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May be as bad as early 90s

Robert Peston | 00:00 UK time, Saturday, 9 August 2008

The City watchdog, the Financial Services Authority, has told the UK's banks to make sure they are strong enough to withstand serious losses on mortgages and other lending for the next two or three years.

In an exclusive interview with me, the FSA's chief executive, Hector Sants, was asked whether the difficulties for banks could be as bad as they were in the early 1990's and whether losses on lending would continue to be a problem for up to three years.

Mr Sants replied that he would expect banks "to plan on that type of assumption". The recession and property market downturn of the early 1990s saw British banks suffer debilitating losses over an extended period.

He said "you'd expect a regulator to be naturally more pessimistic possibly than the market place as a whole".

He added that he expressed his opinions "fairly forcibly" to banks that they needed to raise capital, so that they could be confident of weathering the economic downturn.

Royal Bank of Scotland, Barclays and HBOS have between them raised £20bn of new equity capital. It's understood that the FSA had to exert a fair amount of pressure - to be "directive" in Mr Sants' words - before the banks agreed to raise as much.

Figures disclosed by banks in their results and in aggregate by the Council of Mortgage Lenders show that growing numbers of mortgage borrowers are having difficulties keeping up the payments. There has also been a sharp rise in repossessions.

However not all banks have started to incur significantly increased losses on their UK loans. The recent falls in their profits - and the £691m loss suffered by Royal Bank of Scotland - stemmed mainly from their investments linked to the dire US subprime lending market.

There has been a sharp rise in charges for losses on mortgages reported by HBOS, Northern Rock and Bradford & Bingley. But Royal Bank of Scotland actually reported a fall in losses on personal loans and mortgages made to British customers.

Most analysts expect losses on mortgages to rise for most banks over the coming months.

In relation to the causes of the credit crunch, Mr Sants disclosed that the FSA is unhappy at the way banks rewarded their star bankers during the boom years.

He says that there was an incentive on these bankers to take excessive risks with their firms' capital. That foolish risk taking has come home to roost in the form of massive losses on investments linked to US subprime lending.

Mr Sants said that the FSA would find a way to penalise any banks which continue to incentivise staff to take dangerous risks. He said there would be "consequences" for banks that pay employees too much for doing imprudent deals.

The full interview will be broadcast tonight on the News Channel series, Leading Questions.

Comments

  • Comment number 1.

    It may be worthwhile insisting that banks retain a set % of their total revenue as ready cash. It would further delay the recovery of the situation, but it would prevent it reoccurring as badly as it has.

  • Comment number 2.

    The Banks have lent too much to people who were too high a risk. It's not, as they say, rocket science.

    By the way BBC, the news programme yesterday was saying that repossessions were rising "as a result of the credit crunch". Not true. 180 degrees wrong in fact.

    Repossessions are rising due to paragraph 1 above, and to rising inflation and prices. Lack of easy credit will STOP today's would-be over-borrowers from becoming tomorrow's repossession statistics. The conditions which have led to repossessions rising have also led to the credit crunch, which is a wholly different argument.

  • Comment number 3.

    After the Northern Rock debacle and the recent announcement about the RBS losses it's quite worrying that all my funds are in the hands of 2 banks... namely Halifax and Abbey. The truth is I have no idea what the current health status of them are.

    Is there such a thing as a league table (for want of a better term) which would provide a bigger picture and give the more "clueless" investor like me more of an idea on who is capable of looking after my cash and who isn't ?

  • Comment number 4.

    Talk about being wise after the event. What were the FSA doing 3 years ago when they should have stopped this situation arising in the first place.

    Regarding remuneration, don't expect much from the FSA when all the people working there know that their salaries and bonuses are effectively tied to those working for banks under the 'recruiting the best quality staff' fallacy.

    The same goes for those running the pension funds. The last thing they want is to be paid according the long term (ie over one complete cycle) returns arising from their investment strategy. In fact if that was the case they would probably owe us money.

  • Comment number 5.

    Rather than increase the amount of cash they have, there is a much cheaper way for banks to prepare for future the downturns that will inevitably occur.

    They need to get rid of their youthful, overly optimistic people (the "Fred Godwins" of this world), and bring in older people with lots of grey hair who worry a lot and who have "seen it all before".

  • Comment number 6.

    As bad as the 1990's as I recall these were not anyway near as bad as now! My parents who recall the 1930's quite well are of the opinion that what we are seeing is more like the 1930's and the proceeding two decades..

    "National" regulation may work when it is possible to isolate an economy and currency from artificial (ie. non physical trade related) currency flows - I am at a loss to explain how they intend to regulate when they have virtually no control of the money supply - so I guess that all the regulator can do is to stand (idly) by on the sidelines and bleat and hope for the best as it has done today.

    One thing they could do is to insist that all of the highly dubious risk related executive remuneration systems that generated the problems we are in are ceased immediately and any accrued bonuses are cancelled, or the banks licence to trade is taken away.

    The FSA, Treasury and Bank of England have been set up by the politicians with the advice of the Treasury Mandarins to regulate in this ineffective and ultimately disastrous way. This needs to change.

    London and the UK must not be seen as it is as an easy touch where dodgy money and banking methods get by on the nod. This must happen in exchange for the UK taxpayer bailing out the high street banks and deposit takers - the more fly-by-night synthetic financial instrument manipulators need prosecuting, confiscation of assets and to be treated like the criminals that they are. They are ultimately the ones who have 'stolen' our money - the regulators are the ineffectual little men of straw who have done nothing to protect us - in rugby terms, just an early bath is called for them.

    If, as I suspect, it turns out that the SFO (Serious Fraud Office) does not have the laws to prosecute the money-men who have perpetrated this 'theft' then surely it is a case for retrospective legislation - the people of the UK should demand no less for bailing out the banks, for that is what every taxpayer is being asked to do.

  • Comment number 7.

    There is far too much SCAREMONGERING in the media which only serve to compound the further problems.

    So called "experts" and Media all together promoting DOOM and GLOOM and talking us to recession....!


  • Comment number 8.

    I'm with four, the FSA got caught out with the credit crunch and now they are now bolting the stable door after the horse has bolted.

    The problem with regulation is that it goes over the top on problems it can foresee but then an event happens that it hasn't foreseen and people who were meant to be protected by the FSA lose money.

    In my opinion the market is a much better regulator than anything that the government can put in place.

  • Comment number 9.


    So when you lend money, with inadequate collateral, to people who have no way to pay it back, you need to make preparations for losing the money?

    Wow, who'd have thought it?

  • Comment number 10.

    Comment 4 : wykhamist

    "Talk about being wise after the event. What were the FSA doing 3 years ago when they should have stopped this situation arising in the first place.

    Well said, wykhhamist.

    Where they were 3 years ago, of course, is where they are now. Immersed totally in the establishment, deciding what to say by examining the various off-the-peg mainstream opinions available, and selecting the one that seems most in line with the general perception of their role in proceedings.

    I'm not really knocking this part of the system. The elite is tasked with two objectives - (a) to determine the best direction for the country to be heading, and (b) to ensure that everything possible is done so that we actually go in this direction. A big part of (b) is not to make any noises that challenge fundamentally what the rest of the establishment is saying.

    The real difficulty we have in this country, and in other countries too, if the truth be known, is that skill at (b) has become a passkey into the elite that completely overrides ones ability at (a) - or lack of ability in many cases. As a result our governing class has become highly skilled at, and highly focused on, making policy look attractive; manufacturing short-term demand so as to give the impression of responding to public desires, or, better, anticipating them; and also well attuned to the type of policy most conducive to this type of enhancement.

    But at the same time, of course, less skilled at, and less focused on, part (a) of their responsibility.

  • Comment number 11.

    Lets not forget what made the 90's recession so bad. The economy ran out of control during the Lawson boom of the late 80's with inflationn back into double figures. Well over twice the level we are worrying about today. Intetrest rates had almost trippled to 15% by mid 1990. Again nothing remotely like that has happened this time. The conservative governments chancellor - John Major then decided whilst interest rates where so high and the pound was at stratospheric levels that it would be a good time to join the ERM and peg the pound close to 3 DM. Ther only way stirling could be maintained at this level was by keeping interest rates in double figures - well after the econmoy had cooled and inflation had come down. This lead to continual recession for 2 years. The country became an economic wasteland. This extended period of decline caused the collapse in house prices and the bad debt exposure of the banks. It was not untill stirling was pushed out of the ERM by currency speculators in 1992 that the economy recovered. Although things now look bad relative to the benign economic conditions we have seen over the past 10 years or so they dont compare with the 90's. I get the impression that most press commentators where still in short trousers then so have no feel for what a bad economy really looks like. We still have low interest rates and even commodity prices that have pushed up inflation are starting to look flaky with oil now well under $120 a barrel.

  • Comment number 12.

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

  • Comment number 13.

    6 john-from hendon:

    Agree, but I doubt our politicians have the guts to do any of this.

    7 Kubikubi:

    Not that old chestnut again???

    Exellencefirst 10:

    Any chance you could clarify your thoughts a little. I'm sure there's some interesting stuff there. For example, you talk about the 'elite' then you mention the 'rest of the establishment' what do you mean? Are the 'elite' different to the 'establishment'? Are you an elite theorist by any chance. If so are you arguing against the notion of the 'free hand' which many would claim 'determines' largely how the economy and by implication (especially today) society runs? Furthermore, you say the elite is 'tasked' (yuk) with two objectives. Where did you get this from? Why only two objectives? By the 'elite' do you simply mean politicians, leading politicians, or a wider grouping including (as many do) the media?

    You also state that 'skill' becomes a password into the 'elite' and overides 'ability'. You seem to be drawing a distinction, rather a jaundiced one I would say, between skill and ability. What type or types of 'skill' do you mean. A skill in communication as you seem to imply or some other 'skill'? Also, you seem to have an 'essentialist' conception of 'ability' which allows you to condemn 'skill' as somehow flawed. In other words your distinction between skill and ability trades on the old elitist assumption that there is something essentially 'unique' about governing elites. This had manifested itself in the past as the: born to govern, and the 'naturally' endowed to do the job assumption, broadly, Platos elitist assumption dominating his work on the 'perfect state'

    Furthermore, what does this mean?:

    'and also well attuned to the type of policy most conducive to this type of enhancement'



  • Comment number 14.

    As a complete "amateur" when it comes to the study of economics, I have often wanted someone to actually draw up a detailed analysis comparing economic predictions made by for example the treasury, the banks, the FSA, so called expert analysists etc etc over a period of even as little as the past 5 years and compare these predictions with what actually happened. It would be interesting to see the results. My own gut feeling is - again as a complete amateur - is that most predictions have proven to be wide of the mark. Does anyone know if such an analysis has been done and if so where can one find it ?

  • Comment number 15.

    The term 'credit crunch' is being used as a handy cover for all the financial woes at the moment, but our financial woes are nothing to do with the credit crunch.

    Our problems mainly stem from irresponsible lending to the tens of thousands caught up in the ‘celebrity culture’ lifestyle. The creation of being in debt is the now ‘norm’ way of thinking. Have it all today and don’t worry your house is going up in value, so you are not actually in debt spin to it all.

    Until we get the chuck it, I’m bored with it, I’ll have new, way of thinking. My lips have made decision before my brain has had time to think it through, type of thinking out of our culture, things will not improve.

    As for the ‘credit crunch’ this is our bankers buying into what they thought were packages of A1 credit US mortgages. They bought and subdivided these packages of mortgages between each other thinking they had just bought into the golden goose. When they opened there packages as it were, they found they were actually empty promises to repay. So not knowing what each other (bank) had bought but suspecting that the other bank had created a big problem for it’s self, decisions were made to try a stay on the safe side, to hold up lending money to each other and then the credit crunch began.

    Gordon Brown realising that if everyone stopped lending, GB Plc which up to that point had only survived on mountains of debt, would grind to a halt. The process of grinding to halt would give people time to think, time to realise perhaps what a mess they were in actually in. GB instructed the Bank of England ( yes the bank is totally independent) to pump £50 billion into the lending system to try and keep people borrowing and continuing there feckless lives. Unfortunately for him and perhaps fortunately for us it seems that there is a slow dawning that we are in a mighty mess.

    How are we going to get out of this is the real big problem as we make so little in this country, what do have we to actually sell the rest of the world to bring some revenue in as in ‘actual’ money ? ?

  • Comment number 16.

    Lets put this in perspective I understand there are just under 12m mortgages out there and the number of repossessions so far this year 46,000 thats 0.004% and this in a climate where under new bankruptcy rules people are actively encouraged to default to clear their debts, how often do we see adverts for firms advising people to agree to default.
    I see comments on here where people have expressed their concern about having money in loss making banks well again to put it in perspective outside of northern rock despite all the problems we have only send one bank report a loss, banks have been making BILLIONS for years and been building their reserves, all will meet their capital adequacy ratios (even if this means asking shareholders for extra cash)

  • Comment number 17.

    Keep things down to a mild panic, is their motto. What they say to Mr Peston is what they want us to hear. Let the air out slowly so the bubble will not go pop.

    We should not forget, however, that most of the cards have already been dealt. The great unravelling will not happen because journalists talk the market down, or horrible bears short it. It will happen because of decisions already taken. And the group most responsible for the international financial economic fiasco is the regulators. Not the bankers, politicians, economists, rating agencies, middlemen or consumers.

    We may believe bankers are unscrupulous rogues or merely scallywags, depending on how badly they have fleeced us. Yet their aim of making as much money as possible as quickly as possible is not hypocritical and no-one is forced to deal with them. Likewise in the case of politicians, who grovel for power like bankers for money. While we are forced to follow their rulings, we still voted them in.

    Economists want tenure, or government or private appointments, or peer approval, or Nobel prizes. We cannot blame them when their opinions are wrong. Economics is only a social science, and the opinions of most economists are derivative.

    No doubt many middlemen such as mortgage brokers may have stolen from open cash registers. But it is the regulators who left them open.

    So what if consumers were greedy? We respond to incentives. If rules are clear, we act rationally more often than not. If we commit no crime we are innocent. The regulators colluded by not contradicting the myth that housing is anything but a place to live; and they kept schtum in order to fuel the new opiate, shopping.

    These other groups all have private agendas and cannot be blamed for pursuing them. Financial regulators have no such excuse. They are supposed to act in the public interest, like referees.

    So do we say that because some of the regulators are supposed to be the brightest minds of their generation, their regulations must be good? No, we examine the actual international financial regulations.

    So, how sound are they? Unfortunately some of them were so badly thought out that the financial crisis was inevitable. Some of the regulations are so poor that they can only be described as childish. The average consumer would be aghast and outraged if they knew. And they would know if the regulations were expressed in plain language.

    Perhaps someone should take up the pen. It is not rocket science.

  • Comment number 18.

    Just what were the "City" watchdog watching while all this was going on ????

    I am no financial expert but these people are i cant recall them jumping up and down warning us that this was about to happen ???? until it was obvious even to me,which was still a good 6 months before the banks started admitting it.

    So why should we listen to their analysis now it is obviously flawed .......or were they told to keep quite by other interested people .could we have a timeline on when they noticed things were going wrong ???and when they actually started making a noise ???and who they told and when ???

    Would also it be possible to tell us how the small building societies have faired during this recession ??? are they in dire straits too ???

    I have a feeling that Banks were mis-selling services in the knowledge that things were going west.

  • Comment number 19.

    The banks have caused the current crisis through their own greed, stupidity and recklessness. The banks must be broken up and regulated by governments. They have become too big and out of control. Until August 2007, no government dared touch the banks because they had become masters of the universe and could threaten to move their operations around the world and defy democratically elected governments. Suddenly, in August 2007, their inherent weaknesses were revealed as they lost confidence in lending to each other and their "assets" were shown to be figments of their imaginations. Banks now desperately need the support of governments, i.e. handouts and guarantees from the taxpayers. Now is the time for governments to impose on the banks conditions in return for saving them from bankruptcy. There will be squeals of horror from bankers at the prospect of regulation; but we must call their bluff. They have nowhere else to go. Read the Green New Deal by Larry Elliott et al. They do not mince their words about bankers. The publication can be downloaded from: [Unsuitable/Broken URL removed by Moderator]

  • Comment number 20.

    I would like to see all the Banks reveal the worth of their off-the-books accounts. The best place to start is with Northern Rock.

    When they were being touted for private sale, their GRANITE companies based in Jersey were included as the cream of the company.

    When it came to Nationalising the Bank, they were not included.

    Let's have full transparency in the financial world.

    Me, I keep my money under the mattress !!

  • Comment number 21.

    Here are three short examples of risible international financial economic regulations.

    One. Regulators have allowed banks to borrow short-term, lend long-term. Ask your nearest turnaround consultant the surest clue to selling a gig, given a company balance sheet and five minutes to read it. Yes, you guessed it, if they spot signs of borrowing short-term, investing long-term.

    Evidently it is a principle in the banking industry. But it is something they learn from a manual. Has no one told them this is bedrock?

    Imagine a batsman taking guard mid-way to the square-leg umpire, only allowed to move their feet once the bowler starts their run-up. Imagine a football team who decided to play without a goalkeeper. If you were the coach, how would you explain why these tactics are a no-no? Would you tolerate discussion of any other tactics until these defects were remedied?

    So can anyone explain how regulators can have allowed, for one instant, banks to borrow short-term, lend long-term?

    Two. Regulators allow banks to have Chinese walls! That is, two departments with mutually conflicting clients and/or interests guarantee not to talk to each other. The honour system. Ask people who know their history about the big five auditing firms suddenly becoming the big four!

    Ask any normal person. Here we have the financial economy. Trillions are traded daily. This amount of money attracts more rogues than a Damon Runyon story. The only thing preventing the rogues running the gallery is the regulatory environment, flimsy as it may be. So, in this environment, regulators rely on the honour system? Yes they do.

    Three. Regulators allow banks to do a certain amount of self-regulation. Ask the premier league footballers if they would like to self-regulate their fouls instead of depending on the referee! Rules that facilitate cheating guarantee it.

    If they got rid of the scrum as we know it, what would happen to rugby? It would change the shape of the game. More important, it would change the size and shape of the players. Similarly, in any given domain, regulations which allow cheating encourage the most capable cheaters to join; it de-selects the most capable players.

    These three are not specific issues, such as merging commercial and investment bank interests or casually allowing off-balance sheet transactions. Instead, they are issues of broad principle. One would think they would be second nature for people who have been educated at Ivy League or Oxbridge institutions or their equivalents. They have to do with values. Did no-one do any outside reading?

    Whatever the case, these are three of the reasons that banking is riddled with shysters.

    And it is the regulators of the western world who are to blame.

  • Comment number 22.

    Comment 13 - doctor-gloom

    Thanks for this.

    "Are the 'elite' different to the 'establishment' "

    Yes, I've interchanged the two rather too loosely. I'd class the end of the establishment who have the responsibility for significant decisions as being the elite.

    "What do you mean by 'the rest of the establishment'? "

    Those of the establishment who are not the ones in the process of being required to make noises.

    "Are you an elite theorist?

    I don't know. I'm an accountant with a long-ago degree in economics.

    I believe that a competent elite is able to determine directions with 2 provisos:-

    (a) that it maintains its competence

    and

    (b) that it is not prevented by factors beyond its control from offering its fellow citizens realities that are attractive enough to prevent a popular switch to unreality.

    I also believe that this, rather than the "free hand" of the majority, is the most appropriate way for society to be run.

    Furthermore, I believe it is not in place at the moment, and the main reason for this, I would say, is that there has been encouraged rather than discouraged a popular switch to unreality, and that this has resulted in even the most competently devised realities being regarded as "not good enough" by too many of the population.

    Does this make me an elite theorist?

    "tasked"

    I agree. Yucky. Sometimes I choose the wrong way to disguise my scepticism of modernity.

    two objectives?

    I didn't say there weren't others. I've focused on these two because I think the factors I'm discussing can be considered broadly in isolation from all but these two. Perhaps you disagree with this? If so, what do you think are the other objectives whose inclusion would modify the conclusions reached?

    skill vs ability

    As with elite and establishment I've been a bit loose with interchanging these two.

    Believe me, it's not with any intention of belittling the mono-skilled. Quite the reverse. The greater the levels of skill that we have, the greater potential we have. I'm as appalled by the idea of being governed by a bunch of skill-phobic generalists as I am by that of a government in which one particular skill has become dominant.

    One man's "skill in communication" is another man's "skill in behaviour-modification" and another man's brainwashing.

    " Furthermore, what does this mean?

    'and also well attuned to the type of policy most conducive to this type of enhancement' "

    It means being aware that some policies have the "bodies" to look good in chic clothes, and some policies don't. And suggesting, perhaps, that there are some in policy-making to whom giving weight to this consideration is not out of the question.

  • Comment number 23.

    Robert

    If you had asked Hector Sants two years ago what kind of stress testing the Banks are asked to do re their portfolios he would have told you that the FSA require them to stress to a 1992 style scenario (as do the Basel rules on capital adequacy, which all banks of any note have been working towards for the best part of a decade!) so forgive me if I struggle to see why this is news!, and even more why it seems to be the only thing you got from your exclusive interview with him.

    If you asked him about Insurance companies then he could have told you that they stress to the impact of two fully laden Jumbo jets colliding over London, doesn't mean they think it's going to happen at any point in the next 12 months but that is what they have to be ready for. In the same way banks are being asked to review things again in the light of their situation in such a scenario given their current balance sheet strength. Interesting stuff to those few people who do bank capitalisation for a living and their boards of directors but for the rest of us not really!

    Needed a good shock headline though!

  • Comment number 24.

    Oh mate, this FSA is a laugh.
    How comforting to know that we can all sleep soundly, knowing that the FSA is making sure that our savings, pensions, shares, endowments etc are under their watchful eye.
    And making sure that the banks dont behave recklessly, or create monster property bubbles, or go broke and need the taxpayer to bail them out.
    The FSA is there solely for the reason of lining the pockets of its own staff.
    It is about as much use to the Financial Services industry as my granny.
    There is already a huge crisis of confidence in the money business, and that is going to get a lot worse.

  • Comment number 25.

    I fail to understand why Mr Hector Sants, FSA’s Chief executive, has categorised the actions of the so called star banker during the boom years as only foolish risk taking and the banks actions as merely providing incentives to take such dangerous risks.

    It seems incredible that Mr Sants failed to recognise that the banks could only let their star bankers take such risks because the banks had nothing to lose. The banks did not give any customer any real money. They only created credit out of thin air. The mortgage premiums that were paid to the banks were real money by the people. So, whatever money banks received in return to their entirely deceptive but acceptable practice of creating credit out of thin air was close to infinite % profit. The reason the profit was not infinite % because some bank employees had to be paid to punch some numbers in some computers.

    I dare any bank that can challenge this view to post their comment with the name of person challenging it, the name of the bank on behalf of which the comment is made and their contact details. Or better, the banks can put educational infomercials in newspapers and in their websites explaining how they create money in the first place.

    I expect null response.

  • Comment number 26.

    So it's Hector Sants of the FSA who has let the UK banking system go to pot through reckless acquisition of valueless assetts.
    Who then is better qualified to pontificate on the problem of a decade of bad UK bank management and Labouriously to hark back to the irrelevant early 1990's ?
    Leave him to fiddle, and let someone more competent get the FSA organised and working effectively - it's urgent!

  • Comment number 27.

    The FSA...the organisation where lunch lasts from 9am to 5pm.

  • Comment number 28.

    I think torture is useless as all that happens is the tortured just tell their persecutors what they wanted to hear in the first place: a bit like ambitious executives placating their bosses.

    I do however feel that some torture could be used appropriately within the Square Mile out of a deep personal sense of outrage and a malicious desire for revenge.

    I am conservative when it comes to money. I save before I spend, I work hard, have paid off the mortgage and have squirreled a small (not enough) pension away. I have just had the roof mended: Gordon Brown please note!

    In my youth I switched from an economics degree to political history as I had a cultural difficulty accepting money as a commodity. I recognise my shortcomings in financial matters but I have spent the last five years nervously watching a bubble economy develop whose fundamentals had no basis in reality. Often I expressed my concerns only to be slapped down for being negative. Up until three months ago I was still told by many that I was just being silly.

    Now it is wake up time! It is not just that the penny has dropped but several billion quids have suddenly vanished into thin air like Faerie gold. More, much more is to follow, believe you me.

    The economy is going to get worse this autumn and I dread next year when I expect we will hit bottom with a very hard thump. This is going to ruin hundreds of thousands of people in the UK alone. The political fall-out will be traumatic.

    All this is because of a dogmatic belief in the beneficial nature of free markets married to a mechanism by which `troubled' markets are `liquidified' to sustain their apparent value. A market is a mechanism for exchange: it cannot be an object of virtue. Markets are not `troubled', they just go down as well as up depending on conditions.

    I am not a conspiracy theorist as human error is more common than we like to think. But the degree of human error amongst the great and good these last five years has been an extraordinary betrayal of trust. The consequences are going to stretch into decades from now as what has been stolen from the future has to be repaid.

    For all our sakes there needs to be a blood-letting before we can move on. A scapegoat is required from the City, from The Treasury and from the regulators so lets get the thumbscrews out to find the most appropriate. The tumbril awaits.

    After that we will need to move on and EARN our living rather than chase rainbows after the treasure of the Leprechaun King.

  • Comment number 29.

    Comment 28 : stanilic

    " ... I have spent the last five years nervously watching a bubble economy develop whose fundamentals had no basis in reality. Often I expressed my concerns only to be slapped down for being negative. Up until three months ago I was still told by many that I was just being silly.

    This is my experience, too, although my first misgivings appeared well before 5 years ago. I think perhaps that the astonishing developments in computer and communications technology over the past 20 years, and the thrust this has given to economic development, has allowed us to turn a blind eye to the pisspoor way in which we have developed everywhere else.

    "I dread next year when I expect we will hit bottom with a very hard thump"

    You may be right, and in an "uninterfered-with" market this is what would happen. I just have the feeling that next year will not be quite as bad as this, because a way will be found to re-liquidify, to use your word, and push the heart of the problem another year or two into the future.

    "But the degree of human error amongst the great and good these last five years has been an extraordinary betrayal of trust. The consequences are going to stretch into decades from now as what has been stolen from the future has to be repaid"

    I like the idea that what we have been doing is stealing from the future. This is the big short cut to becoming prosperous in the present, isn't it? No need to burn the midnight oil trying to work out how to do something more efficiently - it's much better to put your energy into devising schemes that time-separate benefit (now) from cost (future), concoct spurious reasons to understate future costs, and let the next generation pick up the tab for your "trebles all round" today.

  • Comment number 30.

    As bad as the early 90s?

    The coming depression will be the worst for generations, far outstripping the experience of 90-92, 80-82, 73-74, and even worse than the early 1930s.

    To understand why, one needs to look at the ratio of debt in the economy to the underlying economic output. This is far higher than at any time in the last 100 years. See Australian economist Steve Keen's blog for some revealing charts. The subprime crisis will probably be seen in hindsight as the peak of the debt bubble. As the great debt pyramid unwinds, insolvencies and bankruptcies will soar and economic output will collapse, irrespective of what governments do.

  • Comment number 31.

    When people talk about an economic downturn here, what exactly do they mean? Can economy turn down if doesn't exist? Isn't that - in principle - the problem? Extreme borrowing for years and years, as a replacement for vanishing real economy. Oh of course, this is a "post-industrial" society, isn't it? Well it will soon be a "post-credit" society, believe you me!

  • Comment number 32.

    Some interesting commentary here, as I too have been ridiculed for the last five years when I said the property market had clearly become a very fragile house of cards - except one where the Government insists on applying a hair dryer when the first card comes loose, seemingly keeping things up in the air against the inevitability of it all falling down.

    The Government has to take responsibility for refusing to recognise that the real crisis was house prices tripling in a decade, when earnings were nowhere near to keeping pace. How can it be that nine out of ten economic think-tanks could ignore this simple, common sense rule?

    I have had the funds in place to be able to buy something modest, say a one-bedroom flat, for three years now. What stopped me is not affordability alone, but what I saw as a cultural conspiracy that bleats a mantra of "must get on the ladder". So many people I know have actually bought a snake that it scares me.

    I even had somebody at work berating me for not buying when I could, claiming that I had "destroyed my lifestyle" by not doing so. In fact I have rented a nice, central flat for the past 8 years, in which time the rent has risen by a grand total of 10% - less than inflation, and an order of magnitude less than property prices have risen in the same time frame. All the while I have stockpiled money, which is securely (!) deposited with various banks.

    What worries me most, though, is that this prudent approach will be meaningless if things get as bad as posited here. If the entire economy is completely dependent on unsustainable debt, then money itself - savings and pension funds alike - could also prove worthless.

  • Comment number 33.

    Somehow it doesn't inspire great confidence that the CEO of the FSA can't pronounce the word "remuneration".

  • Comment number 34.

    No still no where near as bad as the 1990's.

    My sister bought a House back then, and within a year prices had fallen by 50 percent.

    That hasn't happened here yet, and is unlikely to.

    Negative equity has hardly raised its head so far.

    Interesting how most of the doom mongers are Conservative activists !

    Especially as the policies they criticise were started by the Conservatives under Mrs Thatcher !

    Irony, sweet irony !

    But then New Labour has followed Conservative Doctrine for many years........

  • Comment number 35.

    I wonder if the Media are part of that lost species

    Fatum sermo novus monachus


    certainly some of the bloggers must be !

  • Comment number 36.

    supercalmdown Message 34

    `Interesting how most of the doom mongers are Conservative activists !'

    Do you have any evidence to support this assertion?

    I would think that most of the `doom-mongers' are people with some knowledge of economics and some working experience of the economy. There is going to be change, some of it is already forceful, and people are going to have to change as well.

    No doubt certain policies, or should we say `dogmas', were brought into the political mainstream during the period of the Thatcher government, but, as you say, they were still continued by the current government.

    In my view the issue lies with both the Left and the Right and their dogmatic interpretations of policy. If a certain approach works in one set of circumstances it does not automatically follow that it will work in all circumstances. We are going to find that a pragmatic approach will yield better results.

    I feel that as a culture we have failed intellectually and are now to pay the price for that failure to understand the consequences of our actions. This is going to make for some very uncomfortable years and a lot of innocent folk are already getting hurt.

    This is going to be worse than the early Nineties which was relatively short, I hope it will be better than the Seventies as that lasted over a decade. No matter what, we live in interesting times and will need to keep adjusting our views accordingly.

  • Comment number 37.

    Comment 34 : supercalmdown

    "No still no where near as bad as the 1990's.

    My sister bought a House back then, and within a year prices had fallen by 50 percent."

    Strange you should say this, because I'd only recently done some analysis of price movements during the early 1990's recession.

    Using the Halifax House Price Index - All Houses Seasonally Adjusted Data the greatest annual decline in average house prices during that period was 8.50% for the year to October 1992, and the decline from the highest peak, in May 1989, to the lowest trough, in July 1995, was 13.21%.

    Perhaps your sister had an unusually bad time of it, but it's not right to generalise from this.

    Incidentally, the annual rate of decline in this index for June and July 2008 are 8.71% and 10.91% respectively, with the August reading set to be an even greater annual decline, there having been an 0.3% increase between July and August 2007.

    Interesting too are the Halifax's Price Earnings figures, showing the average house price as a multiple of average earnings. In calendar years the average of the monthly figures are:-

    1983 3.51
    1984 3.52
    1985 3.56
    1986 3.71
    1987 3.91
    1988 4.47
    1989 4.85
    1990 4.40
    1991 4.04
    1992 3.57
    1993 3.36
    1994 3.28
    1995 3.14
    1996 3.14
    1997 3.14
    1998 3.14
    1999 3.19
    2000 3.29
    2001 3.40
    2002 3.97
    2003 4.55
    2004 5.16
    2005 5.22
    2006 5.43
    2007 5.74

  • Comment number 38.

    #37 ExcellenceFirst

    Interesting figures from the Halifax I particularly note the impact on the ratio of the what I would take to be the synthetic financial instrument expansion. from 2001 to date.

    It is such a tragedy that such and expansion in the money supply has not been invested in productive capacity but simply lost in asset price inflation.

    The synthetically created money is to a large extent still out there inflating commodity prices I wonder if there is any way to divert some of it into the expansion productive capacity?

    It would of course be a double tragedy if house price inflation were allowed to recover to its unsustainable levels of the last few years.

    Several years ago (in or before about 2000 I think) I advocated legally limiting the security available to ledgers to a multiple of (say) 3.5 times the borrowers income as a very low cost method of restraining silly lending ratios, but the Treasury just chose to ignore my suggestion and felt the market would provide sufficient balancing forces! Just consider the impact - lenders would be liable for 'liar' loans thus ensuring their rapid demise! The money supply to housing would be limited and perhaps banks would again lend to manufacturing businesses as they do in much of Europe and the rest of the World.

    Finally: I do wonder how many people can comprehend a list of figures as innumeracy is a highly prised boast of so many people even in business. It is a pity that only bean counters bother with, or comprehend, arithmetic!

  • Comment number 39.

    Re: #11 greyhammyhamster

    Although things now look bad relative to the benign economic conditions we have seen over the past 10 years or so they dont compare with the 90's. I get the impression that most press commentators where still in short trousers then so have no feel for what a bad economy really looks like. We still have low interest rates and even commodity prices that have pushed up inflation are starting to look flaky with oil now well under $120 a barrel.

    Seriously??? Up until about 6 months ago, oil had never even traded above $100/bbl, and now that it has fallen back from the $150 level to $120, the world's - and, more importantly, our - economic problems are solved? The price of oil has QUINTUPLED in five years, and CPI inflation reaching the 4% level reflects this price shock feeding through to the wider economy? Seriously?

    Having benefitted from a low inflation environment for almost 10 years, we have now shifted to living in a high inflation environment. Like the vast majority of commentators, even so-called financial and econmics experts, you still have not recognised this structural change and have tried to explain it away by writing it off as some sort of short term blip. On the contrary: any future falls in the inflation rate will be the short term blips. As such, things are very much worse than they appear precisely because the mainstream mindset is set to the expectation that inflation will magically disappear; when it finally becomes evident that this is not the case that realisation will be a major economic shock.

    (Just as an example, look at the principal argument being proffered: current inflationary forces are external, and an economic slowdown in the UK will counteract them. Hmmm... if the inflationary forces are EXTERNAL how exactly will a DOMESTIC slowdown counteract them? The irony is that the fallacy of this argument is 180-degrees wrong: a domestic slowdown will lead to a weaker currency and therefore exacerbate the external inflationary forces, not mitigate them...)

  • Comment number 40.

    Re: #38 John_from_Hendon

    It is such a tragedy that such and expansion in the money supply has not been invested in productive capacity but simply lost in asset price inflation.

    The synthetically created money is to a large extent still out there inflating commodity prices I wonder if there is any way to divert some of it into the expansion productive capacity?

    Isn't that - basically speaking - the definition of inflation?

  • Comment number 41.

    And just to underline the situation, from an article posted todayon the BBC website which I have just seen:

    The level of inflation - which most analysts expect to surpass 4% when the July figures are released this week - had taken people "by surprise", Mr Lambert said in the letter, seen by the BBC.

    And he added that the credit crunch had been "bigger and broader" than first expected.

    "A year ago it seemed reasonable to hope that the worst would be over by now. That has not turned out to be the case."

    (my emphasis, from https://news.bbc.co.uk/1/hi/business/7552336.stm%29

    I'm not sure for whom Mr Lambert is talking - perhaps the CBI and its financial and economics experts - but he's certainly not talking for me nor, I suspect, for a number of other regular posters on these blogs who seem to have a real grip on the situation.

  • Comment number 42.

    #40 Yummy

    ... and your point is?

    In my contribution #38 I suggest a method of limiting the growth in (housing) asset price inflation.

  • Comment number 43.

    Dear Robert,
    The credit cruch, money bloc, recession, what ever you wish to call it.
    This is a degular occurance at every ten to twelve years, Just check go all the way back to 1900, and you will see this is a planned sequence of events by Bankers and fianciers, "Secrets of the Federal Reserve, " and "Thread needle street " this in effect ie economic warfare against the masses.

  • Comment number 44.

    Dear Robert,
    The credit crunch, money bloc, recession, what ever you wish to call it.
    This is a degular occurance at every ten to twelve years, Just check go all the way back to 1900, and you will see this is a planned sequence of events by Bankers and fianciers, "Secrets of the Federal Reserve, " and "Thread needle street " this in effect ie economic warfare against the masses.

  • Comment number 45.

    Comment 39 : Yummy Carol Kirkwood

    "(Just as an example, look at the principal argument being proffered: current inflationary forces are external, and an economic slowdown in the UK will counteract them. Hmmm... if the inflationary forces are EXTERNAL how exactly will a DOMESTIC slowdown counteract them? The irony is that the fallacy of this argument is 180-degrees wrong: a domestic slowdown will lead to a weaker currency and therefore exacerbate the external inflationary forces, not mitigate them...)"

    I'm not sure that this is the argument being proffered. The argument is that we have inflationary pressures, a large part of which are deriving from rises in oil and commodity prices. The domestic slowdown being recommended is not so as to reverse the oil/commodity rises, but to put in place pressures that will counteract the effects oil/commodities are having on UK inflation.

    Not to say that this will work, of course.

  • Comment number 46.

    A few people early in the postings asked why wasn't something done three years ago?

    Actually something should have been done in early 2005. At that stage a slight tightening of monetary policy would have helped stop the worst parts of the bubble and slowed things down.

    There is one reasons why this didn't happen the May 2005 General Election an election that "New Labour" had to win if Gordon Brown was ever to become Prime Minister.

    If you are selling the idea that you are a financial god and have abolished boom and bust the last thing you want to do three months before a General Election is put the brakes on to stop the bust at an early stage!

    We are going to go through a recession and house correction worse than the early 1990's to sate one man's ego.

    More and more can see it which explains why our beloved leader is so unpopular.

  • Comment number 47.

    Contraction. Not stagflation. Not hyper inflation. That is the only way to secure our future. Economic development and economic growth are not the same thing. I'll carry on pipe dreaming!

  • Comment number 48.

    # 47 Pipe dreaming ...

    Asymmetrical reward systems, especially in the financial sector.

    'Real Cost of Living' index (Torygraph) - currently 9.6%.

    Hierarchical power structures which concentrate so much power in the hands of one individual.

    Useful subjects for 'thinking time'.

  • Comment number 49.

    I can guarantee that house prices are falling far beyond what is being reported. I have just sold my flat for 20% less than I bought it in 2004. Thankfully I didn't have a mortgage, but unfortunately I needed the cash, and had been trying to sell it for over a year without success (an unfortunately timed hole in the roof took the incompetent management company and roofing contarctors a full year to fix...) In that period I had to drop the asking price by 30%, and eventually accept what was offered. I thought at the time that the purchaser had by far the best of the bargain - but now I'm beginning to wonder.

  • Comment number 50.

    Whilst its hard not to support the FSA vua Hector Sants in its comments. There is still no apology for the absolute hash it has made of events to date.
    Banks still feel they are masters oif the universe an dthatteh gravy train is ongoing.
    The interview whilst headline grabbing still applies teh usual FSA marker of being high in rhetoric and low in detail or bite.
    'Consequences' re paying bonuses where it is deemed they should not be will be laughed at by the banks, and they will just budget in possible penalties in their plans.
    The message ust eb made loud and clear at the highest levels the party is over and the banks need to get real where they continue to pretend its business as usual.
    Any buisiness knoes its not unoless they have substantial deposits sitting in a bank.
    The real risk to the banks is not the public but the highly leveraged companies and mini conglomorates who have yet to file figures. These loans made were not always sub- underwritten so the banks have huge individual exposure mostly off balance sheet an dthat is hwere the real damage has yet to occur.
    We don't just need a nominal lecture from Sants we need it made expressly clear, paying bonuses in good years and there being no clawback in the bad is over.
    Banks must give up theri inalienable right to sit on non complimentary assets to their usual business and sell what has to be sold to get their books right
    Until then we should take what they say as being economic with the truth and unfortunately what the FSA says as mere rhetoric!

  • Comment number 51.

    Correction :

    Heirarchical political structures which concentrate so much power in the hands of one individual.

    You probably guessed that anyway.

  • Comment number 52.

    No. 16, sadbloke, I'm afraid I can't let your appalling maths pass without comment. On the numbers you quoted, 0.4% of mortgaged houses have been repossessed, not the absurdly low figure you quoted.

    And frankly, your suggestion that people actively want to have their house repossessed to become free of debt is rather illogical - unsecured debt is one thing, but why would anyone voluntarily default on a debt that means they lose the roof over their head?!

  • Comment number 53.

    # 52

    I'm guessing here but maybe because the local authorities then have a statutory duty to house these people?

    It certainly is a mechanism that a London landlord sadly told me is used quite often there .. i.e. the new tenants pay the deposit and the first months rent but have no intention of paying any more.

    In effect, this ultimately results in them being housed by the local authorities.

    I suppose these people are 'behaving rationally'.

  • Comment number 54.

    re: #37.

    Very interesting seeing the house price to earnigns multiple over the last 20 years or so.

    One thing you neglected to mention however was how interest rates have changed over that period and how they are (still) much lower than in the 80's.

    The comparison should be average earnings to average monthly mortgage payment as this is what really matters, not the multiple of salary borrowed.

    I don't deny that ratio has still inflated, just not by quite as much as your analysis suggests.

  • Comment number 55.

    A very good interview Robert.
    Interesting to hear that history never quite repeats itself.
    That excuses all the forecasters for getting it wrong again.
    At the moment it will be as bad as the 90's. By next month it will be as bad as the 80's. Then down the line it will be as bad as the 70's. Before we know it it will be as bad as the depression of the thirties.
    It's quite obvious that none of them have a clue where this is going but they will try to talk things up as long as it's feasibly possible.
    I think we just have to go with our gut feeling. Mine is hold on tight to whatever you've got.

  • Comment number 56.

    Comment 54 : Cheese Me Too

    "One thing you neglected to mention however was how interest rates have changed over that period and how they are (still) much lower than in the 80's.

    The comparison should be average earnings to average monthly mortgage payment as this is what really matters, not the multiple of salary borrowed."

    I don't know about this. I know that it's a standard argument seeking to establish that there has been a sea-change in the house price/average income proportion brought about by an equivalent sea-change in expectations for future interest rates and wage/price inflation.

    In the absence of speculative house price inflation, I should have thought that low interest/low inflation would have depressed the proportion of their incomes that people were willing to commit to housing themselves. Certainly my experience of the high interest/high inflation times was that little was thought of mortgaging up to the hilt, because, for ordinary people, property was viewed as the only real hedge against inflation, and also because within a few years wage inflation would have hugely reduced the real cost of monthly mortgage payments. The incentives to commit high proportions of income to housing are surely less in low interest/low inflation times.

    So while agreeing that house prices are affected by the sheer limit to the amount of interest households can afford to pay, I don't think there is a particularly compelling argument for saying that non-speculative house price levels can largely be determined by capitalising interest flows from more or less fixed monthly payments. This doesn't happen with any other aspect of household expenditure, does it?


  • Comment number 57.

    #56 ExcellenceFirst

    I too am unable to agree with the proposition put forward in #54 by Cheese_Me_Too.

    The whole affordability argument is fundamentally flawed. The people who make it created, perhaps unknowingly, the credit crunch.

    Lets face it interest rate setting criteria was fiddled for the last decade through the invisible synthetic financial instrument nonsense. The credit crunch must force a reversion to income multiple sanity (3.5 x). The ability to pay argument with fiddled interest rates will be looked back upon in decades to come as just another of the absurdities of the property crash on the next decade.

    Income multiples are a reflection of the ability to pay a reasonable interest rate for a loan by a single earner to buy a house to bring up a family. Silly multiples are as much an indication of the destruction of families and society as they are of the silly activities of the Banks.

    The 'new paradigm' argument is for home loans the same as the insane valuations of companies in the dot-com boom.

  • Comment number 58.

    Well, according to the Guardian the interest rates charged on fixed rate mortgages have come down again.

    Surely this must be good news ?

    Apparently students are paying 20 percent more for their accomodation as well.

    So rents are growing and Mortgages are reducing.

    Hmm, not all doom and gloom then !

  • Comment number 59.

    Why now, why not tell them during the 'good years'!?

  • Comment number 60.

    House Prices are limited by;

    the cash in the Buyers pocket.

    That cash may come from the Bank (mortgage) or from Inheritance, or from well to do Relatives, or from Savings.

    House prices in popular areas have been boosted by Inheritance Cash.

    To blame it all solely on Mortgages would be a mistake, and to believe prices will be limited by Mortgages again, is just wrong.

  • Comment number 61.

    This is not inflation it is slavery

    True the prices of commodities worldwide have gone up ...but that is supply and demand

    What we have now is so-called financial experts working in banks and building societies who have made stupid mistakes with other peoples money

    Slavery??......that is the customers and shareholders of the banks who now have to pay higher interest and charges to repay the debt these experts have unleashed on the general public

    The slaves are the people with mortgages who can't move ...no where to go...but are trapped in their homes and forced to pay higher monthly payments ...to refund the losses

    These experts will still get their bonus's and such ...no matter how bad they do

    So no inflation then ..just bad bankers

  • Comment number 62.

    It is good to see that the FSA (as an afterthought) is now advocating that the UK banks shoulf strengthen their capital in anticipation of a UK economic recession and property downturn similar to the one that took place in the 1990's. However being somewhat naive and based upon past UK economic cycles and downturns, I would have expected any bank director, worth his salt, would have already made provisions to cover such an eventuality. If not then they (directors) should stand accused of dereliction of duty towards their investors and be punished accordingly.

    That of course raises the much more difficult question of why do banks, who frequently tell their customers to be more prudent, keep getting themselves into such a mess and what punative action can the FSA take
    against banks that behave irresponsibly. especially the foolish risk takers and the way they are rewarded.

    Although foolish traders are often accused of reckless behaviour I suspect the majority of them are doing so in order to achive the unrealistic business goals and objectives that are being set by the people who are charged with running and manageing these organisations. To someone like me it seems as though far too many of these people not bankers in the true sense, instead they are clever business school people with huge egos and business plans to match those egos. In order to achive their business plans and obectives, these people often make calamitous decsions when it comes to how quickly the business can grow and from aquistions and mergers. In this respect they appear to feed off one another or follow some form of herd instinct. It would be interesting to see a breakdown of how much banks loose from poor top management decisions as opposed to how much they loose from reckless trader dealings.


  • Comment number 63.

    dga\zb\zd

  • Comment number 64.

    #62 godfreybrown

    I once had a chat with a firm of venture capitalists with a view to doing business as an investor. It quickly became apparent that the kind of returns that they were expecting from their investments were, in my view, rather unrealistic. This was well over a decade ago.

    These unrealistic expectations that drive the finance industry have since permeated through all sectors. It is my experience that the bosses of most financial institutions do not really know how their traders operate. (Just like the Nick Leeson situation and Barings Bank.) They motivate staff by a bonus structure that gives high returns to high risk. This leads to the pass-the-parcel business that created the synthetic financial instruments that create 'fake low risk' and ultimately unrealistic returns.

    These dubious methods get praised by politicians and civil servants and as they finance academic reports they are praised by supposedly independent academics and experts. This has given us the situation we are in today. It will take a long time to recover.

    I also dispute your description of these bankers as 'clever' for if they were this credit crunch would not have happened! I will not provide my description of them or this comment will be moderated. But to misquote Kenneth Williams in Carry on up the Khyber 'there is no mountain high enough from which to show my contempt'.

  • Comment number 65.

    Do you know what money is? Do you _really_ understand what it is? Go back before money existed. What does money allow? What are it's properties?

    Do you know how money is created? Do you understand how it is destroyed? What happens if lots of money is created, what happens if lots of it is destroyed?

    Do you know who creates money, who destroys it? Do you know who gains if lots of money is created? Do you know who lose if lots of money is created?

  • Comment number 66.

    64 fohn_from_hendon

    My use of the word clever was intended to be a sarcastic use of the word to describe their abilities. In many respects I view them as over-hyped people who have little experience and no knowledge of what it takes to build up a healthy long term business. When trying to expand a business to suit their school of thinking their plans and objectives are totally unrealistic and defy actual business belief. That is why we are in such a mess and the bigger worry is, they managed to fool so many people for so long.

    I also happen to believe the reason why the problem is more acute in the America and Britain is down to short term politics and policies adopted by those countries. The major political party's in both countries do not share enough common ground on the major issues such as the economy, education and healthcare. As a consequence everytime there is a change in government we have changes in policies and this confusion helps to create the sort of instability we all are now experiencing.

  • Comment number 67.

    Folk in America (wealthy folk with money btw), are walking away from their mortgages in vast numbers (the source was the bbc so search for it, incidentally mortgage debt in the us does not follow the debtor as it does here....). Eventually these defaults WILL transform into real losses for banks (or write downs as they have come to be known).

    The thing here is that these write downs are a self fulfilling prophecy, much worse that in the older days when the 'clever' bankers ripped folk off through repossession.

    The entire worlds financial system is in crisis, indeed some may see this as a turning point for capitalism itself ;-)

    I'm not communist btw, very much a man of the free world.

  • Comment number 68.

    #66 godfreybrown

    Are you sure you believe that the political parties are too dissimilar?

    Observation and evidence may not totally agree with you: for example when Labour came to power they declared that they would continue with the previous Conservative economic policies for al least 2 years.

    And on the other side of the pond: Obama and McCain both intend to continue with roughly the same policies over drilling for continental shelf oil.

    I am afraid I take the contrary view to you and would put it as we have had too much stability of liberal economic policies rather than the reverse.

    We have political parties who share the same policies both have fiddled the statistics for their own ends and both seem to be without discernible differences between their guiding philosophies (if they have any at all!)

    #67 JavaMan1984

    I often bemoan the poverty of thought behind the guiding philosophies of our World - where have all the Marx's and Mao's gone! Consumerism is not a philosophy.

    Do not be afraid to have a philosophy and Communism and Socialism along with Methodism and the ideals of the Levellers all have their merits and are all quintessentially English in their routes!

    "Freedom only for the supporters of the government, only for the members of one party -- however numerous they may be -- is no freedom at all. Freedom is always and exclusively freedom for the one who thinks differently. Not because of any fanatical concept of 'justice' but because all that is instructive, wholesome and purifying in political freedom depends on this essential characteristic, and its effectiveness vanishes when 'freedom' becomes a special privilege." Rosa Luxemburg "The Russian Revolution" pub 1922. Is that (Marxist) model of freedom a good one for you, as you put it, as a man of the 'Free World'?

    Good afternoon Senator McCarthy is that a blacklist or are you just pleased to see me!

  • Comment number 69.

    '#67 JavaMan1984

    I often bemoan the poverty of thought behind the guiding philosophies of our World - where have all the Marx's and Mao's gone! Consumerism is not a philosophy.

    Do not be afraid to have a philosophy and Communism and Socialism along with Methodism and the ideals of the Levellers all have their merits and are all quintessentially English in their routes! '


    Just to set the record straight here, I see no evidence in Russia's current implementation of communism that gives credence to its ideals of philosophy of substance to any kind.

    As far as I can make out, they impose their will in the same way our monarchs did 1000 years ago! For evidence see Georgia circa 2008.

    Mr a1 credit rating, with zero debt(and a homeowner)!

  • Comment number 70.

    Sir,

    With a title starting with 'may', unless you are discussing the calendar, please try to refrain from speculation and try and stick to facts.

    In such a climate as the one we are in at present, I am surprised that you cannot see the sense in drumming up yet more fear, and yes, that is all you are doing.

    I wonder if you hope, as in the case of Northern Rock, you intend to provoke some response? Well, if that is case, should you be reminded that you are supposed to be reporting the news, not making it.

  • Comment number 71.

    Padster

    He IS reporting the news. The news is that Hector Sants thinks it MAY be as bad as the 90s. And if you haven't noticed, this is a blog rather than a news site. Ergo, a certain amount of speculation as to what is behind the facts is permitted.

    As a parting shot, I find your suggestion that I am unable to work out for myself that things are bad, and possibly as bad as the last big recession, kind of offensive. For the last five years I have been convinced that things have been far too overheated, and we are due a recession, and that view has only been strengthened by events of the past year. Sentiment does not cause financial meltdown - cold hard facts staring you in the face once the euphoria has waned away cause financial meltdown. And I I were Mr Peston, I would feel very flattered that anybody thought that I had the amount of power required to turn of the money taps.

  • Comment number 72.

    #70:
    Um... what's the problem?

    If people are going to make stupid investment decisions out of fear then they'll have to deal with the consequences. And if that's going to cause a run on the banks, then the government has to step in (or let the banks fail).

    Either way, telling people "everything is going to be OK" and hoping the problems go away on their own is absurd, no matter how comforting some may find it.

  • Comment number 73.

    My thinking on this is as follows and an old addage comming pass again - as an estate agent gleefully told me 18 months ago at the end of the runaway good times 'well a house is worth what people are prepared to pay for it' as properties flew off the shelves in days at or beyond asking price. The driver then being unless you bought quickly prices would go beyond your reach.

    Wind forward to today - an agent told me last week how a property had been 'drastically reduced' and was now a bargain but I needed to 'act fast' - when I said 'well, a house is only worth as much as someone is prepared to pay for it' I can only say it was good that looks cannot actually kill.... I viewed the house to find a pleasant but desperate seller who commented 'I just want it gone, I'm sick of trying to sell it'. Therefore the driver now is if you wait, prices will fall further, Alastair D added his support to this theory with his stamp duty dither.

    To get back to the point I mention all this as the housing market was the biggest driver of consumer confidence or 'feelgood factor' as it was sometimes called. Homeowners could sleep safe in the knowledge that their ever increasing debts could be solved by releasing equity as house prices would never fall. I even recall people bragging about how much debt they had on several credit cards etc...

    The normalising of credit markets was the wake up call - as lenders realised that credit burdened borrowers were struggling to repay mortgages and other debts, risk that defaults would occur became reality and hence caution prevailed. Maximum mortgage values dropped and deposits were re-introduced. Also loans to pay off other loans became harder to get.

    As 71 said, sentiment does not cause meltdown, facts do. We over borrowed and used that money to grow our economy, now we can no longer do it and hence the economy slows. Add to this the housing industry in all its aspects (builders, estate agents, lenders, legal people etc) have seen a drastic shrinking of their incomes and you have the 2 mainstays of our economic growth in the last 5 years gone. Also remember that we have imported deflation in the past on electrical goods from China etc, this is also no longer the case as their prices rise.

    From 72, I think we are finally moving away from the 'it will all be OK' scenario and realising it is a new world. I don't think Mr Peston created this since as far as I know he did not provide cheap excessive credit, at worst he has helped highlight just how bad the situation is becomming.

  • Comment number 74.

    Seems to me that house prices should be part of the index of prices tracked by the Bank of England. If this had been so in the past, then inflation would have looked higher and the minimum lending rate would have been higher. This would have moderated the rise in house prices. If house prices fell then the index of prices would fall and the Bank of England could cut interest rates.

    Tracking the RPI and ignoring house prices is like going on a strict diet but eating unlimited chocolate.

  • Comment number 75.

    Re 68 john_from_from _hendon

    John you might be quite right when you say the different political parties do espouse similar policies on the way the country is to be governed but as the saying goes the devil is often in the detail.

    Even quite marginal adjustments to the way in which the budget for public spending is to be funded (i.e. education, healthcare and social services etc) over the lifetime of a government, usually ten to fifteen years, can have a profound effect on the wellbeing of the economy, the country and its people.

    From my point of view the only reason why a rich country such as the UK, has for the past fifty years or so, continues to go from a boom to bust situation roughly every fifteen years or so, is because of the way the way the economy has been managed by successive governments.

    Unfortunately the boom/bust situation is usually accompanied by correspondingly high/low levels of employment/unemployment. Perhaps that goes someway towards explaining why the people of this country have now devloped a lets live now or grab it while you can culture.

  • Comment number 76.

    To follow Padster1976's argument if we all sat around and talked about how well the economy was performing then things will get better as a direct consequence.

    The poor man must be an estate agent.

  • Comment number 77.

    I think todays report from the BoE confirms what most have suspected, things are getting as bad if not worse than the early 90's. Meryvn King speaks of growth becomming 'broadly flat' with a more pronounced slowdown in activity, even suggesting the possibility of negative or recessive growth. Put simply he expects 0% growth at best. I am curious to see how Alastair Darlings forecast of 2-2.25% growth will adjust in face of this report.

    Unemployment is now also beginning to increase at a faster pace as businesses seek to head off losses and maintain a good market position. Add these factors together and I think we are being prepared very gently for the forthcomming recession.

  • Comment number 78.

    What happens when government employment becomes a luxury that the country can no longer afford? Quite apart from the fraud, incompetence, mismanagement and just plain 'its complicated' generated by the tax credits system, its quite a big employer. These sort of hair-brain 'take money from tax-payers, give it back' schemes that the current administration is so keen on, as they provide lots of jobs, will fall by the wayside in the years to come. And as they do, the impact on employment, especially in Scotland, the North East and Wales (where a lot of the call centres to deal with these matters are based) will be catastrophic. We're talking pit closures take 2.

  • Comment number 79.

    Can anyone tell me why the Beeb are saying inflation is the highest 'since records began'? What nonsense *is* this? Nobody knew what the rate of inflation was until 1997?

  • Comment number 80.

    RE: 79

    I assume they are referring to the date when the government adopted the CPI as the "official" measure of inflation. You can't compare back beyond that since the CPI was chosen precisely because it gives a lower result than its predecessor.

    It would in fact be "nonsense" to attempt to compare the current inflation rate with any pre-CPI measure.

  • Comment number 81.

    79 -

    They're referring to HICP. . . the one-size-fits-all Euromeasure which is so conveniently lower than our RPI/RPIX.

    I notice that the Beeb is forgetting to mention RPI in the headlines these days - wonder why?

  • Comment number 82.

    # 81

    Because at the moment the two indecies are converging (July figures 4.6 / 5.0 %) as the inclusion of housing costs in RPI mean it is rising more slowly than other inflation indicators.

    The figures are at https://www.statistics.gov.uk/cci/nugget.asp?ID=19

    It is likely that CPI will actually go higher than RPI in the next 6 months.

    Then the government (and the mdia) will rediscover interest in RPI.

  • Comment number 83.

    Earlier someone on this Blog asked what Money actually is.

    These days money is generally seen as purely a medium of exchange.

    You sell your product / labour receive money with which you can obtain what you need.

    Money, however, also represents the Authority to organise resources.

    If you have Money (Authority Tokens) you can hire labour, buy land, organise part of Society, and change part of the world.

    As has been best shown perhaps by Victorian Industrialists and some early Socialists.

    Generally, Money is viewed today purely as a way to amass a Hoard of Gold (big House , fast car, trophy wife etc, etc), it did used to mean much more.


  • Comment number 84.

    I'm another amateur - actually probably not that experienced. I find the comments about Robert's blog fascinating - much more intelligent than HYS which is usually ranting of the masses.

    For my three-penneth some opinions - largely distilled from other posters but some original views - honest.

    1.

  • Comment number 85.

    I'm so amateur I messed up my post - argh

    1 Credit crunch - banks and othe financial instituions cant access money to lend - givent here recent performance this is a good check on their recklessness - if I performed as badly as this lot I'd be sacked (I'm in IT).

    2 Housing crash - agreed - cause by lax lending to those who couldn't afford it - but lets be honest its not that disastrous - yet - interest rates are still relatively low. However confidence is low and it becomes a self fulfilling prophecy.

    3 Low growth - this is the one that gets me - if there isn't so much money around goods cant be bought - and therefore growth declines. The question is - is this a bad thing? Maybe we've just had too much growth in the past few years and we need the slow down as a correction - is this macro economic theory instead of the micro everyone is obessessed with.

    I agree with those who say the whole shebang was never sustainable and thios is our just desserts - fortunately it seems to be a lot less painful than we could have had. But lets see where it leads.

  • Comment number 86.

    #85 - Whether negative growth is a bad thing really rather depends on your financial position, and what other effects it throws up.

    If you are a manufacturer, and people stop buying your goods, you will not be pleased. Similarly, if you work for said manufacturer, you could expect to find yourself out of a job.

    If you have a stack of cash, and interest rates go down to counter the effects of recession, you may well be less than happy as the return on your cash decreases. However, the owner of fixed rate bonds may be more happy.

    Its all really swings and roundabouts. There are winners, and there are losers. What is sure though is that those who are in less of a position to manoevre themselves to become winners, inevitably lose.

  • Comment number 87.

    In logging into the Internet today, I find myself offered Credit Card zero percent balance transfer deals by a well known Bank.

    Now, if funds are really tight why are they still offering 0 percent Credit Cards?

    It is worth noting that the High Street Mortgage lenders have reduced their rates.

    Things starting to return to normal ?

    Or just settling in a new balance....

  • Comment number 88.

    It is interesting that Employers holding wage rises to below inflation, actually contribute to a consumer slowdown and of course a depression of the economic cycle.

    So, in future when you hear the public service is being given only 2 percent you know a crash is coming !

  • Comment number 89.

    Andrew *78

    There might be some truth in what you say about the present governments desire to provide job for unemployed people in the deprived areas of the country and since very few of these jobs are wealth creating, you see that as a drain on the economy and a waste of taxpayers money.

    In accusing the present government of fraud and miss-mangement I feel you are being unecessarily harsh and cynical. Every democratically elected government has a duty of care for all its citizens, especially people from deprived areas, who through no fault of their own find themselves stuck in a poverty trap where there is insufficient work available for them to do. If the government did not step in and help these people then they would be living in squaler forever and a day. For them to remain in such a state might be acceptable to you but it is important to remember that many of these people have come from families with a proud working tradition. The only reason why they have ended up living in deprived areas is down to previous governments lack of foresight or poor management decision making by big businesses. One day perhaps you might become caught up in a similar situation.

    In case you are wondering am I a beneficiary of this system the answer is no. Although I am past retiring age and own my own home, I am still working full time and grateful for all that.

  • Comment number 90.

    Update to my earlier entries here, in the last few days several friends from different industries have been made 'suddenly' redundant, as in little warning or rumour beforehand.

    From what they understand, businesses seem to have held off until now beleiving things would just 'go right' again but in the last few weeks reality has bitten.

    I think Mervyn King (who seems to have got it exactly right so far) finally tipped the balance with his report this week on the economic future of the UK. The reality of a possible recession has caused businesses to act.

    Finally Alastair Darling - will he still be forecasting growth of 2.2% for 2008/9? maybe he can find a way of seasonally adjusting a 'preferred' measure to give us this? Can't wait to here him explain this one away!

  • Comment number 91.

    Comment #6 is spot on, when people spoke to me about the recession in the 1990’s my answer was always “what recession?”

    Comment #7 Prior to the “Scaremongering” there was too much hype in the media about how good things were with all of the “How to become a property developer” shows on TV. This made people think that it was easy to take on large or second mortgages make money and pay them off which created a false economy.

    By pretending that things are good or not as bad as we think they are is not going to make Banks lend more money. As has been shown they are poorly regulated businesses that are in trouble and are taking the necessary measures to insure their future survival. Unfortunately for us when you are a Bank you are able to hold Governments to ransom. This means that those risk takers get away with taking more risks at our expense. The only way these Banks will stop taking these risks and stop paying ridiculous bonuses to these people is if they are allowed to fail and suffer the financial consequences.

    Remember investments can go down as well as up!

  • Comment number 92.

    Answer to poster #3. There is a league table of risky banks. You can find out about it here.

    https://www.moneyweek.com/personal-finance/credit-default-swaps-how-to-spot-the-riskiest-banks.aspx

  • Comment number 93.

    Robert, you were wrong. It will not be as bad as the 1990`s.

    According to Alistair Darling, it will be much worse.

 

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