role of the financial markets in making a bad sovereign debt situation even worse"

    Debaters should consider this: Suppose a country or company has debt of 50 billion when it comes under pressure and recognizes that remedial action must be taken. If the means used by financial markets to apply pressure are weakened, doesn't that result in the country or company reaching 60 or 70 or 80 or 90 billion before things come to a head? Would that be a good thing? I think not.

    Cheers

  • Comment number 52.

    I've read the recommended article/ interview with Bill Gross. The accompanying photograph of Gross is a real hoot!
    Is there a single one of these 'high finance' meglamaniacs that is not an apparent sociopath/ psychopath? All those insinuations I'm a 'nice guy..' 'away from the office..' Meanwhile in the day job... Lets impoverish millions of disenfranchised citizens on the back of decades of corrupted banksters and politicians pusuing the delusions of neoliberalism, wealth and power.
    It's abundantly clear that the sickest of the sick, most debased extremists alive are highly active within Western based financial entities such as, for example, Pimco, Goldman Sachs etc, etc...

  • Comment number 53.

    Thank-you Stephanie for adding your important voice to those who are prepared to talk in straightforward terms about the important problems of moral responsibility and accountability that arises out of the financial disaster of 2008. As you imply, it is not a realistic assessment of human nature to expect the bankers to voluntarily accept the moral responsibility for what has happened. If anything, with each bail out greater than the previous one (BCCI, Enron, 2008), the only lesson the bankers correctly draw is that they are being permitted by the rest of society to continue to aggrandise themselves personally at the expense of everybody else, regardless of the consequences. That is a scale of moral hazard we can't afford to tolerate and it requires plain speaking.
    It also means that others with authority in this field, economists and public opinion formers, politicians and their advisors, MUST take the lead and the moral responsibility to enforce a fundamental change in the rules of the game which the world's bankers and financiers are being permitted to play. It will take compulsion. Turkeys do not vote for Christmas. The bankers and derivatives traders will use all their formidable power through the media, lobbying, etc to fight off and neuter significant reform.
    The only question is what price we are collectively prepared to pay before we regulate. It took 29% unemployment in the US economy before the Glass-Steagal Act was passed in 1933. Today we desperately need to re-impose this break-up of functions back on the over-mighty banks before they once again create that level of misery, which, as we know, is politically terribly dangerous. The Governor of the Bank of England has called for this.
    This is the most important, serious measure that has been proposed by a heavyweight, one who is in fact sympathetic to and who understands the potential value of the financial services industry. The public response to this morally courageous proposal has been a deafening silence from the Prime Minister, the Chancellor, the Leader of the Opposition and the Shadow-Chancellor. With the general election just weeks away the four principal leaders of our two principal parties seem to think they can duck away from this, the single most important policy issue facing today’s political leaders. They have wasted the last two weeks in a fruitless non-debate about how much and when to impose ‘cuts’.
    They are now neck-and-neck in a deadlock of voter disillusionment with both of them. The party which publicly backs the Governor of the Bank of England first gets my vote. In my view that party will win the general election by showing the electorate that they are taking moral responsibility and leadership for a problem where nobody else can.

  • Comment number 54.

    #52
    "All those insinuations I'm a 'nice guy..' 'away from the office..' Meanwhile in the day job"

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

    It's the day job as you point out.

    All the following have/had odious day jobs...

    mafia mobster
    Auschwitz guard
    IRA terrorist
    Goldman Sachs derivative traders
    speculators

    ... and a great many of them are / were doting husbands and fathers often with harmless hobbies like stamp collecting and butterfly collecting.

    But next day back at the day job....

    It is what makes the 'human animal' (and we are animals) the most interesting animal of all.


  • Comment number 55.

    #53
    "It took 29% unemployment in the US economy before the Glass-Steagal Act was passed in 1933. Today we desperately need to re-impose this break-up of functions back on the over-mighty banks before they once again create that level of misery, which, as we know, is politically terribly dangerous."

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

    Little evidence that repeal of the Glass-Steagal Act was an issue here.

    Northern Rock, HBOS, Lehmans and BareSterns are examples; the first two were retail banks with no investment banking, and the last two investment banks with no retail banking.

    More to do with highly complicated derivative trading. CDO's were parcelled and sliced and distributed all over the planet. The bankers thought they were being clever by spreading risk; unfortunately they were spreading bits of poison and destroying confidence. Would you eat a cookie if there was only a million to one chance it was poisoned. No.

  • Comment number 56.

    ' But I'm surprised that non-experts don't draw the link. After all, everyone gets very upset about bankers in bailed-out institutions awarding themselves big bonuses. But the economists and bond vigilantes who complain about the scale of government borrowing could ultimately cost us all a lot more money and pain.'

    This statement proves that you don't read the responses to your articles; that is unless you consider some of us to be 'experts', in which case I thank you.

  • Comment number 57.

    The Govt has just added another £1 billion to our trade deficit by giving the contract to build the British army’s next generation of “Scout” armoured vehicles to General Dynamics of the USA.

    This Govt is nothing if not consistently stupid.




  • Comment number 58.

    The chance WAS there....a real chance for some kind of a new bright future void of the greedy bankers and speculators..BUT..instead of allowing 'meltdown' the government's stepped in with taxpayer's money (yes..that's you and me...the little people)...to 'save' the system. We are...I am afraid....back to square 1...the GREED is still there....the bubble is getting bigger AGAIN (but alarmingly quickly this time)...not sure where all the stock market confidence is coming from as the World's economies AIN'T going anywhere in a hurry...and China....mmmmm.. have you seen their GDP per capita...don't make me laugh...basically there is a massive inbalance.....stock markets...AGAIN...are overvalued!! What appears to be happening now is that the major power players such as the US through their 'big hitters' like Bernanke are trying to give SO much confidence that it's almost as if there is a one way bet on the stock markets..it's as if to say 'don't worry boys..we're there to bail you out!'.. For the likes of Bernanke to be so STRONG in their support there must be a real fear (a man standing on a beach with a massive tidal wave in the distance coming toward him at great speed..or is it a merely a dream - a trick of the mind whereupon the alarm bell rings and he wakes up heart pounding and sweat oozing from every pore...) get this one wrong and there could be a real 'financial tsunami' the likes of which we have never seen before and...all because the vermin we have in power have too much vested self interest in perpetuating the existing system....Hence going back to my initial observation that there WAS REAL HOPE...forget it pal...THERE NEVER WAS ANY....THAT chance was lost many many many years ago.........

  • Comment number 59.

    I think one of the difficulties facing the general public, is knowing what is British, what isn't, so if we want to support the country, it is almost impossible, unless you buy locally grown food

    It would be interesting to know how much of the government's spending could be more directed to be spent in th UK, in such a way that we benefit, to avoid the point raised in 57

    The fact is, it wouldn't take much of a shift to get some decent results, as obviously £1bn switched from one side to the other is a £2bn swing

    Those who think Vince Cable is the answer.....(probably not many here so far...I am venturing into hardcore end of the world/join the Euro/5% interest rates next week territory) well..the speech today didn't really do it for me...especially the dreadful Ashley Cole joke

    It was in my view a 'vote libdem if you don't like Brown or Cameron 'speech

    If he truly thinks we can afford to wait before starting the work to cut the deficit, then he truly is the street magician I think he is

    He needs to be elected as an MP first....

  • Comment number 60.

    This is getting boring to blame the banks for everything. How about looking at your doorstep? 2-3 years ago I was sick and tired of watching all these programs about "house makeover" and "how to make a quick buck with property" etc. The banks provide the mechanisms if there is a market. Its called free market. Everyone is blaming now the banks but most people kept on re mortgaging and buying houses on no fundamental grounds. Propelling the market by 30% a year. Where was your blog then warming about the dangers? And the Greeks did nothing else than most of the other governments - selling debt. They gave the market what it was asking for, and EVERYONE knew the books were cooked. How about the UK's problems? Is that also coming from the banks? It is about time this society wakes up and stops blaming others. And no, I am not a banker.

  • Comment number 61.

    LOOK AT THE STRUCTURAL DEFICIT - BROWN HAS OVERSPENT.
    BLAMING THE BANKERS IS POLITICAL EXPEDIENCY#
    I HOPE THE FOOL GETS BACK IN TO CLEAR UP HIS OWN MESS

  • Comment number 62.

    #59
    "It would be interesting to know how much of the government's spending could be more directed to be spent in th UK, in such a way that we benefit, to avoid the point raised in 57"

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

    One component of reducing the deficit is too spend effectively - getting value for money.

    Perhaps General Dynamics offer better value for money. I concede this might not be the reason - it might be that other staple of New Labour known as 'sucking up to the USA'.

    Otherwise it is the steady slope to protectionism.

  • Comment number 63.

    Why is anyone surprised. Many years ago I attended a dinner with a group of people who donated 10% of their income to "Good Works". The speaker was owner of two private companies, which shared profits with its employees. They were two very successful companies with happy staff. This is simialr to the John Lewis Group who posted good profits recently.

    The speaker started his speech with the comments:
    "Most people, believe that the world economic situation is run by experts. Believe me it is not. The world economic situation is run by an ever increasing number of barrow boys in smart suits!"

    I must admit that since then I have not experienced anything to prove otherwise.

    I recommend H G Wells' book "Tono Bungay" wriiten in about 1890 as a Social Criticism, which says it all and is as valid today (especially in the UK) as it was then.

    If we can ban the "3 Ps" Politicians, Priests and Press and start again where we ALL take responsibility for our own actions and what the leaders do, then we might get somewhere sensible.

    In the meantime I will continue to follow the teachings of Krishnamurti in his book "Freedom from the known".

  • Comment number 64.

    #60"The banks provide the mechanisms if there is a market. Its called free market."
    No, it's not! Sorry to be blunt. Free market requires multitude of subjects on both sides of the counter; negligible cost of access to the market and negligible cost of unrestricted information. All the rest is a highly distorted market, which at some point deserves to be called "con market" or scam.
    To get a bit cooler about the issue at hand let's ask some questions about Iceland:
    Why have some speculating capital chosen the place? - because of low cost of "redemption"
    Was the main purpose of the capital involved to invest in Iceland? - no, they targeted different markets that promised better returns
    Were they lending above reasonable levels to the Icelanders? Yes, they were.
    Why did they do so? To justify their presence in the country which presence otherwise would seem to be an unbearable liability. (Ultimately things turned to be exactly this way.)

    Now to the core: was lending to the Icelanders driven by free market stimulus, namely a reasonably high profit achieved at reasonably low level of risk? No, it wasn't a reasonable investment (especially when crossing a level of twice per annum disposable income) it was a service to the government done in return for implicit guarantees to the banks.

    One more question: Was this lending a good service to the people of the island? Seemingly not. This police of lending rewarded unreasonably high levels of audacity, introduced social tensions finally ending in a crash.

  • Comment number 65.

    #62

    Define "better value for money".

    The loss of the contract is one thing and the loss of jobs is another.

    However, the loss of an important piece of engineering capability is much more serious as it instantly kills of the UK's potential to export this sort of vehicle to anyone else. If the UK Govt won't buy from BAe then who else will?

    It is in effect a very destructive decision. It just adds to the list of something else we won't be doing in the future.

  • Comment number 66.

    "Otherwise it is the steady slope to protectionism."

    You mean that thing that everyone else on the planet does but we don't.

  • Comment number 67.

    #65
    "Define "better value for money".

    The loss of the contract is one thing and the loss of jobs is another.

    However, the loss of an important piece of engineering capability is much more serious as it instantly kills of the UK's potential to export this sort of vehicle to anyone else. If the UK Govt won't buy from BAe then who else will?"

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

    Agreed, all these issues need to be weighed up and given due consideration when evaluating 'value for money'.

    ... and I have to admit that I have little face in the 'procurement process', or this government, to do that.

    But to protect jobs that produce inferior equipment (and I am not saying it is) is protectionism. The fact that other countries do it does not make it right; best to resist it at all costs otherwise it is the road to ruin and war.

  • Comment number 68.

    Can someone tell me what would of happened if we had let the banks and insurance companies (along then with hedge funds etc...) go bust, and then the money that the Gov't then didn't spend was spent in protecting people's savings upto the £35000 limit per account.
    My guess would be a depression, but Gov't action could of eased that, infrastructure building, car scrappage etc...Would the extremely rich be humbled, thereby demanding actual action against the gamblers (after all aren't they just like Mad(e)off). We could have a few nationalised banks operating for the masses, investing in ideas, producers and re-inventing the nations way of growth.
    I don't kniow but I would love to have some idea.

  • Comment number 69.

    #64 You make it sound as if lending above market rate is what brought the bank down. Why did people invest outside the EU/UK? Because they trust in Icelandic economy or government? Then they can blame themselves. Again, trying to blame someone else. People were greedy. And still are but they do not look at their actions only about the banks action. So greed from the banks was bad...but their own greed is justified, right? This is NOTHING new. I say let the banks go bust. And then people will be more cautions. At this moment they know that the government will buy their votes by protecting bad debt (which all the property speculators created...and i would say in the US and the UK that's half the population).

  • Comment number 70.

    Great posts. Meaty and meaningful. But please avoid economists and bankers and possibly even academia as sources. They are partly why we are having to comment. Forget the norm, we are in the middle of something new. It requires new thought not recycled old thought. https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html makes interesting reading. 14% of us are below the poverty line. Second in the world for debt $9 trillion. GDP seventh in the world at $2.2 trillion. 75% of GDP in services. Net importer of energy yet with hundreds of years of fuel beneath our feet. Life expectancy 36th in the world. Let's aim for life expectancy 1st in the world, zero% below poverty line, and debt equating to our GDP ranking. How on earth can we do that?
    Growth or cuts? How about both?! Our own growth with investment in British jobs. Cuts to all non-jobs matching hopefully the growth in other ones. For example, reduce the size of government (services) at the same time as opening the coal mines (industry) so redressing the balance somewhat. Fewer middle class jobs but more working class ones. Who in Westminster would vote for that? That's why we need Labour to mean it's name. I think James Gordon Brown really believes that but is too scared to say it or do it. We'd all think more of him if he dared to state his true socialist convictions.
    Nationalise the banks we own. Set their lending rates at non-profit levels. Raise VAT thereby ensuring people don't borrow to spend on things they don't need. And if they do then we get the tax take to pay for debts. Ensure VAT is raised most on imported items! Like electrical and electronic goods. This helps to ensure investment in home manufacturing. Yes it's protectionist but since when did the rest of the world believe in anything other than that?
    Does this sound socialist? I guess it does. But isn't that what we should be aiming at really? Ask Germany whether it works when carried out properly. Of course it does. And hence why we need to join the Euro if they'll have us. We have typically done everything in a halfhearted way. Join the EU, yes. Join the Euro, no. Why? The City and the bankers who would lose out on more speculation. That's why you are drawn into thinking our currency is our nationhood. What bunkum! Does the Euro make a German less German? Of course not. So would joining the Euro mean we'd have fewer jobs in finance in London? Yes. Is that a bad thing? No. Could we get into the Euro now? I don't know. And I'm not a proEuropean, I'd pull out tomorrow and join EFTA or have Norway and Switzerland got it wrong. All the benefits of EU with very few of the costs. That won't happen but joining the Euro could happen.

  • Comment number 71.

    Stephanie

    This isn't quite right is it? So far, at least, the amount of government money in this country used to shore up the financial sector is relatively small compared with the amount needed to support the structural deficit - the figures I have seen quoted are about £80 Billion (one off) to support the banks and about £180 Billion per year to support the oversized public sector. So, although the banking problem was what tipped us into this crisis, the crisis was going to happen at some stage inevitably. This is also the case with countries like Greece and Spain etc, but maybe not with Iceland.

    It is possible that ultimately the banking problems will require further essentially unlimited bailouts due to the unresolved CDS's, but I thought that this was one area where the UK government had been reasonably clever in not completely privatising the zombie banks. This gives them the let out of not providing further bailouts and letting the banks fail when it gets too much at some future date (as they should have done originally).

    Also, your comment:

    "He would choose Labour if he could vote in the British general election, and he thinks "favouring employment versus the financial markets is a decent policy." "

    I do not understand how it is reasonable to link "favouring employment" with voting Labour. As I understand it, Conservative and LibDem policy is also for full employment. In the case of the Conservatives, the preference is for employment in real jobs in the private sector, rather than unsustainable imaginary jobs in the public sector.

  • Comment number 72.

    It is indicative of people who award and demand obscenely massive bonuses that their only qualification is pure self greed. Don't expect the slightest glimmer of morality as they plunder the world of its finances to line their own pockets.

  • Comment number 73.

    "surprised that non-experts don't draw the link"
    Of course we draw the link. We're apoplectic with rage, but what can we do about it?

  • Comment number 74.

    #71 croydo: "...not completely privatising the zombie banks"

    Apologies. I meant ... not completely nationalising the zombie banks.

    I must have got up too early!

  • Comment number 75.

    68

    It didn't have to be either do what was done with the banks, or do nothing at all

    Personally, I would have let Norther Rock fail. Sad for the Employees, yet the Company should have gone. Lloyds TSB wanted to buy it, the government said no...dithered..hence the run on the bank etc, with the panic that caused

    Had Lloyds TSB purchased Northern Rock, then they would not have been 'heavily encouraged' by the government to buy HBOS...a spectacular mess of a company, which could, and should have been broken up

    If we hadn't have had the dithering by Brown/Darling, and the pictures on TV of people queueing to withdraw savings, then we had HBOS being broken up/failing, it would have prevented the confidence damage that occurred

    If you like, what in the end happened to Bradford and Bingley, with Santander doing rather well out of it, should have happened with HBOS and Northern Rock

    Others have posted in here eloquently the fact that Barclays and Lloyds and HSBC were far better run, as they had learned from past errors more sensibly than those Banks which fundamentally had two problems

    Northern Rock and HBOS both tried to grow too quickly, and to do so became reckless and greedy

    How was this allowed to happen?

    There have to be long hard questions directed at the FSA in my view, who failed to spot this risk, particularly in the case of Northern Rock...

    I am astonished when other posters say that there was no failiure in regulation...

    There have to be questions asked as to why there wasn't more work carried out at the time Halifax an Bank of Scotland became HBOS

    I have posted before that I blame Brown for confusing the regulatory system, which should be under the auspices of one body, I prefer it to be the Bank of England, rather than split into confusing fragmentations

    In the above scenario, Northern Rock and HBOS go....which shows other banks that there is no bottomless pit of money to bail you out....instead of the tax payer picking up a huge bill....the tax payer does not, in fact pick up hardly anything

    What's that? I have missed out RBS?

    No, I have left them until the end

    With the above scenario playing out RBS realise that they have to accept whatever deal the Government offer them, we, the taxpayers are then on the front foot, not the back foot

    We could also then either buy most of it, in exchange for the financial support, or be bold enough to tell them we won't, in which case they can go down.....

    Either way RBS is knackered, not the taxpayer

    Why was this as an overall package not considered?

    Northern Rock is in the North East....they expected the Government to save them...what would have been the case if the 5,000 or so employees were suddenly dumped out of work?

    RBS is in Scotland...imagine if they suddenly dumped loads of people out of work?

    SNP gift of the decade..Labour thinking election in 2010....if they lose in Scotland, with the majority in England voting Conservative in the last election, they were probably thinking end of power, and we all now the saying about that

    So, I may well be incorrect, but I have my suspicions that political influence was a far, far, far bigger factor in all of this than it should have been

    The indecision at the start, particularly damaging, particularly the part where Darling played the hokey-cokey, with whether to guarantee the Northern Rock deposits, and at what level

    Everyday banking for everyday folk...could easily be provided by online banking for many, and Post Office Banking for the people that don't have access to the internet, or prefer face to face contact

    If only, like the stupid Beeching cuts to the railways, we hadn't closed so many Post Offices

    So, nobody can tell you what would have happened for sure, although you now have my take on it

    Watch out for the posts calling me deluded/ignorant/right wing....should be fun to read


  • Comment number 76.

    #68 #75

    Moral Hazard is key.

    Very little thought was put into the bailout. Darling was surrounded by bankers and advised by bankers and fell for the 'armageddon argument' which basically put forward the 'domino argument'.

    Darling literaly threw money at the bankers and as a result the banking culture remains intact and generations will be poorer as a result.

    What was the alternative ?

    Allowing the banks to fail and then resurrecting the good banks (extremely easy to work out good banks from bad), protecting domestic retail and business deposits and liabilities, and defaulting on foreign obligations, and last but not least wiping out ordinary shareholders in the banks. It is a fact that within days of the banks receiving huge amounts of tax payer cash most of it left the country - withdrawn by foreign depositors such as middle east sovereign wealth funds (who could not believe their luck).

    The result would have been a smaller and fitter banking sector.

    Arguments against this approach are that ordinary shareholders in banks equal, to a large extent, the pension funds (but they did neglect their stewardship role of the banking sector - they took the dividends, they 'aided and abetted') and defaulting on foreign obligations would have resulted in reprisals.

    However the key objectives of moral hazard and a more cost effective solution would have been met.

    Darlings interview where he postulated the armageddon scenario was utter tosh - unless of course you listen to a banker.

    ATMs not working and banks closing their doors - would not have happenned if the government had acting quickly in the right way.

    As usual the politicians did the thing they do best - they put their hands in our pockets, our childrens pockets (even the ones still to be born).

    All of them Labour, Conservative and Lib Dem. There response was gutless, unimaginative and morally repugnant.

    Why I shan't be voting for any of them.

  • Comment number 77.

    Mmmmmmmmmmm.......

    Where to start?

    A few contributors on here get what is goinbg on, but too many are still generalising in misguided. Consider a sentence with the words 'horse, stable, door and bolt' in it.

    First of all - its not all the banks but actually a few reckless ones - unfortunately 2 (big ones) of them were in the UK (several big investment-retail banks in the US). How we failed to spot this at government level defies belief.

    To understand what has happened you need to understand:

    National taxation policies that grossly distort the prices (and thus false value) of real estate (both private and commercial), and the use of debt and derivative products. It is no different to the tulip mania in many respects.

    Note these at the core of the problem and their relationship to taxation.

    Then note how both the US and UK governments, driven by unsustainable public sector requirements failed to execute regulation already in place (just simply ignored).

    Further note how plenty warnings have been issued on the potential financail implosion going as far back as 2002 that were conveniently ignored (now using the smokescreen as 'nobody saw it coming').

    Anybody who understands 'cost of capital', banking business models and their funding will realise that, as has already been pointed out, banks should have been separated between investment (casino - high risk and cost/level of capital, potential high return) with retail (should be lower risk and cost/level of capital, low return).

    Then add in moral hazard of government action caused by expediency in terms of bail-outs and QE and thrust upon an electorate, in the main, too illerate to understand.

    Result: Corrupt government, mob rules, populism but still the issue of national overspend and prosperity been left for little debate.

    And for the last time - capitalism is not dead. However, there is too much money chasing too few assets, exaggerated by debt leverage.

    The important point made by somebody already is that 'Assets backed by debt is not wealth'.

    Until we understand this we go nowhere. And until we sort out the root cause of taxation that distorts real estate investment and debt. Don't know what I'm talking about?

    Try (personal): there are very few assets which don't attract capital gains on sale - one of these is a house.

    Try (corporate): Interest due on debt can be expensed against profits and there's no limit. The tax system positively discriminates against equity investment.

    Wonder whay we gotta problem?

  • Comment number 78.

    #69,FromLondon - exactly, apart from the first bit, exactly. Everybody who has an insurmountable debt mountain to climb is deemed to feel slightly(?) dizzy. Now the option we are offered is “don't you fancy another spiral up?” But even in the fractional reserve banking you have to have a source of core capital and a balance between supply and demand. The next twist of the spiral can never happen in a black box. It needs an open system, with outside pressure of goods storming our shores and inward suction of “aspiring” public. Technology to create another “must haves” is there and people won't ask if they need them really, they will look up the street – into the Jonses' yard. But read #70 Ilkeston_Tim. His (and mine) idea is that a next spiral of debt is not exactly what we need. Germany and Japan “lost” the last decade on consolidation on property (the property prices there were not rising – this doesn't mean they are affordable yet, but they might be on their way to become so). Business and government have terrible power to create oligopoly everywhere they go, so one can expect more than a decade of drought on a supply side in housing – and other nasty things unless there is a free market (some of us here should learn what such an extinct animal look like). But free market combined with a real demand is something unbelievably strong. Withdrawing planning restriction led some countries to have 50% of housing supply in self build within a decade! (And good part of it was quality housing). The only environment free market can exist in is a government strong by support of materially independent middle class (materially independent means not in mountains of debt – it was the reason put some centuries ago before parliament of Poland to disenfranchise any noble man involved in mercantile activities. The premise was – in debt, voting for the benefit of the lender!). Only the government of the kind can stop a swift process of monopolization/oligopolization of the market (the 90' – 97' experiment in Russia showed that with new information technology it takes less than a decade to make few monopolies from scratch). Indeed it can and should enforce reasonable dispersion of market participants. But this leads us back to the black box problem, or, put it otherwise, mercantile ideals of government supported monopolies fighting on a global market. There is no other way but to strike the balance right.

  • Comment number 79.

    #60
    "This is getting boring to blame the banks for everything"

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

    Unfortunately they are pretty close to the core of the problem.

    Time for a story.

    A hundred or so years ago someone in an american town buying a house would have got a mortgage, the deeds would have gathered dust in bank vaults until said mortgage paid off, the money would have been locked in.

    One day a clever banker (not so clever after all) invents an instrument called a CDO (Collaterised Debt Obligation) and buys up all these mortgages - releasing money to be re-lent.

    Clever banker then takes these CDO's (made up of thousands of mortgages some very good some dead dodgy) and sells them all over the world. He thinks he is socially useful as well as really clever by spreading the risk.

    And it came to pass that property in Main Street USA suddenly stopped going up in value and started to go down - clever banker never built that into his model (the smothering of intelligence by greed).

    Soon all over the world we have CDOs propping up balance sheets - little bits of poison in each one, we dont know where we dont know how much, but its there. No one wants to touch them.

    Clever banker (he still thinks he is clever - evidence is overwhelming, big car, big house, trophy wife with cupboard full of shoes, weekly cocktail parties with politicians) demand bailout from schmucks on Maine Street. His divine right as he is so clever.

    Politicians listen to clever banker's warning of armeggedon and hand over cash, lots and lots. Not slimy politicians cash - our cash.

    In a nutshell that is what happened.

  • Comment number 80.

    #77
    "Consider a sentence with the words 'horse, stable, door and bolt' in it."

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

    Very true.

    But we still need an enquiry and deep examination of what has happened. The people are entitled to this.

    For my part my attitude to tax has changed.

    The dynamics of tax collection are primarily the law and what may be called a 'covenant' (most people believe tax is fair and good and we have a duty to pay our share).

    If we only had the law beleive me the tax take would be as derisory as in Greece where they have an anti-covenant.

    As far as I am concerned (I am not on PAYE), going forward, the covenant is dead.

  • Comment number 81.

    # 79
    What you explain is nothing else than another way of selling debt. So nothing different than before, just another name. And another way of marketing this product. But the underlying problem is that greed of the society is driving this. Bankers are not the source of the problem they are the visible part of the society. Greed is good. The problems are the double standards by people who are happy to play the market as long as it goes up and then crying when it goes bad. WHY did these people (these people are mostly everyone in the last 10 years) buy tracker funds in real estate if they do not know anything about real estate? They invest more time in buying a TV than looking at an investment vehicle. Banks fault, again.

  • Comment number 82.

    " 'First you trash our balance sheets, then you have the cheek to complain about them'. If Western governments could talk to the international financial markets, this is surely what they would say."

    WELCOME TO CAPITALISM.

  • Comment number 83.

    #81
    "But the underlying problem is that greed of the society is driving this."
    ===============================================================

    This is correct.

    We always have been an acquisitive greedy animal.

    This won't change any more than growing an extra leg or arm.
    (Cue for the Holy Rollers to start preaching - but even they are greedy for the pretiest girl, or boy, amongst their flock).

    Even in communist Russia the top officials were 'greedy' for the best Dachas. Greed is normal not bad. Bad is when you artificially remove the consequence.

    This won't change any more than growing an extra leg or arm.

    All the people who 'invest more time in buying a TV than looking at an investment vehicle' are also culpable.

    But can you spot the big difference. It is not difficult. It begins with B.

    Banks get a bailout - ordinary Joe does not. And please no arguments that the bailout was to help indirectly you or me.

    We lost a massive opportunity to change peoples perception and we did not take it.

    A major problem at the present time is that people think we are through the worst and that soon things will be back to normal. Normal won't come back for at least two decades and do we want it back anyway.

    Incidentally massive use of CDOs to recycle mortgage cash only dates from the early 1990s - Northern Rock really fell for it. Previously banks and building societies may have sold a mortgage deed and it would then have gathered dust in another vault.

    The wholesale massive parcelling of debt is a recent phenomena.

    Moral hazard. If we are too greedy and come unstuck it is right that we should pay - all of us - otherwise we are removing a vital check.

    'Unfortunately they are pretty close to the core of the problem.'

    I never actually said it was their fault, just that they were core to the problem.

    If only clever banker had taken it on chin, eaten humble pie, accepted job loss and got more suitable job in MacDonalds.


  • Comment number 84.

    Bill Gross can't take his client's money and give it to countries he has sympathy for.

    For one that is plain stupid. It is also not too far from bankers, who had/have far too much sympathy for themselves, and sold their clients whatever they could just to bulk up their own commissions.

    PIMCO is hardly extracting a "pint of blood" here but they're not a charity either.

  • Comment number 85.

    "He (Bill Gross, Co-Founder of Pimco) would choose Labour if he could vote in the British general election". Well, of course he would. The head of his European arm is Ed Balls' brother, Andrew.

  • Comment number 86.

    77. At 10:07am on 14 Mar 2010, Rugbyprof wrote:
    Mmmmmmmmmmm.......

    Where to start?

    .....

    Try (personal): there are very few assets which don't attract capital gains on sale - one of these is a house.

    Try (corporate): Interest due on debt can be expensed against profits and there's no limit. The tax system positively discriminates against equity investment.

    Wonder whay we gotta problem?
    =========

    Add in the desire of Governments prior to this one (Kilfoyle is right about this pathetic excuse for a Government, pity he didn't stand up and says so 10 years ago, before he decided to retire), not wishing to have us all rely on the Pyramid Scheme masquerading as the State Pension, but also not wishing to jeopardise the tax take on 'savings'. They have created 'Fund Managers', men who seem to me to have almost no restrictions and who play with our Pension funds as they wish.

  • Comment number 87.

    I think there's a basic misunderstanding in the article. Isn't the stimulus Gordon Brown is talking about the large government budget deficit? This is certainly continuing this year. And he's right to point out that the Tories would want to reduce it sooner than he.

  • Comment number 88.

    79. Richard Dingle wrote:
    "Politicians listen to clever banker's warning of armeggedon and hand over cash, lots and lots. Not slimy politicians cash - our cash."

    I was with you up to this paragraph. Firstly, clever Banker(s) didn't warn of armageddon, armageddon arrived to their surprise. Very few organisations or pundits spotted the arrival of meltdown, unfortunately. That's why so many Banks took such high risks with our money.

    Secondly, Banker(s) had to be bailed out otherwise our economy and the world's economy would have gone down the pan. Nobody likes this moral hazard approach where Bankers know they can take risks and be bailed out. So the issue in the future, as many have Bloggers said , is separate normal Banking from Casino Banking and probably reduce the size of banks - remove the too big too fail philosophy.

  • Comment number 89.

    Hey Steph,

    Taking on the Squid at last. Good work.

    You'll be exposing the lies and deceipt of your old friend Timmy Geithner next!

  • Comment number 90.

    #6 >>Can you think of anyone else who falls into this category Stephanie?

    No !! Never !! Won't happen to anyone else !! :-P

  • Comment number 91.

    #10 >>Greece has sun, sea, the best agricultural products (good soil) and proud people (inc. abroad).

    Greece definitely has the sun and the sea. It also has the sand and the fourth "s" (but I've forgotten what it stands for :-P ). Proud people ?? Definitely !! Not unusual for a small, wannabe-big country.

    Good soil ?? You've gotta be kidding !! Much of Greece is mountainous with poor to infertile soil !! Only the thin strip of coastal land is anywhere near fertile.

  • Comment number 92.

    #88
    "Very few organisations or pundits spotted the arrival of meltdown"

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

    Quite a few knew what might happen if property prices started to march back down the hill.

    They chose to ignore it. They really did believe that low inflation low interest rates were here for ever.

    By armageddon I meant the 'consequences of not bailing the banks out' not the meltdown. The armegeddon that has supposedly been averted. The armageddon that we never got to know.

    "separate normal Banking from Casino Banking"

    Really not the issue. See my post #55.

    The issue is derivatives.

    "Secondly, Banker(s) had to be bailed out otherwise our economy and the world's economy would have gone down the pan"

    The jurys very much out on this (after the horse has bolted unfortunately).

  • Comment number 93.

    #17 >>Who do I now vote for?

    None of the above ??

  • Comment number 94.

    ... Northern Rock was a retail bank that owed its rapid expansion to use of CDOs. Northern Rock had no 'casino' arm.

    Lehmann had no retail arm and was allowed to fail which many regard as one of the 'accelerators' of the meltdown. How would Glass-Steagal have helped in this case.

    Do we actually need derivatives, how do they benefit the greater economic good.

    I don't know the answer to this - perhaps they aid liquidity.

    Perhaps they increase the velocity of transaction in the money-go-round enriching bankers who skim their 0.001% commission off.

    Any posters know the answer.

  • Comment number 95.


    #77

    "Then note how both the US and UK governments, driven by unsustainable public sector requirements failed to execute regulation already in place (just simply ignored)."

    Now then who should be the arbiter of the viability of public sector requirements? Surely not the private sector?

    If you wish to argue on the basis of morality then you need to lift the lid on the actions of huge parts of the private sector's actions before you do.

  • Comment number 96.

    #18 >>we need to face the fact that none of our fellow global friends will sit back and “wait for us”;

    Oh but they are !! For example, I'm sure Air France is gleefully waiting for the strikes to cripple BA so they can pick up their disgruntled passengers !! They'll not be so happy that Virgin Atlantic (51% owned by SIA) is also sitting in the wings (no pun intended) waiting for the same thing !!

    Self-destruction seems to be a national pastime, these days !! Perhaps they could have strikes and rioting as new Olympic events in London 2012 !! That would surely make a change from Beijing 2008 !!

  • Comment number 97.

    As much as the governments have tried to hide the facts, the financial collapse was a result of the criminal collusion of the banks. Fake books, empty box insurance for unqualified loans and a plan to push it all on the taxpayers. The governments were made aware of the scheme well in advance and bowed to banking lobbyist and did nothing. Greatest theft of personal wealth and pubic funds to support private interest in history. The real sad part of all this is nothing has changed, the same people are in charge and the instruments used are all still in place. Big business and banking has bought the governments and their interest arte the only interest being addressed by the governments. Social services will be diminished, taxes raised and no one held accountable. Captialism at its worse. Citizens had better require the separation of business and government much like church and state or it will all happen again. Put some bankers in jail and maybe the will get the message, don't re-elect those who knew and did nothing, and maybe they will get the message. Corruption in both sectors.

  • Comment number 98.

    25 >>If only politicians were as good at thinking as they are at taking our money.

    Get real !! If they were that good at thinking, they'd get a proper job !!

  • Comment number 99.


    'Governments around the advanced economies had to spend hundreds of billions of dollars propping up banks and standing behind the likes of AIG, and hundreds of billions more dealing with the global recession which the credit crunch had caused.'

    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

    Our New Labour government also spends billions of pounds buying votes with its tax/credits and welfare system:

    'State dependency voting'

    http://www.dailymail.co.uk/news/article-1226031/EXPOSED-How-Labour-depends-votes-Welfare-Britain.html

    .....................................

    What the Tories can do is improve upon these basic welfare figures by putting the working tax and other 'credits' into the analysis and then 'ringfence' and strengthen these numbers so that no one will miss out with cuts as a result of a Tory election success in May.

  • Comment number 100.

    #94 Richard Dingle

    I'm no expert, and may be guilty of over-simplification, but it seems to me that the answer lies in the question of Banks capital requirements v "assets" (loans). When a bank has a mortgage deed gathering dust in it's vault it has an asset - having expended the capital.

    Sell that debt on, and you replenish the capital: enabling the first bank to lend again.

    Meanwhile, is it possible that by repackaging the debt as a AAA investment, the purchaser bank can put the assets into their tier 1 capital and so lend against it?

    If so, the question is how many time this multiplication trick can be pulled. Each time, the effect is for more and more money to be piled into the property market (without any more houses being built) at no apparent risk. Then, we could expect to see rapid house price inflation: people having no trouble getting mortages but having difficulty paying the inflated prices: and then.....

    Roughly what we have seen in fact.

    Leaving a real question, namely, how many times was this screw turned and exactly how much of the apparent capital in banks is a "house of cards" built on this trick?

    Anyone better informed than me please correct; add to; or answer this thought.

 

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