BBC BLOGS - Peston's Picks
« Previous | Main | Next »

The nationalisation of credit

Robert Peston | 09:30 UK time, Wednesday, 26 November 2008

As I said boringly and monotonously on Monday, before during and after the pre-Budget report, the overhang of excessive debt accumulated in the boom years remains the biggest problem for the UK economy and for the world.

The past, current and future write-offs of trillions of dollars of imprudent loans is - as you know - the main reason why there is so little new credit being made available.

Which doesn't mean to say that Alistair Darling's attempt to stimulate economic activity is irrelevant.

Mervyn KingBut as Mervyn King said yesterday, in a classic case of creating news by stating the bloomin' obvious, it's the massive retrenchment of lending by banks and other private-sector financial institutions that's doing us the most damage.

In response to this failure of the credit-creation system, what we're seeing - particularly in the US and the UK but also in other parts of the world - is a transfer of the risk of lending on a colossal scale from the private sector to the public sector, from commercial investors to the taxpayer.

That's happening because, after the collapse of Lehman, there's been a massive increase in the perception of the dangers of lending to the private sector and to emerging economies perceived to have borrowed too much.

So pension funds, money managers and sovereign wealth funds are demanding punitive returns for investing in pure private-sector entities. Their preference is to lend to countries like the US perceived as too impossibly large to fail.

And because the US state is still perceived to be a good credit risk, the US authorities can borrow to fill the lending gap created by the disappearance of private-sector funding.

Only hours ago, we saw the US Federal Reserve providing $800bn of credit - in effect from taxpayers - to breathe life into the markets for residential mortgages, credit card finance, small-business loans, car loans and student finance.

That brings to more than $8000bn the aggregate amount of loans, guarantees and investments committed by US taxpayers in the past few months - whether they like it or not - to bailing out failing banks and insurers and also unfreezing credit markets.

It's a mindboggling sum, equivalent to around half of the annual economic output of the US.

Some analysts see this as the start of the money printing-presses being turned on with a vengeance, a deliberate attempt to stoke up inflation to reduce the real value of all those excess debts.

I'm not sure we are there yet - though it's probably only a matter of time.

The biggest chunk of the Federal Reserve's recent financial support has been allocated to the commercial paper market - which in effect means that US taxpayers are providing short term loans to the biggest US companies.

There's no reason to assume that we've seen the end of this process of the nationalisation of credit.

The head of one of our largest banks has told me there'll probably have to be sovereign guarantees provided at some point to the corporate bond market, because big companies are increasingly finding it both expensive and difficult to raise longer-term loans in the form of bonds sold to investors.

Here in the UK, the chancellor has signalled that British taxpayers will be called on to underwrite a revival of lending to small businesses and to home buyers - probably to the tune of well over £100bn.

And remember that taxpayers in Britain have already provided £600bn of loans, guarantees and capital for battered British banks.

To reiterate, the credit-creation process has already been nationalised to a great extent - and this process of taxpayers standing in for commercial lenders isn't over.

How far will it go?

Funnily enough, to a large extent that depends not on what happens to credit markets but on what happens to share prices.

As George Magnus of UBS points out, part of the problem for most banks is that they are not perceived to have enough capital, even after the recent injections they've received from governments all over the world.

With recession taking hold in most of the developed world, and with financial crises gripping many emerging markets, investors fear that we've only seen the tip of an iceberg of losses to be incurred by banks from their ill-advised lending splurge of the previous few years.

The big simple point is that banks can only lend what they can borrow. And when money managers provide funds to banks and financial institutions, and when banks lend to each other, they look at how strong the borrowers are: they assess whether the borrowing banks have sufficient capital to weather the storms ahead.

Right now, providers of funds to banks want them to have far more capital than they could ever possibly erode through the write-offs of the loans provided when the banks were infected by an epidemic of blindness about the risks of lending.

For some reason, the Treasury doesn't seem to understand this simple point. It yesterday issued a statement telling banks that they had more capital than they need for the long term - in the hope that this will provide our banks to lend more and take on greater risks.

However, it's almost irrelevant whether the Treasury thinks our banks have enough capital. It's the private-sector holders of trillions of pounds of potential funding for banks who'll determine whether the banks are appropriately capitalised. And at the moment, they'd like the banks to have more capital.

With stock markets on their knees, there only one source of new capital for most banks: us, taxpayers.

So here's the Catch-22 to end all Catch-22s. If we want our banks to lend more, they're going to have to be able to borrow more. And to do that, they're going to need to raise more capital.

Raising more capital, for many banks, means huge further cash injections from taxpayers.

That's why, as the governor of the Bank of England implied yesterday, we may yet see most of the banking system formally nationalised, so that it can do what it's supposed to do - which is to provide the credit that's absolutely vital if we're to avoid a prolonged and very painful slump.


Page 1 of 3

  • Comment number 1.

    Let's bring an end to the Fractional Reserve Banking system.

    You know it makes sence!

  • Comment number 2.

    If you take a thirsty man to water, can you instruct him drink if he believes the water is toxic?

  • Comment number 3.

    Slump it is and slump it will be.

    Borrow Borrow Borrow will not resolve the situation.

    Living within our means will,but that will be terrible.

    Its a case of the PILL now or an even bigger PILL later.

    I understand the US has already used more cash than they spent in the 2nd World War.

    Maybe we need a return to DIG FOR VICTORY?

    Will the UK be able to pay for the FOOD we need?

    Perhaps what money the Government have?

    Should be saved to buy imported FOOD.

  • Comment number 4.

    No question all the banks WILL be nationalised, as you and others (e.g. Hugh Hendry on CNBC Friday) say the banks have a different agenda to the social agenda.

    Hugh was actually even more downbeat.

    Only Germany is still holding out for balanced budgets but it looks like they will be forced into in by this 'we must do something' attitude currently the vogue.

    Until assets are realistically valued, houses etc, this is a bigger hole than money can plug.

  • Comment number 5.

    AS both the Government The Bank of England and the FSA have been SO inept?

    WHY should we listen to what they say anyway.

    These problems have been on the WALL for a good ten years.

    WHY did these people not see it??

    Without sounding SMUG ive predicted this situation for 9 years plus.




  • Comment number 6.


    Are you sugesting only inflation will save us, by reducing the relative size of our debts?

    Funny how times change... Bring on Zimbabwe!

  • Comment number 7.

    Question to the floor:

    Since we taxpayers are funding all this anyway, is the solution to create a state-owned bank too far-fetched?

    That way we all bank securely and under our own terms, and we finally run the fat pigs (not cats) out of business.

    I've said it again, sack them and ostracise them. Make them pariahs!

  • Comment number 8.

    To all those who said Barclays should have taken taxpayer money, this seems to vindicate their decision.

    Paying an extra 2% is surely better than being nationalised.

  • Comment number 9.

    .'...we may yet see most of the banking system formally nationalised, so that it can do what it's supposed to do - which is to provide the credit that's absolutely vital''

    The banking system will be nationalised, but it will not do it NEEDS to (rather than supposed, do you believe they were suposed to lend all that ficticious money, Robert?)

    There will be sooooo many uncreditworthy organisations and individuals that the banks, even nationalised ones will only lend at punitive rates at best and not at all on most.

    It cant happen, it wont happen.

  • Comment number 10.

    Wow! This is great news. So, as a taxpayer I am financing my own loans?

    Great. I lend my money to the banks who lend back to me. Then I repay the loan, so the bank can pay me back...after Mr Darling creams off a % to cover the NuLab parties, the jollies abroad and to pay for their John Lewis stuff.

    How will I be paid back? Via a tax rebate? An allowance?

    This means I could have a mortgage at about the 2% difference between depositing (tax) and borrowing. As I get nothing for contributing the tax, I can have a 2% mortgage.


  • Comment number 11.

    If ever an Administration had wanted to lay

    down the foundations for potential

    extremism they have done it.

    The Uk is sleepwalking into civil

    unrest,where the likes of the BNP,or a

    silly man like hitler can create HAVOC.

    This Government must stand down!

  • Comment number 12.

    I wake up again totally confused.

    1 I cannot see how tha banks can lend with any sort of confidence when it must be very difficult to put a value on what they are lending against.
    Are they supposed to lose the money the government has put into them. They must be desperate to lend profitably, if only to pay the gov its interest?
    Nationalization will be a way of losing money faster?

    2 I do not understand the government growth forcasts. We have lived beyond our means for 8+ years based on hyped up valuations of property. After a year of a smallish decline growth will be resumed.
    We are seeing that where we were is, for the forseable future, unsustanable. The best scenario for the moment is surely managing a standstill.
    Anythingelse and we are just kidding ourselves - aren't we? or is it that everybody knows this, but is not ready to face the consequences?

  • Comment number 13.

    Bert - can you explain how the stockmarket is on its knees

    over the last 5 years it has performed ok has it not?

  • Comment number 14.

    No 5

    I agree. the "joke" in our family is that every month for the last 5 years I have announced that the Catherine Wheel is getting faster, that it will come off,and will end in tears.
    I underestimated how far it would fly when it did come off

  • Comment number 15.

    This fits in with what both I and the BBC's Business Editor, Robert Peston were told in the few days before the PBR.

    Is this true Bob?

  • Comment number 16.

    "Since we taxpayers are funding all this anyway, is the solution to create a state-owned bank too far-fetched?

    That way we all bank securely and under our own terms, and we finally run the fat pigs (not cats) out of business."

    Fine. But do you want the government running the financial systems? I mean, purleeeze!

    THEY got us into this. Not the banks. The govt knew what was going on all right and milked the cow for all it was worth. But I would never trust them with my financial data. Would you? You'd find it lost on stolen laptops and USB keys everywhere. You'd find your money donated to all manner of ridiculous schemes.

    No. I think that the manipulation of money should be left to those who know how to do it whether we think they're greedy or not. If the government can't regulate the banks; if it can allow credit and house-price bubbles unabated, then it's shown it's incompetence. I don't want them running the world's finance.

  • Comment number 17.


    ERGO inflation.

    Let's hope it's not HYPER!!

    My advice is to buy arms manufacturers and invest in private security companies.

  • Comment number 18.

    I have an HSBC credit card (marbles) which had until last week a credit limit of over 11K. Because I haven't used it much in the last eighteen months I have been told that the credit limit has been reduced to £100. This is just one example of how the banking world is treating 'credit' and why people will be reluctant to 'spend' regardless of how many carrots the government throws at us.

  • Comment number 19.

    We seriously do not want State run/owned


    Whilst i am disgusted with the senior board

    level Bank Directors,handing control to the

    Government would be the END.

    The Banks need to rebuild themselves,then

    lend under tight regulation.

    I.E. Mortgages at 3 X salary/income as a

    maximum,credit cards at 1k max,personal

    loans at 3K max.

    Commercial lending to be tightly controlled.

  • Comment number 20.

    Increasingly, people on this blog have been calling for a nationalisation of the functions of the banks, if not the banks themselves.

    nationalise everything, move the accounts to NR and BandB, keep the assets and staff required to run a national bank and sack the managers without compensation.

    Sell the additional assets.

    Everyone's happy... Except the Senior managers of failed banks, but who cares, really?

  • Comment number 21.

    As ever - the (wealth consuming) public sector undercutting the (wealth generating) private sector.

    If Governments stopped borrowing then the banks would have no option other than to lend to the private sector... Or shut down.

    If the state want to manage a 'banking service' for the public, then they should start with a blank sheet, and work out how to best serve their citizens. Not just take on the existing fragile mess - warts and all.

    I guess our politicians just aren't bright enough to get anything right.

  • Comment number 22.

    Nationalisation of credit? You have NO idea what that will lead to. I do, because I come from a country (Slovakia) that had until 1998 many state run or state controlled (through politically nominated) people. The amount of loans these banks gave to failing and unworthy companies just to prop them up and stop them making people redundant was absolutely huge. The governmet said this company must not fail so they lent money to it although the company never going pay it back.

    If you think banks made lots of dodgy loans until now, wait until you see what nationalised banks will do. And after that it will be the end of the world as we knew it.

  • Comment number 23.

    The problem is made worse by the high returns being demanded on government capital injections, at least on the pref shares piece. All it's doing is encouraging further reduction of risk assets in order to repay them as soon as possible. Lloyds and RBS both have stated intentions to redeem these shares by end-2009, meaning they either reduce lending, sell/close businesses, or both.

    It also just reinforces counterparty concerns on bank strength. Basically it is implausible that banks can earn a 12% return on equity in a post-crisis world, and hence the capital is seen as a drag not a benefit, ie the dividends paid out (and so reducing capital resources) will exceed the profit generated by that capital, so capital base overall will be eroded over time by having these shares in issue and paying such high returns.

  • Comment number 24.

    I always get very frustrated with anyone who dares to suggest that the doom and gloom merchants are causing this recession.

    The irrefutable fact is that we as a nation borrowed too much in order to spend. That was how the economy was run and is the reason for 15 years without a bust. Nobody in their right mind can suggest/beleive that this could go on forever. WE COULD NOT GO ON BORROWING AND BORROWING MORE EVERY YEAR. It was impossible!!!

    What is happening now is that the lenders have finally realised we have borrowed too much. They are now not lending us any more. It had to happen. It had to happen. It had to happen.

    As soon as the borrowing stopped which happened in August 2007 a recession and most probably a depression was a stone cold certainty. Why? Because even if we wanted to continue spending we couldn't because we couldn't have the money.

    The government seems to think that the way out of this problem is to now borrow money on our behalf. Individuals can't borrow any more. How long before the government can't either.

    The only real way out of this is to get to the bottom as quickly as possible. We can then start climbing out. We cant start climbing until we reach the bottom.

    The government has just delayed the bottom being reached which will do much more damage. The longer it takes to get to the bottom the worse it will be in the long run.

  • Comment number 25.

    So King is openly suggesting we still soon be in a Communist country. Marx must be laughing his head off

    The banks can't lend because they are technically broke. The so-called recapitalisation was nothing more than a stop-gap, which prevented them collapsing there and then, but did nothing to address the extent of the problem, i.e. that they have lent out far more than is ever likely to be paid back.

    The banks know full well that much of their existing loans are themselves likely to turn toxic in the near future as the value of assets continues to fall, businesses collapse, jobs go, properties get repossessed etc. That being the case they would be mad to try and continue the con-trick and are instead hoping against expectation that most of their existing loans (debts) will be repaid and they become solvent.

    The fact is, and no one seems willing to accept this, that the world economy is beyond repair - there is more debt out there than can ever be repaid and it is only a matter of time before the system collapses.

  • Comment number 26.

    POST 14.

    The Catherine Wheel.

    We aint seen NOTHING YET.

    Farming/FOOD production is TRASHED

    Energy production is TRASHED



    Many people choose between eating or

    having electric/gas.


  • Comment number 27.


    Paying an extra 2% is surely better than being nationalised.

    But how are Barclays going to compete with a state bank that doesn't have to worry about the normal rules of lending. If the state had been the bank since 2001 then they'd still be making insane 125% loans to self-certified part-time window-cleaners. And there is a large section of the population that thinks that's what Brown means by 'forcing the banks to lend more'. Ie their insanely over-valued house will suddenly revert to the insane price they paid for it in 2007 and they'll be 'rich' again.

    Because the state doesn't have to worry about bad loans. It can always print up more money.

    The problem we have is that the independent banks forgot that they couldn't just print up more money and kept making increasingly insane lending decisions. Now their shareholders and executives have been caned and so hopefully they will have learned their lesson. Unlike this government who have not learned the lessons of the 1970's and seem intent on bankrupting the entire country by continuing to borrow and squander as if nothing could possibly go wrong.

    I'm a bit cross with myself to be honest. I knew this was all going wrong five years ago. We sold the house last year and moved out of Scotland and there was a little man on my shoulder giving it 'keep on running' but I settled for just moving back to England.

    So now the kids have settled in another school and it all seems such a shame to tear them out again and move somewhere else.

    The thing is, I just know it will be even more of a disaster to stay.

    The sight of that imbecile Brown leering at the opposition as his henchman detailed the levels of debt he was planning to run up with no thought at all as to how it would all be paid off should be enough for me. But no. I still live in hope that something will come along to make the scales fall from his eyes and reveal what a disaster he has made.

    Inertia. It's an amazing thing.

    It's why people stay in dead-end jobs for thirty years. Because that's easier than quitting and finding something they'd actually like to do.

    It's why people remain in the UK even though it is being systematically destroyed by imbeciles. Because it's the easy thing to do.

    This country is finished. We are another Argentina-in-waiting.

    I shouldn't waste another second of course. I should simply go. The writing is on the wall. It's on the pavement, it's all over the BBC.

  • Comment number 28.


    "Bert - can you explain how the stockmarket is on its knees

    over the last 5 years it has performed ok has it not?"

    Crikey. What shares have you invested in, then? Please tell me!!!

  • Comment number 29.

    The ultimate failure. Banks Nationalised. Back to the past for a country who should have had such a promising future.

    It was time for Brown to be exposed for what he is quite some time ago and now it is imperative for the Countries future and that of future generations for him to be thrown out of office and with the disgrace he deserves. He will NOT resign, dictators dont do that, so let us hope some of his silent puppet MP's have the guts to stand up and be counted for once in their ,
    miserable political existence.
    They have sat and fiddled whilst Britain has been sinking.
    All this could have been avoided had Brown not been more concerned with saving his skin than ours.

  • Comment number 30.

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

  • Comment number 31.

    If the banks were nationalised, can you imagine what fun the government would have, giving away our own money to us before an election and taking it back again in taxes after. The taxes would, of course, be to recapitalise the banks that were overstretched in lending on government approvede sub-prime mortgages.

    Just another thought, arn't gilts bought by banks? If they were nationalised the government could provide its own loans! These could be used to recapitalise the banks so we never need to pay any more tax!

    What a tangled web...

  • Comment number 32.

    Robert Peston on his blog on the 20th of November:

    "It's clear from comments posted on my blog that there's a widespread misunderstanding about what the massive taxpayer bailout of our banks was designed to achieve or could achieve... the transfer to our banks of so much of our cash wasn't designed to kickstart lending by our banks."

    Mervyn King before a select committee shown on Newsnight on the 26th of November:

    "This was not done merely to protect the banks. This was done in order that the flow of lending to the real economy could continue at normal rates and one way or another that has to be seen to happen."

    So where exactly is the misunderstanding Robert?

  • Comment number 33.

    Hate to say it Robert but it looks like we're heading down the nationalisation route. Perhaps the government should simply have bitten the bullet some time back and produced a viable state alternative to the major retail banks. Don't like the idea but if the banks won't lend and they're still asking for massive state subsidies to survive then they've effectively failed anyway. The only other solution is for Tesco to take over the lot of them. Mmmmmm maybe not such a bad idea.

  • Comment number 34.

    Sorry, Robert, it's not often that your posts are complete nonsense but this one is.

    Credit is no different from any other commodity. It's supply and demand are governed by the price mechanism. At the moment, the price (interest rates) is too low given the huge amount of government and private borrowing. As with any other commodity, if prices are too low, supply dries up and there is a shortage. There is money available for lending - but not at the interest rates currently being offered by borrowers.

    We need higher interest rates, or more preferably, much less government borrowing. In other words, the government is doing the exact opposite of what it ought to be doing, and the actions of the UK government and other governments are risking turning the current really bad economic situation into a slump.

  • Comment number 35.

    16- you really have a strange take on things. For your information, it is in fact the fault of the banks that we are in this situation. The banks, by their reckless lending and idiotic business models, have destroyed both their own businesses and the world economy. I don't trust these clowns with my money any more, and have moved all mine into National Savings and real Building Societies. The Government's failure was to stand by and watch without stepping in earlier- but you would no doubt have been kicking up if the Government had stepped in earlier. Carry on trusting the bankers by all means- why don't you back your judgement by putting all your money in HSBC shares?

  • Comment number 36.

    I would not be surprised if this govt remains in power that we can soon have a Govt Entity (lets call it HM Redistribution and Credit) will be doling out loans to organisation and people not based upon their capacity to repay but based upon their "need" for credit. More you need the credit, more you will get it. The credit could be means tested. Lower you earn, higher you can borrow. They are basing it all on being funded by tax revenues but if this goes on, where will those tax revenues come from. We do not "produce" much, we only "consume" mostly imported stuff. And how long can we count on govt borrowing. Locals would not have money to buy GILTS and foreigners would shun debts if the budget goes out of control. Afterall, why cannot banks not borrow today - because their future revenues are not sufficient to match their liabilities. So why can the same not be applied to Govt borrowing?

    This govt is using tax payer money (read equity) to create a massive hedge fund by leverage applied by borrowing. I hope that this fund does not meet the same fate met by many private sector hedge funds.

  • Comment number 37.

    I just can't believe that the response to this mess-up is for the governement (either directly or via nationalised banks) to lend to the people judged by the private sector as being too risky.

    The private sector at least have some experience of evaluating loans even though it has been shown to be flawed in places.

    It seems that we have a choice to getting further into dept when we will have more prolonged but shallower recession or a shorter but deeper one. The 'drawback' of the second option is that will finish round about when the next election will take place so the party that chose it won't get in.

    No doubt the powers that be had this in mind when they made their choices!

  • Comment number 38.

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

  • Comment number 39.

    Robert, what do you think will stop this situation arising again in future?

    While many people seem to gleefully see the credit crunch as the demise of capitalism, I in fact see it as being caused by government interference with market forces.

    If market forces were allowed to act, then the market would set its own interest rate. Too many borrower and not enough savers would make it a savers' market where they could demand a higher interest rate. This would then put a brake on borrowing and stop a debt bubble from being created.

    However, what the government does is artificially force the interest rate down so an excess of borrowing occurs. They do this because it puts money in peoples pockets and makes the economy look rosy in the short term, but they are really just stacking up problems for the future.

    The government is still trying to interfere with the markets by forcing the banks to lend when they consider it a bad risk. This will only create more bad debt that will need to be dealt with in the future.

  • Comment number 40.

    Back on the Banks senior/board level


    There must be an investigation and

    prosecutions as appropriate,our Politicians

    the FSA and B of E executives must face the


    After all if any of US had done this WE would

    be on REMAND by NOW.

  • Comment number 41.

    Another example of this Govt. naive attitude to debt in this country is the Student Loan debacle. We have encouraged our young people to gain, largely worthless, degrees and some of them have run up bills of £15,000+

    Now these young adults are entering the workplace and there are now going to be a scarcity of 20k+ jobs, never mind anything better paid. I know countless numbers who are either not working because they cant find a job (any job) or not working because they dont want to begin to repay the loans.

    How can these individuals save for deposits for houses etc. They are likely to be stuck in a cycle of terminal debt for most of their lives, paying off loans that were supposed to give them a better start in their careers.

    Unless you have wealthy parents to pay for further education i would suggest it was now irresponsible to go to university on borrowed money.

    The time has come to give our kids a reality check. I for one wont be encouraging my daughter to run up huge debts in the pursuit of greater returns. Hard work and financial prudence from an early age shall be my advice.

  • Comment number 42.

    The genius King (I am being sarcastic), who seems to have been working against the banking system, confidence and the Government ever since he fell out with them over his delayed reappointment, and others who are now sensationalising the idea of nationalisation ought to explain what they mean.

    If NR and BB are a model basically the UK banking system which provides a substantial part of our GDP and tax revenues would be wound down.

    Where we have competition and say 4 bank branches would we have one choice - the Government and one branch in the high street.

    The job losses would be in the 100000s from branch closures alone.

    How would the Government decide who to lend to and at what rate?

    Would they allow people to stay indefinitely in their houses without paying the mortgage or when would they reposses - would this vary depending upon whether an election is looming - for that matter would we have lower interest rates before an election?

    Would they prop up businesses that are loss-making with little likelihood of recovery?

    In effect would taxpayers money be thrown willy-nilly about through a banking system which would be a great political tool to buy votes especially in the year or so before an election.

    And what about the global operations - how would they be managed by the Government? Instead of having HSBC, Standard Chartered, Barclays and RBS gaining business we would have UK Labour International Banking. I'm sure that would be a great money-spinner.

    The whole thing would be a complex disaster.

    Far better for the Government to guarantee UK bank borrowing with appropriate but not rip-off anti-competitive fees, and fully extend the half-hearted approach adopted so far.

    Should capital ratios need to be improved the Government could put in preference shares at a low coupon - after all they want to reduce interest rates.

    You have not explained in your blog why this approach will not work, not to mention how you a nationalised banking system working.

    The Government also needs to guarantee the debt of long term viable sectors such as housebuilding - otherwise few houses will be built and a million or so more will end up unemployed.

    Talk like King's and McFall's which further destroy confidence can be self-fulfilling which perhaps is their objective for reasons known only to them. Remember they are sitting comfortably with their lucrative government backed pensions.

    The Government should also consider replacing King with someone who has shown better judgement and could better help restore confidence.

  • Comment number 43.

    Dear Robert.

    If they start printing money to increase inflation in order to burn off the debt does this mean higher inflation followed by interest rate rises?

  • Comment number 44.

    An extreme view but:

    Does anyone think this entire crisis has been engineered?

    Its interesting that almost all of the Western banking system and big business is on its knees and that Govts here and in the US want to take control or use bodies they control/manipulate to influence where we are going?

    Who is responsible for housing bubble and credit bubble. The greedy i.e. a lot of the population? Yes.

    What about the rating agencies? What have been doing over this period?

    But importantly what about Govt. and their regulatory bodies?

    Did they not relax the rules which have controlled the markets since the Great Depression?

    Where were their regulatory controls?

    What about the Bank of England and Treasury?

    It seems that so long as the tax revenue was coming in nothing else mattered to Govt.

    Global control anyone?

  • Comment number 45.

    It seems to me that the current issue of banks not lendiong is a smoke screen by the government to divert attention from its lack of action on the fundemental issue. The Fed announced yesterday that it is spending $500 billion buying up the toxic debt . Meanwhile, Uk government is spinning the issue that UK banks are now not lending enough despite the interbank lending markets being frozen as a result of the uncertainty created by the toxic debts held by banks world wide. why are Uk banks not being forced to reveal the extent of the level of toxic debt they hold as assets under stock exchange rules on disclosure.?the issue of nationalising the banks is a red herring - if the government really wants the banks to reduce overdraft rates and increase business loans it has it already in its power to effect this change simply by intervening in the markets using NR to move in the market to reduce rates and offer lower overdraft rates for businesses if one bank acts the rest will have to follow

  • Comment number 46.

    The problem as I see it is like a junkie coming down from drugs. The population has got high for years on easy credit and once its disappeared withdrawal symptons are nasty and prolonged but it has too be done. The course has to be followed to the end. The question is what happens to the dealers, do we let them loose again or hold them in custody(nationilize them)...I have no idea but whatever it is, it ain't gonna be pretty

  • Comment number 47.

    It is not only the Treasury that believes the banks have enough capital but also the B of E Governor who suggested yesterday that minimum capital requirements could be relaxed during the recession. Mr King went further in implying that it was the banks public duty to incur losses to utilise the additional capital buffer the Govt had so ‘generously’ provided to them, and if they should need more capital they would receive more, no doubt on equally ‘generous’ terms.
    I suspect that the next call should be to the CEO of Tesco to remind him of his public duty to run at a loss during these difficult times and when the Govt has destroyed their share value the Govt will recapitalise them as well.
    The real problem here is the incompetence of those ‘in charge’ of our economy. What we need are cool heads taking practical steps while these matters unwind over time. Instead we have politicians, regulators and commentators looking for immediate results, scaremongering, undermining confidence, and generally being totally counterproductive.

  • Comment number 48.

    When we are all gone the grass will still grow the sun will still shine.

    The earth is thought to be 4.56 billion years old!

    We are so absorbed with the now it is unbelivable.

    The whole world needs to change there is enough for everyone.

    Lets start living in a sustainable way instead of this stupid must grow and grow and grow.


    Need more and more and more.

    IT IS INSANE!!!!!

  • Comment number 49.

    Robert Peston's blog is always insightful and thought-provoking. Which is a lot more than can be said for many of the comments of its readers.

    Hyperbolic, apocalyptic hollering now is as useful as the greedy over-optimism of the boom years.
    The antidote to the bubble-making bullishness is dispassionate realism.

    Even more disappointing is the disrespectful tone with which people attack Mr Peston. The haranguing is almost always a substitute for real content or lucid thinking. That said, it does betray the irrational negative element in the popular psychological reaction to the recession, a factor which needs to be addressed by economists and politicians. But certainly not by business correspondents.

  • Comment number 50.

    Well everybody???

    Lets close Heathrow for a day or two??



    GORDYS GANG would just SHOOT us ALL.

    MUGABE i see no MUGABE?

  • Comment number 51.

    Lets take a look at what the lending would be for if all was rosy in the tea gardens of capitalism and/or socialism

    Business Loans - yep, those businesses need loans right now, to survive not to grow.

    Mortgages - Lots of people out there trying to get on that housing ladder, cant wait to borrow money on a depreciating asset. Oh and dont forget those 20% deposits. Waiting in line they are.

    Car Loans- - Yep, you get it, another one of those loans that you end up owing more than the asset the day you pick it up.

    Consolidation Loans - No end of companies willing to gamble all your spread out debt into one package tied to their balance sheet , is there? Seen all those adverts disapear over night.

    Bridging loans, home improvement loans and even student loans, gone

    This matter will not stop until asset prices stabilise, jobs are save and business are growing.

  • Comment number 52.

    I watched Newsnight last night and it was patently clear that both the labour minister and Alistair Campbell had no idea what was going on or what to do.

    The minister's only contribution was to keep repeating the line re it all being the fault of of American sub prime loans and the Jerry Springer audience. Well perhaps she has never seen the adience for Jeremy Kyle or Trisha if she had she would know we have plenty of them ourselves and they all drink and smoke and have Sky Sports whilst living on benefits.

    As for Campbell all he could say was what would the tories do and then not allow Lord Lawson to answer the question.

    At one stage I thought Paxman was going to explode with annoyance. If you haven't watched the programme catch it on I Player.

    The problem is very simple. For far too long the whole of the UK has been on a borrowing spree either inflating property prices to an impossible height or spending on luxuries that they cannot afford because society tells them they should have them.

    A society that idolises WAG's and conspicious consumption over investment and actually earning a living. It is fine to borrow on credit cards to get £1,000 handbags and £150 jeans because that is what Posh or Colleen is wearing and forget how you are going to pay for it.

    Let us accept that a large number of people in the UK have mortgage debts that they should never have been allowed to get into with no chance of paying back and also have tens of thousands of pounds on credit card debts that they cannot pay back.

    Until something is done to break this Gordeon knot the country will slowly strangle itself.

    I agree with Alexander Curzon there is going to be major unrest as this all falls apart.

  • Comment number 53.

    more nuggets of truth being drop fed to us!

    Notice how carefully one noxious fact appears after another-skeletons out of the cupboard a bone at a time!

    'Your arm bone's connected to .....
    Dem bones, dem bones, dem funky bones!'

    (mr moderator - please note this is not a foreign language, just the words from an old song, so please don't bounce me!)

    Thing is, we all know what the skeletons are, Robert, just how many of them there are!

    This government and our banks are systematically dismantling our country through their desire to be seen as world leaders.

    If anything is nationalised by this government it will never function as a proper business. Anyone who wants full nationalisation needs to look at the behaviour of Northern Rock towards it's borrowers. They have the highest rate of repossessions of all banks.

    Bring out all the dirty stuff that's left, wait for the housing market to find the correct level and sort out what's left after the dust settles.

    We can't continue to give all this money to the banks-make proper tax cuts permanently to ensure employment, overhaul the lending system, get rid if LIBOR-it's effectively redundant.....

    We've all said what needs to be done. The tinkering must stop-it's not going to make a jot of difference. We have to hit ground zero, then build stability from the bottom up.

    Politics and banks need to get a divorce and all this knee jerking political reaction has to change to considered proactive response.

    This government either lacks the courage or the knowledge to do this.

    Either way, they aren't doing what they need to do.


    The civil unrest is only just beginning. I'm sure none of us want to see it develop into full blown revolution.

    GB and Ally D, wake up and look around you. LISTEN to what your people are saying, or face the consequences of treating us with such arrogance!

  • Comment number 54.

    "Credit is no different from any other commodity"

    I would say it is based on the fact that most of it is just numbers dreamed up and stored on a computer based on over valued real commodities.

    Would you like to buy some of my gold? You don't actualy get any gold but I will let you log into an online gold repository where you can see the value of your gold. :)

  • Comment number 55.

    With house prices continuing on a downward spiral, as opposed to continually rising that can only be good news for first time borrowers who now have, for the first time in decades, a realistic chance of saving enough money to put down a decent deposit on their first home.

    In that case many frist time borrowers if they have any sense will delay taking out a mortgage for at least the next couple of years and if they do that then house price will fall even further. If one accepts that is going to happen then the housing and property markets will remain in the doldrums for at least that long or until the economy starts to really pick up.That scenario one accepts would be disastrous for the UK house builders and property developers as well as for all those industries associated with those markets or supply goods and services to into them.

    On the other hand if average house prices did fall to say four times average earnings then that would help the UK to recover some of it's competitiveness over the longer term. On the basis that if houses did become more affordable that would ease the pressure future wage demands because mortgages are such a big chunk of peoples take home pay. This would give the banks some breathing space to replenish their capital base and enable them to offer a better service to small businesses, particularly those that are export led.

    In the short term the government could soften the blow for some of the people employed in the building and construction industry by bringing forward a number of programmes to upgrade our decaying infrastructure. This could include building new affordable housing as well schools and other such projects so badly needed to make our economy more competitive.

  • Comment number 56.

    the simple way to sort this matter in future is to make everyone responsible for their actions and debts. No more take lots of cash in as MUMS INVESTMENT LTD lose it to friends and associates fold the company then open the next day in the same office as MUM MARK 11. In other words treat business owners the same as private individuals are treated by the courts on the banks behalf.
    Personal assets of owners and directors should be seized this would make share holders control the the management they employ.
    I personally have been robbed by large businesses several times and still see one director driving his Bentley to his plush offices and sometimes on television giving his veiws on the economic climate makes me sick

  • Comment number 57.

    To me, this article paints a misleading picture of the derivation of the current breakdown, the structure of what's causing the logjam, and the path we should be taking to free ourselves from this logjam and resume sustainable working.

    Apart from this, the article contains a lot of good points.

    What Mr Peston fails to point out is that the poor-risk lending that is at the centre of the difficulties was an inevitable consequence of the removal of the moral hazard of bank failure. The implicit government underwriting of all financial institutions forced these institutions to upgrade the battle of competition to being the overwhelming threat to their continued existence. It changes the whole psyche of lending if the major worry is not that the borrower might default, but that you might lose the deal to someone else.

    It was the direct intention of governments not merely to encourage the banks to be less prudent with their lending decisions, but to force them to be. And I think that governments genuinely believed that there was no downside to this policy. I think they felt that the banks, historically, had been unnecessarily cautious, and that requiring them to be looser with their decisions was actually a step in human understanding that would bring about an upward sea-change in our development.

    Mr Peston goes on to suggest that the difficulty banks are having obtaining funding is due to uncertainty about the adequacy of capital to cover further write-downs on existing lending. Sure it is, but it's not the only reason banks are being shunned. I think potential lenders also want some comfort about the banks' intentions for future lending as well. What attitudes are the banks going to have, or be allowed to have, regarding the inclusion of risk in future lending decisions? Do the West's policy-makers regard this breakdown as an indictment of past policy, and a need therefore to change tack? Or more as an extraneous hiccup that requires no reconsideration of basic policy.

    It's whether or not the US is put into the jigsaw as being too big to fail that will ultimately determine the picture of how things are to be. And this decision, in turn, depends upon whether there can be an accommodation between American expectations, and those of the rest of the world. There is a level of US expectation above which some will decide that the cost, to them, of pampering the US is greater than the benefit they will gain from the maintained American economy.

  • Comment number 58.

    "the big simple point is the banks can only lend what they can borrow"

    Either i am being incredibly simplistic or i'm missing something drastic but this is exactly what caused this mess in the first place.

    Debt on top of debt on top of debt creates money that doesn't exist.

    Why on earth is the Government so hell bent on creating more of the same?

  • Comment number 59.

    @43 auntGabrielle.
    I think yes.

  • Comment number 60.

    Because of the intrinsic weakness of the pound, the UK's monetary system is leaky. As fast as the government and the Bank of England pumps liquidity into the system, people with liquid assets will move them across the exchanges into dollars or euros, seeking greater security for their money.

    We in the UK will have to wait until the economies of the US and the Eurozone recover sufficiently for people to start using their dollars and euros to buy up, the by then, cheap, assets in the UK.

    In the meantime it will only be possible to try to protect those parts of the economy that might be important in the recovery.

    What a pity we did not join the Eurozone when we had the chance to do so.

  • Comment number 61.

    We now face a fundamental shift in the balance of relationship between the state and the citizens of the world that is most worrying in that it appears to be accidental and by default. Whilst rescue plans may produce the ulterior desired outcome (this is itself debateable) the real risk could be in the law of unintended consequence. Conspiracy theorists will of course debate if this is indeed accidental or a deliberate attempt to shepperd and herd the population on mass.
    What is true ,however, is that due thought to the end game should be given urgently and the neccessary safeguards and checks and balances built into preventing the state holding undue sway over all our lives in the future. This is no longer just a financial crisis it is potentially a sociological one as well.

  • Comment number 62.

    This is the 21st century's Great Depression.

    Those countries that devalued their currencies fastest in the last great depression, came out and recovered most quickly (albeit over a few years). Those that retained their historical currency's strength did by far the worst.

    Bring on inflation, and a slump in Sterling (say to 1 GBP=0.8 EUR and 1 GBP = 1 USD), and we will have very, very high inflation and pain, but we will survive in five years time.

    Keep the exchange rate where it is today (1 GBP=1.18 EUR and 1 GBP = 1.5 USD), wilting roses for another year or so, and then cataclysm.

    If only the 1929 crash had led to liquidate, liquidate, liquidate (this was threatened, but stopped by President Herbert Hoover from taking place, so it never occurred), the crash then would not have gone on for ten years and led to a world war.

    Only problem with the idea is that Europe and the US will also want to devalue their currencies as much.

    A smart PM will get in there first.
    I never thought I would be rooting for Gordon Brown to make Sterling plummet. But please, PM, do it now, do it well, and do it deeply. It'll hurt like hell, but will save us.

  • Comment number 63.

    When will our political and financial leaders realise that the financial systems that got is into this mess now have to be radically changed.

    Our leaders seem determined to bankrupt us all to try and fix our existing fatally flawed system.

  • Comment number 64.

    The MERE utterance of the word

    NATIONALISATION,will ensure we continue

    to use the Irish Banking System.



    IN FULL on all accounts.

    We for one would deposit in the UK if

    threats of NATIONALISATION were


  • Comment number 65.

    Robert sometimes you totally miss the point and this is one of them.

    The fund managers who supply the funds to the wholesale markets know the banks have not come clean on all their toxic loans and special investment vehicles and rightly can't see any value in trusting them with cheap money.

    What is bizarre is that the FSA and Bank of England have been unable to say categorically and specifically that all the dirt is now known about in the public domain and the downside is clear.

    Until we get that statement we can forget that trust in the banks will grow.

    Why are these people still in their cosy jobs as Regulators when it does not require a degree in rocket science to get to the bottom of this mess.

    Thanks heavens the final security we have as taxpayers are the Trustee's to the large investment funds who's expectations are clearly more akin to good busienss practise than we can expect from the FSA, Politicians, Bank of England or the Banks.

    Finally why does it still take 5 working days clear a cheque? for 30 days we now need to read 35, 60 should be 65 and 90 is LaLa land!

    And we think our banking system is efficient?

  • Comment number 66.

    So the real creditors in the system are the "pension funds, money managers and sovereign wealth funds". The debtors are the individuals with excessive mortgages and credit card loans and certain companies with high debt (eg private equity). The banks are just middle-men.

    We do indeed need to get rid of the excessive debt accumulated in the system. But this can only be done in two ways: the debtors repay the loans (which we're seeing happen to an extent with the negative net mortgage lending as described yesterday); or the real creditors have to write the debt off.

    The worry with the current approach is that the debts to the real creditors don't get written off. As debtors default (and they will) the debt just gets transferred to the Government (and hence to taxpayers). So the taxpayer ends up owing vast sums to the "pension funds, money managers and sovereign wealth funds" without the assets to back it up. That's really what's happening now -- instead of lending directly to the banks, they are lending to the Government which is lending to the banks, which means the Government takes on the risk.

    Full nationalisation of the banks (or maybe at least redefining the part-nationalisation so that it is on a permanent basis) may well be necessary. But to actually get rid of the debt we really need to look at major wealth redistribution via the tax system and perhaps nationalisation of the pensions industry too.

  • Comment number 67.

    My first and only foray into protectionism, I don't like it, but you tell me any country that isn't 'looking after its own' right now.... a couple for starters:

    Top of the list, as they've just been given lots of our nice tax money - Banks, could you please bring some of your outsourced jobs back from India please, we'd like to see the salaries from it spent in the UK and the taxes from it could help fund a little of what the banks have received

    Secondly - anyone have any idea how much of Mr Browns/Darlings loan will end up bolstering Chinas Foreign Currency Reserves? Jan to May this year I think we had a 5 billion pound trading deficit - and growing. I know our retailers make their margin, but there is something galling about the thought that in 2 years when I'm paying for the debt, an awful lot of it may be sat in a Chinese Bank!

    On a lighter note - I've just been enjoying a light hearted moment with my daughter. She's looking for a house, they are finally becoming affordable! How we laughed at the irony of our tax money being used to push the prices back up. Mr Darling is not only trying to make her pay more, but he'll charge her for the privilege via increased taxes for year to come.... priceless

    Thank you Mr Darling for bringing a Father and Daughter closer together

  • Comment number 68.

    A democratically elected government can effectivly do what ever it pleases until removed by due process. Every citizen should be aware if they are not already that everything we own in effect belongs to the government in the country they reside if they decided to use their absolute power, for this reason there is nothing inevitable about a reccesion. It appears to me that the governments around the world have decided to do what ever it takes to reinflate the world economies. The major problem for the banks is falling asset values to underpin their capital however these values are only a snap shot in time and can change very rapidly as any property owner will know, with the combined might of national governments which as I said earlier have absolute power, asset values will recover far faster than the traditional view This is not like any reccesion in history as there never has been such a concerted effort on behalf of governments to re inflate.
    The world really has changed and anyone standing in the way from multinational banks down will be blown away.
    Time to buy tangible assets based on land.

  • Comment number 69.

    OK, now Merv's started reading here too. If so, let's move on to the next bit, which might hit this afternoon.
    The Conservatives' Emergency Debate has the status of a Finance Bill debate, and if HMG loses that one, it's a General Election with a rudderless ship, both here and in the US, over Crimble.
    Whereas the whole idea is that the system gets its act together internationally, yet our Beloved Leaders show about as much dynamicism as a rice pudding in that direction.

  • Comment number 70.

    Just seen my last post has been referred. All it did was dare to question the FSA model of regulation and GB's part in creating it. It was a cut and paste job from Bloomberg, complete with acknowledgement of the source etc, ie no different to other posts I and many others have made recently. Maybe I'm just getting paranoid, but I can't see why it was referred.

    Anyway, to read it, go the below link

    The article is entitled: "Brown's "Churchill" Moment Masks Failure of UK Bank Regulator He Created"

    It's an interesting read, and not as entirely negative as the title may suggest.

  • Comment number 71.

    "On the other hand if average house prices did fall to say four times average earnings then that would help the UK to recover some of it's competitiveness over the longer term. On the basis that if houses did become more affordable that would ease the pressure future wage demands because mortgages are such a big chunk of peoples take home pay. This would give the banks some breathing space to replenish their capital base and enable them to offer a better service to small businesses, particularly those that are export led.

    In the short term the government could soften the blow for some of the people employed in the building and construction industry by bringing forward a number of programmes to upgrade our decaying infrastructure. This could include building new affordable housing as well schools and other such projects so badly needed to make our economy more competitive."

    This sounds like the most sense I have read today!

  • Comment number 72.

    "the overhang of excessive debt accumulated in the boom years remains the biggest problem for the UK economy and for the world"

    So, foregoing the obvious technical/implementation issues, how about considering income tax breaks on interest payments for the consumer in much the same way as corporations financed through debt receive similar allowances?

    Surely such a move would undoubtedly be a step in the right direction to encourage those that have over-indulged during recent years to pay back their debts, increase the affordability of their debt repayments, possibly freeing up funds to stimulate the economy and ultimately lead to improved confidence within the finance industry such that they return to more appropriate lending levels.

    I am aware it would be naive to think this alone would resolve the current economic crisis, but as well as putting the consumer on a slightly more even standing with business entities (in terms of tax/interest repayments), would this not show that the government is willing to first support the consumer (and indirectly the overall economy) in resolving their well-publicised debt issues in order to achieve a favourable outcome for the economy?

  • Comment number 73.


    Absolutely. This country now produces hardly anything of any value so instead we have an economy built on credit (i.e. debt).

    Well, there's no more credit creating debt (most people seem to forget that's what happens when money is lent - debt is created). And that debt (or credit) is therefore no longer creating money. But the debt needs to be re-paid, so we need more money. But if our money comes from credit (which is really debt) and we can’t get any more credit how can we pay it back and keep the wheel spinning!?

    But hang on – here come Gordon to save us!

    He’s going to allow us to create even more debt so we can continue creating money. We can get back to “normal” where we all have large TVs, a new car every few years, exotic holidays. And we can get back to “normal” in this way because we know our house will be worth 10% more next year and can borrow against that eventuality (because houses always double in value every few years, right?).

    We are up the proverbial creek and not even on the raft any more. If we continue down this road (or up this creek), we’ll not even be wearing swimming trunks soon.

  • Comment number 74.

    I have seen very little detailed information in respect of the B of E ‘s role at the moment. Please could I ask you to explain why it is a problem for the B of E to be lending as it is ?

    For example, I for one, don’t understand why the B of E doesn’t simply offer as much money as the banks want at Base Rate. No premium would be charged (unlike at present) but the condition would be a maximum margin above Base for a particular type of lending (ie consumer v householder etc). This will directly link lending to Base Rate for business and the housing market, which will in turn do far more to stabilise the economy than the recent stimulus package.
    As world interest rates fall, holders of cash need to place their cash somewhere and so in time as the risk reduces they will be prepared to lend to banks again, the Central bank can reduce its cash offerings and banks will be able to increase their margins.
    Aren’t the simple solutions always the best solutions ?

  • Comment number 75.

    Another thread: if HMG was ready to start recovering their advances as soon as everyone breaths the first sigh of relief after a year's VAT holiday, what else don't they believe in their own figures?
    The effect as it was proposed was that next Christmas sees an all-time boom before the High Street hits the buffers on 31.12.2009, with VAT jumping from 15 to 18.5, ie nearly 25 per cent. Just what a retail sector coming out of recession - at best - needs.
    Alternatively, if you prefer the OECD figures, where does 2010's HMG borrowing come from?
    Henceforth I think we add a U to gilt...

  • Comment number 76.

    Why are you all expressing surprise that Labour will bankrupt the country? Of course Monday was a just a stop gap to the real crisis which awaits us ONCE THE NEXT ELECTION IS OVER. Darling Brown ideologically cannot take the right decisions because they might lose votes - any company going bust will stall until the very last minute, usually the last day before the wage bill is due which is what they are doing - you ain't seen nothing yet!!

  • Comment number 77.

    Robert Peston should actually do some mystery shopping and he will find there is of mortgage money available. Maybe not as cheap or easy as in the past but that is what got us into this mess. The Politicians continue to demonstrate they have no understanding of either the SME or house mortgage market.

    With houses there is vastly reduced demand because few people want to incur the additional costs of moving until their future looks more secure and no SME with any sense will do anything other than shed cost in an economic down turn and as usually 60% of fixed cost is people, they should be the first to go. If they need to re-capitalise because of losses, they should re mortgage (if they have the equity) because it will be cheaper and over a longer period. rather than working capital lending from a Bank. They should make their working capital work harder. de-stocking, shorter credit terms, tighter credit control etc.

    Any money generated by the demand side fiscal initiatives will either be so small as to be irrelevant or used by the prudent (remember that word!) to pay down their existing high levels of debt.

    It also shows how busted their thinking is that the only way to boost the economy is via the housing sector which was the major cause of our problems in the first place

    It suits Politicians to blame the supply side because they are more interested in short term political survival than the longer term financial interests of the country. This mess and the solutions being offered just show how structurally out of balance the UK economy is and that in 10 years tine when everyone has forgotten this, it will happen again.

  • Comment number 78.

    #48 NO MAD TT AM

    Your new here. I guess you must have taken a wrong turn on your way to La La Land.

    Hello. We have six billion people on the planet now. If we stop growing and producing more all the time even more will go without.

    'Sustainable' you mean i'm good so lets keep things as they are. I don't want to think and acknowledge bad things.

    You say "we are all absorbed with now."

    No Really. That might be because we are alive now and will be dead later. Its called existance. Great minds have pondered it forever. Perhaps you have heard of Satre and his existentialist ideas. Planning for the future is one thing but we always live in now and it is now that determines the future.

    No you got blown away by cosmology for children and the greatness of the universe.

    There is no time for silly comments now so if you want to find La La land just head back the way you came to the land of organic eggs.

  • Comment number 79.

    44. Neilhead wrote:
    "Does anyone think this entire crisis has been engineered?"

    If it is engineered, then Cui Bono?

    It is hard to see than anyone is benefiting. Unless some very rich people are sat out there just waiting for to buy up everything at rock bottom prices when things have got much worse.

    I agree that the root cause is greed though. However, the most greedy that caused the problem do not seem to be held accountable. All efforts seem to be going towards getting these people off the hook.

  • Comment number 80.








  • Comment number 81.

    Why dose everyone keep talking about greedy bankers, what about greedy supermarkets.

    Sainsbury's sold cabbages at £1.50 yesterday, today they can suddenly sell them for 0.50p and still make a profit.

    Even if they sold everything at the same price and quality as Aldi I would still not return, just thinking about the huge profits they made out of me in the past.

    People forget it was food prices along with gas and electric rises that brought all this to a head.

  • Comment number 82.

    You write “the overhang of excessive debt accumulated in the boom years remains the biggest problem for the UK economy and for the world.”

    I disagree. There is an ever bigger problem, which you (and governments) ignore at your peril. That is, that the years of easy credit distorted our economies, inflating many areas, including of course financial services, but also enlarging many other areas (the american car industry, for one, was bloated on easy consumer credit).

    When you realise this, you will see that what has to happen now is a readjustment of the world’s leading economies to a more sustainable shape, based on prudent levels of lending and sensible borrowing. So a step change is needed, cutting down the bloated areas of the economies, and enlarging areas that are genuinely productive.

    Unfortunately, being blinded by the problem of excessive debt, means that the remedies being proposed are still trying to pump money into areas of the economy that are unsustainably large. They are only delaying the inevitable, that these bloated industries must shrink. And they are of course creating further debt at a time when it is least needed.

    This is a bleak message, the idea that a structural shift is needed is not exactly a vote winner. Which is why our esteemed leaders’ approaches would appear to be to prefer to be in denial: they are pretending that pumping funds into these unsustainable industries will solve the problem, because the realisation that they are unsustainable at present levels is even more unpalatable.

    Time for some brave and intelligent leaders. Is Obama going to be one?

  • Comment number 83.

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

  • Comment number 84.

    POST 62 balsaltrocky

    Sterling Crisis

    When the food in Tesco goes through the

    roof you wont think thats such as clever


    Do you know how MUCH FOOD WE


  • Comment number 85.

    Peston will be appearing in one of the Doctor Who Christmas editions as an android who can predict looming financial disasters. I think he's made for the part!

  • Comment number 86.

    I have "joined" the blog as it seems the only place I can get sensible comment.


  • Comment number 87.

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

  • Comment number 88.


    #3, #5, Spot On

    We need food security, energy security and general self-sufficiency. Trade is fine, but we must have things worth trading that the rest of the world will want.

    #19 "We seriously do not want State run/owned Banks.#

    Some people will ask why not; the answer is the same as why the people who wrote the US constitution insisted on separation of powers. It would give the government of the day too much power, and put too much pressure on it to make bad decisions. A big employer in the PMs constituency facing bankruptcy? No problem, pressure the PM to make a state bank give it a loan.

    In fact, the government has too much power as it is, because the payroll vote system in Parliament subverts an MPs loyalty from his/her constituents to the executive. As soon as an MP becomes as much as a PPS, they are not allowed to think for themselves any more. My MP was quite good until he got onto the bottom rung of the ministerial ladder.

    We need a complete rethink. I would favour a directly elected PM whose ministers would be responsible to parliament, but not drawn from it. It might mean we get more competent people as ministers, rather than career politicians. The duty of parliament should be to draft legislation and hold the government to account.

    #11 "This Government must stand down!"

    The only problem with that at the moment is that we would get more of the same under an administration of a slightly different hue.

    Time to start a new political party with a view to organizing for 2010. Start thinking of a name now and draft a manifesto. I'm chronically ill: I can't stand, but I would help with leaflet, website design etc.

    How about a "Rebuild Britain" party?

  • Comment number 89. other than that OK?

    I do not want to see the state running our banking industry - as the joke goes
    'government - if you don't like the problems we create , wait until you see our solutions'

    If private debt holders want the banks to hold more capital in terms of thier outstanding loans then ultimately we are going to have to recognise that some debt is 'non-performing' and the tax payer cannot go on picking up the tab for that
    - efectively if we do that we remove the risk element on lending which could give us the same problem as we have now when risk was not managed

    I fear we are just postponing the day of reckoning ..

  • Comment number 90.

    The key element in everything that happens now is TIME.

    The Government should be commended for being decisive and doing what has to be done. (This is not a political point, but successive Tory governments never had the courage to do what had to be TIME. Ineffectual tinkering at the margins resulted in unnecessarily long recessions - they presided over a goodly few!)

    If we have to nationalise the banks, let's not mess around, let's do! Time is of the essence as never before.

    Fortune WILL favour the brave!

  • Comment number 91.

    # 64

    Do you think the Irish government could stand behind its guarantee if it had to? It represents something like 200% of Ireland's GDP. And rising as a proportion, as GDP is forecast to fall here by up to 4% next year.

    The banks are all subject to shotgun marriages right now. Don't know who you're using, but BoI looks likely to merge with Irish Life & Permanent. Allied Irish is "talking to" EBS. Anglo Irish is a basket case, making Northern Rock look like a paragon of prudence.

    There is a private equity consortium looking to invest in a merged BoI/ILP combination, and also perhaps take a stake in AIB. They are also, apparently, willing to put money into Anglo Irish. In short, "the Irish banking system" will soon just be "the Irish bank".

    The only reason why the Irish government hasn't recapitalised the banks in the same way as UK/US is that it can't afford to. It recently tried to sell Irish gilts on similar terms to RBS (who had a UK goverment guarantee). RBS got their money easily, Ireland struggled. I hope you won't allow political prejudice to stand in the way of keeping your money safe.

  • Comment number 92.


    The institutions have many Skeletons.


    I shorted HBOS shares on 5 trades and made a clear 38 million.

    For me to WIN somebody LOST.

    So out there somewhere theres a 42 million

    plus LOSS.

    Contrary to opinion HBOS didnt loose that cash.




    Similar DEALS are done 24/7 its a GAMBLE

    THATS why the banks are BUST.



  • Comment number 93.


    There is no graduate in this country who is not working so they don't have to pay off their student loans.

    It is 9% of everything over 15,000, talk about cutting off your nose to spite your face. Hmmmm, I won't take that 20,000 a year job because the government will take 500 quid off me. I'd rather sit on the dole. Get real.

    Do you really think this is how graduates think? My guess is that you don't know countless numbers of graduates in this position.

  • Comment number 94.

    @13 crunchedup

    The stock market has performed well because everyone thought the institutions were making profits - which pushed their shares up.
    It has recently become apparent that this was all a big accounting error. Fractional reserve banking meant that one institution had 10 pounds but 7 or eight others thought (or said) they had it.
    This went round and round until we thought we'd generated a huge amount of money.
    But like any pyramid scheme it was a lie.
    Now there seem to be a lot of people - including the government - who think that money is still there somewhere, or can somehow be re-magiced by pouring taxpayers money down the drain.

    Until we accept we've been seriously conned - deliberately or not - we're never going to get back on course.
    The titanic has sunk - rearranging the deckchairs on Brighton beach is not going to make any difference - apart from ripping off those poor mugs who are paying to shuffle the deckchairs. Us !

  • Comment number 95.

    I'd like to see some analysis of the Government's off balance sheet commitments.

    PPP, PFI call it what you like, but if these bills aren't paid NHS services will collapse and military capability will become obsolete to name but two.

    Off course there's always the public sector pension pot to maintain.

    I imagine that if the total amount of debt (expenditure commitment) was made visible, there would be a massive run on the pound.

  • Comment number 96.

    "Private-sector holders of trillions of pounds"!

    Who? How?

    Where are all those trillions of pounds kept, if not in banks? Or are these trillions of pounds in private banks, off-shore financial institutions or tax heavens ?

    Can these trillions of pounds get a much better return than retail customers, do they pay the same percentage of taxes on the interests as we do?

    Yours, even more pubzzled ...

  • Comment number 97.







  • Comment number 98.

    "So here's the Catch-22 to end all Catch-22s.
    If we want our banks to lend more, they're going to have to be able to borrow more.

    And to do that, they're going to need to raise more capital."

    A brilliantly simple summing up Robert! Worth joining the blog for.

    The financial system is undergoing a healthy review. As with most things we only deal with problems when they arise - it's too politically awkward otherwise.

    To resolve the problem we need further consolidation in the financial markets. It may reduce competition, but survival has taken over from profit as the bankers motivator.

    Kick-starting this stalled financial engine will take elbow grease, confidence and creative thinking.

  • Comment number 99.

    As a supporter of the BNP (and one of the many who voted New Labour), I would simply like to thank Gordon Brown and his chums for this situation.

    Every day we receive new members. Disheartened by the state that they find themselves in, they can see a way forwards with us that they cannot see with any other party. Gordon spent years telling us what a genius he was, but now its all gone wrong he blames the American housing market.

    People are not fooled though Gordon, so enjoy your delusions whilst you can.

    If inflation hits (and I for one am convinced that is the way Gordon will try and "fix" the problem) then I would suggest that as history has shown us the consequences will be a move away from "traditional" parties and towards new solutions to problems.

    Thank you again Mr B. The pleasure will be all ours.

  • Comment number 100.

    Im not sure which thought is worse. That this country's demise is being deliberatly manufactured, Or that they are actually doing their best to help us.
    its ignorrant people like you that are killing society


Page 1 of 3

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.