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RBS, repossessions and recovery

Robert Peston | 08:03 UK time, Monday, 1 December 2008

Stephen Hester, the new chief executive of Royal Bank of Scotland, is perhaps showing unusual common sense for a banker.

RBS logoOn taking one of the hottest seats in corporate UK, he decided that his priority had to be to prevent his industry becoming public enemy number one - which is a genuine risk, since the excesses of his industry made quite a contribution to the economic mess we find ourselves in.

So it was his initiative - rather than an instruction by ministers - that Royal Bank will delay the start of proceedings to repossess the homes of those falling behind on mortgage payments.

The owner of NatWest, which has about 7% of the housing market, announced late last night that it would postpone the beginning of the process to seize a residential property till the overstretched borrower is six months in arrears, twice the industry's "best-practice" trigger of three months.

And it informed ministers at 10pm, around the same time as it was briefing the media.

Which is not to say there's been no political pressure on Hester to do precisely this kind of thing. As of Friday, Royal Bank became 58% owned by the state - and the Treasury is desperate to prove that taxpayers are getting some kind of social return for the £20bn we've injected into this battered bank.

The point is that Hester saw the writing on the wall and didn't pretend that he couldn't read it - which would not be true of all his banking peers.

Here's the positive side of what Royal Bank has done: it gives those who lose their jobs in the looming wave of redundancies a better chance of getting a new source of income in time to prevent the bank seizing the family property.

But there is a cost, which will fall on estate agents and - possibly - anyone interested in seeing an end to the savage deflation of house prices.

How so?

Well, the disposal of repossessed property has become a vital source of income for many estate agents, at a time when property sales have collapsed by well over half and many agents are on the verge of collapse.

You may not weep for them, though you only have to look at your own high street to recognise quite how many thousands are employed by them (there are 10,000 members of the National Association of Estate Agents, so numbers on their payroll is a multiple of that).

Also there is a reason why delaying a great surge of repossessions may not be a good thing for anyone hoping for a recovery in the housing market.

The assorted surveys by banks and the Land Registry, together with anecdotal evidence, suggest that house prices are between 10 and 20% down from their peak - which, according to most forecasters, suggests that prices have another 15% to 20% to fall.

House prices are taking weeks and months to find a floor, that low-point from which recovery can begin, because many potential sellers are biding their time, hoping that something will turn up - while buyers are waiting for a crash that delivers bargains.

So the brutal truth is that a great downward whoosh in prices, the moment of catharsis, is most likely to come as and when there's a great surge in forced selling, which would be the consequence of a widely anticipated rise in repossessions.

But if all banks follow the lead of Royal Bank and add another three months to the schedule of seizing a home, well that's another three months to wait for the laws of supply and demand to exert their inevitable downward pressure on prices.

Which also means that there's another three months to wait for the crippling housing deflation to end - which also postpones a wider economic recovery, since the housing market is not hermetically sealed from the rest of the economy.

Doubtless the government will exert massive pressure on other banks to follow the example of Royal Bank, but they shouldn't kid themselves that interfering in the market brings no costs.


Page 1 of 3

  • Comment number 1.

    "The assorted surveys by banks and the Land Registry..."

    And now we know that the Government is rigging the Land Registry figures, by only allowing sales at a high price to be included:

  • Comment number 2.

    Although this is a welcome first step, it is only that. We continue, with this one-size-fits-all system which is so ripe for abuse by both sides, to treat citizens inequitably. Each borrower's circumstances are different, and may change rapidly. Moreover, the bank's exposure to each is different, and two otherwise identical cases may result in different treatment because of the relative negative equity positions underlying the repossession. Moreover, it may be inequitable to repossess a borrower who has paid off 19 years' of a 20-year loan simply because he became redundant, there must surely be some independant review of such cases insofar as risk is an element in the margin above base rate charged, and therefore the small amount remaining might justly be foregone.
    From another angle, dumping a family onto the street to leave a property empty because of the dearth of buyers is also immoral. Surely the first port of call should be the local authority, to take a stake in the equity and effectively take the property at least partially into the public housing stock. Such a family will draw on that facility in any case, so why go to the expense of shifting people unnecessarily when the losses will fall to the public purse anyway in the long run?

  • Comment number 3.

    Allowing the defaulter a further 3 months to build up arrears is just going to add further costs to mount up for the banks.

    The likelyhood of anyone being able to pay down arrears furhter than a couple of months suggests that this is an ill thought out policy.

    Incidentally, the government start supporting home owners at 6 months dont they?

  • Comment number 4.

    "he decided that his priority had to be to prevent his industry becoming public enemy number one "

    - so who's No. 1 at the moment if it isn't the Banks ??

  • Comment number 5.

    "the disposal of repossessed property has become a vital source of income for many estate agents, at a time when property sales have collapsed"

    "a vital source " ????

    - er NO - just a drop in the ocean of properties not selling because hardly anyone is buying !!

  • Comment number 6.

    With only 7% of the mortgage market this is not hugely important - what is government owned Northern Rock going to do. It is one of the biggest and the one that granted 125% mortgages on which it is going to sustain massive losses?

  • Comment number 7.

    "suggests that prices have another 15 per cent to 20 per cent to fall."

    WOW - would any one in their right mind buy a property at the moment unless they get atleast another 15% deducted off the price.

  • Comment number 8.

    The assumption that property prices may fall a further 15% or so may be wrong for two reasons, Robert mentions supply and demand in I assume relation to money. The supply of which is being increased at an unprecedented rate around the world by governments. The real supply and demand for property has not changed we still have a housing shortage in the UK in main due to restrictive planning, this shortage is accelerating due to a massive downturn in new builds.
    It is just as likely as interest rates fall that people will again invest in the only real tangible asset the majority of the population aspire to own.
    The reccession may be shorter lived than the now dis- credited so called experts predict. Never in history has there been such a concerted effort on behalf of governments to re- inflate it is bound to have an effect.

  • Comment number 9.

    The Land Registry figures are flawed into significant overestimation of price rises by another more subtle problem:

    In order to make a "fair" comparison they only include properties that have been sold more than once during the period they are considering.
    This skews price rises upwards since houses that are done up tend to be flipped pretty quickly (and hence are much more likely to be included in the figures), and often with a significant mark up in price - which gives a false impression of price rises in the locality.

    On the other hand, when people stop buying property just so they can do it up and make a quick profit (often on the basis of their substandard DIY), the Land Registry figures will presumably make a rapid adjustment downwards towards the true picture - something that seems to be happening right now.

  • Comment number 10.

    Oh dear as usual the BBC go for the negative spin, come on Rob surely your going to predict the sun going down late this afternoon and how bad that will be on the "global ecomony"

    Your now becoming very very boring

    Oh yeah what did ever happen to bird flu?

  • Comment number 11.

    In my experience of working for a bank it would in normal circumstances take much longer than 6 months before legal proceedings were started. Despite the image that the media would like to promote legal action was always a last resort

  • Comment number 12.

    3 months or six months??

    Good for P.R. maybe?

    Somehow i doubt that there will be a

    positive effect.

    Good to hear London & Scottish have gone.

    If RBS/NATWEST want to bring good news

    the best thing they can do is NOT supply

    sub prime lenders with facilities.

    I am aware of one SUB PRIME Lender that

    has a near


    Time for a CURTAIN CALL?

  • Comment number 13.





    Robert check the RADIO 4 program from

    last tuesday evening.

  • Comment number 14.

    I do not believe RBS's announcement is based on philanthropy. Rather it is a cynical attempt to try to fool the public that they have suddenly become the good guys.

    For a start, they know that they will not be able to sell the repossessed properties, so might as well have someone living there keeping the property safe.

    Also, I wonder if the tenants will be allowed to just make zero payments, or if they will find a way of extracting whatever income they can from them even if it does not cover the full payments.

    And finally, what will the tenants do when their time is up? All they will have gained is a few months and the chances of the money needed suddenly becoming available is slim indeed. In the long run they will be no better off.

    Neither housing or the economy are going to bounce back anytime soon. For me the banks should remain public enemy number 2, number 1 is in 10 Downing Street.

  • Comment number 15.

    yes but the loan sharks will still step in pretty quickly. Many owners have other loans backed onto their property.
    So this won;t totally prevent the foreclosure of loans.
    Also , it is just buying time and stincks of political intervention- no doubt by some back door civil servent advisesing the banker that the 'ministers would deem such a move as very worth while in the current circumstances- and a way for you to repay their largesse with the taxpayers money'
    Whoops- the Anti Terrorism squad will be round in 30 minutes.

  • Comment number 16.

    And it also means another 3 months of interest on the debt, inceasing the debt and reducing the homeowners equity. Like all "solutions" this just adds to the problem. And means the problem will take longer to resolve.

  • Comment number 17.

    So they are going to wait an extra 3 months, this should give them plenty of time to harrass and bully the consumer.

    The only thing that is required is if the banks agree to help, Not defer.

    I am sure that the banks wil give these customer accounts to Debt Collection Agencies long before the 6 month grace is up

    and if repossesion is the last resort then will the banks ensure that the property is sold at the correct market value and not go for the quick sale, knowing full well that the customer will still have to stump up the shortfall.

    Doubt It

  • Comment number 18.

    Another band-aid. When is our government going to realise there's nothing they can do? The market ALWAYS wins.

    If central economic planning was so effective, the Soviet Union would have become a utopia. Brown needs to get out of the way and let the free-market work it out.

  • Comment number 19.

    3 Peterskitchen
    "Allowing the defaulter a further 3 months to build up arrears is just going to add further costs to mount up for the banks."

    Am I not right in thinking that in the UK hading back the keys does not clear the debt like it does in the USA.

    When a house is reclaimed by the bank and it is sold the proceeds go towards the cost of reclaiming and the mortgage. It is only then that either any outstanding money is returned to the individual. If it is less than the outstanding mortgage the debt to the bank remains.

  • Comment number 20.

    So the prudent will be subsidising the imprudent for years to come with higher taxes for decades.

    What about the 'borrow to let' 'investors' and their dozens of properties. Why should I as a prudent taxpayer bail them out - when all they have done is prevent my children buying a house with their greed?

    The world really is upside down.

  • Comment number 21.



    YOU could use the ANTITERRORISM

    LEGISLATION against the DEBT



    GORDY. . . .

  • Comment number 22.

    The defining feature of the government's actions in this crisis has been to delay the inevitable. When, by definition, the inevitable comes it will be much, much worse than if the government had let the fundamental laws of economics do their work.

    Whether it be pumping money into dodgy banks, exhorting banks to lend, lend, lend, exhorting consumers to spend, spend, spend or salivating over RBS's decision to delay the clean out of the housing market ... all of these policies are ultimately about living beyond our means.

    Only when we get back into supply-demand balance and without excessive levels of unserviceable debt will our economy stand half a chance of surviving, let alone thriving.

    Economics - which is often about human behaviour - was never one of Gordon's strong points; hence the unholy mess in which we now find ourselves and the pain we're going to experience coming out of it. We really ain't seen nothing yet, believe me.

    Pity the Tories if/when they get back into power. Of all the Labour economic messes thus far created (for that is their track record), this one is going to be the mother of all problems to fix.

    Some legacy for Gordon Brown eh? He thought he was so smart when all along, some of us saw him for what he is: a Machiavellian megalomaniac, bereft of either leadership attributes or social skills who saw taxpayers' money as his own; a bloke with a warped notion of social justice who secured office by stealth. Small wonder Brown's unlikely to go down in history as anything other than a disastrous and, moreover, unelected Prime Minister.

  • Comment number 23.

    Dear Robert
    Two weeks ago i told you that Briatin is enroute to change to the Euro, behind the Excuse of the finanacial Crisis, that has devalued the pound so drastically.
    WELL it is now confirmed that this crisis has now made it a possiblity and the Tresury has instigated plans to do just that.
    In amounst all thsi turmiol do you not think that this was the intention anyway.??

  • Comment number 24.

    The argument regarding this measure delaying a final cathartic crash in the housing market and thus any recovery is illogical. It presupposes that troubled mortgage-payers will not be able to use the six month grace period to improve their situation.

    The whole point of the measure is to reduce the number of repossessions, not merely to delay them. If the six month extension does work, then there will be fewer repossession 'fire-sales' undermining the rest of the market. So these measures may well help to stem house price deflation.

    That said, I think the key to the supply and demand issue right now is not repossession, but re-mortgaging. When buy-to-letters find they cannot re-mortgage at last-year's low rates they have to decide whether to sell-up or take a loss. Those who cannot afford to maintain an expensive re-mortgage, particularly if they are over-stretched, are selling at any price. As re-mortgage rates drop, supply to the housing market may well decrease as continuing rental makes more financial sense.

  • Comment number 25.


    I am truly impressed by your ability to forecast the future of house prices and further impressed by your complete and full understanding of the supply and demand for property here in the UK.

    You appear to have a full grasp of the affordability?

    Do you not think a delay in repossessions is also a potentially good?

    3 months is no time at all for most people who have zero contingencies to get back on their feet.

    For the banks it would be better for the homeowner to get back on their feet and so avoid repossession completely.

    I believe the banks will realise smaller long term losses by doing this.

    DO YOU not see that?

    Balance is not a strong element in your reporting!

  • Comment number 26.

    And so it begins, secret calls no doubt to lean on Hester to 'lead the way.'

    Now the Government owns the banks they will do their bidding. I predict a sad outcome for this approach.

  • Comment number 27.

    defering repossesions for 6 months is irresponsible of the banks, if you broke your leg you would not wait 6 months to get it mended.

    why not get individuals in and alter their repayment plans for the next 24 months, so if you were paying 600 pounds it drops to 400[ a 25% reduction in repayment] and that outstanding 200 pounds from that period [the 24 months, lets call it a gap window] is simply added to your repayment plan in the form of an extra year or 2, so instead paying over 25 years it's now 26 or 27 years at the most.

    Therefore you get 24 months mutiplied by £200 (balance of 25% drop]in repayment plan divided by 600 [ your normal monthly repayment] = an extra 8 months repayment

    lets say at the end of six months the house owner is made redundant, with the knowledge that we are in a somewhat recession, any surplus income would and could be put aside to manoeuvre.

    One other thing if your home is put thru the channels of being repossed at a later date wouldn't the negative equity of your property of increased.

    As for those who think where in a recession, it hasn't even started, those taxpayer loans and interest rate cuts was just to keep the ship sailing.

    Festive periods is probably the biggest money making machine throughout the year, even if people are not buying clothings and other luxuries, they' ll definitely be buying food and a counter measure that has already happened 'the hike energy prices', to cover the eventuality of those who want to stay indoors.

  • Comment number 28.

    #10 "Oh yeah what did ever happen to bird flu?"

    A few died; the rest flew !!

    Just thought you'd like to know !! :-)

  • Comment number 29.

    I think #3 has it right in the last sentence.

    Its just good business: after 6 months people can claim mortgage interest benefit and the taxpayer will handle their mortgage payments. It is not in the bank's interest to force things to a head before the interest benefit kicks in. This way they get the interest on a loan financed by taxpayer loans to them paid by the taxpayer.

    Also, if house prices fall significantly as a result of reposessions the banks' loan book will look riskier and that willl lead to nationalisation and that won't do much for the value of the RBS shares Mr Hester was given when he joined.

  • Comment number 30.

    Bert - give the bank some credit here albeit not alot

    Alexandercurzon - auctions - you really are having a laugh and obviously no clue

  • Comment number 31.

    It's a start, as interest rates fall more people will be able to pay and the arrears can be cleared in the longer term.
    I disagree with the comment that there will be a surge of reposessions flooding the market and driving prices down, on the contrary the numbers will decline as banks realise that they would be better served holding onto some of the housing assets and renting them through the next couple of years. There are too many vulture funds buying now to allow a freefall of prices.
    The issue for people who cant pay their mortgage is around preposession, wouldn't they be better off renting the property they are in than on the housing list and if they have some equity wouldnt it be better to provide support and services that allow them to sell thier home and downsize or rent rather than go through the expese of reposession?
    There are still too few houses particularly in the South East it will take a relatively small slow down in supply and rise in buyers to alter the dynamics with or without the banks or government blessing

  • Comment number 32.

    I do not follow Roberts logic on this. If repossessions stopped tomorrow then the downward pressure on house prices would also stop as the supply of cheap property would have dried up and investors (or scavengers depending on your point of view) would have to act quickly to get the current stock of distress sales, so stopping reposessions would create the bottom to the market, not delay it.

    It is crazy that we allow a family to be reposessed and thrown out of a house with a £300 a month mortgage only to pay housing benefit to a landlord to put them into a house which costs the tax payer £500 a month inbenefits. it would be far better for the government to take a charge on the house and pay the mortgage so they would get the money back when the house is eventually sold or when the home owner is back on their feet and can remortgage. The way we pay benefits in this country is so twisted and pervers that we spend thousands of pounds to stop the "scroungers" from getting anything, but the scroungers have paid tax like everyone else and are entitled to the protection of the welfare state, unless of course we now believe only the banks are deserving recipients of state aid!

  • Comment number 33.

    #19 "If it is less than the outstanding mortgage the debt to the bank remains."

    Actually, in many cases, this is not so because the mortgage is usually covered by a default insurance policy that is usually "sold" to the borrower by the *lender* acting in its capacity as a *broker* for the insurance company !! In good times, this was viewed as "money for old rope" !! Now, many insurers are hurting, especially from covering 125% mortgages !!

    This leads to yet another level of pain for the financial services community that got hijacked by the salesmen from the true professionals !!

  • Comment number 34.


    I cannot lie I do not own a house and I am depending upon this correction to make the average three bedroom house affordable once more. Having saved for 10 years, and felt the pain of having my investments being worth far less than I paid into them, I finally cash in my PEPs and ISAs back in Oct of 2007 and made an acceptable return.

    As such, I am not interested in seeing "an end to the savage deflation of house prices". Furthermore, it angers me to the very essence of my being that my taxes are being used to support the housing market:

    "As of Friday, Royal Bank became 58% owned by the state - and the Treasury is desperate to prove that taxpayers are getting some kind of social return for the £20bn we've injected into this battered bank."

    I totally agree with you sentiment that "massive pressure" will be placed upon the banks to follow the lead of RBS, after all the British non-economy is based on rising house prices. That's why I raised the following petition:

    In truth I don't believe the Government gives two hoots about the unfortunate person caught up in all this mess. They're just looking for votes and the return to an asset based economy.

  • Comment number 35.

    Repossessions seem likely to be around 6-8% of the properties sold this year - so is an income stream for estate agents but not a major one.

    But the move is important because a repossession is a hugely value-destroying activity. It results in fire sale prices; transfer of a house which is highly suitable for its residents to (often) a speculator for whom it has less value; often a period of non-occupation when the property is likely to be damaged.

    The preferred economic purpose of repossession is as a threat, to reduce moral hazard and provide an incentive to repay, rather than something that actually happens.

    Provided that the banks or government take the opportunity of this extra time to implement some of the measures they have been talking about - local authority purchase of repossessed homes and equity sharing for example - this will be a good thing.

    As for the estate agents, there are much better things they could be spending their time on, which would create more value for themselves and other people:

  • Comment number 36.

    You IDIOTS who would repossess after one month of arrears?

    UNDERSTAND the last thing the BANKS want is to repossess a property!

    And the habit of running a constant family financial debt means financial disaster.

    Maybe the banks should pay into an insurance policy, which would cover them for voids of 6 months.

    ITS too late now but the government should encourage all of us to have enough money in the bank to cover us for any out of work or other difficulties.

    Maybe a TAX benefit for having a float of say £1,000 for every £10,000 we earn would be a good idea for the future.

    That way the borrower would have funds for bad times.

    IF rates go to 1% then the ability to pay would become far easier.

    Common sense please.

  • Comment number 37.

    Can't help but think the banks, (and probably the government by leaning on them) are just chasing short term headlines.

    RBS doesn't have much to lose, since they are now basically owned by the government and I believe that there is one absolute unwritten rule which the government will adhere to, even at the cost of utterly bankrupting the country - and that is that no taxpayer will lose a single pound if a high street bank goes under.

    They have proved this already this morning with the demise of London Scottish Bank where they have said that every account will be guaranteed. A main high street bank going under would engender a collossal crisis. People just don't keep enough cash any more to get through a day or two, let alone a week. The government has to underwite the lot, even if they aren't going to admit it, otherwise it's time to buy tinned foods and barricade the door.

    So although extending the mortgage arrears timescale will eventually cost the bank more money, they don't really care. They've got some good headlines and they look like they do care. It won't save anyone from going under, it probably won't keep anyone in their house. After all, if you are three months in arrears now, the economic situation hardly looks rosy enough to find another job does it?

    I posted a question last week asking when the tipping point would occur when the banks would admit that there was effectively no point in repossession in the current market. It looks like the realisation that the safety of the banks will be upheld above all else has allowed the banks to come out and say it. After all, it's not as if they are paying the bills any more is it?

  • Comment number 38.

    #22 "Small wonder Brown's unlikely to go down in history as anything other than a disastrous and, moreover, unelected Prime Minister."

    Well I get the feeling that his mention in history will be along the lines of - "And then there was this bloke....."

  • Comment number 39.

    Won't work! Deeper trouble!

    There is a system here that's finely balanced and the Gov just don't get it. Firstly there is a nievaty that banks can just start making Billions, with just a little creative accounting, from doing what they've been doing for 100's of years and nothing will go wrong - it broke! Now it's medalling with the ultimate threat - repossession.

    Billions are lent out on the basis that if you don't pay you have your house taken off you. Like most punishments there is a deterrent element - you'll be surprised how many people will read 'Mortgage Holiday' into this... there are the Can't Pays, now it's time for the Won't Pays

    RBS - watch your cash flow drop like a stone!

    Independent Building Societies (who didn't take Gov money) - The goal posts have just been moved for you

  • Comment number 40.

    BBC Breaking News!

    TV's Bleakley performs last tango

    Other TOP stories this Monday morning:

    Renaldo defends handball
    Sheffield mum has triplets
    Starlings prefer Rome to England
    Cold weather predicted
    Straw surprised

    Repossessions up 12% and nobody came...


  • Comment number 41.

    Bad news for the Scots as yet another one bites the dust -

    "London Scottish Bank has gone into administration after the Financial Services Authority stepped in to stop it accepting deposits."

  • Comment number 42.

    #32 - para 1 this is utter nonsense. House prices will continue to fall (jolly good thing) until they reach a price where they become affordable. For most of us this is the point where our income can support the loan needed to purchase the house/home.

    para 2 - quite right

  • Comment number 43.

    Ian Pearson, the Treasury Minister said that 'he would hold the banks' feet to the fire' to ensure 'better treatment for customers' (shurely 'compliance with political aims'?)

    A breath-takingly awful and inappropriate turn of phrase for a politician seeking a useful soundbite and a positive headline. It automatically creates hostility between the government and the people he is speaking to, and underlines this government's reputation for the 'clunking fist' approach to government.

    Hang on...I see that the page that included this phrase has just been cut. The clunking fist strikes again? Are BBC sub-editors at this moment being hauled off for questioning?

  • Comment number 44.

    Post 30

    "you are really having a laugh" etc

    Auction prices show the level of drop.

    Weve bought 63 houses for our social housing fund at auction.

    As proof the prices paid represent an average 48% drop on the previous purchase price.



  • Comment number 45.

    Here's another thought for what it's worth. Since the banks are losing money with repossessions, why not turn it to a good cause and leglislate that only first time buyers can purchase certain properties when they come up for auction?

    I'm not talking about all properties - perhaps just a certain category of starter home, which will stop the price inflation caused by larger landlords and developers simply outbidding everyone.

    Yes it'll cause a drop in prices in some areas, but if it is only genuine repo properties and only genuine first time buyers, wouldn't that do some good?

  • Comment number 46.

    Post no. 8

    Does it sound sensible to you that there's a housing 'shortage' when over a million homes are on sale with no buyers??

    And this mysterious'demand' that people refer to is a function of affordability, which in turn is a function of GDP and wages. What else can support house prices in the long run? We have had a borrowing binge resulting in a housing bubble. Take away the borrowing and you take away the bubble.

    I have also heard this term 'demand at the right price' but how is this different from say Ferraris? There is no doubt very strong demand, everybody wants a Ferrari right? There is no 'shortage' of unsold Ferraris in showrooms and used-car dealership. What will make more Ferraris sell to all those hanging their tongues out, i.e. the 'demand'?? That's right, perhaps a 60% drop in PRICE!

    This applies to everything, we become wealthier and our standard of living improves as plasma TVs get cheaper for example, or shoes or bicycles, why should housing be any different? This great obsession with high house prices is surreal.

  • Comment number 47.

    No mention of London Scottish Bank on BBC Business page.

    Not newsworthy enough?

  • Comment number 48.

    Welcome to Japan mark two. The reluctance to draw a line under bad loans prolongs the correction, at the risk of deflation expectations settling in for the long term.

    However, with a bit of luck the rest of the mortgage industry will still act competitively rather than politically. By not following RBS, they should gain from the slower decrease in values, and recover more of their bad loans than they otherwise would have. RBS on their side will have moved to the back of the queue at some expense. As usual, it is those gambling with the taxpayers money who feel that such risks are worth taking.

    Now the question is, would HBOS have done this as an independent? Who still believes that Darling's "risk analysis" was a ruthless attempt at securing taxpayer value, rather than an exercise in political vanity at the taxpayers expense?

  • Comment number 49.

    #23 freecornwall

    The EURO.

    They will not be able to get that through without a REFERENDUM, will they?

    We would be taking on the unfunded pension liabilities of Germany!

  • Comment number 50.

    TO bang ON & ON re house prices.

    If the lenders stuck to income multiples of

    2.5 X main salary 1 X lower salary

    we might get to a sensible level of "value".

    Houses are for living in,NOT financial HONEY

    POTS to borrow against to live an

    unaffordable lifestyle.

  • Comment number 51.

    Why should I pay for this?

    Labours Pre Budget report states that any person earning over £40k PA will be taxed at a higher rate.

    So It will cost me, [depending on the amount of people who are facing repossession]
    Circa £100 - £300 +
    Per Annum in income tax. This money. My money!
    Will go to provide a 3 month lifeline to any person facing negative equity.

    I will also be taxed to 'bail out the banks' who lent these people way too much in the first place.

    My own situation is that I am a professional person in my thirties, earning an average wage. I was priced out of the housng market in 2000.

    {When a house I was looking at jumped by £20k in value in just six months. My natural reaction was not to jump on the bandwagon, but to pull away, knowing it was not worth that much just a year later.}

    Plus I thought I might have problems with the repayments.

    I have lost tens of thousands of pounds because I have had to pay rent.

    {Actually, probably far more than the average person facing negative equity will lose.}

    {I would love to be able to afford to buy my own average home. Its soul destroying, and you feel you have nothing to offer}

    As a potential First Time Buyer, I have been unable to even afford MASSIVELY overpriced one bedroom flats/Bedsits.

    And yet I, and the tens of thousands of people in my situation, have to pay for the people facing negative equity to enable them to stay in their houses?

    {For clarification purposes. I only earned £40k for the last two years. And this year looks like the recession could damage our business]

    It seems Labour, and Gordon Brown will stop at nothing for votes. He knows his only chance to stay in office will come from people already on the housing ladder.

    The govermnet, Banks and 'Voters' facing negative equity are in collusion to ROB me.

    How else can I possibly view this?

  • Comment number 52.

    It's been government owned for a week - the first sign of a non-commercial approach didn't take long.

    The trouble is that in public bodies, management want to please their political masters and may be get a gong too. Not sure that is healthy for the long-term.

  • Comment number 53.

    Er...this is not completely helpful on both sides.
    1) prolonging the time between arrears and repossessions a) increases the overall debt and b) in a falling market might mean that the house is sold for less money. This leaves the bank and the customer with a larger problem of a higher residual debt. This definitely doesn't help the customer
    2) because of the above, it is likely that banks will suffer higher levels of bad debt, whioch will further damage their capital position - and how does that help us all?

  • Comment number 54.

    I agree that bringing houses prices down to affordable levels as sharply as possible would be far better for the economy than allowing a long, slow decline.

    The best way to do this is to convince sellers that prices are definitely going to come down to such levels (say 3.5 times income on average) and that they are going to be forcibly kept at those levels in the future. Government and Opposition parties should explitly state that this this now their long term policy.

    This could be backed up by measures to prevent house price bubbles ever recurring. Say a tax on mortgages of greater than 4 times income or on buy-to-let mortgages? Or a commitment that planning regulations on land use will be relaxed if house prices start to inflate again in the future?

  • Comment number 55.

    ..furious. All this 'headline' publicity about the RBS but what are they doing about the normal people?

    There are thousands of very unhappy One Account holders that have been trying to get an answer on when the RBS plan to pass on an interest rate cut following the BoE 1.5% cut in base rate. So far nothing more than - 'it is under review'.

    Your good selves at the BBC can help bring attention to the silent majority who might just spend a little more if treated fairly. Looking after minority groups who have been living the life of Riley on credit and now want bailing out, seems to be the focus, but they are unlikely to spend like the government say(!) they want.

    But, pass on the BoE savings to the masses of normal cautious people and we might feel like spending a little more. Now 'we' own the RBS it is in prime position to set an example... and pass on the interest rate cut to the One Account holders too, that the BoE intended us to have!

    Regards, MyWifeIs ...furious

  • Comment number 56.

    49 - Referendum?

    Don't 'bank' on it (don't bank on anything at the moment).

    Crash Gordon will probably enact anti-terrorist leglisation and have anyone who suggests a referendum immediately arrested for opposing his 'New Deal' from Britain and the glorious Brown future.

  • Comment number 57.

    As a small solvent business who has banked with Nat West with for 30 years. I though it amusing to receive an advice booklet from them today entitled:-
    " Trading through the Economic Downturn"
    It contains lots of helpful advice, mostly good business practice, but no apology from Head Office for their bad business sense.

  • Comment number 58.

    #4 Antonio59

    Gordon Brown, Alistair Darling or Osama Bin Laden.

    Take you pick and in any order.

  • Comment number 59.

    Here's the positive side of what Royal Bank has done: it gives those who lose their jobs in the looming wave of redundancies a better chance of getting a new source of income in time to prevent the bank seizing the family property.

    Clearly you misunderstand how the mortgage market works Robert.
    People loosing their jobs have the protection of their payment insurance.

    Its people that havent lost their jobs but are up to their ears in debt that are defaulting. No the people that lose their jobs

  • Comment number 60.

    #49 Referendum? No chance. Quote from Barroso -

    "I know that the majority in Britain are still opposed, but there is a period of consideration under way and the people who matter in Britain are currently thinking about it", he said.

    The people who matter??!!!!

    Shurely that SHOULD be us the taxpayer and voter but wait - there is a knock on the door. Must dash..........

  • Comment number 61.


    If the estate agents are feeling the pinch then let them borrow wads of money from the banks.

    Hang on. We own the banks.

  • Comment number 62.

    Well now that London Scottish has gone, will they take that "fine upstanding" debt collection arm of theirs Robinson Way.

    I really do hope so, or at least with the FSA invloved Robinson Way may start to abide by the law, when chasing debtors

  • Comment number 63.

    Your first three paragraphs read as though ministers would have been in some doubt that Stephen Hester would mould RBS policy as closely as is humanly possible to the government's preferences. And so there will be a huge sigh of relief going round Whitehall that this mega-star of the banking world should have come up with a policy that, apparently, represents the best interests of the bank, and, by chance, is of political advantage to the government as well. And, wonder of wonders, he's done this without any prompting from ministers whatsoever!

    It just goes to show how the very best people have the mental capacities to design policy that optimises two, or more, contradictory objectives. And, by the way, isn't it clever of the government to have found one of these for RBS?

    I wonder if it will ever occur to the sentiment-manipulators of this government that there are diminishing returns to be obtained from the sort of spin-driven poppycock with which they flood the channels of information? They are, slowly but surely, demolishing the essential faith of the general public in the integrity and good purpose of the ruling authority.

  • Comment number 64.

    #51 Lifedaniel34

    Your patience and discipline will not go unrewarded. Stay calm.

    Either this government will destroy our ecomony in an attempt to deny reality and stay in power or they will be forced to let teh market clarify matters. Either way the housing market is likely to produce falls of around 50% from peak or more if that is what incomes can support in 2 or 3 years time. Check your history books.

    You need to be aware that if you have saved a large deposit in Sterling there is a chance as the global depression advances our currency may collapse relative to other major players due to the additional weakness of our economy. The Chinese are hardly going to lend the UK money based on our only security being our over priced houses and our rapidly collapsing financial sector.

    UK Personal debt £1.5tn
    UK Gov debt 60% GDP and rising fast.

    You could consider hedging your savings by opening a euro account and splitting your savings between them. We may end up in the Euro yet.

    Remember your taxes and savings are being used to save the foolish and buy their votes. You can afford to remain calm. You have no debts, cash and a job. This is a zero sum game between those in debt who need your cash and those with cash.

    Just be patient.

  • Comment number 65.

    Plenty of RBS customers out there today thinking there by the grace of.......having learnt that they will be homeless 3 months later than budgeted for.

    The percentage of defaulters that have arrears in excess of two months, not three and manage to get back on track is negligable. Therefore this policy basically increases their debt, increases the banks debt and increases the taxpayers debt.

    This amounts to another spun con trick by the banks ''at arms length' masters

  • Comment number 66.

    This is another nail in the coffin of free market dogma- the real cause of this crisis. The genie is now out of the bottl! Now that bankers are starting to subordinate shareholder primacy to the interests of society as a whole, there will be no going back. I predict that in the same way as we were amazed by the extent of the neoliberal revolution, we will be equally astonished by how far the pendulum moves in the other direction!

  • Comment number 67.


    Jacqui Smith


    Tony Blair " Bernie Ecclestone " MOMENT ????


    We will find out in a few years.

  • Comment number 68.

    #21 alexandercurzon

    Agree with you 99 per cent.

    Loved your reference to Frau Smit...and how about a mention for Herr Braun ?

  • Comment number 69.

    1) The huge sums of money being 'thrown' at the banks - is this an 'investment' (ie there is a real chance that the government will get this money back and even make a profit on it) OR is it just money being given to the banks to try and stop the crisis getting even bigger.

    If the former then a lot of the disaster mongers will be wrong as the government will eventually gain from its intervention policies (although I agree with some of other comments that this very intervention is making the underlying problem bigger as people will start to take advantage of the situation) . If the latter then the £700 billion could surely have been 'thrown' at existing businesses in the form of grants & similar to stimulate underlying wealth and expenditure which would have saved the economy much more effectively than £700 billion given to the banks. The banks should have been allowed to fail - the pieces would have been put back together faster than this problem will be sorted.

    Clearly no goverment would ever consider giving this sum of money to 'real' businesses
    - what a shame as this would have an incredible effect.

    2) The comment by eddixon - number 45 - this is a great idea and would really help house prices adjust to proper levels - of course there would be some pain with this too - but that is what all this intervention is trying to prevent but only is succeeding in delaying - we have to suffer some real pain to sort this out and the sooner and faster the better.

  • Comment number 70.

    No 10 Paulienash:

    'Oh yeah what did ever happen to bird flu?'

    You obviously caught it, as it evidently warped your ability to find anything remotely interesting to say. This Peston bashing is boring to read. Go on, think of something interesting to say. Get those brain cells in gear, it'll do you good.

  • Comment number 71.

    This means that the depression will be slower and longer than it would otherwise have been.

    The Government's strategy is to have a gradual collapse which will prevent too many people reaching the "anger" phase at the same time and the social unrest that would occur as a result.

    Once people are in the "resignation and acceptance" phase there is far less likelihood of Downing Street being stormed (something that came very close in the Poll Tax riots). People will be ready to accept almost any suggestion to lift them out of their current mess as they will have nothing to lose.

    That is when they will try to get us to join the Euro. That is when competing interests will proffer radical solutions to our predicament. Some of these solutions will, no doubt, involve hurting people.

    In fact it was millions of people being wounded and/or killed that lifted the world out of the last depression.

    We are a pathetic species at times. It doesn't have to be this way.

  • Comment number 72.

    #47 Yes, there is !! It is cleverly hidden from direct view under the headline - " Bank forced into administration"

    Hope this helps !!

  • Comment number 73.

    I am a professional person in my thirties, earning an average wage. I was priced out of the housing market in 2000.
    Labours Pre Budget report states that any person earning over £40k PA will be taxed at a higher rate.
    {last year I earned over £40k}

    So Labour will tax me an extra, Circa 100 - 300 pounds PA in income tax. My money will go to provide a 3 month lifeline to any person facing negative equity.

    I will also be taxed to 'bail out the banks' who lent these people way too much in the first place.

    And yet for a decade I have lost tens of thousands of pounds because I have had to pay rent.
    I could not afford even a bedsit.

    This is a UNBELIEVABLE. Why should my hard earned savings, for my own house pay for you to stay in your house, if you cannot afford the repayments?

  • Comment number 74.

    Comment 54 : random_thought

    I think that we will always have a ridiculous market in house prices as long as the "value" of planning consent is in private ownership. If we are going to create artificial shortages in this way, we need to address the consequence of turning averagely-prosperous farmers into multi-millionaires through no more than the swish of a pen.

    If we could get to a position where the value of a house could be determined from real cost of construction, with the land being no more than a minimal part of this, we'd never again get into a house price spiral where what they're worth now is determined more by the expectation of future price movements than by the cost of construction today.

    It's surely not beyond the wit of man to devise a system of land ownership that negates the value-distortions created by the planning process.

  • Comment number 75.

    No. 51, unfortnuately your post is spot on

    It is daylight robbery.

  • Comment number 76.

    Most forcasters predict another 15% to 20% fall?

    Not according to the Financial Times, who claim that the property derivatives market is pricing in a further 30% fall.

    Of course the markets can be wrong, but people that have to put money where there mouth is when making predictions are betting on a 30% fall.

  • Comment number 77.

    OK estate agents will go, but that sector was too bloated anyway, and as RP says, we won't weep for them.

    They can go and find jobs elsewhere, as there are plenty of similar jobs selling snake oil, being a hack, in litigation and in banking...

  • Comment number 78.

    post 44

    more fool you - you should have waited if you are right - looks like you have cost your social housing fund a few quid by jumping in at auction - you should have waited

    but good to know you are benching your funds future on some of the dross that goes through some of these auctions - very clever

    stick to location, location, location and the long term

    also if you have money to spend I know lots of developers who would galdly give you the lot of their stock at 48% discount without going to the auction

  • Comment number 79.

    I have a major concern about the banks financial position (no surprise there!).

    It is my understanding that the 'sub prime mortgage wrappers' had the effect of forward loading profits so that instead of earning profit over 20 years of a mortgage they were earned in year one! This means no profits left for years two to twenty.

    It is also my belief that the funds 'thrown' at the banks by the government are done on the basis that the underlying bank position is massively profitable and they just need time to put their house in order before reaping these massive profits again, repaying their loans etc.

    If it was the 'sub prime wrappers' that were generating a proportion of the huge bank profits then they, the government and us all really are in trouble. Any bank accountants out there know if my understanding of the accounting treatment is correct?

  • Comment number 80.

    1 The government are still trying to bounce the reality cheques to infinity and beyond and are only capable of lying ,

    It is truly pathetic !!

    They have been reading too much mine camp and have gone OVERBOARD big time for Adolf 's famous one liner -


    But at least they are taking my advice-




    and while there is still time they can still sell their overpriced London residences ,that neat little tax dodge they thought they had awarded themselves for their great leap forward in their latest five year plan now going down the pan .

    What a performance !

  • Comment number 81.


    If they are pricing in 30% then the likely fall will be 15-20%.

    they are renowned for over shooting on the downs as well as the ups

  • Comment number 82.

    Comment 73 lifeDaniel34

    Think yourself lucky you have been priced out. This has saved you losing even more tens of thousands as you have not bought a depreciating asset. If you continue to rent for another year or two you should then be able to buy at the bottom of the market. Meanwhile if you are earning over £40K you should be able to rent somewhere decent, especially as rentals are falling too.

  • Comment number 83.

    #49 Toldyouitwould

    Do not worry. The UK does not meet the entry criteria for euro zone membership anyway. Gross general government debt is more than 60 percent of annual GDP, thanks to the majority stake in RBS, and the general government financial deficit is more than 3 percent of GDP and with spend, spend, spend policy it will be for years to come.

  • Comment number 84.

    19 skynine

    You are correct the situation is different in the UK to the US, in the US the householder can throw the keys over the counter and walk away following legislation in 1930's. In the US you can get away scot free, no reference to the scots or our PM intended, it is just a phrase. In the UK any positive sum following the forced sale of the property is returned to the ex houseowner, subject of course to administration and legal costs and charges as defined by the bank, usually thunping, and not subject to discussion with the exhouseholder. Any loss if it occurs is recovered by the bank against the insurance company whose policy was paid for as part of the mortgage package. The insurance company then goes after the exhouseholder. That was the case in the last recession and I doubt it has changed. It is a bit like when action was taken against the Lloyds Names, there is no escape. There is a legal obligation for the banks to recover a fair market value on the property but that is a moot point.

    Incidentally if the above does indeed remain the case I would like to hear from somebody in the banking sector why the banks keep bleeting about the risk of losses, because in the above senario it is the insurance company with the problem, unless of course the insurance company can argue that the bank has been negligent or even possibly fraudulent. Now that would be interesting wouldnt it.

    With respect to the blog in general. I am not convinced you can define forced sales, ie bankrupty sales as a market value. In a market place normally two parties willingly enter a transaction, that is hardly the case in a forced sale. It is more likely that there is no market at present. No market is in place when dropping the price has no impact on a sale being forthcoming. It is a shame estate agents may gazunder one another out of a job but they are the ones doing it.

    The problem in the housing sector is this endless mantra of substantially declining price forecast. Nobody who can avoid it will buy if they can put it off. HMG has in fact done nothing specific to stablise the housing sector directly so it will continue to slide. It is inevitable it overshoots. It is difficult to see any sustained uplift before the GE to carry Brown onward and upward to infinity and beyond, so Brown is just awaiting eviction, quite appropriate really. Public foreclosure on his own bust budget, just takes longer than 6 months.

  • Comment number 85.

    Re 54 - random_thought

    I absolutely agree (please see my post at 34). However, the Government's economic model is based on high house prices.

    So when the value of houses starts to drop what do they do:

    1 - Force banks to loan again.

    2 - Delay repossession (in the hope of a recovery).

    3 - Report artificial property price declines (see #1 - afcone).

    We as taxpayers just pay for it!

  • Comment number 86.

    > So the brutal truth is that a great
    > downward whoosh in prices, the moment of
    > catharsis, is most likely to come as and
    > when there's a great surge in forced
    > selling, which would be the consequence
    > of a widely anticipated rise in
    > repossessions.

    With respect, there has already been a "great
    downward whoosh" in prices, all over the country.
    I'm not saying the whoosh is stopping, but
    it's already pretty loud.

  • Comment number 87.

    Post 78

    We are content with our purchases.

    Auction properties are NOT ALL rubbish.

    Re location?? As you have no idea where any of these houses are i find your statement bizarre?

    We pick our purchases carefully,most developer stock is very poor & so overpriced
    even 48% discount wouldnt be enough.

    SAVE your sarcasim for a better cause.

  • Comment number 88.

    #72 ishkandar

    Thanks for that! How stupid of me not to go ferreting about in the small print.


    #56 eddixon, #60 organum

    We will be sharing a cell then, or will it be an RTA?

    Uh ho... there's the door.

  • Comment number 89.

    This is the governments policy.
    My daughter has recently received a letter from LLoyds TSB offering her an usecured loan of £17,000. Her income is less than this. and she could not afford to pay the interest or ever pay it back.
    Since the financial crisis was due to irresponsible lending by banks and encouragement of reckless spending.
    Lloyds TSB relies on taxpayers money in its take over of Halifax. What is the Government thinking of when forcing banks to make toxic loans and to encourage people to spend mostly on imported goods?
    Adding to the enormous budget deficit which all of us will have to pay for in higher taxes or inflation (after a temporary fall of fuel prices)

  • Comment number 90.

    I have read that oil prices are predicted to start rising again by the end of 2009 due to infrastructure problems within the oil and gas industry. If this turns out to be the case and if the government is hoping that the current reduction in wholesale energy prices will have fed through to consumers by mid 2009, then it is wrong. There is a risk that there is a double whammy at the end of 2009 - energy prices climbing again and VAT returning to 17.5%. Sounds like a Summer 2009 election to me!

    In my opinion, increases in the energy costs has been one of the triggers to the current crisis. It has been a major factor in reducing the ability of people to service mortgage and other debt. My concern is that if the general trend is for energy prices to rise over the 20 years then this will act as a serious constraint on economic growth throughout the world; the availability of cheap energy is a pre-requisite for economic growth. We are currently witnessing what happens to the world's financial system if economic growth cannot be maintained. My point is that I do not think that we are witnessing a one off adjustment to the economies of the world. There is a much longer term issue that needs to be resolved.

  • Comment number 91.

    #74 - Yes I agree that fixing the planning system is the real solution and would in itself prevent future house price bubbles from occurring.

    Even though we are a heavily populated country, there is still plenty of land out there which could be built on - specifically plenty of land used for monoculture farming which has no ecological or amenity value.

    Making planning approval automatic for conversion of farmland to housing (unless it is in an area specifically designated as being of environmental or scenic value) would solve the problem overnight.

    Much of the present "green belt" legislation seems primarily intent on keeping the "oiks" in their place in the cities, where all available land is being used for building instead of creating green spaces in our cities which would be of more benefit to people and to the environment than inaccessible farmland in the green belts.

  • Comment number 92.

    After a little 'joined up' thinking the Government may realise that those saved by the six months repossession life line will be burnt regardless as the interest rates rise to counter the inevitable inflationary period brought about by the vast monetary influx into the economy.
    It makes a mockery of the 'prudent' and cautious families living within their means who are required to bail out those not so cautious both now and again in the near future. People and Governments should be seen to suffer the consequence of their actions for without consequences all values are eroded.

  • Comment number 93.

    79 Its best to give government the bennefit of the doubt ,and assume that they are lieing fools that only wish to save their worthless careers .The bluff goes on and on to infinity and beyond .

  • Comment number 94.

    Did you know that, the RBS promise to business re account charges and overdrafts do not apply to its wholly owned subsiduary Ulster Bank which operates in Northern Ireland. Can you find out why customers in Ulster Bank are not given the same rights and conditions that are also applying to Nat West ,RBS other subsiduary.

  • Comment number 95.

    life daniel #73

    Get used to it. I am of a similar age to you and our generation are going to be asked to pay higher taxes to meet the costs of soaring public debt (including all the off balance sheet liabilities for PFI projects, unfunded public sector pension scheme liabilities and the bank bail outs) whilst providing for our own pensions (the Govt. won't be able to afford state pensions for ourselves when we retire). In some respects, not having a mortgage is perhaps a good thing; many people of our generation also have large mortgages to repay on houses which are reducing in value day by day.

    I think we will look back in future years and see our parent's generation as having the best of it (particulalry if they have inflation linked public sector pensions).

    I do however believe that it would be immoral for us not to address the issues now and pass this mess on to our children. I think this means pretty tough times ahead with higher tax and real cuts in public sector spending.

    I think that we will be forced down this route anyway. The government's forecasts for coming out of recession are, in my view, hopelessly optimistic. They have failed to explain what the economic drivers will be which will take us out of recession. If the recession is deeper and longer than predicted and the government is forced to borrow even more then I am certain that whoever lends the money will require the government to make cuts to the public sector. I also predict that the next governement will be forced to make changes to the final salary pension arrangements of the public sector and at least change the terms of the scheme for new members.

  • Comment number 96.

    It's very good of RBS to give their customers six months before the repo letter comes through the door, but lets face it for lots of people it's putting off the evil day.
    The problem remains that if you're in trouble RBS have just given you a bigger shovel and said keep digging!
    If the bank where to say what's the problem why can't you pay, what can we do to help? Then they and their client would be on a better position. At the moment they are simply encouraging their customer to become more debt laden and surely that doesn't help anyone.
    The fact remains that RBS and every other lender are the problem they continue to keep loan sizes small which discourages investors and others to buy, which in turn forces the housing market down. It's as simple as that, the fuel still isn't there, and everybody in the financial services industry hurts, especially those for whom we could have restructured debt!

  • Comment number 97.

    What utter jot Mr Preston.

    One of the main reasons that house prices are collapsing is the tendancy for potential buyers to wait until the bottom of the market, repossession are seen as this floor.

    any reduction in the number of repossessions coming onto the market will mean that the floor will be higher hence ending the housing market crisis more quickly and less harshly than allowing a glut of repossessions in the first place.

  • Comment number 98.

    #83 tamales

    "The UK does not meet the entry criteria for euro zone membership anyway."

    Thank you very much indeed. I find it both reassuring and quite worrying at the same time.

  • Comment number 99.

    People complaining here that others less fortunate than themselves AT THIS TIME should be ashamed of themselves. Forget what you went thru if you had a hard time in the past but now you are doing better. I have been thru some hard times too. That's NO reason for crowing.

    If you have a problem with some folk being helped take a look at yourself. This isn't Russia. We're British, we're famous for helping others. Don't forget your Christian decency.

    Pride comes before a fall. You are sure to have that fall when you least expect it if you wag your finger at others worse off than yourself - however foolish and irresponsible you may think they are. Nobody should be beyond help and redemption.

    Repossessions up 12% and nobody came..


  • Comment number 100.

    I recommend that all read this:

    The quotes from the 'Fat Cats' are priceless and, I think, should be a good basis for some sort of legal action against them!


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