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Paradox of bank bailout

Robert Peston | 10:17 UK time, Friday, 21 November 2008

In saying that there's a case for nationalising the entire British banking system, John McFall - the chairman of Commons Treasury select committee - has shone a light on the paradox of the recent global rescue of the world's biggest banks (listen to his interview on Today).

John McFallMcFall and many others are exasperated that our banks remain deeply reluctant to lend to businesses and to individuals, even after so much taxpayers' money has been pumped into the banking system.

"What are the banks playing at?" many of you ask.

Well, funnily enough, part of the reason our banks are restricting the supply of credit actually stems from the official description of the bailout as "temporary".

Governments and central banks are saying that they want their (our) money back from banks within about five years.

That may seem a long time. But it's no time at all in the context of all the money that we've pumped into the banks.

The capital element of taxpayer support is only a small part of the problem.

Take the UK. Taxpayers are providing £37bn of capital to Royal Bank of Scotland, HBOS and Lloyds TSB.

Redeeming that will be enough of a headache in the coming few years, given the parlous state of capital markets.

But it's the tip of an enormous iceberg.

Special, additional taxpayer loans and guarantees to British banks are a further £600bn in total, or just under half the UK's total annual economic output.

All of that has to be paid back too. And since it can't be refinanced on wholesale markets (which are closed till who-knows-when), paying it back automatically requires our banks to lend less to all of us.

There's nothing the banks or we can do about this - unless we tell them that we don't want our money back. And I'll return to what that would mean in a moment.

Nor is this simply a UK problem.

As I've pointed out in earlier notes (see "The £5000bn bailout"), taxpayer support for banks across the world - from South Korea, to Australia, Germany, the US and so on - is around £5000bn in total.

Which is equivalent to a sixth of the entire output of the global economy.

And, again, the imperative of paying this back is a massive drag on banks' ability to lend and is therefore also a ball-and-chain on economic growth.

This, of course, is just one of the deadening weights on banks' ability and desire to lend.

The other severe constraints are:

1) regulators' very belated stipulation that banks and other financial institutions should hold much more capital and cash in their balance sheets relative to the value of their loans - which in a world where capital and cash is scarce and expensive is a massive disincentive to lend;
2) the devastating effect on credit creation of falling asset prices;
3) the relative dependence of British banks on funding from overseas institutions which are progressively calling in their loans;
4) the considerably increased risks of lending to individuals and companies when the economy shrinks.

Against that backdrop, the question is whether it is remotely sensible to put a deadline - implicitly or explicitly - on the repayment of all that taxpayer funding for banks.

But if we don't demand our money back, we'd be formalising that there's been a semi-permanent nationalisation of the entire banking system.

And that would massively encroach on the ability of our banks to operate as independent commercial entities.

There would be massive political pressure on them to become quasi-social utilities, providing loans at the behest of ministers and officials rather than on the basis of commercial criteria.

So here's what may turn out to be the choice: less lending for years or public ownership of the banks for the foreseeable future. It's not an easy choice, is it?

Comments

Page 1 of 3

  • Comment number 1.

    their independence and creativity is what caused this mess! Nationalise the lot!

  • Comment number 2.

    Interesting comments from John McFaul theatening Banks with "the nuclear option" of full nationalisation if they do not lend.
    Rather sinister and very marxist especially when it was then answered by saying the Banks have not actually received any of the 37billion yet. Either left hand and very left hand of Government not working together or the real commy plan coming to light

  • Comment number 3.

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

  • Comment number 4.

    They should have been nationalised right away, it was a no brainer.

  • Comment number 5.

    "And that would massively encroach on the ability of our banks to operate as independent commercial entities."

    If part or full nationalisation stops them operating as independent commercial entities there maybe some hope that there would only be the single entity of national lender, the lender of only resort, and we would have sensible banking.

    Our savings/deposits in effect become Tax paid in advance

  • Comment number 6.

    Very detailed, technical response. I see where you're coming from.

    So what are banks for then- if not to lend money?

    You suggest all other options for banks to do business are not worthwhile - or have pitfalls, and they cannot make masses of money on the markets- and yet they are scheduled to repay this money are they not? So, in your opinion, what should they do, stuff their billions from the taxpayer under the mattress and wait for economoic spring to come?

  • Comment number 7.

    Yes, I think it is... Nationalise the loans and savings rather than the banks, transfer the loans and savings to the already nationalised Northern Rock (which would need a huge national presence), let all the other banks fail (which they already have, in all but name, if our money is paying WAGES!), get our loans back. Everyone's happy!

    Most staff from all other banks transferred to NR (not geographically) and anyone above Senior Manager level never employed in banking again!

    But if Robert's talking about the possibility, it means Labour are and he's just softening us up! Do you ever get the feeling you're taking part in the biggest Labour research group ever. We'll find much of what wasn't shouted down on this site in their election manifesto!

  • Comment number 8.

    A small quibble - the guarantees only have to be paid back if they are taken up, and presumably part of the point of giving guarantees rather than loans is that by boosting confidence they don't have to be taken up.

    Does that affect the total significantly?

  • Comment number 9.

    tigerjayj

    I know we usually sing from the same hymn sheet?

    But WE dont want this one.

    It would be the END.



    ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~#

    Re Blog

    I am going to DO IT.

  • Comment number 10.

    Dear Robert
    There is no excuse now for not Nationalising ALL THE BANKS, these Bankers are the same ones who created this crisis and should all be sacked.
    "Until they are gone nothing will change."
    Bankers are social Terrorsists, they are holding the country to ransom, after receiving PUBLIC MONEY to bail them out.
    "WHO DO THEY THINK THEY ARE"?> " SACK EM NOW AND NATIONALISE.

  • Comment number 11.

    gordy's fiscal stimulus is a complete waste of time.

    it's not going to make one jot of difference when the root cause of the problem i.e. toxic debts are still there and have not been addressed.

    if we have a tax credit boost (you couldn't make it up) then government spending has to be reduced as well.

  • Comment number 12.

    Am I stating the obvious - banks operate in a competitive market. They will willingly lend where it is profitable. Is Darling pressuring banks to make unprofitable loans? Madness.

  • Comment number 13.

    I am puzzled now! Surely if the government has invested in the banks then we own a stake of that bank. Why can the government not sell that stake on the open market when times get better. It could be a fantasic investment for the tax payer if we own 40% of an almost bankrupt comapany and sell that stake when the recovery happens.

  • Comment number 14.

    There is absolutely no justification for having entities in the private sector which are "too big to fail", since they can always call on the taxpayer to bail them out once their crackpot business models fail yet again. Market forces can safely be ignored, and have been ignored by the managers of these organisations. The banks and all the utilities should be nationalised (or renationalised) immediately. Then at least the taxpayers will have power as well as responsibility.

  • Comment number 15.

    Perhaps it may just be that the primacy of banking and financial services in UK PLC is now over and in future we will have to get used to this fact. Also perhaps the days of unsound lending and the easy creation of asset bubbles are over as well as whatever new systems emerge from the current chaos will provide for a degree of caution that has until now been absent. Restricted credit will for sure mean that the scrutiny and testing that any credit application will have to go through will certainly sort the wheat from the chaff.
    A world of financial responsibility? May not be popular but just might catch on.

  • Comment number 16.

    I had an idea which could address many of the problems, though I appreciate its not perfect..

    Why don't the banks use the money they are pumping into banks, to instead address the core problem of potential defaults on mortgage loans?

    The govt can do this by writing off the last 5 years of property price growth at the individual borrower level. This would instantly create equity at the homeowner level, and for anyone who bought at an inflated price and is now facing repossession, the equity would be used to pay a portion of the mortgage to bring the outstanding capital amount down.

    Hence the banks would not lose out much as they would get compensated for the systemic risk that they had not priced in. It would free up their capital base significantly as it would reduce their long term loan commitments.

    Additionally, the housing market would get kick-started, as prices could stabilise at sensible levels, and defaults (along with the domino effects associated with them) could be avoided.

    Its a simple approach (though obviously not perfect), though unfortunately I fear that it may be too late to implement already as the contagion of the banking and housing bubble has spread into the wider economy.

    Any takers? Or people to pick holes in my argument?

  • Comment number 17.

    They don't need to nationalise all the banks, just one and then run it as a commercial venture but with a social conscience.

  • Comment number 18.


    As the HTML keeps coming up.

    ########################################################


    Fiscal PRUDENCE lavatory paper all round.

    John McFall doesnt want any?

  • Comment number 19.

    McFall is wrong... Nationalising the banks would put them under the control of the London Commissariat... We don't want that because they then become an arm of the Govt and banks are not like electricity or water companies.

    Certainly in Scotland to replace both HBOS and RBS we should establish a regional mutual bank which can be managed by professional banking types but its strategy should be controlled by trustees representing "the people" and industry.

  • Comment number 20.

    Perhaps we should return to the notion of saving up to buy things, and abandon the notion of buying things on the never-never.

  • Comment number 21.

    The Banks, owned by our Pension Funds, have been shown that asking for help from the Gov't destroys Shareholder value.

    And results in Bank closures, mergers and Staff losses.

    That same Gov't then expects them to lend freely, when money isn't available to them , without being stomped on by the Gov't.

    So of course the Banks are super cautious, the Gov't own attitude has forced them to hold back.

    Of course most of the people asking for the Banks to be Nationalised are those with no Pension plan , thanks to Gordon.

    And those with anything left are losing it now, thanks to Gordon.

    What fun !

    If I were an Anarchist I would be dancing with delight!

    Not being one, I will sit with a long cold whisky and ponder better times.

  • Comment number 22.

    Nationalise the lot.

    Reincarnate Beeching and scorch the earth.

    We'll all be so much better off in the long run.

    Why stop there. Nationalise every business in the country. then we wont need the Inland revenue as the government will know everything about every penny in the economy and will be able to take what they want accordingly.

  • Comment number 23.

    Alexander

    Great news about the blog-can't wait!

    I know we don't really want nationalisation-I'm just fed up with all the woffle, and wish something more effective immediately was done by those in a position to do so!

    Perhaps with the new Bloggers Party and Bloggers manifesto we could start the Bloggers Bank? No fancy stuff, just straight forward deposits and old fashioned mortgages (sensible ratios).

    Gosh we're going to be busy!

  • Comment number 24.

    PS

    When are they going to start steam rollering over the Building companies?

    They're are in the plans for nationalization to.......

  • Comment number 25.

    As we Citigroup get bailed out next to save it from bankruptcy, this will be the elephant that opens up the zoo.

    Nationalisation is now certain here and probably the whole western world.

    Now we need to make sure the people we put in charge are competent enough to supervise them.

    Any potential candidates?

  • Comment number 26.

    Hi Robert,

    I agree we should nationalise the banks. I also have a scheme whereby we can cut taxes and preserve a relative free market in financial services. If you are interested, see https://www.dingoes.org.uk/forum-view.php?thread=19.

    Regards

    David

  • Comment number 27.

    Robert

    No one is is remotely bothered by the rantings of a silly old communist.

    Jimmy my binman was kind enough to explain LIBOR to me the other morning. He managed to do a pretty decent job of it and correctly sumised "were xxxxed"

    McFell only cares about his own political skin and knows full well the loss of thousands of tartan jobs in banking will hurt him and his
    "Workers of the world unite" credentials and all that.

    He has some vague deluded idea that by nationalising the banks he can save the jobs that will go.

  • Comment number 28.

    ALL the warning signs for this mess were around in 1999/2000.

    Whilst the Senior Bankers have been TOTAL idiots.

    We have to look at Gordon Brown,the MPC,the FSA and the Governor of the Bank of England.

    They are to BLAME.

    The rule book is there.

    The regulators did NOT use it.

    Nationalisation will FINISH US ALL.

    That will be the time to leave the country.

  • Comment number 29.

    It's obvious why the government wants the banks to lend but surely the difficulty is that not everyone SHOULD be able to borrow. Many are excessively in debt and others can't afford to repay. Banks aren't registered charities.

    Similarly, if nationalised, then the same rules should apply - we as a nation should not encourage profligate lending. Nor are we registered as charities to give money to people who can't/chose not to repay.

    Yes, the world is in a financial mess but just lending more to the wrong people/businesses only stores up trouble for the future - that's how we've got here in the first place. We need to find other ways to stop things getting worse and direct the world economy forward.

  • Comment number 30.

    #16

    Yeah its rubbish

  • Comment number 31.

    Interesting as always, but please note that a paragraph can have more than one sentance, and it does usually read better that way!

  • Comment number 32.

    How do I buy shares in Gringotts Bank?

  • Comment number 33.

    "is around £5000bn in total"......

    Robert, has anyone worked out just how much bank boards and executives have paid themselves in inflated salaries, bonuses, pension contributions and dividends to shareholders in the last 10 years, my bet is that is comes out at around that £5000bn in total !

    The entire banking system around the world has been based on a lie for the last ten years (at least), in which time they have paid themselves lavish remuneration for account books that have been manipulated to show profits which never existed except as figures plucked from the air by those running the banks. Reminds me of guy I used to work with who dressed like a tramp, drove a decrepit old car and lived like a pig. He used to bring his bank book into work to show everyone how much he had in the bank (left to him from the sale of his fathers business) and brag how he had thousands and we had nothing. I told him to give me the bank book and I would add a couple of noughts to the total each month, whilst I took out the money and used the money to spend. I would be happy because I used the cash for goods and services which is what cash is for (funny how some seem to think its worth more just as numbers in a bank book) and he would be happy as he would appear to have even more money in the bank each month. I think now I should have joined the board of a bank instead and I could have done the same thing only on a much larger scale !

  • Comment number 34.

    The reason the banks wont lend is they know they wont get it back.
    They know that their actions over the last few years have left the economy totally screwed.
    The economy is not collapsing as such, its correcting an accounting error that gave the illusion of growth. When the stock market is down around 3000 here and 7000 or so in the US and is left there for a couple of years then banks may have and idea of what is going to survive in the 'new economy' (the old one before fantasy accounting took over) and may start lending again. Any one who thinks we can 'rebuild' by lending and spending hasn't grasped the fact we there was no economic growth over the last 15 years or so - it was a LIE!!!!

  • Comment number 35.

    One or two nationalsed Mega-banks? Ugh!! Part of the problem with all aspects of banking up til now has been power without accaountability. The equivalent of what Tony Benn called "nationalisation plus Lord Robens" will make it worse not better. Big centralised organisations, public or private, tend to be a nightmare.

    We need a different model. Perhaps a competing network of community-based banks where the businesses own a stake in the bank as well as the other way round? Sort of on the building society model? If what Robert said yesterday about the net borrowings of the small business model is true, then perhaps it could work with not too much input from the taxpayer? A bit would be justified by the common good, but basically it would mean people like Alexander and Guy lending to each other, obviously with suitable criteria and safeguards, and the bank being their servant, not their master.

  • Comment number 36.

    I think that, eventually, a whole new approach to organisations and their relationship with customers is coming. The failure of traditional 'top-down' management has been ushered in, and we are going to have to look at new ideas for their operation, ideas that will rely upon 'open-source' style, individualist control of collective institutions. The banks may well be a progenitor for this.

  • Comment number 37.

    A conversation recently with a business manager from one of the bailed out banks made it clear that the objective was 12 months. On this basis, rates will be hiked on loans and overdrafts and anything that is not 100% cast iron loan wise will be refused. It is time that this problem is addressed as it is becoming apparent to me that the bail out on these terms is actually harming the people it was suppose to help. Why can't a sort of payment plan be agreed based over 20 years at 5% per annum plus interest of debt owed?..or similar

  • Comment number 38.

    You point out yet another area where the proposed solution to the credit crisis is contradictory to itself and inconsistent. What's scary is how we are relying upon a number of individuals to fix this problem rather than an integrated team of experts.

    Yesterday I highlighted another area of concern (see below); indeed the current situation is riddled with incompetence across all levels. When failure occurs in such a systemic way, those at the highest level must be held accountable.

    The Government has stated that it is not shortage of demand for homes at "the right price" but a shortage of mortgages "at the right prices for people to buy"[1]. However, other articles detail how house prices will have recovered by 2013 [2]. If this is the case, the average wage would have to explode to £45K p.a. to pay for the average property costing £200K, based on the following 'prudent' terms.

    - £20K deposit (90% LTV),
    - £180K borrowed at x4 multiple of income of £45K p.a.,
    - 25 year term.

    The Government need to state their aspiration for mortgage lending in 12 months time in terms of Loan-To-Value (LTV) ratio, multiples of annual income, and loan duration. If you agree please sign this petition:

    https://petitions.number10.gov.uk/LendingReform/

    This will provide better understanding of their stance towards future lending, and enable the public to make their own judgment of the likelihood of lending regulation and reform.

    Personally, I think we’re looking at a crash in house prices (not just flats and apartments) or a return to irresponsible and risky lending.

    [1] https://news.bbc.co.uk/1/hi/uk_politics/7667284.stm
    [2] https://news.bbc.co.uk/1/hi/business/7692814.stm

  • Comment number 39.

    Perhaps I should start my own blog, Robert?
    I think I was the first to suggest it here way on back - the principal advantage being that unless the black economy goes to cash-only, then it's forced to go legit, and the resulting boost to official GNP gets us out of the hole. Plus the taxman gets to see what's what, and terrorist financing becomes impossible.
    Watch the bankers dash for the exit. Of course, that's also good news, because they've not been earning us anything for the lst couple of years, real-world.

  • Comment number 40.

    Rather than nationalisation, would it not be a better idea for HMG to guarantee the banks (prudent) lending? That way, the banks retain their independence, lending should be easier and the cost to the Treasury remains as only a possiblity rather than the certainty that nationalisation would entail. Were the banks to be taken over, HMG would still have to back its own lending anyway.

  • Comment number 41.

    BBC BREAKING NEWS!

    SOMALI PIRATES LEADER FROM CROYDON!












    Also in the news:
    Sheffield mum has triplets
    Sainsburys cut cost of carrots
    Repossessions up 12%



    GC

  • Comment number 42.

    I'm not sure that we needed reminding that none of those currently elected to run the economy have experience in the real business world and are unable to grasp the simple principles of profit and loss.

    Perhaps a mandatory reading of David Copperfield, as we were treated to yesterday, followed by a short examination:
    I propose:
    If you have expenditure greater than income what is the result?
    A) misery
    B) happiness
    C) it all depends on the prevailing fiscal environment of the time and in principle is not a bad thing provided economic growth over the cycle increases the income more than the level of debt implied and the interst payments can be maintained?
    D) Can I come over and talk about what you plan to do with the shilling?

  • Comment number 43.

    Robert, you seem to have glossed over the fact that this report contradicts what you said yesterday.

    McFall said one of the conditions of the bailout was that banks start lending again, something you said yesterday wasn't the case.

    So are you lying? Or is Mr McFall?

    Or are both of you?

  • Comment number 44.

    we shouldn't nationalise the banks.

    i'm not paying for all that garbage on their books.

    they are insolvent.

    they must go to the wall.

    it will be hell but we have to start afresh.

  • Comment number 45.

    Oi you lot, hands off my bank. Co-op was conservative and ethical, I dont want you frenzied bloggers breaking down their doors, nicking all my savings and then planting red flags outside. Co-op is NOT a euphamism for communist even in this jargonised world we live in.

  • Comment number 46.

    Robert, when the decision was made to bail-out the banks this was effectively a tacit acceptance that banks provide a social good. That they are more or less essential for the overall well-being of 'society'. Given this, there is a case for nationalisation. Otherwise Banks will always remain in a curious position with regard to the 'market' and other sectors within the 'market'. As it is increasingly becoming clear, given the problems with the US auto manufacturers, the regulation of the 'market' has to remain 'uniform' for it to operate effectively. By this I mean simply that calls for state support or 'subsidy' based on 'well you did it for the banks' arguments will ultimately undermine the regulation of the 'free market' which relies on an 'equality of response' from regulators to calls for state support.

  • Comment number 47.

    Another brilliant article, thank you Mr Peston.

    Only one thing that isn't clear. There's detailed arguments against the status quo, but balanced against them, I can only see one argument against full semi-nationalisation - that we don't want the whims of ministers to come before good commercial sense in negotiating loans and other deals.

    Fair point, but there's two fairly obvious-looking questions to this non-expert:-

    1) This is a danger if the policy was implemented badly, not an inherent problem with the idea. It'd be possible to design the system so that ministers couldn't influence decisions (or at least, couldn't do more than a little)

    2) There isn't much good commercial sense at the moment anyway, so there's really not that much to lose

    Sound banking decisions being distorted by political whim is clearly a bad thing, but surely, so long as care is taken when designing and monitoring the system, it's no worse than sound banking decisions being devastated by short-term lunges for bonus-friendly figures?

    As for banks becoming more social in their operations and being less independent, like most other people who have commented here I can't quite understand why this is a bad thing.

    Surely, in practical terms, being more social and less independent means banks being more hands-on in their dealings, having more formalised responsibilities, and being more accountable? Surely these are all good things (for everyone except corrupt executives)?

  • Comment number 48.

    These loans should be converted into shares at the price as it was at,say, 1st August the government should then be obliged to sell as and when the market price is at, say, 2.5 times the purchase price. This would remove the deadline RP refers to and encourage management to start doing their jobs.

  • Comment number 49.

    Doesn't this just show the economic illiteracy of the government?

    They lent/provided guarantees to banks, and postured that they would 'force' them to resume lending. This was always patent rubbish, as I suspect they knew. The banks can't get back to significant lending until:

    a) their balance sheets are sufficiently in order to meet the new capital requirements

    b) LIBOR comes down to pretty near the base rate (and the Bank of England keep lowering that - doh!)

    c) every bank fully understands the toxicity of their existing loans (which they still don't)

    d) house prices stop falling so that the loans aren't secured against a falling asset (they're still falling)

    Any bank which resumes lending now is asking to go bust. Until they are sufficiently financially stable to do so, they have an obligation not to lend.

    Brown and Darling continue to posture and bluster and "call in" banks to lecture to them, but this will have no effect at all.

    Meanwhile, they are effectively ordering the Bank of England to cut rates. Wasn't the B of E supposed to be independent? Wasn't that a central plank of Brown's chancellorship? Or are they independent until a politician feels like interfering? In which case, why should the markets ascribe any credibility to the fight against inflation in the future?

  • Comment number 50.

    MadTom1999.

    Hole in ONE.

    ALL LIES.

    ########################################################

    Maybe it is time to apply for a banking license?

    Whoops i am not a Labour Party donor.

    Unless Gordy gets my body parts.

  • Comment number 51.

    BBC News Headline: Government lending crowding out private enterprise shocker.

    The BBA are on the news now saying small business lending is up 9% year on year compared to Sept. 2008.

    Maybe, it has something to do with tax hikes on small businesses destroying profits in these challenging times.

    McFall on R4 this morning really didn't cut much ice.

    Nationalise the banks?

    Oh yeah, the taxpayers really going to vote for that one.

  • Comment number 52.

    Why is it that Labour are demanding the banks lend more, when at the same time they are congratulating themselves for their cleverness at how quickly the Northern Rock loan is being paid back?

    The Rock can only pay back its loan by lending less (or not at all) and getting customers to switch banks - i.e paying back Northern Rock and hence reducing its lending.

    They can't be responsible for reduced lending at Northern Rock (and presumably B&B too), and then shout and scream that banks aren't lending.

    Then again, hypocrisy probably isn't a word they understand.

  • Comment number 53.

    I have a plan that would have got around all this.

    The bank bailout is estimated at GBP 37 billion in capital. This represents GBP 1,500 per household in the UK.

    Rather than give the money to the banks give it to the people on certain stipulations as follows. The household must use the money in one of three ways.

    Firstly get a GBP 150 per month subsidy on their mortgage payments for one year. This would help all those struggling to pay increased mortgage costs and help cut repossessions. Some of the money saved by the household would either be spent or used to help repay other debst such as credit card debts or to help keep a roof over their head.

    If the money is spent them this will help boost the retail economy and the money spent will have a bigger impact due to the multiplier effect.

    Secondly get a GBP 1,500 payment to use as either a part redemption of a mortgage or to use as part of a deposit for first time buyers or to use as a lump sum to pay off credit card debts.

    Both these options would assist the financial businesses such as banks and credit card companies. It would help people in debt by either reducing their debt or allowing them to pay off debts at the highest interest rates making them better off allowing them to spend money elsewhere.

    The third option is a pre paid credit card charged with GBP 1,500 with a six month expiry date. This could be used to help purchase goods, pay winter fuel bills and generally boost the economy.

    All three would either allow relief to borrowers or allow those with no debts to boost consumption.

  • Comment number 54.

    Gordy and Economic Literacy?

    His display at PMQ's with his threats of fists & clunking.

    More the style of a thug in a suit/bouncer.

  • Comment number 55.

    Surely one of the big questions which nobody seems to have addressed is why do we want banks to lend?

    It is the acceptance of lending and borrowing which has got us into this mess and the only way out is to accept that borrowing money is a very exceptional thing, to be done only is the most desperate circumstances. Then it doesn't matter that loans are hard to come by; they should be.

  • Comment number 56.

    Excellent analysis.

    - should we therefore nationalise the banks? what would the consequences be for government debt, us, etc?

    - presumably, the banks aren't lending at previous levels because this turned out to be massively unprofitable, leading to the bailouts etc. Surely therefore forcing them to lend for political reasons risks simply creating new, larger losses which we'd have to bail out yet again? what do the Gov't say to this?

    - isn't the reality that there is no easy way out of this? we got into the mess because of unsustainable levels of debt and lending, permitted via lack of regulation. don't we simply have to recognise that we need to bring debt/lending levels back to a sustainable level? however this is done is going to be/is very painful. not much we can do other than grin and bear it, and repay unsustainable debt. what do the gov't say to this?

    Thanks again for a great post.



  • Comment number 57.

    The anger expressed above is extraordinary but it must not be forgotten that we are here because governments allowed the private sector to do as it pleases.

    Brown and Blair were not just naive about the nature of modern capitalism they worshiped its ethos and practices.

    Is there still anyone now who does not understand that free enterprise is not about free markets as described in Robert's father's text books but about power, control, manipulation and individual gain at the expense of society and the majority of the population.

    Unfortunately in spite of the approach of economic armageddon not much sign of a learning processby the government

  • Comment number 58.

    As they lie every day like most liars they

    forget the LIES they have told.

  • Comment number 59.

    We simply couldn't afford the vast amounts of cash needed to nationalise ALL the banks. It's arguable if we can afford the money that's already been thrown at them.

  • Comment number 60.

    What absolute rubbish from McFall, the reason we have the credit crunch is because banks were exposed with respect to the balance of assets and liabilities. This idiot know wants to break the accounting rules of banks to lend and so weaken the very balance sheets we were supposed to be protecting. Better to take and manage all bad debt from UK banks and place a minimal corporate rate tax of say 1-2% which is used to pay back the debt over the long term this % is added to standard rates of corporation tax - its manageable, transparant and stops all this insanity from politicians how should know better - Nationalisation will crucify an economy that like it or not is fixed to the fate of international financial services - we all depend on it forour balance of payments and wealth generation

  • Comment number 61.

    I'm assuming by the backlog in 'awaiting moderation that the thought nazis are on Friday lunch, or Curzon is up to his old tricks again can't wait for #54 - go on Alexander!
    As for #29 - 'Banks are not registered charities' - they don't have to be. They're tax benificiaries now.
    I do agree that lending to the wrong people has of course caused this problem, in part. But why would 'lending' to those bankers that caused this, in part, not worry us also?

  • Comment number 62.

    There's a Mancunian habit relating to Terrace houses with no inside lavatory.

    To be P.C.

    "using the same pot"

  • Comment number 63.

    Govt. threatens to nationalise all banks.

    Hey ho!

    The Govt. create this pickle. As others have pointed out Gordon Clown loosened the regulation. The regulators are spineless. People generally are greedy and corrupt.

    Result? The current mess.

    Govt. desired solution - complete control.

    We have a police state in all but name only.

    Anyone for communism folks?

  • Comment number 64.

    I want to complain about 'Tigerjays' comment because he said what I wanted to say and he said it first!
    To underline the point: it was 'commercial criteria' which got us into this mess in the first place. Banks need a substantial even a total public holding and a clear remit on their functions. This should not include speculating in foreign economies and the whole question of borrowing foreign money to lend in the UK needs looking at.
    The Swedish banking experience needs much greater publicity which may stop some lunatics screaming 'commy plot' whenever public ownership is discussed. For the genuine commy plot please visit Highgate Cemetary.

  • Comment number 65.

    This is the best RP blog for ages. I think it helps explain the conflicting objectives surrounding the bank rescue attempts.

    Basically, government needs to prioritise what it wants. If freeing up credit is now the #1 need, then they need to take another look at the various interventions and reposition them where they aren't facilitating what is now required. For instance, consider the capital injection program, and consider reducing the returns required on it, eg scrap investment in pref shares at 10-14% return, and invest everything in ordinary shares with lower dividends and restraints on how they can be made, eg let banks pay divis as it encourages income investors, but require these to be 100% in scrip form, so no cash actually leaks from capital base in the form of divis (people who want the cash just sell their scrip divi shares on the secondary market).

    Secondly, if government does not want to be in the business of funding banks long term, that's fine, but they need to reduce the impact of any institution failing in the short to medium term. In the short term, they guarantee deposits (retail or not), as is already happening. They then turn BoE into a central counterparty for all interbank funding, so when bank A lends to bank B, in legal terms it actually lends to BoE and bank B borrows from BoE. This is the way all exchange traded derivatives already settle, for instance. The result is that if bank B fails, bank A still gets its cash back, because its debt is with BoE.

    To protect BoE against failures, increase capital requirements in the short term (as has already happened), but not in a form that requires or assumes repayment in any pre-determined time frame. If that means the government has to underwrite more ordinary share issuance right now, fine, do it. But the government should get the money back in the future through placings into the secondary market when market conditions are attractive. There would thus be no risk of a withdrawal of capital from the banks, simply a switch of ownership at some indeterminate time in the future. Hence no requirement for banks not to lend because of the likely reduction in capital in 3-5 years.

    Further protection to BoE can be provided by sticking a very low return on equity restriction on banks. This is a very simple but effective way of preventing excessive gearing. Monitoting cost income ratios, and headcount to total cost ratios guards against inefficiency and/or gaming of the RoE target.

    Over time, the BoE central counterparty role could probably be changed to one provided by a consortium of banks (the model in the exchange traded derivatives market, as well as Euroclear etc). This is another potential source of cash back for the Treasury: provide the service now and sell it to market participants in a few years when confidence has returned (and MBS have all matured and been consigned to history!).

    There's no reason to think banks don't want to lend. Not lending equals not earning, whether for shareholders or employees, so the banks' objectives and government's aren't that far apart. It's just that the steps taken to stabilise the banking system a few weeks ago are now actually acting as a drag on a return to sensble lending. Government (or Treasury Select Committee) diktat's won't change this. The banks know that JMcF's comments are political posturing aimed at the masses and nationalisation is the last thing the government wants. It's already been tried once (NR), and the result has been placing repayment of Treasury loans above all else. That's resulted in higher interest rates being paid by its borrowers to encourage them to move to other lenders, as well as earlier repossession of houses, again to get loans cleared more quickly.

  • Comment number 66.

    Just leaving to go see a bank to do a CHAPs

    Transfer.

    Its a fair sum so as its friday lets see what

    excuse is made to delay paying out till

    monday.

    I know it needs 4 signatures in the bank.

    OH I SEEM TO HAVE GOT THE ANSWER:

    MONDAY.

  • Comment number 67.

    Robert, my thoughts:

    " "

    Thank you for your time

  • Comment number 68.

    "The Banks aren't lending enough" is just some political mantra, repeated over and over by the media like they are trying to brainwash us into believing it. Fiddlesticks!

    Take overdrafts. They routinely get paid down then used again, over and over again. Sometimes several times in a month. Every re-use of that money is new lending. Are the banks cancelling those overdraft facilities for businesses they believe to be viable? Or individuals still in work? No way on earth.

    Has mortgage lending stopped? No, not even for self certified mortgages. 5% and 10% deposit mortgages still exist - they just have massive arrangement fees attached to them which make them an unattractive proposition for the borrower.

    People should stop whingeing about "lack of lending" and get on with saving their 20% or 25% deposit, so they can get a mortgage at a decent rate. Their "bonus" is that by the time they are buying, house prices will have dropped another 20%.

    As to those who have already invested in bricks and mortar and now believe, egged on by the "ever willing to trumpet on about anything with a whiff of disaster" media, that they have negative equity, get over it. The purpose of a house is to provide good shelter now, not to fund your retirement plans later. Presumably you thought your house was good value for money and adequate for purpose when you bought it? Well guess what, nothing has changed on that front. You need somewhere to live. Enjoy your houses. Sooner or later, possibly 20 years on from now, they will be worth what you paid for them when you bought them.

  • Comment number 69.

    All these people asking for banks to be nationalised - can't you remember how badly nationalised industries are/ were run. Without exception. Think of Russians queuing up to buy bread or Muagabe printing extra zeroes on banknotes.

    How is a Government guarantee of lending to small businesses supposed to work. Does it mean banks can lend as recklessly as they like and the taxpayer forks out for any losses.

    Crazy.

  • Comment number 70.

    Its simple all capital values around the world, shares, commercial and government bonds,commodites, commercial and leisure property, residential property, land, cars boats and aeroplanes, art, furniture, etc...etc...have fallen by up to 75%.

    All commercial balance sheets have shrunk not just the banking balance sheets. We have stopped them selling CDO's and similar products that helped increase the world money growth and liquidity.

    Thus even with a few hundred tax payers billions given world wide to the banks to replace the trillions lost in the unwinding of the toxic debt etc there is still a massively reduced capital base for the banks to lend prudently, yes prudently.

    Why would Nationalising the Banks create more money to lend unless the governments borrow yet more moneey to give to the banks to lend.

    Look McFall's comments are political to make the banks lend the maximum they can into the small business sector but lets not make the banks lend inprudently at basket lending ratios.

    His stupid quip comments about Nationalisation are exactly why we should not Nationlise as the Banks would then be run by proffesional politicians most of whom have little reality business and economic experience and acumen who have run the economy into the ground through the likes of PFI and poor mangement of public expenditure projects and so on.

    So where would McFall get all the extra money to lend out?

    Tax spend tax spend is what got the uk into this mess in the first place. What is needed is business restructuring and cost cutting to get an established economic base for the lower growth economy and to start rebuilding on a long term basis not just thinking of next years general election by issuing a national happy hour equivalent.

  • Comment number 71.

    As always some good comments on this blog.

    My view on it (I work for a bank in the IT Department) the whole situation came about like a massive pack of cards, everyone is in part to blame. The Banks for their gung-ho gambling attitude which was fuelled by shareholders desire to get bigger and bigegr dividends, which was fuelled by Govt facilitated fiscal policies of "cheap debt is good", which in term was fuelled by us as consumers getting stupidly high mortgages on LTV's that should never have been allowed and people spending like crazy on a merry-go-round of an ever inflating bubble.

    All of us, banks/consumers/Govt have got to get back to reality and live to our means.

    Have banks messed up big - Yes - just look at my share plans which have been decimated :o(

    Is nationalising all the banks the solution - Heck no - having worked both in the public and now private sector, making a Leviation of a Nationalised Bank would be a huge mistake. No matter how bad it may seem bank's can run a commercial business MUCH better than any quango ever could, they just need to be as Merv King said "more boring"

    GW

  • Comment number 72.

    #11 mightypavlovsdog

    "gordy's fiscal stimulus is a complete waste of time.

    it's not going to make one jot of difference when the root cause of the problem i.e. toxic debts are still there and have not been addressed."

    You are absolutely spot on.

    No mention of debt in Peston's piece. The powers that be seem to want to re-inflate a burst balloon. More and more money pumped in, and to no effect. And most of the press just want to talk about anything else except the one issue that matters - toxic debt. It is all VERY frustrating.

    They need to let the whole lot collapse. Spending money on it trying to re-inflate this thing is a waste of time. The banks won't lend (who wants or needs another loan anyway in a falling market) and any extra cash consumers get will probably go toward paying off debt (or buying foreign imports).

    And all this talk about banks being indispensable - let them collapse too (and run everything through NR and NS&I). As someone wrote above, they're not charities - well nor are we the taxpayer!!

  • Comment number 73.

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

  • Comment number 74.

    GREAT POST ROBERT!

    ....and the greatest concensus of opinion I've seen on this blog ever!

    We're certainly beginning to look matthe problem with more focus now!

  • Comment number 75.

    Does no one in power ever think anything through?
    Labour wanted to be friends with the city (to get PFI funding?) so they deregulate the banking system. The banks exploit the new loopholes, what the hell did everyone think they would do?

    Brown as chancellor wanted a society built on debt to promote spending. So the banks lend money and now it is the banks fault that a basically flawed system went bust. The only way to keep increasing a debt based economy is to borrow more and more (a principle the government is sticking to to fund tax cuts).

    The banks need money so the government offer a bail out. Did no one in government suspect the banks would simply hold onto the money? If not they are idiots, if they did then any legislation to force loans should have come before the bailout.

    Nationalisation is a joke, government financial planning has got us into this situation and we should trust them with the banks now? How long before 'How did you vote in the last election' is added to mortgage applications.

    If the banks need money they should call in the PFI debts they hold. Then Gordon can come on and explain how this money wasn't real borrowing.

    This may be a global problem now but it was one created by the Bush and Blair/Brown governments (the IMF certainly think so) they just look stupid trying to deny this all the time. They have encouraged the banks to behave this way for 10 years and now it is going wrong want to change sides, hindsight is 20/20.

  • Comment number 76.

    Actually, its not a difficult choice.

    We need both don't we ?

    Less lending - that's good as we were all borrowing too much anyway.

    Nationalisation of the Banks - that's also good as what lending continues might then be done responsibly...

  • Comment number 77.

    Chancellor Alistair Darling could force banks to lend to small firms hit by the credit crunch, press reports say.

    Mr Darling is said to be considering a cap on interest rates on small business loans as part of a package of measures aimed at kick starting the economy.


    What a fool. By capping interest rates any sensible bank is going to look at the creditworthyness of the business and take Zammo's advice to "just say no"

  • Comment number 78.

    The banks destroyed their balance sheets and then the Bank of England and the FSA insisted that they reinforce their tier one capital which further diminished their ability to lend, and now HMG wants its money back fairly soon!

    You can hardly blame them for not taking on more doubtful debtors as the last thing they need is more bad debts.

    We will have to come to terms with the slump and long depression. The governments of the globe can at best try to ameliorate the worst effects, such as starvation, however over-borrowed households will simply have to sell up for what they can get and downsize or to default and suffer repossession. That is financial reality and as soon as the Government and the banks admit it the sooner the World's economies will be able to start to recover.

    There is no point in railing against the Government as they can do nothing, no matter how much they protest and prance around and pretend otherwise. Rome is aflame, but doesn't Nero's fiddling sound nice!

    If you have less than 50 percent equity in your house the best advice is to default and be prepared to suffer repossession.

    If you thought property investment in 'buy-toilets' would provide your pension (retiring within 15 years) - face the facts and forget it you should go bankrupt now and start saving again.

    If your business is financed with bank loans and you need more money - go bust now and start again.

    These bad-debts need to be taken on the chin by the banks and written-off and the sooner they are the sooner the World can start to recover. If we let it drag on so will the slump and depression.

  • Comment number 79.

    Where did #69 go?
    Oi, Labour cronies - get off this forum and get back to clearing up your sh!t

  • Comment number 80.

    Just seen this in the FT. If right, borrowing to be worse than even the '70's.


    Runaway borrowing to trigger tax rises
    By Chris Giles and George Parker

    Published: November 20 2008 23:45 | Last updated: November 20 2008 23:45

    Annual public borrowing is set to rocket towards £120bn over the next two years – far higher than City forecasts – forcing Alistair Darling to announce plans for deferred tax rises and public spending curbs when he presents his pre-Budget report next week.

    Treasury officials say the “mammoth shock” to the economy will cause tax revenues to fall far below previous government forecasts, even before the chancellor announces what is promised to be a “decisive” temporary fiscal stimulus.

    EDITOR’S CHOICE
    Video: Osborne’s new economic strategy - Nov-20Samuel Brittan: Why the Brown critics are wrong - Nov-20Public sector deficit piles pressure on Darling - Nov-20In depth: Pre-Budget report - Nov-19The consensus forecast is for borrowing to hit 6 per cent of national income, or £90bn, next financial year, but the Treasury expects the rate of deterioration to continue apace, suggesting the budget deficit will hit 8-9 per cent of gross domestic product over the next two years, close to £120bn – three times the European Union’s deficit limit.

    Such high levels of borrowing, unseen even in the 1970s, will automatically push public sector debt as a share of national income well on its way to 60 per cent, a figure that dwarfs the current limit of 40 per cent.

    Official figures on Thursday showed revenues declining at a faster rate as this financial year progressed, with non-North Sea corporation tax revenues down a quarter in October on the same month a year ago.

    With the economy only now entering recession and with tax revenues set to fall further, public borrowing and debt figures will rise much faster than most economists had expected.

    Mr Darling has insisted he is not simply interested in a fiscal stimulus but also in medium-term sustainability for the public finances. Treasury officials say this will mean ensuring that once the economy recovers fully, public borrowing must no longer fund government spending on day-to-day items.

    This target is unlikely to be met until well into the next parliament. To meet this condition, the Treasury will have to announce credible plans to cut public borrowing from 8 per cent of GDP to about 2 per cent.

    Spending restraint alone seems unlikely to meet that target, leaving Mr Darling with little choice but to announce deferred tax rises – which would kick in when the economy recovers.

    That might reassure the markets but would reinforce claims by George Osborne, shadow chancellor, in a Financial Times interview on Friday that Mr Darling is about to unleash a “tax bombshell” primed to detonate after the next general election.

    Mr Darling is thought to oppose the Conservative idea of an outside body to help verify medium-term budget plans.

    If public expenditure was frozen in real terms every year, matching the spending restraint of the mid-1990s, public borrowing would only fall by about 1 percentage point of GDP each year.

  • Comment number 81.

    When I went to university, the toilet paper dispenser used to say Arts degree. It now says economics degree. How can so many of them not understand that it is not about mathematics but human behaviour. The people who call for more regulation and Government intervention have miss the point that this mess was created by the federal reserve creating a factitious market for money through monetary policy. So far five trillion in intervention has not worked. When are our leaders realise they are just moving the pain from the risk takers to the rest of the community. It is a bit like a gambler going back to win back losses at the betting shop. The best that could of happened would be for the bankruptcies to occur so that our young people would not have to spend money trying live in excessively expensive houses. The houses would still be there.The thrifty would of done well, now no one will do well. Remember, there is always a silver lining in every cloud. The great depression did not last forever.

  • Comment number 82.

    Post 54. Alexander I don't know whether to applaud or curse you!

    Gordon Brown as a bouncer in a suit seems so true.

    I now have this image stuck in my head of Gordon Brown and Alistair Darling as the "Two Rons" from Hale and Pace.

  • Comment number 83.

    #50 Alexander: "Whoops i am not a Labour Party donor."

    Unless Gordy gets my body parts."

    I thought of a number of responses to this; unfortunately they could all have been construed as obscene, defamatory, necrophobic etc.

    #53 Ian_the_chopper Good one - incidentally this is a type of Douglas Social Credit solution.

    #58 I predict this one gets nuked, but Yes, the truth is THE one thing they have not been profligate with, quite the reverse. The question: what, if anything, do they really believe?

  • Comment number 84.

    The bigger picture here is pretty scary.

    The world must now change unrecognisably in terms of people's expectations of future prosperity in developed and emerging economies (not to mention the Third World).

    Taxpayers are now shoring up one-sixth of global output through underwriting the banking system. That is one huge level of taxpayer risk that bankers and politicians will have to manage in the context of potential economic and social collapse on a country-by-country basis, if they cock it up. The potential ripple effect and unintended consequences are frightening (I'm talking conflict here as the world's power structures and relationships shift and slide).

    Meantime, we're already seeing the effects in the real economy of pouring in capital-with-tough-conditions to banks: a credit famine. Excessive debt stemming from the underpricing and hence oversupply of loosely regulated money has already resulted in a spectacular global boom and bust (of which Gordon Brown was the architect of the UK's involvement, despite his tedious and disingenuous pleading of innocence).

    From here on, we must learn to live with massively lower levels of debt than hitherto; no bad thing, albeit there is nothing inherently wrong with debt in itself provided it relates directly to the ability for it to be repaid.

    The problem is that the ongoing "deleveraging" has much, much further to run for companies and individuals. It's this issue that most people seem to be failing to grasp - and to which the world's politicians are struggling to respond. They know we're watching them - not least as they try to decide whether to pump $billions into, er, car makers. Are we really saying that American, gas-guzzling cars are fundamental to global economic survival? Who next?

    If our own politicians told us half the truth about just how bad this situation is (and is going to become) and moreover how incapable they are of treating the symptoms, let alone curing the disease - with your money and mine - there'd be civil unrest; and that's what scares them (and me!), of course.



  • Comment number 85.

    so what exactly is wrong with nationalising them Robert? You didnt explain. It seems that the only losers would be their shareholders and the most senior execs that are on the gravy train there? Is there any reason why the british public (savers, people with mortgages and small businesses) would not be winners in such a situation?

  • Comment number 86.

    The banks have no room to refuse the governments loans. In other words to survive they need they need the bail out money they have been and are going to be supplied with. Therefore, the government should give these banks a mandate as a term of their loans to supply more loans or else risk being wound up. for example during a serious war the goverment could ask car makers to make weapons. doesn't the same prinicple apply here. After all, beggars can't be choosers.

  • Comment number 87.

    John McFaul is an idiotic dinosaur who obviously has such a short memory that he has forgotten the total mess that government has made of running nationalised industries!
    Also, to state that the government has pumped billions into RBS and other banks is as yet untrue, because little or no money has been invested. The share issue by RBS will only see the government picking up shares which are unsold to current shareholders, who may or may not take up their offer!

  • Comment number 88.

    A (too) long career in the Civil Service has taught me that if there is one thing the Civil Service does even worse than provide services it is manage at arms length those contracted from the private sector to do so.

    So the banks should either not be nationalised or if this is unavoidable, should be denationalised when circumstances permit. Rolls Royce is an example of successful nationalisation in a crisis, and subsequent privatisation.

    Strong regulation, and an outright prohibition of trade in complex derivatives that the bankers themselves don't understand, is the least bad option. But the audit profession should be wholly public sector. Businesses should not be permitted to choose their auditors, and the public sector auditors should work on the basis that they are dealing with people who are essentially crooked, and who need to be treated with the utmost suspicion. A few thousand personal bankruptcies and long prison sentences for culpable negligence by directors would create a cultural transformation. This is most urgently required.

  • Comment number 89.

    #82 Ian - Max & Paddy surely?

  • Comment number 90.

    At 11:19am on 21 Nov 2008, dudeHangingon wrote:
    ""it is becoming apparent to me that the bail out on these terms is actually harming the people it was suppose to help. Why can't a sort of payment plan be agreed based over 20 years at 5% per annum plus interest of debt owed?..or similar""

    Interesting concept,although I believe it already exists..its called a Mortgage

    Mr McFall may be acting out of his own self-interest (although most people would agree that some easing of the current credit blockage would be a good thing) but if you REALLY want to see naked self-interest in action check out the Good Ol' Boys who represent the southern states in Congress literally willing GM and Ford to go down the pan because they don't have any plants in Kentucky, Alabama, South Carolina et al.

    The word 'unedifying' just doesn't do justice to the incredible myopic selfishness of their approach, but the electorate gets what they pay for (literally in the US)

  • Comment number 91.

    Remember this Goverment put the FSA in place to govern Banks. It has failed in it's duties and so the Government is effectively having to bail things out because they are not able to manage the FSA. Not complicated really.
    Nationalisation is not the route.

  • Comment number 92.

    The banks are well taking the mickey. They think that they have the taxpayer and the government over a barrel. McFaul making veiled half-threats is risible. He's just the little kid in the big playground pretending to be tough and wondering why the big boys are lauging their socks off.

    There is only one thing that is gong to bring the banks to heel and that's giving them a fear biggerthan all their other fears put together.

    Tell the banks - in public - that noone is irreplceable and no business is to big to be allowed to fail and pull the plug on them until they come begging, then only help them if they obey.

    Other trhan that, forget it. The banks won't play and that's that.

  • Comment number 93.

    If between 3-5% of mortgages are in default, then that should be a relatively small figure (ie 95%+ are still being repaid fully). This suggests that the cash crisis at the banks is actually related more to imprudent overseas lending. Would anyone be able to put any figures on this please?

    Again, if its just a UK mortgage problem it would be much cheaper for the Govt to pay the repayments of all defaulters for say 3 years when the house prices are expected to recover.

    Maybe the crisis is really foreign (primarily US) CDO's and CDS's but Broon doesn't think that bailing out banks for that reason plays so well with voters.

  • Comment number 94.

    Not anything to do directly with today's posting but you all seem to know what you are talking about. So tell me: What is the point of the BoE's base rate? Who borrows (from whom) at that rate? If somebody is borrowing at that rate why can't the rest of us? I'm sure there's a good explanation .... ?

  • Comment number 95.

    Robert,

    I'm amazed you are being so naive here. The whole point of this 'bail out' instead of nationalisation is so the government can try to shift the entire mess of the UK economy onto the banks. As you say, the banks are not in a position to lend money but that provides excellent cover for GB, AD and Labour MPs to pound the banks at every turn and thereby refuse to accept any responsibility for this shambles on their part.



  • Comment number 96.

    Yup I am sure the government would do a brill job of running a bank. God help us. They couldnt or wouldnt regulate the banks in the last 5 years. Can you imagine what a great job they would do regulating them if they ran them. Has he got his brain on timeshare and it is an off day.

    As for apparently endless shouts from the wings that it is a good thing that lending is stopped and those who seem to want a dark ages with strictly cash trading. This ignores the fact that credit has been in operation for several thousand years in response to societys needs. And in todays UK economy debt is already in place. There are not many people who can buy property for cash, particularly when they are young. What planet or what medication are you on.

  • Comment number 97.

    The directors of a forestry company are in a spot of bother. Their shareholders are unhappy with the company's rate of capital growth, and the only way this can be improved is to utilise the areas left unplanted as firebreaks. "We can't do that" say the directors, "what if there's a fire. there'd be no way of preventing a total loss". The shareholders tell them to ignore this. They, themselves are under huge pressure to maximise the immediate value of the funds they control. They've been threatened with the sack if they don't squeeze the maximum immediate return out of the fund's investments. So they insist that the forestry directors jobs are on the line if they don't improve their results.

    The firebreaks are planted over. Six months later, there's a fire and the entire forest is burned to the ground.

    Who is responsible for this having happened?

    (a) the directors of the forestry company?

    (b) the fund managers at the institutions who owned the shares?

    (c) the investors in the funds who insisted their fund managers were geared to maximising short-term return?

    (d) government, who didn't recognise that human behaviour over-discounts the future, unless it is forced not to?

    (e) the general public who elect governments on the understanding that they will be thrown out if they do anything to disrupt the party that's going on?

    (f) ???? who failed to understand that a functioning society requires a controlling number of it's adults to be sufficiently knowledgeable to appreciate that parties are no more than light relief in the serious business of living sustainably.

    For forests, think banks.

  • Comment number 98.

    It is a statement of political belief to keep calling the funds shoring up the banks "tax payers money". It is not any body's money, if anything it is a facility. Tax payers' money will be the profit made in interest etc on the facility and the cash generated from sales of shares in banks "bought" by these facilities, if and when these sales are made and in the mean-time dividends from profits. Handled well, this current situation could be a nice little earner for the tax payer. The middle eastern chaps are not shoring up Barclays for charity are they ?
    If the government was a bank, its shareholders (us) would be looking forward to the profits, saying what a great deal this is, and the media would be a lot more up-beat.
    Look on the bright side dear - there is one you know.

  • Comment number 99.

    26. At 11:08am on 21 Nov 2008, mustrumdavid wrote:
    Hi Robert,

    I agree we should nationalise the banks. I also have a scheme whereby we can cut taxes and preserve a relative free market in financial services. If you are interested, see https://www.dingoes.org.uk/forum-view.php?thread=19.

    A very intresting and informative soloution.

    However this does not address the fatal flaw in the system. (unless i missed something) that is the eqation is not ballanced.
    debt + INTREST = money available

    how is the intrest to be payed back ? so again we have a model that requires perpetual growth.

    We should be looking for a sustained economy.

    Perhaps i might sugest that the national bank creates additional money equal to the interest of the debt that is passed to the government to spend into the economy. Thus reducing taxation further.

    Otherwise your system looks sound to me.

  • Comment number 100.

    John McFall really isn't smart enough to be talking about banks. Part of the bailout package is contingent on the banks REBUILDING their T1 ratio.

    This morning on R4 he said they should loan out their capital buffer to small businesses. Does he understand what that capital buffer is actually there for from a practical and regulatory point of view?

    John, perhaps you should read your own governments output before speaking in future?

 

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