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The £5,000bn bailout

Robert Peston | 09:20 UK time, Tuesday, 28 October 2008

If I were you, I wouldn't get too worked up by the Bank of England's estimate that credit-crunch losses now total £1,800bn on an assortment of financial assets, such as mortgage-backed securities and corporate bonds.

Bank of EnglandOf course it's a big number - rather bigger than the annual economic output of the UK.

But it's peanuts compared with the losses suffered over just the past month by pension funds, insurance companies, banks and all of us from the slump of more than 25% in the average value of shares listed on global stock markets (just this morning Aviva, our biggest insurer, announced that its capital surplus has fallen by £600m or 32% in less than a month).

Which is to say that the collapse in price of collateralised debt obligations - and all the investment doo-doo created by brilliant bankers that put us in our current hairy predicament - is yesterday's story.

Today's tale is that we're careering into what looks like a pretty nasty global recession, which is causing capital to be withdrawn from all but the least risky economies, markets and business - and is mullering our wealth.

The number that stood out for me in the Bank of England's latest Financial Stability Report, which I would not recommend to those of a nervous disposition, is its estimate that £5,000bn has implicitly or explicitly been made available by central banks and governments since April 2008 to support wholesale funding by banks.

That is a genuinely big number. It's equivalent to about a sixth of the total annual economic output of the whole world.

So to put it another way, we as the taxpayers of the world are funding our banks to the tune of one-sixth of everything we produce.

Blimey, if I may be so bold.

It's the measure of the extent to which the private-sector banking industry has rather let us all down.

It also tells us something about the scale of the economic downturn we're facing.

Unless we're moving into a world - heaven forefend - of semi-permanent nationalisation of our banks, the banks have to be weaned off all that taxpayer support.

That will take years, of course.

But right now, when money's tight, the best way the banks can think of reducing their dependence on taxpayers and the state is to lend less to all of us.

The less they lend to us, the less they need to borrow from elsewhere - either from taxpayers or from more conventional depositors and lenders.

Here's the catch: the less the banks lend, the less money will be available to fund companies' investment and working capital and to finance consumers' purchases of goods and houses.

Which means that the economic downturn will be all the steeper.

What does this mean for the UK?

Well forecasting the path of bank lending is more craft than science.

But the Bank of England provides some useful charts and statistics, which point in an unpleasant direction.

The one bit of good news is that the Bank of England thinks - quite rightly - that bank lending would have fallen off a cliff without the government's recently announced £400bn rescue package for British banks.

Here's the less good news. Credit from the banks is still going to be much harder to obtain for two or three years.


Well, our banks were dependent on flighty wholesale funding to the tune of £740bn at the end of June 2008, up from zero in 2001.

Most of these creditors want their money back now or in the coming two or three years - which is why the Treasury and the Bank of England on behalf of all us as taxpayers is promising to lend more than £500bn to replace the lost funds.

However, to repeat the point I've been banging on about for months, all of this will have to be repaid at some point.

Which, as I've said, puts pressure on our banks to lend less, or at least to massively reduce the rate of growth of lending.

And there's another way of looking at this very powerful force which is shrinking how much banks lend.

From the late 1990's to today, our banks increased the multiple of what they lend compared to their capital resources from 23ish to 33ish.

Or to put it another way, they thought the world was becoming a less risky place and increased by more than 40% their lending relative to the capital they hold to cover potential losses on such lending.

To state the bloomin' obvious, our banks now see the world as a pretty risky place, so they're prepared to lend much less relative to their capital.

The Bank of England thinks this could force them to reduce their assets - by cutting back on lending and dumping investments - by a sixth.

Which may seem a lot, but the Bank of England is doing its best, in trying circumstances, to look on the bright side.

It is projecting a massively reduced rate of growth for UK bank lending to customers, but it is forecasting growth (albeit of the anaemic variety).

How confident is the Bank that there'll be such growth?


It highlights a chart showing what happened to bank lending in Sweden, Norway, and Japan after comparable shocks.

In each case, the rate of bank lending didn't just slow - the overall stock of loans or credit in the system actually shank for two or three years.

If that were to happen here or globally - and it's not what the Bank of England is forecasting - we'd be coping with a very serious recession.

UPDATE, 11:58AM: It turns out I have identified an error in the Bank's Financial Stability Report. It said, on page 38, that as much as £5,000bn had been made available by governments and central banks since April to support wholesale funding of the world's banks. However the Bank now tells me it meant to say $5,000bn (dollars not pounds) - which is quite a chunky difference (as of today's exchange rate, about a third less).

That said, total taxpayer support for the global banking system isn't far off £5,000bn (yes we're back in sterling), if capital injections and toxic-asset purchases are included, together with guarantees provided in Asia and Australasia (ignored by the Bank for reasons that elude me).

So I think we can stick with £5,000bn as the total value to date of the global banking rescue, though I'm going to brand this as my estimate rather than the Bank of England's.

PS. The Bank of England is, as we speak, modifying the electronic version of its report.


Page 1 of 3

  • Comment number 1.

    Where was the mainstream media coverage which explained this (without business jargon) in the last decade? I'm a journalist.

  • Comment number 2.

    Essentially this government supported banks gaining access to wholesale money in order to provide 4 or 5x salary mortgages at LTV at 90% and above, sometimes interest only.
    The government are directly responsible for allowing banks to gain access to this funding as they encourage the housing market bubble to expand to increase tax revenues for Gordon Brown, while he himself then borrowed more money to fund every day government services.
    Roberts article just states the ovious that too much debt is unsustainable without real growth.

    Going on to todays union leaders and the oil profits arguement I feel it should be pointed out oil companies don't make much profit from selling petrol at the pumps, I don't work for them or own any shares but its ovious the profits they make are very well deserved as they help fund pension funds that have already seen large declines.
    A windfall tax would only destory pension funds even more.

    Unions leaders are too predictable, if they want to make a real change why not give up some of the 'fat cat' salary payments, bonuses, generous pensions and credit card expenses that they recieve year in year out.
    Taxing companies that provide large dividends to pension funds in a time when pension pots have fallen massivly will only further undermine peoples pensions.
    Union leaders will only say what pleases your ears in order to get re-elected for the nice 'fat cat' salary + bonuses that they recieve while achieving very little.

  • Comment number 3.

    What were the highly paid once id BOE, FSA and Treasury doing when all these were happening.

    All so exporting most of the manufacturing base didn't help either.

    Markets are behaving like drug addict going on a rampage when drug supply is reduced.

    With this amount of losses people will be afraid to invest in shares or houses which in turn going to reduce productivity of this country.

    We need fundamental change in the way the country operates, from excessive bonus, taxes, to benefits.

  • Comment number 4.

    What I don't understand is why the government and all the climate alarmists are not singing for joy at the moment.

    Surely negative growth, a downturn in industrial output, and a falling demand for foreign holidays is precisely the sort of medicine that we need in order to fulfil our Kyoto requirements?

    Or might one suggest that the government only pays lip service to our alleged climate problems? I couldn't possibly comment!

  • Comment number 5.

    It highlights a chart showing what happened to bank lending in Sweden, Norway, and Japan after comparable shocks.

    In each case, the rate of bank lending didn't just slow - the overall stock of loans or credit in the system actually shank for two or three years.

    If that were to happen here or globally - and it's not what the Bank of England is forecasting - we'd be coping with a very serious recession.

    Its not what the Boe id forecasting eh? Oh well thats it then, nothing to worry about.

    My god, have you not seen the fluctuations in currencies and stocks?

    We are in the midst of a DEPRESSION man that will not abate until a new world order of Finance is established. Period

  • Comment number 6.

    In 2003, Citigroup bank was sued by creditors of Enron Corp. for its role in setting up entities that enabled the Houston-based company to move assets off the balance sheet for Chief Executive Officer Jeffrey Skilling. Citigroup paid $1.66 billion in March to settle the lawsuit. Skilling was convicted of accounting fraud and is now serving a 24 year prison sentence.

  • Comment number 7.

    I might be cynical here but:

    Whenever there is a loss, there is a profit. (Zero sum game) so:

    Who is making a £5,000 billion profit? Can I buy shares?

  • Comment number 8.

    One of your best posts for a while Robert. banks indeed will want to cut lending and sell assets to get rid of the pref shares. This can't be done in an expansionary manner so the recession will bite for many months yet.

    Ideally we want new banks unencumbered by debt to change the game; will the Government or market come to this conclusion.

    Also a huge downside to what we are seeing is the loss of financial moralityby the Government. This is bad becuase it teaches people to behave recklessly and also has a big impact on hwo markets see the UK - look at the exhcnage rate today!

  • Comment number 9.


    Unfortunately any environmental gains will be more than offset by the increased carbon emissions generated when we all burn our furniture to keep warm this winter!

  • Comment number 10.


    Your assuming the debt is going to be paid back

    Your assuming the asset held agains the debt can realised to pay back the debt

    You should be assuming that the fluctuations in stocks and currencies if everything to do with with last dog standing.

    When the music stops someone is going to be left with doo-doo and a lot of it is sitting there with the tax payer at the moment

  • Comment number 11.

    The 30s Depression was lifted by war and re-armament.
    This is the time for small credit unions to be re-created where the membership lend deposited funds to members on an agreed basis. Global down is good for the headlines but small building up is more effective (on a sour note think of cancer; starts small gets big)

  • Comment number 12.

    No wonder that wholesale funding increased from zero in 2001 to £740bn in June 2008, it was used to buy the supposedly highly profitable financial instruments which turned out to be the toxic assets which are now worthless. Speaking of those who were suckered, in the Telegraph Katherine Griffiths is hinting at the early return of Sir Fred Goodwin... Heaven Forbid!! We don't want another disaster, one at a time is enough please. The man should never be allowed to work again!!

  • Comment number 13.

    Iceland have just INCREASED ITS INTREST RATE BY 6% TO 18%

    And has Japan liquidates all back into Yen, what country is going to follow?

    Cut interest rates? dont make me laugh!

  • Comment number 14.

    alphaGlen - Bonuses are earnt fairly, most bankers put in 100+ hours and despite large losses made by some others make large profits that keep pension funds ticking over.

    Any profits made in the current problems are being made by bankers that are actually doing a good job, and not trading in toxic assets.

    If you did well in your job in the current climate you would accept that your bonus would be kept intact.
    And don't forget bonuses are heavily taxed which are government really needs right now.

    The UK needs a change back to creating wealth rather than just exporting the work and importing the goods.

    The UK also needs to get out of increasing economic growth by borrowing more and more, although are government isn't setting a good example for taxpayers.

  • Comment number 15.

    So the wealth of the Pension Funds and the Middleclasses has been obliterated by a handful of corrupt Bankers and reckless speculators.

    Britain won't be the same again.

    People who were hoping for cheap housing to be built must be feeling gloomy that a Welsh House builder has gone into administration.

    The first of many.

  • Comment number 16.

    The government is proposing a big increase in public spending and borrowing to fend off recession.

    It's never worked. It failed repeatedly in the 20th century and eventually led to a near-collapse of the British economy. the Conservative government in the 1980's finally stopped the rot by reducing spending and increasing taxes in the middle of the recession in 1980. Contrary to the predictions at the time from the Keynesians, it did not lead to economic collapse, and in fact laid the ground for the prosperity of the later 1980's and a rejuvenation of the British economy.

    This old deficit financing response to economic difficulty was utterly discredited over 30 years ago - but Gordon Brown is still living in the 1970's apparently.

  • Comment number 17.

    when it rains it pours, all this good news how can we cope?
    investments are falling along with stock prices the banks are over extended but they are over extended with capitol they didnt have, the government bail out was just a plaster covering the gaiping hole that has deepened.
    all i can foresee for mr joe public is higher taxes, higher prices for almost every thing and a government intent on destroying our monetry system, economy and our country as a whole.
    never since the viking invasions of the dark ages has this island had so much to fear,
    at least in those times alfred stepped up and fought the problem.
    if there is in fact nothing the government can do safely then they should resign on mass and allow the people to decide there own fate.

  • Comment number 18.

    I have worked over many years in corporate governance in financial institutions including banks and insurance companies. And one constant is the under resourcing of internal audit, risk management and compliance functions in the financial services.

    Another constant theme has been the continual complaint from banks etc that they have had to expend significant amounts of money on these corporate functions. However, despite this they have remained under resourced. Perhaps a few more professional corporate governance bods might have prevented some of this tragedy. But for them to be effective they would have needed a spine.

    What were the Heads of Internal Audit and the Heads of Risk doing all this time? Let's hope these individuals re-discover their spine at some point!

  • Comment number 19.

    OK, so Iceland has raised interest rates to 18% (I bet Kerry's furious....). What is the situation on the street? What is happening in that country to jobs, public sentiment, everyday spending etc. etc. etc.?

    How does 18% interest rates effect Joe Bloggs (or the Icelandic equivalent)?

    And what parallels (if any) can we draw against the situation in the UK.

    What can the current situation in Iceland teach us?

  • Comment number 20.

    Of course cuts in interest rates will be made.

    Most of the effect will be that Deposit account returns will fall, perhaps to just 1 or 2 percent.

    House prices won't recover either, and nor will the Stock market.

    People won't be bitten twice!

    Shortsold already they won't go buying Shares again in a hurry.

    People aren't stupid.

  • Comment number 21.

    Bert - this is blatant headline grabbing

    yes the investments have dropped circa 25% but that is assuming you bought them last month

    pensions should be looked at relative over the long term and these snapshots at figures by you and fellow journos ie Scotsman yesterday are little more than scare mongering

    further - just goes to show the sub prime property woes have had little to do with the creative accounting undertaken by all the institutions

  • Comment number 22.

    £5,000bn? £5,000,000,000,000? That's £10,000,000 for each reader of this blog...

    Half a million readers for each Peston blog post .. that's a large number, but has to be multiplied by ten million quid to get to £5,000bn!

  • Comment number 23.

    weejonnie, if only this were a zero-sum game! Unfortunately, there is not a finite and fixed amount of wealth in the world, so it is not a zero-sum situation. Wealth is the result of work (though the beneficiary is not necessarily the one doing the work). Less work means less wealth overall.

    Are you too young to have experienced a recession, by any chance?

  • Comment number 24.

    No 9 has still got furniture !

    One of the lucky ones!

    Most of us are feeling the draft right now.

    After losing our shirts............

  • Comment number 25.

    FTSE 2900 by christmas.

    One Pound one Dollar by 2009

    Who knows what the Euro will be worth.

    Deposit rates at most at 2.5 % per annum.

    Plan ahead, and cultivate a vegetable garden, always a good investment.

    Plant fruit trees.

  • Comment number 26.

    The last Chancellor moved regulation of the banks from the Bank of England to the FSA.

    Thsi mess was caused under their watch yet no one has been fired and at worst the people oin charge have all been pensioned off or been in a typically british fashion been promoted!!.

    There must be an enquiry into the every operation of the FSA that has taken plaace and more specifically their remit for the future.

    You can not sort out a problem when the self same people are running the show that allowed it to happen.

    Either we as a country believe it apporpriate that lunatics are allowed to run the asylum or we take hold of this mess and stop it at its core.

  • Comment number 27.


    It is clear that old graphs showing old data with totally different variables in a totally different market are so irrelevant, that I wonder why you don’t point this out.

    If there was a graph showing what happened to other nations which battled the same conditions as we have now, and won, then I would pay it some attention and give it some credence. But we all know that absolutely nothing like the present situation has ever happened before, even on a smaller scale, then pointing at past situations and graphs to give hope is akin to p*****g in the wind.

    Good grief, give me strength. Do the people who run the banks have any new ideas? Are they doomed to fail because they lack creativity and a whole lot of common sense? Am I to look in dustbins for food because madmen are running the asylum?

  • Comment number 28.

    Icelands interest rate now 18% ?

    It looks like at least one country is doing the sensible thing and encouraging people to borrow less.

    It needs to happen here really, maybe not to 18% at the moment, but the rates need to go up. We need to stop talking in terms of borrowing money cheaply and spending our way out of the crises: that just ratchets up debt to the point where the UK will eventually find itself having to be bailed out by the IMF and then we will see Interest Rates of 18% plus, just like Iceland ....

    The consumer-fuelled economy is what caused the problem. Why start stoking it up again ?

  • Comment number 29.

    BBC Headlines:

    Global shares recover lost ground

    Duh!!! Is the FT back up at 6750 then - wow 3000 points in a couple of hours.

  • Comment number 30.

    "To state the bloomin' obvious, our banks now see the world as a pretty risky place, so they're prepared to lend much less relative to their capital"

    No, RP, what was supposed to be 'bloomin' obvious' was that after government assistance the banks involved WOULD be prepared to start lending again.

    Did the Govt read the small print on this bailout deal? Or have the very banks that got the assistance 'shafted' them too?


  • Comment number 31.

    Do you think you could at least scaremonger in BBC English? Mullering? Doo-doo?
    Or, as Manuel might say in response to the kind of language now used by BBC employees: Que????

  • Comment number 32.

    Cheap easy credit for a business make it lazy and inefficient. They decide to buy other overpriced businesses rather than expand their own base. A period where good companies grow by funding their own growth will be good for the economy in the long run. There are many opportunities out there.

    I have been in business for 30 years since I left college. We run a small profitable company. We have always self funded and the credit crunch is no real worry. Going into debt is a decision managment makes and they should know the consequences.

    The doom and gloom is being overdone. All the financial models are rubbish at the moment. I run models for engineering purposes and you ALWAYS have to know that a model works only if the circumstances that are used in the model hold true. So with no real information everyone is just going on gut feeling. This is almost certainly wrong.

    People are very good at coping with stress and change. The dislocaction, damage and shock to the financial system are great but normal people will cope far better than Robert gives them credit for . He of course spends all his time talking to bankers etc. To them this is a disaster. Just as miners, shipyeard workers, car workers faced a disaster when their industries contracted. The bulk of the ecomony will soldier on regardless.

    I am an eternal optimist. It is probably why I am still in business.

  • Comment number 33.

    Thanks to the Dr Who team, for showing us all (earlier in the year) what HooverVille was like. Hope the Daleks put me out of my misery...

    But the Doom and Gloom scenes in the "Turn Left" episode of Dr Who aren't beyond the realms of fantasy either. Maybe they won't be caused by a replica of the Titanic crashing into Buckingham Palace, but if things get really bad we could see troops on the streets and people having to share accomodation, etc....

    Who says we're not in a depression.
    I certainly am.
    Hopefully its only a clinical one !
    An economic one would be much worse !!

  • Comment number 34.

    We have had the Brown Asset Boom, and now we will have the Brown Asset Bust.

    Just as Brown was happy for everyone to assume his 'masterly' management of the economy over the last 10 years was responsible, when in fact it was the asset boom everyone must recognise that the asset bust is the real judgement on his time in office.

    He did not end boom and bust, he led us into the biggest bust perhaps of all time.

  • Comment number 35.

    Let's be realistic here:

    The banks have no hope in hell of paying back the tax-payer for these cash injections.

    The government have no hope in hell of reducing their borrowing to a manageable level.

    Lowering interest rates will only help in the short-term and have the effect of relieving savers of their funds double time.

    Our pensions have been destroyed. There will also never be enough public money to pay the public sector workers' index-linked pensions.

    It is only a matter of time before the UK will default. Without the means to purchase goods abroad, and without the means to feed, clothe and house the 65 odd million we have in the country, people, especially the elderly, will face a future similar to what we currently see in Zimbabwe.

    The people of this country have been royally shafted by the corrupt bankers and politicians. What are we going to do about it?

    Can we please be allowed a mass demonstration in London so that our voices are heard?

  • Comment number 36.

    19. At 10:14am on 28 Oct 2008, lunatics_and_asylum wrote:
    OK, so Iceland has raised interest rates to 18% (I bet Kerry's furious....). What is the situation on the street? What is happening in that country to jobs, public sentiment, everyday spending etc. etc. etc.?

    How does 18% interest rates effect Joe Bloggs (or the Icelandic equivalent)?

    As above

    And what parallels (if any) can we draw against the situation in the UK.

    The financial system used for decades is coming to an end and you will see a return to nationalisation and protectionism

    What can the current situation in Iceland teach us?

    1.Choose qualified leaders, not public school boy clubs or Hegmenon familes

    2. Build a home grown economy

    3. Pay enough to support people to buy with what they earn rather than credit

    Easy Peasy

  • Comment number 37.


    A very fascinating and detailed report with good deduction demonstrated.

    I have mentioned this before on your blogg but I believe it needs to be restated.

    I believe that what has allowed this disparity between capital reserves and loan books has been the need to utilise the extra money created by the margin between real inflation and CPI.

    With CPI between 1 & 2% yet real inflation within the World's economies running annually at over 5%, compounded over the 80's and 90's and into this decade, easily accounts for this 1/6th of the World economic output.

    All these instruments (CDO's and the likes) have been a pure attempt to utilise this margin, this extra 6th of World activity if you like.

    The financial World wanted the benefits of low inflation without doing the hard yards to safeguard low inflation, and Politicians the Globe over were ill-equiped to manage inflation. Their answer was CPI without realising that it was opening the door and letting the light of over-leveraging into our darkened room.

  • Comment number 38.

    #32 "Cheap easy credit for a business"

    Can you give me a phone number?


  • Comment number 39.

    "Bankers put us in our current hairy predicament"

    "The private-sector banking industry has rather let us all down"

    "Global recession"

    "Bank lending would have fallen off a cliff without the government's recently announced £400bn rescue package for British banks."

    "If that were to happen here or globally"

    Blaming all our problems on bankers - check.

    Referring to "global" issues all the time - check.

    Singing the praises of what little the government has done - check.

    All you need to do now is refer to "decisive action" and you've got the Labour soundbite full house.

  • Comment number 40.

    I am with supercalm. The only sensible thing to do is buy land and grow food and plant a few chickens. And above all, stop listening to the Today Program where they have a master plan to whip up panic and erode confidence - they have done a fine job on the banks and this morning they started on the insurance companies. They fail to report on the optimistic stories unless they can cover them with a headline such as "September retail crash" (the story - not about a crash - but about the continued increase in retail growth albeit at a slower rate!). I will retreat into my veg plot and switch off the BBC altogether shortly.

  • Comment number 41.

    Fruit trees are generally a good investment.

    They take a few years to grow, offset some carbon, and produce a healthy return!

    I can't wait to see my first thousand pound note.

    Of course it won't be worth that much when I do, but it will have a curiosity value at least for a few days !

    I hope Mr Peston is pleased with how this has all turned out.

    It could have been different.

  • Comment number 42.


    I think that money was last scene being flushed down the toilet with little miss prudence...!

  • Comment number 43.

    I thought pyramid schemes were illegal?

    This is what we are dealing with isn't it? A small amount of money gets leveraged again and agian by people coming into the scheme (new loans) while the guys in the middle (bankers, funds and shareholders) make all the money until the whole thing collapses because it can't grow anymore and implodes on itself.

    And we have regulators why?

  • Comment number 44.

    'Well, our banks were dependent on flighty wholesale funding to the tune of £740bn at the end of June 2008, up from zero in 2001.

    Most of these creditors want their money back now or in the coming two or three years'

    Could you be more explicit about who these creditors are? We keep hearing from the media that 'the banks' are no longer lending to each other, but which are the banks which have now ceased lending?

    In particular, could you tell us how much of this comes from abroad?

    The UK has a huge trade deficit, so presumably a lot of the money that British banks were borrowing on the wholesale markets came from from countries like China, Japan or the oil-exporting countries, which have a trade surplus. Is this the case? If so, isn't the Credit Crunch ultimately also a story about creditor nations are losing confidence in debtor nations like the UK and the US?

    Wouldn't this mean that any new international financial structure introduced to avoid similar a crisis in the future should include reforms which encourage all countries to move owards balanced trade, balanced current accounts and balanced capital accounts?

  • Comment number 45.


    I've been following your blog with great interest over the past couple of months. I would be very interested to see your take on a "what if" scenario -

    What if the government had let the banks go to the wall?

    Everyone seems to agree it would have been catastrophic, but I'd be interested to understand - why? If any other company, in any other industry, had been so irresponsible, and needed so much money to recover, they would have been left to fail.

    Taxpayers savings are covered up to £50k - granted, that wouldn't cover everyone, but it would cover the majority - so what would have been the impact of letting the banks fail?

  • Comment number 46.

    here we seem to be once again.. huge crisis, turmoil, plunging house prices, hard working grafters of this great land chewed up and spat out and laughed at. "why is you English never seem to complain?" I have heard my whole life.. and again, this government, and all the others at the top who have the inside edge totally understand any jump up and down throw your dummy out the pram antics will result in full scale squishing with a size 10 hobnail coppers boot all now aided by the 300 photographs taken of us on average each day... We have been hearing discontent on the streets of this country for a few years now. The wars we are fighting have had huge impact.. we will see racial tensions race towards a good old fashioned Bradford style riot... there just might a few at the same time and the security services might not be able to cope.. civil war? this screw up by the vile leeches who have sucked our blood dry and left the nation skint whilst they wallowed in huge bonuses (and even now still enjoy lavish perks) might just bring it about.. sit tight, its on its way...

  • Comment number 47.

    All I seem to hear these days is the sound of the 'carrion classes' (lawyers, accountants and liquidators) licking their lips - how thankful they must be to the 'carry on class' (bankers et al)!

  • Comment number 48.

    Thank you for setting out in logical steps the conclusion I have been anticipating for some weeks now.

    Recession? No.

    Slump? Yes.

    It will take careful political and economic management over years to sort this out. The need for a wider social consensus is going to become apparent as we are all in this together.

    This means that in terms of political and commercial leadership this is the end of the clever-dicks making assertions. No more Blair and his heir, methinks! It will mean a return to calculated decision-making based on careful and mature analysis.

    The consequences are going to be far-reaching and possibly even beneficial.

  • Comment number 49.

    Apropos nothing, I note that today shares are going up, and they don't appear on the front page at Unlike yesterday, when they were falling.

    Funny that.

  • Comment number 50.

    Can the queen sack Gordon Brown> Honest question btw?

  • Comment number 51.

    Mr Preston - as has been stated in previous comments......

    Why do you harp on about the bankers etc causing this current trouble.

    In the same sentences where you mention the bankers, you should state that it was the USA & UK governments that allowed all this cheap money to be borrowed.

    The cheap money was then used in leveraged 'investments' by the bankers.

    The cheap money was also used by the others for cheap loans from banks to buy houses etc.

    Both the above were like children being let lose in a sweet shop.

    Stop treating us on the other side of the TV screen as idiots.

    I work as a mechanical fitter and even I knew about this potential disaster over two years ago.

  • Comment number 52.

    49. At 11:02am on 28 Oct 2008, Man From Milan wrote:
    Apropos nothing, I note that today shares are going up, and they don't appear on the front page at Unlike yesterday, when they were falling.

    Funny that.

    No not at all funny, people calling the bottom and people shi*ting from the top

    Easy money to be had when there is so much volatility, easy money to be lost.

    The fact is they have just about done factoring in the banks, they were factoring the slump and now they are factoring the currencies

    They is never a straight down or a straight up and you will see later when the new housing data arrives in the USA that the trend is still down

  • Comment number 53.

    Interest rates will have to fall to levels not experienced for a generation. The risk takers in the world economy on which we all depend for prosperity will not borrow until rates fall dramactically in the present climate of falling asset values.
    If there are no risk takers to borrow money then it is obvious that no interest can be paid to depositers.
    To avoid this base rates need to be cut dramatically and fast or the prosperity of everyone will be much reduced especially savers.
    Our economy depends totally on people willing to take a risk and pay a premium to savers if the current situation continues then no one will take the nessecary risks to generate wealth.

  • Comment number 54.

    #49, and your point is?

  • Comment number 55.

    From this site "The Bank (..BOE) also warned that 1.2 million homeowners in the UK now face going into negative equity if house prices continue recent sharp falls"

    'they're warning us, they're warning us, more repossessions for the all of us.."

    Warning us in that smug and gratuitous way is a bit like forecasting the weather.


    (with apologies to the writers of 'Oh What a Lovely War')

  • Comment number 56.

    Repo's up 71 %

    We are all doomed you all say !!!

    No we are not.....
    We will emrege from the recession/ crisis / cataclysmic events / sooner than all you doom merchants all think

    The way back up will be slower than the way down but trust me it will happen

    If Buffett is getting back in to the market and seeing value then soon more will follow, the markets will bottom out soon grab the bargains while you can

    Rates are coming down sharply and this will counterbalance the rise in forthcoming repo's from those that have unfortunatley lost their jobs

    Start being positive..... and it will turn....... the herd mentality and information overload is what is creating a self fulfiling prophecy making things even more extreme than they would be.....

    only we can turn this around !!!!!!!

    I am more than happy to stand for prime minister should anyone request !

  • Comment number 57.

    Money is never lost. It just changes pockets. So where is this £5000 billion?????

  • Comment number 58.

    nah, #56

    we've already got a PM who thinks the way you do thanks,


  • Comment number 59.

    The FTSE has been falling since 1999 and will continue for some time. Since 1999 the World economy has been funded by toxic debt, now that that is gone it will only get worse.

  • Comment number 60.

    JavaMan1984 - No, but parliament can have a vote of no confidence in the PM.

    Man From Milan-

    Shares are down 45% since the market peak, so a small rise is little comfort in the current climate.

    Considering the private sector is cutting salaries rather than jobs isn't it time for wholesale cuts in large salaries for public sector workers earning above £60,000. There are too many to count who could afford to take a pay cut to help reduce the tax burden and yet still lead a good lifestyle in the current economic climate.

  • Comment number 61.


    Steady, watch out that the terrorism acts aren't brought into play.

    Debating possible Civil War is of course not incitement, but we do seem to live in a guilty until proven innocent world!

    Unless one is a Bank Director or Hedge Fund Mastermind.

    I wonder if any of my other Shares have been shortsold into oblivion yet ?

    Probably just a matter of time.....

  • Comment number 62.

    #50 - The Queeen cannot "sack" Gordon Brown. However she could dissolve parliament, so forcing a general election. We as an electorate can then "sack" Gordon Brown. This of course is highly unlikely, unless of course unless Her Maj. is responsive to a potential facebook campaign :0)

  • Comment number 63.

    #7 and #57

    The 5000 billion never existed. It was simply the "value" or market price of the assets (stocks and shares) held. As the market price of those assets falls, the people/ institutions who hold the assets are less wealthy. But no money has changed hands.

  • Comment number 64.


    The 5000 is held on pcs all around the world. It exists in bytes only.

    Pockets would be extinct if it wasnt for cold mornings

  • Comment number 65.

    @ 57

    money can be lost.

    take your house for example, you might have bought it for £150,00 5 years ago. last year it might have been worth £185,000 its now worth £150,000 or less. loss of £25,000 that never actually exisited. But which your bank allowed you to borrow against for security. welcome to negative equity :(

  • Comment number 66.


    The time when positive sentiment would have worked was about a year ago.

    Now, Nationalization of Banks, mistrust of directors and the Gov't has grown to great.

    Private investors who would have agreed with you six months or even a month ago, won't take that risk now.

    They see can all see that opportunistic piracy has taken place with little redress for the naive and unwitting small shareholders.

    With no protection for Shareholders from the machinations of powerful hedgefunds and a Gov't relishing the destruction of the Banks and who knows what else, who will risk their often hard earned capital is such a market?

    (I know mine was hard earned ! Maybe others wasn't)

    The only people laughing now are those who have never saved, never aspired, and never thought to own their own home.

  • Comment number 67.


    I enjoy your writing but must take issue with on one minor point.

    Do you really understand the numbers you are quoting? It is all too easy to talk in telephone numbers without really having basic understanding of the figures.
    As an exercise in trying to comprehend a million - may I recommend you open a new Excel spreadsheet and type in ten number ones (or ten pound signs) into a box. Then copy, highlight and copy and copy again and again until you have a million ones (or pound signs) on the spreadsheet. Now try to imagine how big the spreadsheet would need to be in order to hold a billion!!! I don't know about you, but my mind can't cope with numbers that big. You must be very, very clever (or using numbers you don't understand - like the bankers did).

  • Comment number 68.

    Hi Rob,

    quick question,

    will the dip in oil prices help the economy? the rise in fuel prices in the first place was one of the initial firestarters to this whole crisis, when people realised the had less money in their pockets.

    Could this lead to a cheaper spell of living, especially in the lead up to christmas?

  • Comment number 69.

    Number 35,

    No you can’t have a protest, that’s an act of terrorism, you WILL be detained at Gordon Brown (Dictator’s) pleasure until you borrow more money!

  • Comment number 70.

    good point 57

    I assume that they - the so called experts - are simply righting the whole thing off as being worthless which is certainly not the case. Surely they will get something back or maybe I am just being stupid and should just change my name to Bert or Gideon and be overdrammatic and stupid or both

  • Comment number 71.

    During the depths of the depression during the 1930's US unemployment reached 25% of the workforce.

    That left 75% who avoided paying the ultimate price. Millions lost their homes many more did not. Fortunes were made as well. Yes pension pots have been slashed by nearly 50% but for those not retiring for 30 years - so what. For those over 60 it is too late to panic. The time for that was when Blair was given his third term. Those who valued their wealth without considering how much they owed, earned & spent may experience nasty drops in their standard of living.

    This is a great opportunity for us all to reflect upon how we live and what is really important.

  • Comment number 72.

    Dear Robert,

    Would you like me to proof read/check your stuff? Call me old fashioned but 'shank' instead of 'shrank' really grates!

    A small fee I'm sure could be agreed!

    Most days I spot one and considering the numbers you are influencing I think for the BBC it's vital and someone's got to do it!

    Georgina, Cheltenham

  • Comment number 73.

    Dear Robert,
    Have fallen asleep in back of lorry wondering 'what next! ?.
    None of my learned bloggers have been able to solve my dilemma.
    Down,up,sideways, whichever way I look, there is gloom and despondancy.

    My readers want answers but today there are none.

    On the road again, no hope,no light at the end of the tunnel.

  • Comment number 74.

    Banks aren't lending to house buyers because they aren't sure that house prices will not fall further. But the reason we got into this mess is precisely because banks lent far too much and far too easily to risky borrowers because they thought it was a one-way bet - that the price of houses (and of other assets too) would keep rising.

    Therefore as a longer term solution would it not be sensible to change the rules of mortgage lending to make it mandatory for banks to share in both the spoils if house prices rose and in the risks if house prices fell. They could do this in proportion to the percentage of the price that came from the buyers equity and the bank's loan.

    Witht this simple rule borrowers have less of an incentive to buy houses as an investment - after all houses are for living in not to make money out of; and banks have more of an incentive to lend only sensible amounts since they have effectively to underwrite the risk of default or of a fall in asset values.

  • Comment number 75.

    What's the point in lowering interest rates. Anyone sensible wouldn't take on more debt if it was free in this climate. Or is the word sensible the flaw in that sentence? Are we set to encourage the irresponsible again?

  • Comment number 76.

    #10 PetersKitchen

    You are wrong - if debt is not repaid then the borrower has had something for nothing (the value of the loan) - a profit for them.

    If sales of assets does not cover a debt secured on them then the previous owner got something for nothing (excess payment against their value security) - a profit for them.

    Any real money lost to the banks is 'found' by someone.

    For every worhtless tulip bulb purchased for £1,000,000, there is a previous owner who received £1,000,000 for it.

    For the government to under write the final price of the 'tulips' is sheer madness - all the traders get off, while the state (taxpayer) is left with baskets of useless tulip bulbs. And all the time the chain of previous owners of the now worthless bulbs have their cash stashed away...

    Brown decided to bail the banks out, with out even refering to parliament -- he should be surcharged the whole amount.

  • Comment number 77.

    Hi Robert

    Blimey (if I may be so bold) how can you let the UK government off so lightly. (Is there some kind of conflict of interest you are not telling us about?) Banks were doing what they do best. Being greedy in an unregulated capitalist system. All they were doing was making a profit in the circumstances of the time.

    It is the government and the FSA (which being paid for by the financial industry presented a clear conflict of interest) which totally bungled the affair. They were meant to be there to put a check on financial sector greed and they failed miserably. Where, for example was the FSA when banks were able to offer 125% mortgages, or mortgages where the repayment was 5-6 times earnings? Noticably absent. They were more interested in catching insider traders for selling 300 shares in a company.

    So Rob, please declare your interests, because UK government incompetence at every level has it's name written all over this affair, even if it is not entirely to blame for the current problems?

  • Comment number 78.

    # 52

    The US housing stats I think you refer to actually came out yesterday, and showed a (surprise) 2.7% increase in new house sales versus the previous month. Analysts were expecting a 5% fall. This is good news, but needs to be put in context. New house sales are still down 33% from the same time last year in the US, prices are still falling (but at a slower rate), and the total stock of unsold property remains close to its highs (a lot due to repossessions). Still, the rise in sales is on the back of a 5.5% rise in the sale of existing homes in the US, indicating that a combination of falling prices and improving credit availability in the US is beginning to free up the housing market. The US housing market went into decline about 12 months before the UK's, so on that basis we probably have a further year of pain to go.

    # 56

    Generally agree with what you're saying and I, too, take comfort from the fact that Warren Buffet is switching his personal investments out of govvies and into equities. It should be noted, though, that WB doesn't claim to be able to call the bottom. His article (in the New York Times, I think) stated that he had no idea whether the market would be higher or lower in one month, or indeed one year, from now. He just sees a number of companies being valued as if sure to go bankrupt, when in fact he's confident they will more likely be declaring record profits in 5, 10, and 20 years. Also note, he thinks it likely that the actions being taken to minimise the economic downturn in countries such as UK and US will be inflationary. That's bad for asset classes such as cash. Hence his view that people should switch from cash to equities.

  • Comment number 79.

    We must not be under any illusion, the Government intends return us all back to the robust and well-managed economy that we all knew and loved pre-credit crunch.

    Here's a quote to underpin my assertion:

    "[GB] said the UK problem was not shortage of demand for homes at "the right prices" but a shortage of mortgages "at the right prices for people to buy"."

    Couple this with a GB’s vision of returning the economy back to 2007 lending levels, and yesterday’s sorry detailing how house prices will have recovered by 2013.

    So unless the average wage is about to explode to £58K p.a., any talk about regulation and reform of the lending market is just spin. The Government has bought into the lending market in a very big way, and it has a significant interest in keeping house prices propped up. We need to stop listening to the spin and look at the actions.

    Problems of this scale originate from systemic failure at the highest level. The root causes have been identified time and time again in this blog. It looks like the lessons will not be learnt; the bitter pill will not be taken.

  • Comment number 80.

    I've just thrown myself of a bridge into cold icy waters and been picked up by an angel and shown how awful life will be without me.

    How do I get back to reality??

    Steve Bell in the Grauniad shows how wonderful lif can be for some today!

  • Comment number 81.

    I'm sorry, but what you have been writing recently is, to me, increasingly at odds with reality.

    You've taken up the pro-Government, pro-populist stance that all the hurrah aspects of the pre-crunch situation are the result of the wise decision-making that exemplifies the wonder of modern democracy, while all the boo aspects are down to isolated groups of selfish individuals who didn't fully appreciate their responsibilities to society.

    With the greatest of respect, this is complete balderdash. The "good" aspects of pre-crunch - the buoyant stock-market, high and increasing property values, household prosperity above levels of real value creation - all these were states of affairs that required for their continued existence the maintenance of popular illusion that economic reality could be re-written. But, further than that, they were states of affairs that reason could not change - because reason had been dismissed as an outdated concept no longer of any relevance to the modern world.

    What you, and the Government, and the general populus need to accept is that the credit crunch, and the ensuing recession, is a social failure, not an aberration caused by a few irresponsible bankers. It's the inevitable result of the adult world deciding it's OK to live in teenage dreamland. What's really required is for society to grow up. The sooner, the better.

  • Comment number 82.

    Here is another 'what if'?
    What if there had been a media news blackout, where would we be now with this whole fiasco.
    I think the media have in many instances been extremely unhelpful with an almost death wish, going back to last year when they seemed determined to ensure we were going to have a recession. First they talked house prices down, then came new buzz words such as credit crunch and then they started talking about job cuts and so forth until we are were we are today. Before that we had all those programmes telling us how easy it was to make our first million by buying property etc.

    I think the media do need to be so very careful in such a volatile situation that careless words don't exacerbate the problem even further.
    The whole of the money markets seem to be run by people who seem to thrive on adrenallin boosted by ego, who don't seem to be able to think beyond their computer screen and the wider implications of their actions, not only to themselves but to the wider World and if they are also following online news reporters analysis and comments minute by minute who knows what idiotic decisions they are making purely for short term gain.
    Maybe the whole of the money markets, worldwide need to go on a sabbatical, to some remote island without communications!!!!
    Things need to calm down because at the moment chaos seems to be reigning supreme out there and no-one can possible be making any sense of any of it.
    This was a man-made disaster born out of greed not a natural disaster, so needs a man-made solution but cannot be done on the hoof when things keep changing so fast.
    Not only dealing with the present situation we have to have world-wide concensus on how to regulate the markets in the future, no point in the UK having regulations, all the companies here would just relocate to somewhere that doesn't regulate and we have to accept there is a global economy and we cannot act in isolation. We might physically be an island but economically we are totally interlinked with the rest of the World, so whatevr the Government might or might not have done here, external influences will always have a much greater impact, as we are now so dependant on the rest of the World for almost everything we need to survive.
    A good starting point would be for the UK to work towards self-sufficiency in as many aspects of life that is possible.
    'Dig for Victory' seems like a good banner headline!!!!!!!!
    We planted our apple and pear trees about five years ago so reaping the harvest right now!!!!

  • Comment number 83.

    #66 WROTE:The only people laughing now are those who have never saved, never aspired, and never thought to own their own home.

    I am, getting 8% of a bank sooooo desperate for my money

    I sold my house in May 2007 ( i think you call that the top?

    I have always aspired until the governements of USA nad UK changed financial policy to pursuade people to take out credit rather than

    1. be in a position to spend their own money

    2. Pay sufficient salaries in order to do the above

    3. Have enough to save for a rainy day

    As a result

    The rich got stupifying richer

    The poor were supported pennies above anarchy

    The middle class have to pay for it and lose anything they had in an attempt to rectify the mess.

  • Comment number 84.

    "43. At 10:54am on 28 Oct 2008, camholder wrote:

    I thought pyramid schemes were illegal? "

    No. It's only illegal to set up a competing pyramid scheme...

    The fact is, our whole establishment is built on one. Says something about British people. No?

  • Comment number 85.

    Today is a really good day, I just managed to get over 500 pounds knocked off my brand new Ifor Williams 10x5 twin axle breaked trailer.

    Well, it has as much relevance as this blog.

  • Comment number 86.

    In the Royal Bank's brand new multi million pound (and that was only the bridge across the main road) headquarters on the outskirts Edinburgh (as is the case with probably all the banks) there is a huge department whose job it is to analyse risk..all day every day...what on earth have they been doing for the last 5 years!

  • Comment number 87.

    # 73

    I am beginning to believe that electronicTurkey is actually the apocalypse incarnate. Many will scoff, I know, but f you study his posts carefully, there are many clues in there for those whose eyes are open and are willing to believe. What really worries me is that he is getting closer all the time, and now seems to be approaching Hungary (an obvious reference to hunger, ie FAMINE, the third horseman)! There is no escape!

    You heard it here first

  • Comment number 88.

    Wheelbarrows - that's my investment tip.

    You will need them to carry all the worthless sterling around in.

    All this explanation is great Robert, but you missed the fundamental.

    By not forcing us to ween ourselves off credit, the Government has literally just printed money.

    That's why the pound has collapsed, because the money markets see the inflation coming.

    The Government thinks it's doing a good thing, by trying to replace the 'craving'.

    ....but when an addict screams for their heroin - should you continue to give it to them?
    In the short term it will keep them quiet - in the long term it will set them back in their rehabilitation.

    One of our future generations is going to received the folly of our current generation and will pay heavily.

    We're only putting off from today something we will have to face at some point.

    This is further exasperated by the fact the whole world is up to the same trick - meaning there will be no hiding place.

  • Comment number 89.

    The constant trickle of doom and gloom is helping no one...some one needs to come out and give a critical assessment of where we will be in 12 months time.

    We can all see the effects of the lack of regulation and we all know who is responsible.

    IMO ,Until the time comes that the housing market bottoms out we will see no change ,we no longer have an industrial base so that will not pull us out of this and foreign control of our energy companies will ensure prices stay higher here than in their home countries putting even more pressure on recovery.

    So with interest rates @ 18% is now a good time to invest in icelandic banks ????

    I also agree that many of the bonus's that will be paid to some bankers are not an issue, they will have worked hard for them BUT !!!
    all the nationalised banks should have there whole boards removed there personal pension funds seized and criminal proceedings taken against can be done under the prevention of terrorism act as was done in seizing the icelandic banks assets...........these people have brought our country to its knees and the public need to see someones head on a stick to appease them......these pariahs have done what no terrorist could ever have done.......

  • Comment number 90.

    The Crisis is a good thing! This is now exposing the fraudulent system of printing fake money with no value for the FED and IMF.
    It's a joke about the i.8 trillion loss of credit! There was NO MONEY!
    It's hen the FED was set up to have fake reserves and how they loan to banks with nothing of value behind this loaning system.
    Also, The USA, worst offenders use this IMF
    to loan monet to poor countries and have them under their wicked spell of paying back with selling products of their country to the US at rock bottom prices. the list of corruption goes on and on. The whole system works on debt, they want people and countries to be in debt to keep in control.
    It's basically a pyramid system as only a few at the top are the winners.
    This is a big wake up call for all of us to vote with our feet. Pull out of the crooked banks and go with ones that aren't linked to the BIG banking system. Check on the internet.
    Stop chopping in any store owned by Walmart.
    We ned to check what company and bank is owned by the few big corporates that not only
    are gobbling up more and more banks and companies worldwide to ahve control but they also control the gov'ts.
    Lets all do it and then we will see CHANGE. Don't be a victim of this be proactive and really find out who's running the show.

  • Comment number 91.

    There are a couple of things I don't understand about all this. I wonder if anyone can help me?

    In times of stock market volatility & impending recession, gold seems to be the classic "safe haven" to which everyone flees. And that drives the price of gold up. We're not seeing that. In fact, the price of gold has dropped by about 30% in recent months. Why is that?

    The other thing is that the US dollar is getting stronger -- surely the massive amounts of cash the Fed is pumping into the American economy should be diluting the value of the dollar, shouldn't it?

  • Comment number 92.

    Mr Peston
    I am pleased that at last somebody is actually mentionning the huge losses suffered by the insurance companies and the pensions funds.
    That will really hurt real people not only banks or their shareholders. I am afraid I cannot see how the planned huge extra borrowing will help these people.In the end the only solution will be to cut costs and try to live within our means and that goes for the government too . I cannot see Brown doing that as he is too busy trying to grab the headlines for short term political advantages.
    15 years of growth and to end up with this situation . What a shame and shame on you mr Brown ( global or not you were in charge and let the problem develop ) you should be more humble and apologize to the british people for the hurt you are going to cause them ( fat chance of that!! )

  • Comment number 93.


    Spot on! I said the same thing (specific to Northern Rock and their inadequate and under performing Risk and Internal Audit functions) a while ago on this blog. I don't think the Chief Executives should be the only ones walked off the premises (although they should always take ultimate responsibility).


    500k readers? I read last week it was 1m? Has RP's blog lost 50pc of it's investors too?


    Apparently Manuel wouldn't even say that - He'd be too busy complaining about Russell Brand & Jonathan Ross. It's amazing how some comedians (or comedy actors) can't take a joke!

    If Iceland's interest rate is 18pc, shouldn't we all be borrowing at 7pc and saving it over there?! Oh, right - Sorry!

  • Comment number 94.

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

  • Comment number 95.


    Check your figures.

    The conservative government actually increased spending until 1981, because it believed in the monetarist nonsense. It changed only when they had the near disaster in 1982.

    Secondly, it did cut expenditure in health service (the number of hospital beds was reduced by 4O%), social security etc., but increased its spending on subsidising closure of manufacturing plants. In textile, firms were given money for every job they abolished.

    Thirdly, the source of balancing the budget came from the North Sea oil revenue that was very significant revenue until 1991.

    And what can we say about the 1987 budget? How many people had the bitter soup of it in 1991?

    Most of the economic policies of the 198Os were disasterous and the economy survived in spite of them and not becouse of them.

    This, of course, has not an excuse of the mismanagement of the Labour governments of the last 11 years.

  • Comment number 96.

    2 men walk into a bankm looking for a loan of 50,000. 1st man has no debt, 10,000 in savings. 2nd man owns a house but is in negative equity to the tune of 75,000 and has no savings.

    Assuming the bank lends to one of them, who will it be and why?

    If you can answer this then you have the answers to all our problems

  • Comment number 97.


    ''Any real money lost to the banks is 'found' by someone.''

    I think you will find that they only lose 'projected profits'. Which is the Interest that was due to be paid back before the artificial cash is delted of their system.

  • Comment number 98.

    Update at 11:58


    You could have just changed the headline!

    You didn't identify an error. You reported it as fact and someone then told you it was an error?

  • Comment number 99.

    Andrew Knight (#2)

    If a company owns the supply chain as to do oil compnies, the profit can be taken at any stage, and the claim can truthfully be made that profit is not made the pumps. It has been made upstream!

    PetersKitchen (#5)

    Not so, merely the lip, we have yet to touch the bottom.

    robertdmarshall (#26)

    The 'Peter Principle', if thet cannot hack, boot 'em upstairs!

    Gosh, what a lot of great posts! Question is, who's going to fund all the Government borrowing? There must be some rich mutts somewhere.

  • Comment number 100.

    #76, I think you are correct, but the essential part of this is the timing difference. The gains were in the past and were already factored into the economy.

    If you borrowed more than you could pay back, and you consumed it all in the past, it doesn't matter if the lender writes off the debt today - you can't pay it back anyway, hence you don't gain anything of any value.

    So, the losses today are not matched by real gains today, and valuations need to catch up. So one cannot easily "buy shares in the upside" (as suggested by #7)


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