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Our banks 'have to lend more'

Robert Peston | 13:09 UK time, Sunday, 4 January 2009

Those of you of a puritan nature may have come close to fainting this morning when the Prime Minister told Andrew Marr that our biggest banks may have to lend more than they did in the boom years rather than less.

"Is he totally bonkers?" you may have found yourself asking. "Surely it was excessive borrowing by companies and households that got us into this mess. So how can it make sense for the banks to lend even more?"

The answer, which Gordon Brown hinted at in a characteristic mumble, is that our biggest banks provided only a proportion of loans during the era when the debt bubble was created. And lots of the other providers of credit in that time of crazy lending are now out of the market altogether or have become much smaller players.

That's one of the major reasons why there has been a sharp reduction in the availability of debt-finance even for creditworthy businesses and prudent households.

And, to state what you all know too painfully well, it is the main reason why our economy is contracting so painfully.

Here's an incomplete list of banks that were major providers of loans that - for a variety of different reasons - are no longer the aggressive providers of credit in the UK that they once were: the Icelandic banks (you know why); Northern Rock and Bradford & Bingley (ditto); the finance arms of major motor manufacturers; Citigroup/Egg; Alliance & Leicester (absorbed by Santander); many of the Irish banks and their subsidiaries; the smaller building societies; the specialist mortgage lenders.

The collapse of Woolies told this story. Among the big lenders who demanded their money back in November, only one - Barclays - was British. And Barclays' exposure was smaller than most. The big lenders - GMAC, Burdale (part of Bank of Ireland) and GE Capital - have overseas parents.

So how much capacity has been taken out of the British lending market? Well that's what the Treasury and the Bank of England are desperately trying to evaluate - because it will determine the next phase in the Government's commitment of taxpayers' money to ensure that sufficient credit is available to viable businesses and households.

My strong sense is that the Treasury is moving towards a plan that looks awfully like the Tories' proposal for taxpayers' to guarantee a proportion of lending to business.

What's under consideration is an insurance scheme, whereby banks would pay a fee to the Treasury to reduce the potential losses they would face on lending to companies and also possibly to households.

Here's how such a scheme could work - though it's early days, so don't assume that the numbers I quote will be the ones the emerge as and when a scheme is announced.

The banks would retain liability for - say - the first 5 per cent of the loss on a loan. So they would retain a strong incentive to lend prudently. But the banks would be able to purchase insurance from taxpayers to cover the next 10 per cent or so of any losses on loans that went bad (and, in a severe recession, many loans would go bad).

Why would this encourage banks to lend more than they are doing at present?

There are two reasons.

First, the banks could take a bit more risk when lending, because the loss to them in the unlikely case that all the stinky stuff hit the fan at the same time would be knowable and manageable.

Second, with the state sharing the risk, the banks' capital ratios would look much healthier as their balance sheets expanded, because the formal regulatory risk-weighting of lending would be significantly reduced.

Of course, the corollary of all this would be a significant increase in the risks and potential losses carried by taxpayers. And as I said in my Christmas Eve note ("We are the banks") the line between the public and private sectors would become even more blurred.

As for the banks, if they took advantage of such a scheme, they would be under an unavoidable obligation to direct their incremental lending at the UK: they would have to massively increase the credit they provide here, and shrink the credit they provide in other countries.

To be clear, there's a lot of this going on anyway. Royal Bank of Scotland, for example, is scaling back its global ambitions and is rebalancing its business towards the UK.

And there, as they say, is the rub.

RBS's shift towards its home market is a microcosm of what most banks are doing all over the world. And as banks do their patriotic duty and direct their increasingly precious and scare capital resources towards their domestic markets, the amount of credit available in the world as a whole is being compressed.

What's going on can be seen as a partial retreat from globalisation in the financial economy. The scale and longevity of that retreat in this new year will determine all our economic fortunes, wherever we may be in the world.


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  • Comment number 1.

    ". . . in a severe recession, many loans would go bad)."

    "Would"? Not "will"?

    At the risk of inviting you to call down on your head accusations of pessimism, what, in your definition, constitutes a "severe recession"?

  • Comment number 2.


    I am not a puritan and so was not surprised by anything Mr. Brown said. His Calvinist self-righteousness was so apparent it made this Anglo-Catholic quite relaxed and happy in my liturgy.

    Indeed, for the first time as he and Andrew Marr prattled on I tried to divine the man rather than his politics. I regret that I found a very confused and confusing individual, no doubt very clever in achieving his elevated position, but quite lacking in both intellect and empathy.

    One would have thought that the banking bail-out of last autumn would have already led to taxpayer guarantees of commercial and mortgagelending. Let's face it, without that aspect to the bail-out what was the point of the bail-out?

    The main question I have is why hasn't this aspect of the banking bail-out been carried through as yet? Why is the government being so tardy? This, surely, is no time for leisurely decision-making.

    I think the answer is to be found in the pysche of Mr. Brown. He hasn't a clue what is going on: he was clueless in the boom and now he is clueless in the bust.

    As for globalisation this was overstated during the boom and, like everything else, it will decline to a more manageable and even sensible process. Commercially I am emphasising the virtue of local sourcing to my peers and am even getting a hearing now.

    There are things to be gained from this recession (slump?) as well as things which we will lose. I hope that we will recover our economic sanity and lose that arrogance, exemplified by Mr. Brown's performance today, which knows nothing about productivity and the creation of value.

  • Comment number 3.

    Having read this I checked to see where the BBC's resident money expert Martin Icesave Lewis is advising the public to put their savings. It's not UK banks. His top tips today are Anglo Irish and ICICI. While free enterprise allows foreign banks to pay high rates of commision to middlemen to recommend UK savers put their money abroad I don't see how the changes Robert Peston suggests will come about.

  • Comment number 4.

    Great to see lots of people out on the streets yesterday with regards to the situation in Gaza.

    Can we now please see lots of people out in the same way demonstrating against what is happening in UK plc?

    We are all doomed if we don't find a voice, and a we must make it loud voice at that!

  • Comment number 5.

    I aint got no money
    I aint like those other guys you hang around
    And its kinda funny
    But they always seem to let you down

  • Comment number 6.

    I am a commercial Finance Broker. The most ''commercially minded'' business finance lender at the moment is Dutch, following Barclays, Bank of Ireland, Bank of Scotland and the Irish Banks withdrawing form the market to a greater or lesser extent. Next I access funds form Japanese and other overseas sources. If guarantees are given to British Banks, I fear the overseas lenders would themselves withdraw form the market if they were not on a 'level playing field'. This would leave the less commercially minded British banks to return to not lending and the downward spiral continuing!

  • Comment number 7.

    If what RP predicts is true then surely it would be better to nationalise all UK banks? Otherwise taxpayers will simply be subsidising bankers' inflated wages and boosting shareholders' profits.

    I expect that in about six months' time, when another few hundred billion quid have been poured down the drain to no avail, the Government will seriously start thinking about proper nationalisation. Not an idea that I particularly like, but if things carry on in the way have have done, there may be no other option.

  • Comment number 8.

    Robert does the idea of state guarantees on loans reduce the market dependence on Credit Default Swaps (CDS)?

    I was assuming that some actions would be taken to introduce sanity to the financial arena but I have not heard of any significant changes - has Obama made any noises about CDS?

    On globalisation my view was that business likes stability. If there was globalisation and then there isn't and then things pick up and there is globalisation back again how do you invest and plan?

    Individuals who are well educated and over 45 are expected to work till 70 and then pick up next to nothing from their pension investments. If this crash does last a lot longer than one to two years many of these people will be on the scrap pile for good.

    So a 21 year old graduate laden with personal education loan debts and living in a society in hock via PFI and the long term economic crash bill would be thinking also that planning for the future was near impossible.

    "Gordon saved the world" may make it till March. By that time I wonder if it will have become clear that this is all going to last a lot, lot longer than one to two years.

  • Comment number 9.

    #2 stanilic

    I agree. Brown is out of his depth, and does not understand how business works. Like most in his cabinet he has not had a real job in industry, commerce or financial services. Lending is only a small part of the equation leading to economic recovery; business and consumer confidence is key to a sustainable future. Mortgage repayment of equity is high; few if any borrowers are taking extra loans to consume more.

    I also understand that commercial loans are due to be refinanced/restructured over the next 2 years (GBP 50 bn was one quote). Do banks therefore have a greater duty to existing client borrowers that will probably need refinancing over new borrowers? I am inclined to think so, otherwise as Robert stated above the Woolies example will be repeated.

    If the global financial sector becomes drawn to their own domestic markets, then this is a worrying development. Britain has always thrived as a trading nation. Is the Third World to be abandoned altogether, as regards investment opportunities? I do not think they will survive for vey long on handouts from the Department of International Development.

    To the governemnt I say: do your homework and try some joined up thinking for the first time in eleven years.

  • Comment number 10.

    Sounds a bit like the Small Firms Loans Guarantee Scheme?

    Or RP were you meaning the government guarantee would be all but 5% of the value of the bank's loan book? Surely not.

  • Comment number 11.

    This is quite similar to the Small Firms Loan Guarantee Scheme which works reasonably well at present (though it's quite hard to get bank approval for a loan through it - I hope the new scheme will be easier to access).

    The insurance premium concept is similar - each year the Government charges about 1% of the outstanding balance on the loan as a risk premium. They only guarantee 75% under the SFLGS so this would be an increase.

    Those who are unhappy about the idea of increasing company borrowing might like to consider an alternative where government would take equity stakes instead, as written up here:

  • Comment number 12.

    I havent heard very much regarding the secret off shore banks (and some on) Cayman,Jersey etc etc,oh, but they dont LEND ! they only HOARD.
    The Prime Minister repeatedly said "In America" so many times I lost count ! !

  • Comment number 13.

    This is all very interesting but I understood that the principle reason that Barclays chose an alternative capital source was that most of it's business (and employees) is non-UK and that far from contracting back into the UK it is expanding out. I fear that this whole situation is far far more complicated than we have been led to believe.

  • Comment number 14.

    If as you say, we are the bankers already, why don't we go the whole hog? If we reserve the power to undertake fractional reserve lending to a Nationalised Bank, it is still possible to have a competitive financial services industry.

    The first step is to forbid lending by banks unless they have the actual cash. Banks may borrow from the National Bank if they have sufficiently good assets as security. They can then lend to the market by charging a premium on top of the loan from the National Bank. This is what Money Lenders do anyway so we have nothing new here.

    Any profits from the National Bank made on loans would be used to offset taxation.

    In this way, we can gain the profits from fractional reserve banking because we are underwriting the risks.

  • Comment number 15.

    The Tory proposal to guarantee bank lending to viable companies was a sensible one.
    Unfortunately who can trust this PM to behave sensibly.
    I feel the scene is being set for a massive influx of printed money. This is the last resort of a desperate government.
    GB hinted at this morning when he talked of Obama injecting hugh amounts of money into the American economy.
    That is OK for America with the dollar as the world currency but not for the UK with its sinking sterling.
    Again Obama needs the go ahead from the senate. Who knows yet whether he will get it.
    Brown behaves as an unelected president and needs the go ahead of no one but himself. He acts hoping everyone else will follow.
    Very dangerous times indeed.

  • Comment number 16.

    RP points out "the Treasury is moving towards a plan that looks awfully like the Tories' proposal for taxpayers' to guarantee a proportion of lending to business"

    One can sense the spin the government was weaving already as the BBC's David Thompson said in an earlier news item:
    "Opposition parties would claim that giving them more money was evidence that the government's original plan to revive the economy had stalled.
    "However, ministers would be likely to argue that any flak would be worthwhile if a second bail-out helped shore up the already fragile banking sector - and got it lending to the public once again."

    So the Tories propose a loan guarantee scheme months ago, which Labour ignores or sidesteps by labelling them as a 'do nothing' party. Surprise surprise the Tories were right all along, Labour (read GB's psychological flaws) can't bare giving the Tories any credit so brief and hint to the effect that it would be irresponsible not to consider all options as the banking sector is frgaile and needs all the support it can get.

    Net effect: GB steals another policy, gets away with it and paints the Tories as negative and not 'pulling together' in the true British sense..!

  • Comment number 17.

    Do you know of any other industry that privatises its gains but socialises its losses?

  • Comment number 18.

    Like every other business, banks have to make profits or they cannot pay the interest required to encourage and keep investment. Gordon Brown's performance on Andrew Marr's show this morning was a clear demonstration of what ails this country; Gordon Brown. The man is in total denial; he has no answers to the problems, only a neverending capacity for blame shifting and meaningless rhetoric. Cutting interest rates now will I fear lead to a cap in hand trip to the IMF., with its attendant " this will not affect the pound in your pocket " spouted by the dishonest Harold Wilson when his government also proved incompetent. The country needs investment, not from funny money printed by Alistair Darling but from external sources , and the only way to achieve this is by raising interest rates so that investment in banks becomes profitable and lending by banks becomes profitable. Propping up failing businesses with public money is futile, as is cutting mortgage rates if the banks cannot make a profit from lending. The governor of the bank of England has failed miserably to control the country's finances yet is still pursuing the same desperate course of action that he and Brown used to bankrupt the country.

  • Comment number 19.

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

  • Comment number 20.

    This is the last thing the UK needs. having been hopelessly addicted to credit, the UK economy needs to go through a painful period of 'cold turkey', with all the withdrawl symptoms that entails, if we are to stand any chance of achieving longer term health and prosperity in the UK.

    Gordon Brown's recipe is akin to going out and giving the economy another heroin fix, which will numb the pain for a short time, before the symptoms return - and worse.

    The Germans as good as said this recently in a refreshing breach of international protocol.

    Trouble is, if the taxpayer gives debt guarantees like this, irresponsible lending (and fraud) will flourish - and that is the road to ruin.

    Instead of risking some (regretable) bank and business failures, he risks the failure of the entire country's economy

    The UK takes another step on the road to national bankruptcy - but then it becomes ever more obvious that Gordon's only care is to make it to the next election. Won't be his problem after that, and he knows it...

  • Comment number 21.

    # cormont

    I can't speak for the oligarchs and money launderers in offshore banks I am an expat that get's my pension paid into an RBS offshore account. Any interest is taxed at source by 20%. My account is not covered by any government insurance and even worse when I tried to draw out the bit of dosh that I have there they refused to give me. If I could dump em I'd do it in a flash I've had a gutfull of this lot. Hoarders? you bet they are.

  • Comment number 22.

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

  • Comment number 23.

    The banks would retain liability for - say - the first 5 per cent of the loss on a loan. So they would retain a strong incentive to lend prudently.

    But the banks would be able to purchase insurance from taxpayers to cover the next 10 per cent or so of any losses on loans that went bad (and, in a severe recession, many loans would go bad).

    Why would this encourage banks to lend more than they are doing at present?

    There are two reasons.

    First, the banks could take a bit more risk when lending, because the loss to them in the unlikely case that all the stinky stuff hit the fan at the same time would be knowable and manageable.

    Second, with the state sharing the risk, the banks' capital ratios would look much healthier as their balance sheets expanded, because the formal regulatory risk-weighting of lending would be significantly reduced."

    Peston has woken up in 2009 dreaming!

    Being as ALL that money has to come from taxpayers with the risk insurance you are describing, then who wins?
    >the banks of course dummers!

    >Who loses? You do idiots!!

    Who continues to rip you off for bank charges> the banks of course!
    Welcome to UK 2009!

    If this con job is the future, then steer clear of the UK, it's bankrupt anyhow, as are the financial advisors proposing more of same!

  • Comment number 24.

    alternatively you could sell the banks or merge them

  • Comment number 25.

    One wonders if it might not actually have been more prudent to have a wholesale, albeit temporary, nationalization of the UK banking sector.

    I appreciate such would be traumatic and would compromise UK banks' perceived international independence. Also it might have implications for confidence in the UK and HMG and in their global credit scoring. And yet, and yet...

    We are heading that way in the end and it is costing much in every way possible. Sometimes it is better to amputate a whole leg and be done with gangrene, rather than keep slicing up the leg in the hope of over-taking its progress.

  • Comment number 26.

    i had an interesting conversation on friday with my banker at HSBC (yes i am a premier customer so get to talk to a real person, not a recorded voice or some poor guy in an Indian call center who repeatedly told me i didnt have an account with hsbc!!)
    I asked him to give me one reason why i should leave my funds with hsbc who are offering a measly 1% interest whereas almost any other bank would give me three or four times that. He said that HSBC sets its rate to stay in business and anyone like Allied Irish offering 4.5% are losing money on the deal. The inference being that HSBC is the "safe" bank, i pointed out that all banks basically give 100% guarantees and he said, yes in theory but it has yet to be tested...the Irish government could not give 100% if the bank fails as they just do not have the money! As to the UK banks could the government really bail out say RBS or Barclays?
    Regarding Brown he really has no idea, everything he has tried so far has failed, so he suggests more of the same...With the pound on its knees who is going to finance the huge borrowing of UK plc? within six months interest rates are going to have to rise significantly just to enable the government to service its debts never mind finance a recovery. The sooner he goes the better for everyone, he has bankrupted the country and should be impeached.

  • Comment number 27.

    Robert, 'taxpayers' obviously means those of us who actually pay tax - i.e have it deducted at source by PAYE, or from pensions and savings interest? After all, the people who got us into this mess, and the rich generally, usually manage to screen their money from the Inland Revenue.

    Does this mean that having no debts and after paying tax all my adult life, without grudging it (except for the proportion spent by successive governments on Trident and such-like) am I now to face a noticeable reduction in my rather pathetic income, while also having to shoulder the risk for the banking fraternity?

    I've been reading your blog for several years and it has helped me to understand what's going on. It was nice to see you on Panorama. I worked for your dad ages ago (1983-86) and I hope he is well.

  • Comment number 28.

    Joe Gormley told Ted Heath that, if he wanted more coal, he would have to pay the miners more. When he got rid of Ted he told Harold Wilson the same story! And the miners got the money.
    Likewise if the banks need more money to lend, they should pay the depositors more!
    If bank rate is reduced the depositors will find alternative places to deposit their funds and the banks will have even less money to lend!
    What interest rate is being paid by the government to those from whom they are borrowing ?

  • Comment number 29.

    It seems to me that the 800lb gorilla in the room are the financial derivatives the banks are exposed to. In 2007 Barclays had an estimated £250 billion of liabilities on £30 trillion of derivatives.

    Looking on the bright side, since most of the derivatives are interest rate derivatives, the banks should be raking it in after the recent interest rate cuts. Which poses the question, are the interest rate cuts another way of recapitalising the banks?

  • Comment number 30.

    OK here we are as taxpayers about to give the banks more of our hard earned taxes, and for what? So the banks can pay more bonuses (and dividends...?) to the greedy ones at the top that leant money so irresponsibly in the first place and got us in this mess. The banks need to start leanding again, responsibly. Those that have borrowed too much need to start paying it back. I say nationalise all the banks that have benefited from our money and control them properly so they lend responsibly and contribute to the economy and we all benefit.

    I think a far better use of taxpayers money would be to invest in the UK PLC infrastructure so that when we come out of this mess we will have something to show for the 'bad times'. If G Brown and his cronies are looking for investment ideas then how about reducing our reliance on 'foreign energy' by building and devoping an alternative energy industry that is a world leader; by investing in a nationwide fibre optic network so every house and business in the UK can get super fast broadband, and last but not least let's have a 300kmh high speed rail line from London to the North/Scotland and the South West (think less pollution, no need to build runways as domestic flights no longer viable, and the environmental benefits that brings).

    At the end of the day I'm only a taxpayer and those in Goverment seem to act with no regard to those that pay thier salaries and elect them in the first place.

  • Comment number 31.

    Happy New Year Robert. I look forward to more of the sanity and clarity that you bring to this subject during 2009.

    I hope Brown was widely seen on Andrew Marr this morning - with every breath he demonstrated how out of touch and unsuitable he is.

  • Comment number 32.


    At what point will you admit that we are now a Communist state?

    Already more than half the jobs are public sector funded with borrowed money and a third of the population are dependent on state benefits. The state also guaranteeing all our loans with borrowed money itself just highlights communism.

    I cannot believe that you and the government believe that an economy can function with unlimited borrowed money and no thought as to the catastrophic consequences.

  • Comment number 33.

    "Our banks 'have to lend more'"

    Nice idea but, as I wrote last year, they no longer either have the money or the asset base from which to lend. Neither can they generate the money from the 'now vanished', synthetic financial instrument market.

    This is compounded by the regualtors insisting on the strengthening of the capital ratios, and further added to, if added to is the right expression, by the huge and unjustified reduction in interest rates.

    To quote private Fraser (from Dad's Army) 'we are all doomed, doomed'! Until the folly of the present policies is realised and reversed.

    A possible indication of the way ahead is that some enlightened Building Societies are refusing to lower rates to savers and borrowers as they have realised to absolute folly of the interest rates policy - in fact the market has forced this realisation upon them. We truly live in interesting times!

    The people who gave us the incompetent management of the economy for the last decade are still regulating the economy and the situation will not improve until they are sacked - not given knighthoods!

    Money needs to be worth something for it to be valuable. Borrowers must expect to pay a reasonable price in the long-term and savers and investors must similarly expect a reasonable return. (6-7 percent) Zero percent is stupidity - negative interest rates as promoted by a commentator over the weekend are even more unwise.

  • Comment number 34.

    In the long run, the only way interest on debts can be serviced is by profit on trade.

    Increasing the money supply (credit) increases the debt burden. In the short run, any additional government spending helps some people and some businesses to trade their way through the recession and continue to service their debts. Plus, increasing the money supply this way also helps erode the value of debts by inflation (but also savings of course).

    The drawbacks of this approach of expanding the money supply to get out of our problems are that the debt burden on society as a whole worsens unless the additional money is invested to make more profits than it costs in interest - although it can appear to work in the short term.

    In the long run, the only satisfactory approach is for additional profits and savings to service and pay off debts. Then to use the financial resources freed up to invest in new, profitable projects.

    Gordon Brown and Labour as a whole cannot fundamentally understand this as they see PROFIT as a DIRTY WORD. Gordon Brown shows this ignorance by classifying any SPENDING he wants to undertake as 'INVESTMENT'.

  • Comment number 35.


    If i understand you correctly you are saying that a hundreds of billions more lending will be made but not show up on the banks ballance sheets. Instead they will be shown as a UK government debt. When large amounts of this debt goes bad it will become non recoverable government debt.

    Is this not just a variation of the years of 'off balance sheet' risky lending.

    What will this do to our economy and our governments ability to borrow?

    How far will the pound have to plunge when the cost of everything in the shops starts inflation rocketing.

  • Comment number 36.

    A lot of people no longer want to borrow.

    They want to pay back debt as best they can, and not be weighted with more debt.

    Solve that one you shimmering orb of pale blue light.

    Consumer retrenchment.

    Enjoyed the credit boom? Took on big debt to become a FTB, or even more mortgage debt to trade up to a big house?

    Beware of a prosperity which only loads you with more debt.

  • Comment number 37.

    So we are to become debt factors for the banks. Fairly inevitable given the way the recession is gathering pace at an alarming rate- it might even be sensible if it is targeted at exporters and wealth creators.
    What is becoming clear though is that a price has to be paid by these bankers- at present they have done far more damage than all the terrorists on the planet put together. The US have a far more interventionist line- fundamentally the combined boards of all the banks have lost enough value for them to be cleaned out of all the money they have plus all their pensions and there still would not be enough redress. But of course vengeance never got us anywhere so a straight dismissal or transfer to Kabul or Baghdad will do.
    I think the next step is to stop being so flipping gloomy all of the time- we know it is going to be very nasty with over 1m job losses - but we should focus our attention on what needs to be done to help- especially those in real need. At the same time we must address some real inequalities and unfairness in our society and learn to work together for the common good. Pay cuts may be needed to help - and why do we not start with all members of parliament including ministers- let us say a 25% cut in pay- freeze on pensions and reduced expense allowances for starters- would be good if they led the way- after which why not a voluntary pay cut of all those earning more that £90k per year of 10% and a change in the pension regulation so that nobody can get a company pension or civil service pension greater than £75k per year- that ought to ease a few of the inequalities.
    Of course the PM I believe said many of the right things in the AM show but no doubt came across as a sanctimonious fellow- but Alastair Darling sounded not too bad on the radio. If course the Tories really do need to get someone with some brains instead of young Osbourne who has shown all the aplomb of those upper class twits who led our people to mass slaughter in WW!.
    Certain to be a rather interesting year I feel.

  • Comment number 38.

    Forgive me for stating the obvious, but one can run a business in debt in perpetuity, but the same is not true of negative cash flow. Therein lies the nub of the issue.

    British businesses excluding small businesses are levered to the hilt. Banks could be made more lax with respect to debt facilities, but once cash flow turns solidly negative and stays there, they will want their money back before recovery is zero.

    That becomes an interesting balance, does it not?

    On the one hand a political imperative to lend in exchange for taxpayer provision of capital and sharing of losses. On the other hand a business imperative to maximise recovery on bad debt to avoid depleting said capital, which means initiating liquidations.

    Since negative cash flow always wins, debt deflation will continue. But I do expect much dancing around the issue in the meantime.

  • Comment number 39.


    Do I understand you right?

    Those institutions that gave credit, that may have led to this current disasterous financial situation, have either gone belly up or been taken over.

    And now the PM wants those banks, who did not get caught up in this folly, to now engage in the same practise. To be forced if necessary to lend money to individuals, in a contracting housing market, a significant proportion of whom are certain to lose their jobs in 2009/10.

    Is Gordon Brown is LaLa land? Before he goes entirely bonkers I think he ought to ask the rest of us whether we are prepared to go along with his latest nutty idea.

    He has already wasted 12billion on a headline grabbing vat cut, when the christmas sales were on. All of which most sensible people predicted would come to nought.

    Is Gordon Brown`s sole aim in life to lay to waste the whole of this country?

    At this rate Xmas will be cancelled next year. By then Gordon will have taken everything from us, except the clothes from off our backs - but don`t even rule that out!

  • Comment number 40.

    "a sharp reduction in the availability of debt-finance even for creditworthy businesses and prudent households."

    Who's to say which businesses are credit-worthy, as demand for goods and services collapses around the world? And what 'prudent' household would be looking to go (further) into debt at such a time?

    The problem is in the debt-based nature of our economy. We've reached the limits (just look at our PSBR and trade deficit) and trying to stoke more debt will make things worse ... we need to re-think EVERYTHING we do, from the ground up.

  • Comment number 41.

    I would be most grateful if Robert, or other contributors, could answer one simple but VITAL question - how on earth, given a deteriorating currency and very low policy interest rates, is government going to raise the funds that it requires on the money markets?

    Government borrowing is expected to reach GBP 120bn this year - allow for redemptions, and some greater realism on "recovery in the second half of 2009", and the sum needing to be raised could easily reach GBP 150bn, maybe more. Where is that going to come from?

    I understand that Germany recently had to pull a relatively modest (Eur 10bn) bond offer recently. Other countries are offering double-digit rates on government paper. Previously-wealthy oil producers are feeling a lot less wealthy now that oil prices have slumped.

    Can the money be raised, or are we on our way to the IMF? And, if the latter, when does Brown call an election?

  • Comment number 42.

    Robert & other readers -- thought you may find this article published in a local business publication interesting:

    Big future tax rises inevitable

    Imagine for a minute that you are a banker and I have a client that needs to borrow some money. This client is run by a Board of Directors who have no experience outside this particular business. They got elected by promising that they would give the customers loads of services. The business is forecasting sales next year of £536 billion but will have costs of £654 billion. Rather than try to cut its costs to match its revenues, this business wants to borrow £118 billion to fund the loss.

    Oh, and by the way, because the business refuses to cut costs, it will make losses every year for the next seven years and wants you to lend them the money for that too. It won't be until eight years' time that the business will manage to spend what it receives in income in that year.

    At that point the business will have a mountain of debt. How will it pay it back? Well, the Board are a little bit hazy on this. But their plan seems to be to hit their customers with lots of hidden charges so that they can make huge profits each year so that they can start to pay back the vast debts they've run up. Of course, how accurate the forecasts are is crucial. Just in case you were wondering how good the business is at forecasting, only 18 months ago, it forecast a loss of £24 billion this year, now it is going to be £78 billion.

    Would you lend the business the money? I very much doubt it.

    However, the Government hopes that someone will as the above describes Alistair Darling's plans for the economy as set out in his recent Pre-Budget Report. In Gordon Brown's last Budget in 2007, he predicted a downward trend of public borrowing, from £35 billion in 2007 to £24 billion in 2008, comfortably meeting his socalled 'golden rule'. Only 18 months on from that speech, Alistair Darling unveiled public borrowing was not £24 billion but £37 billion last year. It will be £78 billion his year (not the £24 billion predicted by Brown only 18 months ago), £118 billion in 2009/10 and £105 billion in 2010/11. Under Brown's 'golden rule' annual public borrowing should" be a maximum of three per cent of GDP. The recent figures show it is predicted to be eight per cent of GDP and it won't get back to Brown's golden rule for another six years... Brown's other 'golden rule' was to keep total Government debt to a maximum of 40 per cent of GDP. It will rise to 60 per cent of GDP and we won't get back to meet' Brown's 'golden rule' for another eight years.

    All of these figures are dependent on the Government's predictions of a short, shallow recession. Of course if we get a long, deep recession these figures will be s significantly worse. The Government's strategy is to keep growing public expenditure by 1.2 per cent a year and to borrow to pay for it until the economy picks up and taxes can be put up to pay for it.

    Because Government expenditure is not to be cut to meet its income, we will have huge tax rises in years to come to pay for the debts we are running up over the next eight years.

  • Comment number 43.

    Confidence - or lack of it is what enables credit to be given or not.

    I suspect that banks are very much the industrialists lender of last resort.
    Much better, cheaper, to simply become late payers.

    There are a whole succession of fleas all on each others backs. The big companies extract credit from their smaller company suppliers and so on all the way down the line to the micro companies. Meanwhile all companies extract a month's credit from their monthly paid staff.

    Once a chain is broken, by a supplier running out of cash, then the banks will be asked to step in.
    If the banks do not step in then whole supply chains will fail.

    If there is no confidence then who can blame the banks for not stepping forward?

    That is what GB should be worrying about.

  • Comment number 44.

    I have a cunning plan... Our banks 'have to lend more'
    Baldrick continually invents many "cunning plans", which are scathingly ridiculed by Blackadder (who often ends up using them in desperation).

  • Comment number 45.

    if brown had guarenteed aid to lloyds and barclays they would have been able to lend more - instead they demanded higher reserves - thus causing these 2 banks to have less to lend. aid provided at 12% does not encourage banks to take on riskier loans.
    brown has been the prime cause of the uk banking crisis - not a savior.

  • Comment number 46.

    #34: Spot on.

    All debt must be repaid with interest, and paying the interest with additional debt instead of production only increases the burden, postpones the inevitable and makes it much worse through the arithmetic of compounding.

    Since we have too little production in which to invest to earn our way out, Brown invests in consumption to avoid contraction. The taxpayer has to run faster on the treadmill to stand still. There is a natural limit of course, which will soon become painfully obvious.

  • Comment number 47.

    So if we withdraw funding from our banks will they all go bust? Or will we simply be left with Barclays?

    ...and who will accept accountability for the government policy being too little too late?

    If we are therefore using Conservative policy, untested on the treasury model, shouldn't we have a different government?

    I will offer £1 for the non-toxic assets of RBS, HBOS, B&B and Northern Rock. I will take none of the liabilities. All pension funds to be left behind with the administrator. All board members to be left to wind up what they have left and explain to their shareholders

    Let the banks fail and lets get to see the floor of this recession. Whilst there is no realistic alternative to these moribund edifices the rest of the economy will continue to suffer.

  • Comment number 48.

    To true Robert many will wonder if the world has gone mad and maybe it has but there is a great deal that could be done without massive commitment and risk by bankers and tax payers that would restore faith in the whole system and not burden the saver as much

    First though A happy New Year to all.

    Now you have too take on board one lesson you cannot fuel one sector or two sectors of the economy as has been done for the last 9 years around the world [including this country] just to try deferring the economic cycle.

    You have to stabilise the economic table with a leg at each corner not another prop in the middle which just allows it to keep rocking as before we fuelled the house market and in unison fuelled the high street with money that was feel good - not do good.

    House prices should still fall to their 2000 level plus relevant inflation about 125k for the average house. That would also stop a lot of pressure on wages next you need to encourage more home grown foods right round the world and more local movement of food.

    Poor countries and unproductive lands could start production of more bio fuels for electricity etc improving their economies this takes away the need for so much international support t giving them chance to buy anything [but arms] and brings back self respect and hope

    Next we need a policy to force banks to do what they say on the packet for regulators to fine them for misleading advertising and compensate customers they are the worst and finally to stop trying to fool anyone that they get free banking because every time they penalize their poorest customers and trades people with their outrageous charges the trader either passes it on to his customers or goes bust which affects every ones cost of living including the prudent savers who they kid hey are getting free banking and who actually least need it anyway

    Any one should have to justify any action they take or any condition charge or term they place on another by answering - was this of benefit to the country community the society we live in and will my action or deed help improve the greater good or will it just benefit me or worse will it have a detrimental effect on others in the community the society the country in which I live. Any citizen may then bring this test to a judge against ay other citizen to have the fairness and social benefit corrected.

    Banking is not free but it should be fair as should all businesses and indeed all deads and transactions to society and to individuals essentially there should be a moral and ethical code for operating all business by and it should be enforced.

    Maybe sustainable has got lost with green issues [which incidentally have not gone away] but in the meantime how say we use maintainable. If we get house prices down and then lend twenty year olds on 50 year loans that would get more people started 30 year olds could have 30 year loans 40 and50 year old 25 year loans ay one else 12 year loans. Loans could only be a maximum of 90% of value

    Businesses should be lent on the amount they have invoices outstanding, or stock that they have on their shelves, or raw materials or capital equipment, or property they own but no more and penalty fees arrangement fees and late charges should be abolished and every one should pay half a percent on the money they pay in to their bank and a pound for every cheque they issue

    Now I have not worked out the fine detail and there are several more measures you would need to complete this social economic framework but you would have a fairer more maintainable framework for world trade and customers who could buy services and people who could supply them at reasonable cost you can start it locally but eventually you would need global consent and global jurisdiction to enforce it.

    This may just star to remove world poverty and it may stop the economic table from rocking so much that we have no time to concentrate on the issues of life and death -like wars, poverty, resource management and dare I say mitigating the effects of climate change even if only by a few percent.

    Yes it may be a little mad as you lead off in the article Robert but some will think us mad anyway what ever we do though please do not let us commit the greatest madness of all mankind and carryon doing what we have always done but expect to get a different result.

    If we try something different future historians can say after five hundred years of boom and bust and growing world poverty their at last came a generation who tried to make a difference for the greater good of humanity.

    I would rather fail form trying than exist by doing nothing

  • Comment number 49.

    The banks lent money because they wanted to make money for their shareholders!

    Now the government is a major or even majority shareholder in some of them and the banks are simply acting in the same way as before. On the face of it, it appears the tax payer has given the banks some £37b for absolutely no benefit.

    As a major shareholder in public a public company with 40% or more that realistically gives you control of that company. So why isn't the government actually using that shareholder and appointing people who'll help the economy and get the lending moving? Simple answer maybe it's just given them a subsidy.... and hasn't actually got the will or the whereabouts to do anything!

    I appreciate the banks were and are probably still are in a mess but they made those decisions themselves, just like any other business.

    What about all the other businesses in the country? My bank charges are higher than ever and the interest on my overdraft are almost half of the annual base rate MONTHLY!

  • Comment number 50.

    Hi Robert.
    Happy New Year....missed you these last few days great to have you back.
    Please keep us informed, in your usual excellent way as the British Economy seems more dire than ever...What are Brown and Darling going to do about this ghastly mess? Can't you advise them as you seem to have more idea than they and the Mandarins in the Treasury ...What are the shysters in the Banking World upto now????

  • Comment number 51.

    An important underlying message in here is contained in Mr Peston's point about the retreat from globalisation as banks/lenders focus on domestic markets.

    I predict that this trend will be unstoppable from here on and irreversibly reinforced by the end of mankind's era of cheap energy. With that comes the end of our propensity to go about our businesses and lives assuming aggressive, relentless, debt-fuelled economic growth. This year will be better than last year, and next year will be even better again. Forget that paradigm of economic certainty from here on.

    The world is about to grow back again to the size it always was: Earth-sized, and not a "global village" which I always felt was a silly and, almost by definition, unsustainable (un)reality.

    Those seriously deluded folk (including Brown, Darling et al) who think that this crisis is, to all intents and purposes, a little local difficulty are in for one helluva shock (does anyone really think we'll be heading out of this unprecedented mess at the end of this year - per Darling's risible economic forecast?).

    We're now sitting at the top of a very long, downward slope for the global economy complete with bumps, twists, turns and severe shocks and surprises that few of us can imagine today. Take, for example, the Head of the National Grid's assessment that the Grid needs some £100 billion of investment to meet demand for energy by 2015. Where's that money going to come from now that the taxpayer is devoted almost exclusively to saving the shambles of our banking industry? Looks like madness from where I'm sitting.

    In 10 years time (possibly just 5 years from now) the world will look nothing like most mainstream politicians and so-called experts are striving to forecast today, primarily because we've reached the end of the cheap energy road. With one or two visionary exceptions, most commentators have not the faintest idea just how intractable a mess we have created, nor how damned difficult it's going to be get out of it the other side.

    My advice would be to take absolutely nothing uttered by politicians this year at face value: do your own research and make preparations for sweeping changes to your way of life and, moreover, the lives of your children.

    We're entering a new world era and - as with this crisis - the last people to grasp the nature, scope and scale of the challenges we now face, still less to prepare us for them, will be our lamentable political elite. How would you score their competence thus far when it comes to forecasting, planning and managing our economy - and with it our quality of life?

    Finally, absolutely the last person on Earth to rely on now is the guy who proudly (yes, he's very proud of the UK's current situation) engineered the unholy mess that we UK citizens are now about to endure, and some.

    Good riddance Mr Brown.

  • Comment number 52.

    #36: I have been telling Robert for some time that the credit market is frozen at the demand end too, but he insists on treating this as a purely supply-side problem.

    Anyone wanting proof, check the footfall at an estate agent, car dealership, electrical goods retailer, furniture store, etc.

  • Comment number 53.

    Last real tax payer out of Britain shut the door, Also can you ask Tony for that £6m pension back,

  • Comment number 54.

    Getting the banks lending again to ensure sound businesses don't go under due to working capital problems is essential for sure.

    Anything along those lines, even from the mouth of those who got us in this mess in the first place, should be welcome, we can vote him out later....and we will, politically he is a dead man walking.

    That is all well and good but somewhere along the line someone is going to have to think about re-building a 'real' economy.

    10's of thousands of jobs in financial services have gone forever from an economy that was for a large part underpinned by the growth in financial services itself, certainly not manufacturing or innovative technology or commodity exports or anything (it seems) that involves getting your hands dirty.

    We even managed to nanny our traditional labour force into accepting benefits as a way of life. Too proud to plough the fields or be found under a boiler with a monkey wrench when you can have a flat screen TV broadband internet, a house and a crate of high strength cider a week on benefits...providing you make enough children and dont get married of course! Don't the eastern europeans do all the hard jobs anyway?

    Is this the kind of society Gordon Brown meant when he said he had 'fixed the roof' while in office?

    What a cumupance we will get for the society we have created.

    Gordon probably meant well but like most politicians nowadays, they are mostly career politicians (usually ex lawyers) not ex captians of industry etc. What kind of training does a career politician get to qualify him or her to run a real modern country? It's great training to bay at each other entertainingly accross the debating chamber but to actaully run real stuff?

    Vince Cable had a real job, he seems to be the only one in la la political land that saw this coming and has sensible suggestions to get out of it.

    Speaking of which.

    First we need to become self sufficient in essential needs again as far as possible (i.e. power, food and infrastructure) - always a good starting point...are the career politicians keeping up at this point I wonder....

    From a base of being largely in control of our own destiny we can start to build an economy based on something real that is offering real value. How novel!

    Somewhere along the line we will need a new political class who have experience in the real world ( i.e. we may need to pay our politicians more, most earn less than an average GP) and we will have to dismantle the carefully constructed nanny state.

    Gordon Brown is invoking the British Bull dog spirit in this 'Global' (you have to laugh)crisis'.

    Someone should tell him you do not get that bull dog spirit in the real world by creating a generation of work shy risk averse couch potatoes more interested in what they can get out of society than what they can put into it.

    We only have ourselves to blame for the creeping growth of the nanny state, paralysing red tape and health and safety litigation mad culture.

    I dont want to live in a society where bin men (sorry cleanliness operatives) refuse to collect my bin because it is too heavy to rock onto 2 wheels with 1 finger...its elf n safety y'know..!!!

    For goodness sake wake up Great Britain ..smell the coffee.

    If it was down to me we should install Vince as acting PM under a crisis government of national coalition then re-build a sustainable modern society from there. there anybody out there?


  • Comment number 55.

    I know it might be a strange idea in these times were everyone is queueing up to "blame the banks and the yanks" for the current turmoil, but why not work together to get a solution that works.

    On the recent Alistair Darling took great delight in telling us that he dictated to the banks what was going to happen in a take it or leave it fashion.

    The problem was the deal he brokered appears to be unpalatable to banks and they are reluctant to take advantage of any more borrowing from HMG than the minimum they require.

    This has a knock on affect that banks are not in a position to lend to the general economy.

    Given the failure of the previous plan hopefully the treasury will learn from their mistakes and avoid a quick fix and negotiate with all parties involved to brker a deal that is fair and acceptable to all parties.

  • Comment number 56.

    "I will not allow house prices to get out of control and put at risk the sustainability of the future."
    Gordon Brown, Chancellor of the Exchequer November 1997

  • Comment number 57.

    "OK here we are as taxpayers about to give the banks more of our hard earned taxes, and for what? So the banks can pay more bonuses (and dividends...?) to the greedy ones at the top that leant money so irresponsibly in the first place and got us in this mess."

    Quite. It's about time these parasites were stripped of their personal assets. They've already stripped plenty of us of much of ours.

  • Comment number 58.

    Face it Peston,

    You're labour party's been found wanting, they are only a wee rattle
    Or civil unrest away from death.

    Here lies the Labour party, buried in 2009 by Gordon 'He saved the world' Brown.

    The clown even believes his own propaganda now, idiot!

  • Comment number 59.

    # 32

    "The state also guaranteeing all our loans with borrowed money itself just highlights communism."

    Pretty soon the current situation won't be anything to do with rampant capitalism at all eh?

  • Comment number 60.

    All this whining blaming the bankers! Look, you have just got to accept that they need the money - it is important to ensure that they can maintain their lifestyles – expensive housing – big company cars with chauffeurs – high maintenance wives and children – do you really expect their children to not to go to private schools and Oxbridge and their wives not to go on holiday 4 times a year – do you want them to give up their generous pension and health care plans – next you will expecting them to give up their bonus! Please have a heart - if you sack them where will they go? They have no experience of running a real company and working for a living. (Any similarity with politicians is purely intention).

  • Comment number 61.

    The government providing CD insurance? Isn't this what I suggested more than two months ago? I rather think it is. So instead of throwing hundreds of billions at the banks "to get the credit market moving" they could simply have thrown a few tens of billions, if that, to get the credit INSURANCE market moving, which is where the whole damn problem came from int he first place. Oh, but that wouldnt' have moved all these billions from taxpayers to the bankers, would it, which is what this whole thing is about. WAKE UP!

    This is a scam, a slow motion caper movie - the biggest robbery in history. Are you not figuring it out yet folks?

  • Comment number 62.


    "A possible indication of the way ahead is that some enlightened Building Societies are refusing to lower rates to savers and borrowers"

    From what I read in the Sunday paper, the "enlightened ones" are refusing to lower rates to borrowers because they "feel sorry" for savers. They're still going to screw those savers though, because that's the nature of the beast

  • Comment number 63.

    ' lend prudently'

    Bwa haha ha haha, Classic Robert !!!

    read my lips, THE GAME'S UP, and YOUR lot are OUT, OUT, OUT, FINSHED,


  • Comment number 64.

    This is just another cyclical 'event' in Economic history. From John Law's Mississippi Scheme to the South Sea Bubble to the Railway Mania of the 1840's to the Robber Barons of the 1870's to Charles Ponzi to the Wall Street Crash of 1929 through the Great Depression to any number of post war 'shocks'..

    On and on it goes, people learning nothing from past experiences or worse, simply ignoring it because the pseudo-science of economics invents new untested and impossible to validate 'theories' explaining how the future is always rosy as long as you keep pumping money into the system.

    All the tosh about if you invested money in 'The Stock Market' at any given point in history it would alway be worth substantially more in 20 years is not only a lie (If you invested money on October 29th 1929 your holdings would not have regained their original value until July 1954) but utterly irrelevant to how the market actually works. It is a matter of sheer luck as to how the market happens to be performing at the moment when pension funds and individuals need to redeem their investments.

    Politically, economic growth is all that matters, how that growth is achieved (or is given the appearance of having been achieved) is immaterial. Thus the current essentially fraudulent ramping up of debt and derivatives from that debt is just the latest scam to appease the utterly short-term mindset of 'investment managers' here and in the US. Last week I saw an interview with the head of a FOREX brokerage who explained that in the medium-term his company would be investing in Australian Dollars. when asked what he meant by the 'medium term' he said two weeks..

    That sums it up exactly

  • Comment number 65.

    I read in the Guardian the interview with GB and he provides the following quote""I don't want to sound arrogant, but 10 years ago I was making both speeches and proposals to sort out this failure of global regulation and I couldn't persuade other countries after the Asian crisis of 1998 that it was necessary."
    So now we know the man responsible for regulation in the UK didn't do it because...... no reason.This must as an admission require an explanation for the woes and costs resulting on the public purse.Clearly the blame lies with those he couldn't convince! I suspect not just the US but everyone else.

  • Comment number 66.

    No matter how much you hated Margaret Thatcher (and I certainly did), your mission (as a subject, not even a citizen) is now VERY clear. It’s time to extricate the communists from power before your kids brains are like Gordon Brown's (i.e. Cloned)!!!

  • Comment number 67.


    An equity stake in an insolvent company is just that. It does not necessarily make the company solvent and it does not make the business model viable. The banks do not have adequate reserves even for realistic loss provisions on existing loans, let alone new lending. Recapitalising them with ever-increasing amounts of taxpayer money fixes the immediate capital shortage, BUT, since that taxpayer money does not exist today but is a claim on future taxes, the debt burden on the country as a whole actually increases. All the government has done so far is shuffle paper. What needs to happen is a reduction of debt, not in one place, but net across the system. Not one politician or business leader has explicitly acknowledged anything of the kind.

  • Comment number 68.

    62, Spot on,

    I took the lot out of nationwide because of their attitude to me as a borrower and a saver! And another thing, things may not be well at all at the Nationwide.

    I reckon pretty soon they may float ;-) Can’t wait for my voting cards to come through and cash in!

  • Comment number 69.

    Banks "have" to lend more? That appears to have been the assumption which underpinned the first bailout, and that did not achieve the desired effect. A couple of potential pitfalls (for the taxpayer) can be extracted from what you write, Robert:

    "with the state sharing the risk, the banks' capital ratios would look much healthier as their balance sheets expanded" - isn't this just cooking the books? The outcome you predict is just one of several (and the only one which appears to be faintly positive).

    "if they took advantage of such a scheme, they would be under an unavoidable obligation to direct their incremental lending at the UK" - like the last unavoidable obligation the banks, erm, avoided last time? Banks are profit-making machines free of conscience. It is extremely naive for us to assume that they will suddenly "do the right thing" when profit could be compromised.

    "[The banks] would have to massively increase the credit they provide here, and shrink the credit they provide in other countries" - how many of our banks are actually British in any meaningful sense? If they do this (and, again, there is no reason why they would, pragmatically speaking), I doubt we taxpayers would suddenly get our hands on oceans of cash, but we may end up propping up banks owned by other countries.

    Really, what's the point? We lend to the banks, they don't lend it back. We lend them more, they still don't lend it back. How much cash can we throw away before we realise this?

  • Comment number 70.

    Much has been made by Za-nu-lie-bour of them doing 'something' and how the opposition are 'do nothing' parties.

    The 'something' is more akin to the behaviour of chickens with their heads removed. The something is anything that can be spun by the party press machine into stemming the tide of recession.

  • Comment number 71.


    From the recent comments on this topic it appears that, at last, the penny is beginning to drop that GB and his cabinet colleagues have really no idea of what might be a suitable course of action, faced with the predicament the world finds itself in.
    He seems to be comforted by the thought that most of his opposite numbers across the globe are willing to follow his leadership and throw money they don't have at the problem. They couldn't all be wrong, could they?
    Maybe I have missed something, but I am completely unaware of any logical justification of the course of action he wants to follow. All we get is a mantra that says we have to do something urgently.
    The "something" is anything suggested by the government. Any alternatives are categorised as "doing nothing", such is their arrogance.

    It seems that our World Leaders have unanimously accepted the idea that what we are now experiencing is like a temporary blockage on a freeway and that all we need to do is spend some money on widening the road so we can renew the journey at full speed.

    It does not seem to have entered their heads that they might have been travelling in the wrong direction, and that this crisis has been a warning sign that we need to take a new direction, which would mean that we need to recognise that sustained year-on-year growth in GDP for all countries in a finite world is an impossible dream which will inevitably end in tears.
    Could it be that getting back on the same path as we were on is a completely hopeless objective?

    While it may be true that a healthy housing market can be an indicator of economic health, the apparent assumption that getting the housing market going again will lead to a recovery of a healthy economy is quite false. The key word is "healthy" and what we had in both the UK and USA housing markets before the crash was certainly not healthy. A healthy housing market follows from a healthy economy, but surely cannot deliver a healthy economy, unless we could start exporting houses!

    Can I ,once again, beseech you and your readers to have a look at a very enlightening web site, which deals with issues which will have a big effect on our lives and more particularly, those of our children and grandchildren, which does suggest the need for a complete rethink on where we are going.

    The address is

    I was directed to it by several comments on your blog, and I have found it to be highly thought provoking. I only wish I or you could persuade GB to look at it and comment.

  • Comment number 72.


    Good post!

    No wonder the banks and building societies have got no money to lend as when interest rates are effectively negative saving is a waste of time and it is best to spend what cash you have before it is worthless paper printed by a desperate government.

    Glad you are back Robert. All the best for 2009.

  • Comment number 73.

    Why did the government not nationalise Natwest and HBOS straight away instead of using £ 37 billion in taxpayers money to increase their capital - an exercise that has not restarted lending. There is no gaurantee that putting even more taxpayers money into the banks would solve the lending problem. Thinking outside the box ie. a toxic bank or loan gaurantee scheme seems the answer.

  • Comment number 74.

    So the Banks are persuaded to lend money loaned by the tax payer with an insurance policy to pay out 95% if the debt goes bad, underwritten by the tax payer?

    Poor old tax payer eh?

    Problem being is that who wants to borrow when there is contraction? Who wants to borrow when their job is at risk?

    Ok, the Government, but leaving them aside, who would want to?

    Its only worth borrowing if interest rates are 1-1/2% below inflation. Oh, they are, so inflation must be coming down alot further then.

    Is there going to be an election this year Prime Minister? AAr Ahhh aggg, nothing on my mind at the moment, nothing on my mind. Is that a no then? Aaagh, its not on my mind.

    Never mind, lets take a picture in the sublime light reminisque of SIX FEET UNDER and plaster it over the Sunday papers!

    What a pra (t) or pra (gmatist)?

  • Comment number 75.

    It is now of little consequence what Brown says - he will soon become an irrelevence - as indeed, will all the politicians. They cannot understand why we are here because they are wedded to the economic model, which has failed and is beyond repair.

    The system will collapse in the near future and we potentially face chaos brought through fear leading to civil unrest and the inherent dangers contained within.

    But, it is my fervent hope - and belief - that we are the verge of a wonderful new era where we will move away from a society based on consumption and the profit motive towards one based on higher-level consciousness whereby the needs of each other are put first. Business will be based solely on whether it produces social benefit.

    Brown, Cameron, and Obama for that matter, just don't get it -yet. It is only when they - and society - break out of the box of economic models, which are dead in the water, that they will be able to move things forward. Let's hope it comes speedily.

  • Comment number 76.

    It might have to be done as part of a package. Its also important to cut salaries and bonuses of banks and to claw back through windfall tax what these people got in the past.

    It could be even better to set up a state bank and give mortgage through it, as this money will be paid to other banks and they could have money to lend again, state bank could be used to set the interest rate and government will have full control over it.

  • Comment number 77.

    El Gordo and Comical Ali can talk the talk as much as they want, this desire to boost lending to the suggested levels it is not going to happen. There is genuine madness about with those two. The banks who were reasonable in their lending are still standing, some all be it with props, whilst the reckless bankers are poleaxed. Now El Gordo and Comical Ali's solution is to encourage the still functioning banks to up lending on par with the bubble banking levels of the failed banks. And the banks know that this lot will almost certainly get the heave ho in just over a year, whereas the debt will be around for a great deal longer. Hmm difficult, not. There may well be an attempt to underwrite medium term fixed low rate mortgage funding but it can only be limited. The bubble is gone and the businesses that floated on it are gone or going. Smoothing impacts is helpful, trying to stop a process just damages more.

  • Comment number 78.

    If you want to get a message to Gordon sign this petition

    We the undersigned petition the Prime Minister to resign due to gross financial incompetence in running the British economy.

  • Comment number 79.

    Writing as a UK citizen but observring the world:

    Does anyone know what, absolutely, credit is? Or money for that matter? I suspect that money is ultimately credit.

    If credit has reduced is that the fault of not so wise banks or of politicians?

    Banks are founded on the principle of credit so I suspect that they should be the authority on it.

    People write about the government providing guarantees for banks' credits so where does the government gets credit from? We are told it is from the taxpayers.

    So do we believe in ourselves or not?

    Of course we do.

    So why should we allow a class of bankers to behave as they do currently or perhaps as they always have done?

    So we should support Gordon Brown - not detract from his work.

  • Comment number 80.

    Brown intimates that banks may have to lend at higher levels than they did in 2007. But that lending was to sustain an unsustainable boom.

    The problem was that Brown didn't recognise that he was managing the economy in a boom.

    So now he wants to return to what he thought was normal times.

    The question that has not been considered is what the GDP would be assuming the public only borrow to invest, and not consume. Borrowing for consumption is unsustainable.

    Over the last decade there has been a great deal of borrowing to consume.

    What is the point in trying to inflate the economy beyond the equilibrium level? - that is just delaying the inevitable bust.

    The massive injections into the economy to try to inflate it will, if successful, lead to massive inflation. The only way to reduce the inflation will be to remove all of that money from the economy - How will Brown do that?

    We face the prospect of an economy that avoids the recession simply by massively increasing Government debt, to be paid for by generations. Funded by the much higher taxes that will be needed to avoid the inflation.

    Gordon Brown must be in paradise!

  • Comment number 81.

    No No No.
    Why should tax payers be hit again.
    It is time Gordon and the banks started looking after the business by helping them.
    First thing Gordon, the are business dying in every village, town and city The Pubs, Clubs and bingo halls can be saved all it takes is a tax cut and a place for smokers.
    Chancellor Darling has said the added tax and the smoking ban has closed these business.
    No cost to the tax payers, it might even bring a bit of comfort to people.
    Next the banks, tell them to lend business the money tax payers lent them already, the Government can stand over only, those loans.
    If they do not lend after that banks have to start repayment of the tax payers money now, and in large payments.
    Northern Rock could be a good starting point.
    I do have a small shop, I do not sell alcohol or tobbaco, I am lucky enough not to need a loan, but I have hard working friends and family who are at their wits end because of the thoughtless actions of this Gov.

  • Comment number 82.

    Robert this is just an extension of the 'welfare' state. The difference this time is that cradle to grave includes the banks. Let's see some money going into small and medium sized businesses. Employ somebody: get a reduction in, or exemption from, business rates etc. These dodgy banks are a millstone around our collective necks. My God, I read the other day that we might have to pay them to hold our money in their 'vaults'. Negative interest??? Premium bonds and the old bedstead are looking pretty alluring at the moment. When are we going to see some prosecutions? When are we going to see some resignations? When? As soon as we decided to bail-out these banks we effectively stripped them of the need to comply with a key dictate of the 'market': that the weak go to the wall. Our government have acted recklessly. We now have a group of senior financiers running companies that are effectively a part of the state. If this is the aim of New Labour then so be it, but go the whole hog and nationalise the lot of them or do the right thing and call an end to this monstrous waste of public money.

  • Comment number 83.

    "That's one of the major reasons why there has been a sharp reduction in the availability of debt-finance even for creditworthy businesses and prudent households.

    What a laugh. Creditworthy, hah. With not just Britain but the entire world bankrupt, where do you find a "creditworthy" borrower. Banks are reluctant to lend even to each other. That's because each knows that the others have been doing exactly what they've been doing themselves and don't know if those banks will be around the next morning to pay back what the borrowed the night before. Besides, they're clutching on to every last cent they can to stave off bankrupcy themselves just like everyone else.

    So the former Chancellor of the Exchequer who helped get the UK into this mess is going to lead it out by doing more of the same. Figures. He should take a page from Alan Greenspan's testimony before Congress around a month ago; "There's something about markets I don't understand." Really Mr. Greenspan? And your flawed understanding led to policies you not only advocated but insisted would be beneficial that led the entire American economy, by far the world's largest over a cliff. And the UK and most of the rest of the world followed right along. Happy New Year Mister Prime Minister. It only goes down hill from here.

  • Comment number 84.

    This is a government out of control such as a rogue city trader throwing good money after bad, only the difference is that Gordon Brown will not face jail when he is thrown out.

    He will drift off into the sunset on his fat pension along with Tony Bliar and all their socialist cronies.

    The people of this country need to start and rebel against taxpayers money funding private business.

    They have relinquished our identity, they have destroyed any chance of myself or millions of others of retirement.

    When will the tories and liberals call for a vote of confidence in the government?

    This is beyond any comprehension of incompetance that any British taxpayer has faced before.

    for god sake the opposition need to do something.

  • Comment number 85.

    our banks to lend more , does'nt the prime minister realise there is a lack of confidence remember he said no more boom and bust people are very scared to borrow money

  • Comment number 86.

    Individuals can already purchase unemployment insurance*

    (*) = not eligible if on a temporary or fixed term contract or self-employed

    (but you were talking about us being insurance services for banks)

  • Comment number 87.

    The government have been eyeing the banks with envy for some time now. Their databases have all of us on them and are bang up to date. They have already issued most of us with ID cards. They have methods of penalising us which make the government's ability to do so seem pathetic by comparison, and they have managed to get away with every sharp practice Balzac ever described in connection with usury, as though it were perfectly alright to behave that way.

    The more government subsumes the banks, the more it will treat us like they do.

  • Comment number 88.

    You've got it wrong and so does the prime minister. Throwing vast quantities of bank loans at the economy is not a good use of the money, and it won't help the UK. Why? Because it will be badly used. The issue isn't quantity of cash but quality. The UK has a track record of malinvestment, chronic waste and epic corruption. Increasing the pool of funds to continue this is foolish and will bring another crisis a few more months down the road.

    What we need is a plans. Big, well though out plans for economic and social development of the country. And then we need to patiently pursue them, not in a crazy, crunken, chaotic, sex maniac kind of way like the past 11 years, but in a way that upholds positive values and behaviour. What the PM is up to is like turning up at a Roman orgy with two bags of cocaine, heroin, 12 bottles of whiskey and 100s of tabs of viagra. A stop to bad behaviour will not be the result.

  • Comment number 89.


    you need to ask when the interest rates will have to rise to encourage more savers to deposit and thus enable the banks balance sheets to recover.

    What are economists predicting that the interest rates will be by the end of 2009? 9%, 10%, 15%, 20%

    Surely that will put "credibility" back into the credit market because most folk wouldn't be able to afford it.

    At times like this you can't blame the consumer for paying off debt whilst their money will pay off more of the capital before the inevitable backlash and the rise of rates.

  • Comment number 90.

    At least Crash Gordon's mishandling of the situation is so complete that the only rational response is obvious - purchase bullion in a Swiss Vault.

  • Comment number 91.

    89 StrongholdBarricades:

    Spot on. Interest rates have to rise, policy notwithstanding. Interest rates are the price of money; and money, if you think about it, has become scarce, so its price has to rise.

    Keep a close eye on the gilts market. If gilt prices start to fall, it will be an indication that govt is finding it hard (perhaps even impossible) to raise the billions of new debt that AD talks so glibly about.

    I would not be at all surprised to see gilt sales conducted by placing or reverse auction, thereby setting their own prices, but in the process sending the gilts market downwards and interest rates upwards.

    Of your end-09 choices, I would guess 9%, but rates are now twice that in Russia - a country which has problems, sure, but also has huge assets.

    We have seen the banking sector almost crack; house prices tumble; sharp falls in equities; big slumps in corporate bonds, and a currency disintegration. Logic suggests that the next fissure to appear will be a crack in the gilts market.

  • Comment number 92.

    Well, that's the New Labour explanation for the reluctance of banks to lend obviously. "It's all the fault of overseas lenders moving out."

    Listen, Robert, to some facts:

    - The government has ORDERED the banks to increase their liquidity. In other words, they have PREVENTED the banks making the loans they wanted to.

    - The government have changed the rules in other ways too to make it MORE DIFFICULT for the banks to lend.

    - The biggest borrower of all is THE GOVERNMENT (around £100 BILLION this year and more next). If the government wasn't borrowing that money, it would be available to lend to individuals and companies.

    - Lower interest rates DISCOURAGE lending and ENCOURAGE borrowing. So they make the loan shortage worse.

    In other words, it's not the beastly foreigners' fault. It's largely Mr Brown's fault (together with the idiots in the US government who have been following similar policies to his for the last decade). I find it astonishing that senior journalists like yourself are utterly failing to hold them to account for their incompetence.

  • Comment number 93.

    It woulod be nice to think that 2009 will be a year of opportunity:
    (1) Remove this government and get the Tories in to manage the economy and starting off again.
    (2) Get the banks to get credit going again to businesses. Support the big businesses such as JLR and also smaller businesses that make things. (support JLR in completing their eco design and development engineering) This creates the jobs that turn into people paying tax and apending money.
    (3) In line with number 2, .......we should buy british. As an example, if you have a non-british built car on your drive then replace it with a british built car. There is no excuse for not doing this. Also when you go shopping, buy something made (or grown or produced) in Britain.
    And tell Argos/Tesco et al that you want british made products!
    (4) Review the spending that we do on our "benefits" state. Pensioners and the genuinely ill/disabled should be supported. Unemployment should not equal a free sky box! Of course there are some genuine cases but there are as many abusers of the welfare system.
    (5) Make the most of the pound/euro exchange rate and support exports. This mean we have to make things....back to number 2 in this list.
    (6) Get the UK troops out of Iraq This should reduce millions worth of spending. (I Can't see any options to remove from Afganistan this year)

  • Comment number 94.

    "Is he totally bonkers?" Yes....

    He's in a hole and just keeps digging,the question is how long before we have an election !!!!!

    The banks have not passed on the money it was meant to do so hes going to give them more ????

    Vat has had ,and will have no effect on the way we consumers spend.....our energy bills are still at artificially high rates .He has totally lost control of the economy.......and is still trying to blame America for what has been a total failure on the Governments part to regulate properly.

    Government forecasts have been shown to be overly optimistic we need a new direction from new people that aren't looking after there friends interests but are treating the normal people of this country fairly which we are not seeing at the moment.

  • Comment number 95.

    The great thing about the comments on this blog are that I usually agree with many of the comments. Especially when it comes to the incompotence of Gordon Brown, I am only glad that I did not see the show or my comment would be saturated with the usual anger I experience when I exposure myself to this man.

  • Comment number 96.


    I find your reasoning impossible to follow, but I cannot support Gordon Brown, as his prescription for fixing the economy is unsustainable due to the positive feedback and limit inherent in it.

    Brown borrows against future taxes and encourages others to borrow against future earnings, and in a bizarre interpretation of Keynesian economics that must have the poor man spinning in his grave, stimulates consumer demand instead of production. That consumer demand then stimulates production - overseas, thanks to the low cost country sourcing which Brown also cheered on. We must then find more lenders (preferably unencumbered foreign capital), and pledge more future taxes and production, to raise the money to pay the interest on that debt and perform the next iteration.

    Thus Brown's perpetual growth machine extends across borders for capital and through time for collateral, expanding exponentially to deliver prosperity today. The limit to growth is imposed by taxable income, which inconveniently is finite. We should all know by now what this setup is called.

    Should anyone mention it, printing is default by other means. Call it creation of reserves, quantitative easing, whatever term you prefer, it means we are collectively down to having to debase the currency to make interest payments.

    On our present course we will hit a wall within a few years unless the credit and currency markets call time first as they did with Iceland.

    Is there anything here worthy of support?

    I would rather sit here and detract.

  • Comment number 97.

    Robert Happy New Year. I'm amazed that everyone is ignoring the fundamental problem - we have little manufacturing Industry!

    Even Stalin spotted this flaw in the Russian economy in the 1920s.
    Of course the Tories won't point this out as their great leader-ine closed down much of our heavy industry.

  • Comment number 98.

    The entire story is here -

  • Comment number 99.

    When are you all going to waken up ?

    It is meant to be like this so that someone can come in and save us all from misery.

    Frying pan and fire.

    What you see going on is an act, a performance, a nonsense in reality.

    When the jews return to Israel - see freemasons, see Scotland Homecoming 2009.

    You are being hoodwinked, en masse.


  • Comment number 100.

    #31 bubblypolly

    "I hope Brown was widely seen on Andrew Marr this morning - with every breath he demonstrated how out of touch and unsuitable he is."

    Indeed - What did he say about Cameron? Something about "No time to learn on the job" and his "Experience".

    And here we are, finding that Mr "Experience" has wasted billions on VAT cuts which anyone with half a brain could see would not work, and the Cameron loan guarantee is what is needed.

    And he says an election is "the last thing on his mind". I bet!!

    Hopefully he'd be wiped out.


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