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Lend, lend, lend

Robert Peston | 15:59 UK time, Sunday, 18 January 2009

A dizzying number of banking initiatives is likely be announced by the Treasury tomorrow morning.

But they'll all have two things in common.

They are designed to improve the supply of credit to the economy, to prevent this recession turning into something even more prolonged and painful.

And they'll involve yet more commitments of taxpayers' money, of our money (we could be talking as much as several hundred billion pounds of additional help from taxpayers, to add to the £600bn of our wonga that has been provided to the banks in the form of guarantees, loans, and capital).

Also, they are way outside of most people's experience, so they may seem complicated.

For example the government will - for a price - provide a guarantee that bonds created out of mortgages or out of loans to companies won't go bad.

The point of this is to encourage investors with billions in cash, such as pension funds or hedge funds, to buy these bonds.

Think of it as investors lending to us as taxpayers, and taxpayers then passing the cash on as loans to credit-starved housebuyers and to big companies.

You may think it odd that investors would rather lend to taxpayers rather than directly to businesses and households. But, rightly or wrongly, they think that we are very unlikely to default (and when I say "we", I of course mean the United Kingdom, the state, as a sovereign borrower).

So the device should increase the supply of precious credit to the real economy - although some will worry about whether taxpayers should be taking on the risk of financing the housing market and companies in this way.

Also - as I pointed out yesterday - we as taxpayers will be insuring some of the bad loans made by our biggest banks, to limit their future losses from their reckless lending.

The aim of this would be to give banks greater confidence about their prospects - with the intention of assuring the banks that they have sufficient resources to lend more to all of us.

Yesterday I disclosed two other Treasury wheezes: to reduce the massive cash drain for Royal Bank of Scotland, HBOS and Lloyds TSB from the dividends payable on preference shares held by the Treasury; and to staunch the massive contraction of lending by nationalised Northern Rock.

What's more, there'll be a new Bank of England scheme to allow banks to swap assorted loans for Treasury bills - which in effect gives them access to a vast pool of cash to facilitate the provision of more credit.

I hope that by now you spot the pattern. It's all about making sure that enough loans are being made to keep afloat viable businesses and to prevent the contraction of the housing market becoming devastatingly savage.

But you'll also identify an apparent injustice and a paradox.

The seeming unfairness is that banks are being sheltered from the full consequences of their own fecklessness - for the supposed wider good.

And the paradox is that the government wants to make more credit available to reduce the severity of a recession that was caused by a decade-long, crazy lending binge.

Update 19:32: Royal Bank of Scotland will convert the £5bn of preference shares it has sold to the Treasury into ordinary shares - which means that taxpayers' stake in this enormous bank will rise to more than 70% (again, see yesterday's note for more on this).


Page 1 of 4

  • Comment number 1.

    But will it fly this time?

  • Comment number 2.

    Dear oh dear!!!! ..and so it goes on to the ever so predictable leap (of the cliff)

  • Comment number 3.

    Until it is clear as to how much each bank has in bad loans there will be no floor under the credit market.

    I do not see any of these measures resolving that issue.

    Why oh why oh why can't the government get a grip on this thing?

    Are they too scared and hoping that a bit of bull will pull us all through?

  • Comment number 4.

    Have you heard anything on why a forced debt for equity swap of the banks' subordinated debt isn't being planned? They holders of that debt got paid a premium to take a risk - and now they're being bailed out by us.

  • Comment number 5.

    The loans given out initially should be debt consolidation loans to mange the existing level of debt

  • Comment number 6.

    as Gb has asked the bank to "come clean" on their toxic assets it is obvious he h

  • Comment number 7.

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

  • Comment number 8.

    sorry........finger slipped!

    . .....he has no idea how much risk there is....if you dont know the risk how do you insure against it? will this work? just like all his other schemes i doubt it...but lets wait and see!

  • Comment number 9.

    This is like giving an alcoholic another bottle of whisky... the last thing the economy needs is more credit. The only lasting recovery will come when all the bad debt is flushed out of the system, and we learn to live within our means.

    Never has there been so much proof of the incompetence of this Government, as the idea that we can borrow our way out of debt.

  • Comment number 10.

    Followed by the inevitable increase in inflation and interest rates going skyward with people defaulting on their mortgages. By which time of course Zanulabour will be in opposition and accusing the Torys of being the party of high inflation and interest rates.

    We've had Crash Gordon now it will be Dash for Cash Gordon followed by Trash Gordon.

  • Comment number 11.

    from the "you couldnt make this up" department....

    Treasury officials checking the books of the Royal Bank of Scotland, now controlled by the Government, were shocked to discover that £2.5billion had been loaned to Russian oligarch Leonid Blavatnik in his attempt to build a massive business empire.

    The RBS has had to write off the entire debt because one of Mr Blavatnik’s foreign companies faces going bust – with British taxpayers left to pay the price.

    Now this was discovered AFTER GB had bought 60% of this much for due diligence!

  • Comment number 12.

    The big question for me is, is this going to make mortgages available to those with small deposits and who want large income multiples? I hope not.

    As someone who has worked hard over the last decade, is paying off a student loan and is fortunate enough to earn a good wage for working long hours, I find myself in a position where the house deposit I have saved is earning next to nothing in interest. I have been priced out of providing a decent home for my family because the government have engineered a situation where house prices have reached obscene levels through loose financial regulation and stifling planning laws.

    The silver lining is that this ridiculous situation is unravelling quickly, with credit being limited to an affordable amount, and house prices dropping at 2%+ a month. If left alone, I will be able to provide a home for my family in the coming year. But the government is seeking to punish me on all fronts. I pay student loan repayments every month, high tax, and look at poky houses that are essentially dumps on sale for 200k.

    Where is the justice?

  • Comment number 13.

    Here we go again. We all have to commence borrowing again because GB says so.

    As I have said on numerous occasions, people with money do not need to borrow, so that just leaves the reckless borrowers of the past few years, to carry on with their binge, and maybe not pay it all back!!

    I work for a charity that gives advice to debtors and I could spend hours informing you of the horrendous situations some people have got themselves into. I would not have lent them a pound, let alone the huge sums that the lenders have given them, sometimes on salaries under 15K per year.

    There is no solution to all our problems until the lenders begin to weigh up risk and ask for proof of earnings before offering the huge sums given in the past.

    Some people do not have savvy to take responsibility for their own lives, for to them a credit card is not really money at all. If they had to hand over cash they would think twice. The attitude seems to be that something better will turn up tomorrow.

    Come to think of it, isnt this the attitude of GB.

  • Comment number 14.

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

  • Comment number 15.

    This describes total failure in the market. It involves risk taking on behalf of the taxpayer. I hope the premium is high. I also fail to see how the strategy of very low interest rates can coexist with this approach which inevitably increases the costs in the system.

  • Comment number 16.

    RP: "And the paradox is that the Government wants to make more credit available to reduce the severity of a recession that was caused by a decade-long, crazy lending binge".

    To put it another way: 1.5 years into the burst of the debt bubble the only response we can hear is "lend, lend, lend". I have yet to read an analysis, be it from Peston or anybody else, that states that the only cure from debt-addiction is productive work, the return to real economy. There is not the slightest hint in British politics or media as to how the UK will change its ways. To me it all looks frighteningly similar to a hopeless case of alcoholism, where the ill doesn't even understand he's ill. Until this self-diagnosis is made, there is no such thing as a future.

  • Comment number 17.

    What is the current national debt. Could we have a display on the BBC Have Your Say site that shows the total as it increases.
    How did we end up with Brown, unelected in his job, taking the country further down each day.
    Are there no labour MP's left with any decency?

  • Comment number 18.

    Despite what Robert says, it's far from clear that high levels of debt "caused" the recession. Indeed it's very plausible that high levels of debt are completely appropriate to a highly developed economy, and the recession has been caused by the forced reduction of debt from its optimal level.

    However, putting that aside, here are some reasons why the government is doing us all a favour with this scheme - the taxpayer will make a profit and the economy will benefit:

  • Comment number 19.

    I am SICK of bailing out these merchant bankers.

    I am SICK of hearing them bleat that the problems have been caused by a 'failure of the regulators'.

    I am SICK of the large bonuses and wages for management justified as 'we must pay a premium to attract the best talent'.

    I am SICK of knowing that I may lose my job because of an economy built on debt is contracting and if this causes me to default on my mortgage, I may lose my home but the level of the debt will remain. UNLIKE THE BANKS WHO HAVE GIVEN LIABILITY FOR THEIR LOSSES BACK TO ME AS TAXPAYER.

    It SICKENS me to think of all of the future lifesaving schemes that will have to be forgone due to money wasted on bank bailouts, such as leveraging a low carbon economy, support for healthcare & retirement, investment in mass transit infrastructure. Cripes, if we hadnt bought £37bn of bank rubbish, we might even have been able to set up some kind of equitable progressive global trade system.

  • Comment number 20.

    Credit,more credit.Throw more taxpayers money at the problem.At least it looks as if they know what they are doing.This bumbling and incompetent government must go down as the worst in history.And to think I actually voted for them, thinking "Things will only get better under Blair"Blair was young and clever but got caught out supporting Bush's Iraq weapons of mass destruction untruth.Now we have Brown who for 11 years was trusted to look after our finances and blew it.We are truly doomed.Other Countries are better prepared than we are and that is a fact.

  • Comment number 21.

    But what stops the banks from taking this money and lending it to foreign concerns again, rather than domestic companies? Thus the British taxpayer underwrites foreign activity and not our own economy. In other words what stops the banking duffers from causing irresponsible lending mayhem all over again?

  • Comment number 22.

    It seems now that almot the entire UK Banking system is insolvent - serious consequences must follow for those responsible.

    It is also clear that last year's world saving rescue was largely ineffective.

    Nothing now stands in the way of heavy quantitave easing

  • Comment number 23.

    Your last paragrah was fine, but you omitted the words Govt borrowing as part of the binge, and the obfuscation about what was actually being borrowed viz a viz the PFI debt and Nothern Rock etc.

    Its an horrendous mess and Gordo is going to be out on his ear. Do we really have to put up with the architect of this mess for another 16 months. Lord help us.

  • Comment number 24.

    Listen to Martin Taylor's (former Barclays Bank CEO) interview on World at One on your Iplayer. ( sunday 18 jan 09). Very thought provoking.

  • Comment number 25.

    I do not pretend to understand all of this but way the f......... are these r............y bankers being helped again????? I am waiting to hear what Super Gordon is actually going to do to help the unemployed back to work. In any event should bankers who so recklessly lent before be given a second chance. HOW MANY OF THEM HAVE LOST THEIR JOBS like me though NO fault of my own.

  • Comment number 26.

    I don't know whether I want this to succeed or not. On one hand things will carry on as we know it, on the other hand if it all goes crash, then we could start again, because i don't believe after all these centuries this is the best there is for this country.

    Even if it all goes wrong Gordon et al will have all the money they will ever need, as will the bankers, the spivs and the rest of the motley crew.

    Meanwhile like time in memorial the normal person will be shafted again. just like they were rounded up and forced onto the battle fields over time, to going over the top, to living on conservative means whilst the rich got richer, really is this it?

    If labours ideas where to address this they have failed, just as they and all previous governments have failed before them.

    This is the last throw of the dice Gordon, but either way the plebs will grin and bare it, the enlightened ones can carry on in their ignorant bliss never knowing what it is like, their biggest incovenience, having to avoid the plebs in the street with their begging bowls.

    We done this countless times in history, lets try a new way, it cant be any worse can it

  • Comment number 27.

    Will Crash Gordon also 'come clean' over his off balance-sheet PFI wheezes and the unfunded public-sector pension liabilities?

  • Comment number 28.

    Clearly Gordon has forgotten - or more likely chosen to not think about - Moral Hazard.

    Throwing even more massive quantities of good money after bad is clearly not working; and in actual (economic) fact - can't work until the system itself is fixed.

    So, unfortunately, the longer they take to actually nationalize the banks - and fix the demonstrably failed system - the longer it will be before we really do start see those Green Shoots.

  • Comment number 29.

    And there was I thinking Herr Braun had already saved the banks and the world. Just another empty boast to rank alongside his infamous one about eliminating "boom and bust".
    Ah, but then he said he'd only eliminated "Tory" boom and bust - you remember those, they were ones in which the banks survived. I remember them with increasing fondness. We had interest rates high enough so that there was room for cutting them to make a difference and make a difference it did because the banks survived.

  • Comment number 30.

    The intention is not to return to credit gluttony but to avoid perishing from a famine of credit. The argument that previous excess in one direction justifies equal excess is in the opposite direction is perverse.

  • Comment number 31.

    Hi Robert,

    I have been reading your blogs on this crisis for some time. It seems to me that the authorities including the government and indeed the so called "brightest brains" have been bewildered by what has happened to the point of insanity.

    Many people like myself who have studied economics for a long time have been saying for many years that things - irresponsible lending, unsustainable levels of debt etc - couldn't go on as they were for much longer. The surprising thing for me is that it went on for as long as it did. But economists know that business activity is cyclical and the further up it goes, then the inevitable downturn will be that much steeper. However, I am a realist and while we can say that it should never have been allowed to come to this, we have to deal with it.

    To solve a problem, one must first correctly identify the cause. There is some confusion on this - you have said that the recession is caused by toxic debts; you also say thast the recession is caused by the contraction of lending. The two are connected but the cause of the recession is the irresponsible lending on a massive scale resulting in the toxic debts. It seems to me that until the level of toxic debts are honestly quantified and dealt with together with a reduction in the overall level of debt to a sensible ratio of economic activity we will not come out of this recesion.

    So I fail to see how the government increasing lending - in other words pleading with people who are already maxed on their credit to borrow even more - is going to solve the problem!

    As a final point I wonder whether businesses who have to rely on borrowing to keep going are really viable as you say. Economic growth built on debt is not sustainable - that must be the first lesson of this mess. The second lesson in my opinion is that financial services are not a value-added economic activity. Real economic wealth comes from industrial production and food production. Financial services merely facilitate that wealth creation.

  • Comment number 32.

    and yet again the new labour tinker with the economy, playing with future generations tax liabilities, this is a government with no direction, just jump and react, as many have comented to little to late as always. With all these schemes, there is a cost, to set the scheme up, providing the gaurantee etc, but either way the money has to be paid back... with interest!

    Am not an economics speciallist, just a laymen who is prudent and not jumped on the band wagon of easy credit..

    so with regards to house prices fallen well, so be it, the market must find its natural fall. in my option, the bottom of the housing market will be reached when average house price is gbp124,000. The sooner the government realise this the better.

    the convervative policy about tax free savings for basic tax payers is a fantastic policy.

    why is the government called new labour? its old labour! they have been in government for 10 years. An election needs to be called as quick as possible... crash gordon created this mess we are in, and to blame the world is just an excuse for poor government.

  • Comment number 33.

    we have to start living within our means , the housing market has to collapse rents are so high now there is very little incentive if any to be in work if you earn under £10 per hour, the housing benifit bill is collossal and is going to get worse as millions are laid off , the dream of home ownership will i am afraid remain a dream for many and it was this policy that is responsible for the mess we are in today.

  • Comment number 34.

    All of what you have disclosed is probably just simply what the government has to do- and I think they deserve credit for going the extra mile to stem the pace of the recession.
    But we still need a reckoning with the senior executives and directors of these banks and the credit committees- at the very least we should get hold of their pension pots- putting a few in Guantanamo Bay might be useful too - after all BO will almost certainly close it down soon and these bankers have been a far greater threat to us than alleged terrorists.
    But we still have to face the issue that people who cannot afford it should not get credit and we do not want to fuel an import driven consumer spend. HMG must start investing in infrastructure and our future manufacturing capacity- but perhaps we need a bit more help to avoid falling over the cliff first. The other issue is that Europe is even worse than we are as their economies are less flexible so I guess it is all down to BO- Tuesday's speech may be the most important moment in my baby boomer lifetime

  • Comment number 35.

    No bank, however strong, can survive a run without support from the lender of last resort, the Bank of England.

    The Governor of the Bank of England seems to think the FSA did a bad job regulating the banks; resents having the role taken away from the B of E; and wants to charge penalty rates for any last resort lending or injection of preference or ordinary shares.

    This has in turn damaged bank performance, share prices and resulted in a further loss of confidence in the banks.

    Despite the comments of the politicians and the media, the B of E and BBA statistics show UK bank lending to businesses is still increasing.

    Seems to me the government should start supporting banks and instructing the B of E/Treasury to stop charging extortionate fees and interest rates for their loans, capital and guarantees.

  • Comment number 36.

    Methinks that there must be someone in the government with a vested interest in all of this. For instance, Alister Darling's large investment in Norther Rock - did this influence the decision to buy the bank?

    What has happened to taking responsibility to one's actions. Why can't the banks' investors and 'fat cat' directors cough up some funds?

    Or should we just let them put up with the outcome of their greed?

  • Comment number 37.

    So let the banks go to the wall its their own fault. If only one big bank is left so be it for the next half dozen years. Then a government can just MAKE it split up like BAA. When they complain we can all laugh in their faces

  • Comment number 38.

    does it matter what they do? whatever it is it wont work..because the job is beyond brown he hasnt the ability im afraid...great news the tories are miles ahead in the polls, this is the 1 hope we have.

  • Comment number 39.

    Sounds like a house of cards built on sand.

  • Comment number 40.

    Funny how Darling always appears to be stricken with laryngitis when big financial anouncements are due to be made, and Gordy is able to step in and do the decent thing. A cynic might think that Gordy revels in hogging the limelight,,,

    Does anyone think that he will ever tire of proposing yet another bank bail out, or are his delusions so firmly set in his mind (I use the word very loosely) that we will probably get another in 2 months time? Remember the combined bail outs in the UK is still far short of the US one, and the top UK banks on what was once known as asset value are in the top 20 banks in the world.

    I presume that the bits in the German and US bail outs about income tax cuts are deemed as irrelevant by the Glorious leader, who I thought was keen to boost consumer spending. But hey, why cut taxes when you can impose more taxes on us:

    At the start of the Bliar period the music played was "It can only get better". With this now discredited and disfuncyional governemnt you just know it will get worse. It is beyond a joke.

  • Comment number 41.

    What guarantees does any of this provide that the banks will simply take the money to fulfil their obligations to foreign companies who will simply repatriate the money and thus lose it all from the UK economy?

    The government seems to be saying, a return to normality will soon be achieved, but as has been seen before much of their initiatives are complex and take time to work out details and find their way through into "real" life situations, and there is no saying that the banks will then fulfil this lending role given their capital restructuring plans.

    Presumable then we'll have Crash and Bankrupt Ali standing at lecterns saying "We saved the banks, now its all their faults that they won't lend"

    Playing politics with people's lives and future prospects is not acceptable.

  • Comment number 42.

    It is very frightening for all our futures. It would seem that all the Government want to do is make the situation worse and cost eveyone of us a lot of money in future taxation. When we had the last recession, it was stated that we had learned from it and the same things would not happen again.
    Our own internal problems were caused by the competition to lend, which forced up house prices, creating equity for even greater lending, beyond the ability of the borrower. The bubble has burst and whatever the interest rate, hundreds of thousands of families, cannot afford to repay their loans. All that additional credit, at this stage, will do is to allow them to borrow to meet some of their existing debt repayments. Making things worse in the long run.

  • Comment number 43.

    This has got to stop and NOW!

    I don't know enough about the inner workings of the financial markets but I do not trust them.

    If this is announced on Monday we need an emergency debate in parliament on Tuesday. If for no other reason than our diminishing national resources are being pledged without any democratic overview. If it did happen then we need everybody to tell our MPs that we do not want to take the risk.

    The waves of depression are crashing around us and our government wants to commit us to more debt. This is not only silly it's suicidal.

  • Comment number 44.

    Something I do not understand about the current UK borrowing is that the CIA Factbook states that the UK Debt - External is $10.45 trillion as at June 2007. This unfavourably compares with the US Debt – External, which stands at $12.25 trillion. In other words the Debt - External between the two countries is about the same though the US economy is about six times the size of that of the UK (The GDP of the US is about $13.78 trillion against the GDP of the UK which is about $2.13 trillion). The total world Debt - External stands at $51.78 trillion. This means that the UK Debt - External stands at around 20% of the world Debt - External. The CIA Fact book defines Debt - External as 'This entry gives the total public and private debt owed to nonresidents repayable in foreign currency, goods, or services. These figures are calculated on an exchange rate basis, i.e., not in purchasing power parity (PPP) terms.' Surely this level of Debt - External is unsustainable. Further increasing this figure is only going to add to the problem. It does occur to me that at some point no one will lend any more and what happens then? The third in the list is German which stands at $4.489 trillion which is below half that of the UK. Whist this figure is nothing for Germany to be of, it is probably more sustainable than the UK bearing in mind German has a huge manufacturing base.

  • Comment number 45.

    Lend, by all means, but to borrowers who can pay it back!

    And further that can pay it back at sensible interest rates of at lest 7 percent!

    Lending to borrowers who will not pay back the load got us into this crisis in the first place!

  • Comment number 46.

    Is there anybody else out there who simply cannot believe what is going on?

    Taxpayers injecting money into banks - who not so long ago carried billions upon billions of pounds in their reserves and reported multi-billion pounds profits in their half year reports - in order to get a credit (debt) based economy rolling again?

    Surely the situation we find ourselves in is a direct result of the failure of an economy based on credit (debt) and one not based on economic output (the manufacture of products and services for the home and foreign markets).

    I firmly believe that what is being proposed by the government is no different to entering a casino and rolling the dice, hoping the numbers will drop your way. They are doing this because we are now in a recession far worse than that of 1990 - 1993, one which could very well turn into a depression (the signs are already there with deflation) and the next general election is around the corner (early 2010).

    We should all be very concerned about the measures being proposed as it could lead to total collapse of the UK economy (instead of a painful but necessary 2/3 year recession where debt, pricing and market corrections take place).

  • Comment number 47.

    How best can I personally tell the PM how very very angry I fill about him helping those who caused the problems and not the victims. His only worse crime is sending our brave troops on patrol in soft skin Land Rovers. I may be unemployed but at least I am alive.

  • Comment number 48.

    #18 "it's far from clear that high levels of debt "caused" the recession."

    I think you have misunderstood. The high levels of debt did not cause the recession, they allowed for the boom. However that was a temporary situation that could not be maintained indefinitely. Debt levels could not go on growing at ever faster rates because the cost of servicing the debt was growing equally fast.

    The reaching of the tipping point, at which people realised that they could not keep borrowing ever greater amounts (which has coincided with the tightening of credit), is what has caused the recession.

    But the term recession gives the impression of an economy dipping below its natural position.

    But my view is that we are not in a recession, but that the economy is moving back to a sustainable level of output to meet the affordable demand.

    It is called a recession simply because the growth is negative. However once the base has been found, and the economy starts to grow again, even modestly, from its new base, we will no longer refer to the economy as being in recession. That base may be considerably below where we are now.

    Trying to re-inflate the economy, before it has found that sustainable base, is likely to just prolong the recession.

  • Comment number 49.

    As before the Banks will just sit on any new loans from the Government and keep it to themselves - them seem to interested in self preservation and nothing else.

    I would force the banks to start lending money.... hold on didn't Gordon Brown already try that?

    What percentage does the taxpayer have to own before the bank is officially State owned?

  • Comment number 50.

    My problem with all of this is that whereas when the going was good private initiative made all the profit, now the going is bad, its US, the tax payer, who is (are) picking up all the risk.
    In the first place, if I had a bad debt and thought the gov would underwrite my creditor's risk I would probably now just not pay.
    How will the risks of default be measured: against the likelihood in the 'good' times, or against the likelihood in these stressed times? Reckon there will be many more folks right now defaulting on debt agreements - has this been factored in to the 'insurance premium'.
    I'm not sure that as a UK taxpayer and voter that I ever signed up to underwriting anyone elses debt. This all looks very smelly to me.
    Suggestion for Gordon: if you want to nationalise the banks, then do it wholeheartedly. Then the country will benefit from the good times and not just loose out in the bad.
    I've been a labour supported all my life, but at this exact moment in time, I'm not sure exactly why we should be baling out big business from the risks it freely entered into. I think a little bit more imagination needs to be displayed: its about time we challenged the way finance is operated in this country rather than just find ways of softening the landing from over greediness.
    Support those who are about to lose their homes, yes, but how about doing that by the state buying them and renting them back to the current owners? This would re-establish a stock of state-owned homes that would be a really good investment for the country and its future (and I'm sure it would cost the nation no more than the huge sums of money currently being thrown at this recession).

  • Comment number 51.


    You talk about having the abilty and then mention the Tories being ahead in the on earth are these comments related?

  • Comment number 52.

    Her indoors keeps on asking me where all the money has gone. "Well" I said "It hasn't gone anywhere because it kind of never existed." "So" she said "why is everybody so worried?"
    "They are worried because they might not get any thing from the people that owe them money or that they might not be able to pay their bills" I replied. "So if it doesn't really exist why don't the government print some more non existent money and give it to anybody who has a problem?" I got my coat and went to the pub.

  • Comment number 53.

    I really, really hope these people know what theyre doing . The contingent liabilities on cd exposure is unquantifiable - and hugely massive. We can all get blown out on this one. Given this governments track record I wish I could hedge out the risk. ( thats a black joke b.t.w ) Just a ball park figure on the downside is a couple of tens of .... trillions.

  • Comment number 54.

    Neither the govt or the banks want to take accept a very painful loss or get in a situation where they are out of business and their books can be examined by someone with no vested interest in protecting them. So they are playing double or quits. They already did this once, and it didn't quite work now they are doing it again.

    The problem with double or quits as a strategy to avoid losses is that sooner or later nobody will lend you the money to keep playing. How many more rounds can the UK roll the dice?

  • Comment number 55.

    Our politicians (all flavours, the current lot are just unlucky to have been left holding the baby as the bathwater drains away), still haven't got the hang of this. The current crisis is a symptom of a larger problem. A world fixated on growth and until now supplied with seemingly endless cheap energy. The continuous effort to restore the status quo, BAU, growth based economy, call it what you like, simply points up the lack of understanding. Oil production has now reached its peak and will decline. Most of the world is chronically short of water. Food production is based on cheap energy and cheap fertilizer. Commuting many miles to work and to places to shop Etc, etc, etc.

    Now is a perfect opportunity while everbody is learning to manage on/with less of everything to start switching to a sustainable economy. So lets replace these failed banks rather than shoreing them up. Providing bankers with cash and/or insurance against their errors will simply make them think they can carry on as before and look where that got us. I could go on ... and on.

    Einstein said 'We can't solve problems by using the same kind of thinking we used when we created them' The corollary is that we can't solve the credit crunch using the same brains that created it.

  • Comment number 56.

    #44. Glendinning1955 wrote:

    In Summary: "UK external debt is unsustainable" (Have you only just noticed?)

    Just three thoughts for you to consider:

    1. This shows why our Banks are in such a poor and vulnerable condition.

    2. It also shows that UK taxpayers money will be paying for foreign debt defaults!!!!!

    3. It also highlights why sterling instability may well increase the problem!

    In summary: relying of financial service was, and is, a diabolically stupid thing for a country to do! (c.f. Iceland)

  • Comment number 57.


    So the realisation that the borrowing could not be sustained "coincided" with the tightening of credit then?...wot a twonk!!!!

  • Comment number 58.

    But the government promised it had saved the banks in October. They got their sums wrong. Now they are spinning that this time all will be fine. I doubt it, they have form now, don't they?

  • Comment number 59.

    Another day, another desperate roll of the dice (with our money). So how, exactly, are the government to value these financial assets that they intend to guarantee ?

    The government's track record on knowing what's going on is appalling - it seems they've only just clocked the fact that the city lends to overseas borrowers !

    As each massive bail-out scheme layers on top of the previous massive bail-out scheme, there is no hope of the 'authorities' (or anyone else) keeping track of all this. At best the scope for waste is immense. At worst, rampant mis-use of public money.

  • Comment number 60.

    I've always wondered why at the height of the so-called boom New Labour was so crazily intent on ensuring that mega casinos of the American variety were built all over the UK.

    I think we know the answer now. This lot are completly morally, as well as financially, bankrupt.

    So much so that they see taxpayers as the easy get-out option to their, and their mates in the city, greed driven excesses.

    We, the people, must strive for complete overhaul of this rotten system.

    I emplore all of you to carefully consider what action we must take next.

    Be it non-payment of taxes by the self employed to the non payment of mortgages by those who have one, now is the time to stand up and be counted.

    Only once we the people have engineered the collapse all of us know must take place, will we ever be able to rebuild this country again.

  • Comment number 61.

    "Yesterday I disclosed two other Treasury wheezes.................".

    It is official, then - Robert makes Treasury announcements. I am glad that that has been clarified..................

  • Comment number 62.

    44. Glendinning1955:

    Yes, the CIA Fact Book numbers do look quite different from the official UK ones. This may have something to do with the CIA numbers being accurate.

  • Comment number 63.

    Governments have allowed a massive expansion in credit from 1995, interest rates were kept low, regulation went easy - via fractional reserve banking trillions of money was created by the banks from thin air via the process of lending.
    As an individual living in London I was affected by this, because surplus credit (easy money sloshing around for the taking) caused house prices to skyrocket. We were priced out.
    Those that bought houses had to pay such high rate of repayment that many became slaves to their mortgages, stressed out and working overtime thinking that with house price inflation they were saving for their pensions.
    Small shopkeepers were trapped and had to work harder as commercial rents rose.
    An important fact of fractional reserve banking is although banks create money by giving loans from thin air - the money that has to be paid back by Joe Public, plus the interest – This is REAL money and has to be earned by us by hard labour, blood, sweat and tears.
    Credit cannot go on expanding and there comes a limit - The whole thing begins to unwind.







  • Comment number 64.

    Saving the country again and it just took a week to come up with it.
    Sounds just too good to be true.
    And it is.
    The more complicated it sounds the less effective it will be.
    There are too many anomolies that haven't been thought through. Just like everything else they've tried.
    These only come out when they try to put it into practice. Then it will be reverse gear again and more billions down the pan.
    Nothing is ever what it seems
    At some point not all of these banks will survive and there will probably not even be enough business to enable them to do so.
    Those that are left will be able to cherry pick the business but how many billions will have been thrown down the tubes before this comes home to somebody.
    The housing market is done for in the short term but will still be there for those who can hold on somewhere in the future.
    A fire sale of empty properties should be available to first time buyers with a clause to stop speculators cashing in.
    Better than leaving them to rot or be vandalised.
    There are many young people who will still have secure jobs throughout this and finance should be made a priority for them.
    After all they are the ones who will have to pay the bill in the long term.
    We have not yet seen the small print of these new proposals but know already the amount of bad dept is astronomical
    So is the governments proposal to guarantee the banks debt retrospective?
    It was surely this governments policy to reduce the time limit for a person to make themselves bankrupt and be discharged from two years to only one.
    Making it much easier for some to run up as much debt as they could knowing they could walk away from it.
    How can anyone sort this out until the full extent of the fall out has settled without making things ten times worse?.
    How can anyone guarantee something they don't even know?
    Only this government.

  • Comment number 65.

    Rather than keep pouring money into the banks in the vain hope that they will do the right thing for the wider economy and not for their shareholders the government should use Northern Rock as a vehicle for a state lender.

    By providing cash directly to good businesses the Government could get the economy going while sidestepping the risks involved with underwriting an unknown amount of toxic debt on the balance sheets of the big banks

    Is this a viable option that is just to Socialist for Gordon Brown or is my idea flawed?

  • Comment number 66.

    At the least, shareholders in the failing banks should be liable up to the limit of their holdings, that is, government to take 100% ownership of the banks without compensation to the shareholders.

    Any bank that does not accept this should be allowed to fail, and the government should announce in advance it will not underwrite any depositors money lost in that bank.

  • Comment number 67.

    I'm with Vince Cable, where did the original money go? Weren't bonuses paid by some of the institutions in spite of their failures?

    Now that these overpaid cowboys receive taxpayers money, surely they should be a little more accountable.

    #38, rvpisneverinjureds, do you seriously think that the conservatives will get us out of this mess? Although I can't stand New Labour, I think the economy is too far gone for any magic wands.

  • Comment number 68.

    #57 tommyboay
    "What a twonk"

    Please explain, because just throwing insults does not add to the sum of knowledge.

    I think you will find that most people now realise that they cannot go on borrowing ever increasing amounts, and this has coincided with the credit crunch...

    Unless you disagree that people have reached that conclusion, or you believe that they happened at different times and are not related.

  • Comment number 69.

    67. extremesense:

    Yes, it is indeed by no means clear that the Conservatives - or the LibDems, for that matter - can get us out of this mess. It may, indeed, already have gone too far. In the words of the old song, "beyond the point of rescue".

    But at least the Tories, unlike Labour, might remember the old adage - "when you are in a hole, stop digging".

    In this context, "when you are up to your neck in debt, more borrowing is not the answer".

  • Comment number 70.

    #57 Actually " tommyboay"
    I just clicked on your name and read your previous inputs. I see throwing insults is all you do!

    What a twonk!

  • Comment number 71.

    Roberts last 2 sentences sum up why this will not work, buy a bit of time maybe..that is about it.

    The injustice

    Such a bailout of the banks by taking all the risk on previous and future lending using taxpayers future endeavours as in effect 'guarantors' (as I understand it anyway)will never be accepted by the electorate unless it is balanced by some say in the running of them and renumeration of its staff, especially key decision making staff. In other words if you are going to do this you may as well nationalise them and have done with it?

    Public spirited leaders in the financial services industry (anyone who has been knighted or has an OBE certainly) should, instead of apologising do a 'Steve Jobs' and put their ethics where their mouths are and work for free until this is sorted donating their salaries to soem wealth creation scheme instead.

    Let us not pretend that they could not afford to, they may have to give up that second yaght though...The people will not wear it any other way. The public will be looking for some descency and humility from the fallen 'masters of the universe'.

    The paradox

    Suggests it will not work anyway, the idea that the markets will see UK plc as unlikely to default and is a good 'guarantor' of the loans of others is increasingly tenuous.

    Good guarantors usually have something in the locker as security. What does UK plc have in the locker exactly, except possibly a good previous track record for re-invention and wealth creation.

    I wonder what my local bank manager would make of it if I brought a magician into his office with me and introduced them as the guarantor of the loan I was asking for.

    The bank manager would look him up and down and ask

    'what does he have as assests then'

    my answer

    ' Nothing but he has a good track record in pulling rabbits out of a hat''

    We dont have natural resources to sell.

    We dont have enough manufactured goods to sell.

    Soon we wont have financial services to sell.

    We have a well educated workforce to sell in part but I am not sure how long that will last with 5 million university graduates a year coming out of china and another few million out of india. Services industry is even easier to copy than manufacturing.

    We dont even have enough food and energy to feed and warm ourselves in a self sufficient way.

    I hope I am totally wrong, I really do.

    PLEASE someone tell me I am TOTALLY wrong and why.


  • Comment number 72.

    I live in Castleford as does Viv Nicholson, the pools winner, who coined the words "spend, spend spend". The heading of this section of the blog prompted me to comment as well as a visit to London last week.
    My wife and I went to a play (it was packed) and two restaurants for diner on each of the three evenings we were there. On Wednesday we dined at Vasco and Piero's Pavillian restaurant where Gordon Brown Spent his stag night. It was buzzing and there was no sign of any credit crunch. Neither was there at Gaucho, Sloane Avenue.
    There are plenty of lucky people like us who will see hardly any effect of all this personally because we have been careful and have good state pensions and savings.
    The banks will never be trusted again unless there is an Obama type radical change that frowns on greed.

  • Comment number 73.

    I am confident that this will solve the problem and this is what should have happened back in June 07 when the interbank funds first froze up.

    As your blog explains it is not really tax payers money but money borrowed from investors that is guaranteed by taxpayers. There is a massive difference.

    There is little risk to taxpayers with these loans and the risk for any bad debts or toxic assets stays with the banks.

    The idea that you can punish a bank without it affecting the wider economy has been proven to be false and attempts to do so have been like cutting of your nose to spite your face.

    So please no more interference, recapitalisation, penal rates of interest etc and let the banks get on with sorting out the problems.

    I am fairly sure that banks will be keen to reverse previous policies and limit their dependence on wholesale markets but it can be done in a controlled manner over a number of years instead of the break neck speed of the last six months that has done such damage to the economy.

  • Comment number 74.

    I think it is about time that Gordon Brown did a lot more for Savers and the over 50's. I and many others who had a Mortgage from the 60's with high interest managed to pay the repayments and clear the Mortgage. We were being prudent with our savings and looking to the future and are now being cheated out of decent interest rates.It is always the middle class who seem to be punished for being to careful and looking to the future. Iam 58 and my husband died recently and am looking to trying to safeguard my furture with little help from the goverment.The banks do not seem to have the right people sat at the top of the table if they did they may not be in the mess that they are in. I think it is called being to greedy with the salary that they are on. Maybe they should come down to earth and take one hugh pay cut

  • Comment number 75.

    The Item club has published an interesting report, which seems to demolish the PBR assumption of resumed growth in 2H 2009.

    GDP is expected to fall by 2.7% this year and a further 0.5% in 2010. Unemployment will reach 3.25 m by end-2009 and 3.4 m by end-2010. If they are right, how much does AD now need to borrow?

  • Comment number 76.

    I had always thought that the boards and executive management of the major tobacco companies deserved the title of the biggest liars in big business (with an absolutely outstanding record over many many decades of dissembling, distortion and indeed fraud covering up the terrible health hazards of smoking, in order to "protect" their shareholders interests).

    But I think the prize must now be handed over to the bankers.

    Maybe you can understand their positions just a little bit, what with banking "all being about confidence" and the rather tough bind they find themselves in ("the more we have to write off on bad loans the more we have to shrink our book of good loans"), but they are subject to just the same company laws as the rest of us (who run non-banking types of businesses), including the need to discharge their 'fiduciary duty' etc etc.

    These obligations include one that relates to not trading when insolvent.

    One has to suspect that the whole lot of them are doing exactly this at the moment in fact.

    But of course they all continue to lie through their teeth to put off this evil day.... rather like King Canute.

    The amazing thing is that Gordon Brown has only just clocked this (and appears to have become a bit annoyed!). Maybe he has not really dealt with bankers before.

    So yes, Robert, there may be a further 'banking bail out', and from what you say this may be a rather complicated set of measures.


    ... it's not going to be the last one.

    The extent of the problems in banks are just so huge that the next bail out is only another four to five months away.

    I think Vince Cable is heading in the right direction.

    It is only when the major clearing banks are fully nationalised that we will really be able to believe anything the banks say.

  • Comment number 77.

    If banks are so vital to our economy, surely they should be safely nationalised.

    Or put another way:

    Would you think it wise to allow money lenders to create and destroy our supply of money?

    Or how about:

    The taxes of the poor insuring the profits of the rich?

  • Comment number 78.

    why does brown go on about israel? who really gives a stuff..he should be concentrating on sorting the mess out that he has help create.I mean can we really tell israel how to run their country? we cant even run our own!!!

  • Comment number 79.

    Another bank bail out, and whose money is really being used again - that's right us poor taxpayers. What happened to the last £30 odd million that was used?

    Throwing more money at the Banks to get them to lend is not going to work, cutting the VAT rate has not worked, lowering interest rates has not helped the majority of mortgage holders in this country. The Government are just throwing good money after bad. How about cutting the rate of tax and NI, that would at least give us some more money in our pockets.

    But it seems that whilst this country has been brought to its knees, our great Government can find £20 million to send to Gazza.

  • Comment number 80.

    The Scottish press have reported that a flamboyant 83 year old QC is taking legal action against the Royal Bank of Scotland claiming it was technically insolvent when it offered shares by rights issue to shareholders last year. The proceedings have been raised as a small claim in Oban Sheriff Court.

    If this case is proved and a finding made against the Royal Bank of Scotland and then proceedings brought by other shareholders who took up the £ 12 billion rights offer where does that leave the taxpayers investment ?

    Have similar proceedings been raised in other courts throughout the UK ?

  • Comment number 81.


    Will the swapping of preference shares for ordinary shares be accompanied by a lifting of the ban on paying dividends to ordinary investors?

    That was the biggest failing of the Government's initial recapitalisation plan - the desire to penalise ordinary investors as well as bank executives, short-sellers and speculators.

    Until that ban is lifted there is no prospect of full confidence being restored to the banking system and the return of genuine investors to the fold. The restoration of dividend payments would also ensure a better return for the tax payer shareholders.

    Complain about this comment

  • Comment number 82.

    #67 im not sure about the tories...but ..who else is there?vince cable has about as much ability as we are left with sure he has a bit more ability than there we have it...brown is so pompous he just totally irritates me.

  • Comment number 83.

    "60. At 5:56pm on 18 Jan 2009, sirsevernbanks wrote:

    I've always wondered why at the height of the so-called boom New Labour was so crazily intent on ensuring that mega casinos of the American variety were built all over the UK."

    Circuses of course... To keep you morally outraged while the really important stuff is happening.

  • Comment number 84.

    " ... to prevent this recession turning into something even more prolonged and painful".

    So now, we must avoid at all costs using the word "depression" rather like we (the BBC) couldn't use the word "recession" until the pressure (to state the blindingly obvious, but politically incorrect) became too much.

    Some of us have been saying for months that this unprecedented and unholy mess, predominantly of Gordon Brown's making in the UK remember, was always worse than polite, mainstream commentators were trying to have us believe.

    I own and run small business. I can tell you that here on the front line the situation is bad; really bad. But rather like during the First World War, the officers at the rear (lets call them General Brown and Captain Darling) haven't the first idea of what life is like here in the trenches.

    As I've said before on this blog and others, our politicians simply don't know what to do about this mess. More to the point, they don't understand the problem and so their solutions are panic-stricken, pointless and useless.

    We - all of us - are now at the mercy of the fundamental laws of supply and demand, normal lending and borrowing (not the nonsense we've experienced in the past decade), true asset values (not the fantasy values we've seen in the past decade, fuelled by the corruption of borrowing/lending) and natural resource constraints (primarily the end of mankind's era of cheap energy). Our politicians don't even begin to understand this stuff; at best, they can't bring themselves to acknowledge and, therefore, deal with it.

    So, Mr Peston, my money is firmly on this recession turning into something more prolonged and painful. And for that we can thank our glorious political elite (ha!).

    Power to the middle-classes I say; it's about time we rose up and taught our politicians the lessons of a lifetime.

  • Comment number 85.

    May I refer the Prime Minister to the attached website. Maybe then he will stop.....

  • Comment number 86.

    #60 what boom?did we have one.?.we had house prices rip that a boom? browns getting so fat(if you have noticed) 1 pin and he will go bust (with a bit of luck).

  • Comment number 87.

    All this discussion is ok but when is the real problem going to be addressed - thats the pervading greed in the institutions supported by devious means to achieve those aims; and why are we still supporting those institutions and their management which got us into this mess. Greed is what brought us to this position and yet those who took us there are being encouraged and supported by using taxpayers money. I really dont get it!

  • Comment number 88.

    Naive question I am sure, but why on earth would the banks lend when the base rate is 1.5%? Where is the profit in it for them?

  • Comment number 89.

    Why, with the government holding such high percentages of these banks, are they not obliged to make a formal takeover bid in accordance with stock exchange regulations?

    Let me guess.

    The rules do not apply to THEM.

  • Comment number 90.

    I suspect this plan is hot air rather than substance.

  • Comment number 91.

    We need a natural price crash of housing pyramid, build five million council houses to kill the astronomical benefit paid private rent schemes nationwide.

    No more bailouts. The Zanupound is coming.

  • Comment number 92.

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

  • Comment number 93.

    Someone needs to take Broon into a backroom and tell that all he is doing is saddling the UK taxpayers into decades of slavery. No amount of money will make these banks solvent in the near future.

    Face facts "Gordy" the whole UK economy is shattered beyond belief by spending the same pound 10 times over for the last 11 years, our economy will decrease by 2% annually for a decade or more. Wake up and admit defeat.

  • Comment number 94.

    This is madness.

    The government does not, nor never has had, any money. It merely takes from one part of the economy (tax and borrowing) and gives to another (bankers).

    Governments should never be involved in private business, it has neither the right, the funds nor the competance. Bad companies have to be liquidated, bad debts and malinvestment written off. Until this happens the economy cannot recover.

    We have lived too long on borrowed money and fake wealth from the Ponzi housing scheme.

    Goverment should cut taxes and let the market sort out this issue. We have all been the victims of a massive fraud, maybe the biggest in history and yet we continue to be robbed before our eyes.

    Buy gold and silver to protect your wealth. Fiat currencies are going to fall.

  • Comment number 95.

    Robert, you are continuing to use hindsight to prove that the way forward has aways been gloomy.

    "Also - as I pointed out yesterday - we as taxpayers will be insuring some of the bad loans made by our biggest banks, to limit their future losses from their reckless lending" quote from your blog.

    Sorry, are you absolutely sure that these loans were bad when they were taken out in the economic conditions of 18 months ago? Some may have been, but would you have thought then that the merchant bankers would not get bonuses this year and therefore not be able to repay their mortgages, would you have thought that the car industry would be on a 4 month shut down and therefore be coming up to delaying payments on their loans? etc, etc.

    No you would not have had any of those thoughts. The City was generating huge cash flows, the car industry was selling stable levels of cars and generating good cash: not always profits, and China was preparing for the Olympics, pushing up commodity, fuel and food prices.

    Would you have thought that on top of this the regulators in the US and the UK had gone to sleep and lending to high risk individuals was reaching a peak? But would you believe it, the regulators did push through accounting changes to asset valuations which means that paper losses are booked to the profit and loss account immediately and we create an imploding series of events that cannot stop. In weather terms a tornado.

    The pricking of lending bubbles is hard; the rough and ready instrument of Central Banks choice: raise interest rates, seems to bring about hard landings, this one very hard. We must use earlier and more gradual methods: asking Banks to slowly raise their captial ratios.

    Lastly, stop the short selling, the casino of the stock market. Markets should be for investing in; so place a delay on selling shares: you must own them for at least 15 days, and you must have fully paid for them.

    That should stop the speculators of doom.

  • Comment number 96.

    This is indeed a momentous time.
    It is becoming clear that our banks have created the biggest losses in world history, exceeding even those created by the Second World War.
    It took us 40 years to pay off the war debt.
    Now we have it all again, for no reason other than a bunch of out-of-control bankers.
    You have to wonder what G. Brown, M.King, T. Blair and others were doing while the bankers were racking up this wreck.
    Cameron has one spot-on policy....most of these bankers should be in jail.
    We await future budget days with fear.

  • Comment number 97.

    Another non starter; pay the government through the nose, so you can lend money on which you can charge very little interest to businesses that are on their way under; so you might lose your shirt. Is there a point to this? Better investing the money in a safe haven (if you can find one) than backing a dead horse and paying for the privilege. Maybe it would be better to just toss it all down the throats of the Gaza bound arms dealers along with the other 20 million big hearted Brown is tossing away. I wouldn't pretend to understand high finance but I can see a bum steer here. ( that rhymes )

  • Comment number 98.

    As always the devil will be in the detail however:
    1 Well run and capitalised companies will not have had their credit pulled by the banks so who does that leave to be bailed out?
    2 Providing short term liquidity for a business geared up for ever growing sales and prices doesn't address the root cause of their problem e.g. too much debt, a lost/shrunken market and no cash flow
    3 Basel 2 and the loss of billions in wholesale funding from the market (remember RBS was alone £60billion short) means that the housing market still has a ways to fall this year. Is it responsible lending to encourage the banks to lend and people to buy now at 90/95% only to see them in negative equity by the years end?

    Years of Government turning a blind eye to suit their political ends has made the problems of this recession far worse (remember "I have put an end to boom and bust" anyone?) and this profligate spraying around of our money and racking up of debt will surely come to bite all of us fortunate to remain in work and paying taxes/not living off the State, on the bum. Often the best way is to do nothing and let nature take her course, weeding out the weak and creating new opportunities for others to fill the vacuum left by the failures.

  • Comment number 99.

    When will this complete and utter dependance on credit end?

    What will be the result of yet more lending?

    Oh how we look forward to paying more tax, to bail out irresponsible lending to those who may not have been credit worthy in the first instance.

    Is the provision of bonds to secure poor mortgages not a little like 'mortgage backed securities' issued in the US system?

  • Comment number 100.

    Nobody in government is putting forward any concept of what the outcome might be for the Country. Here is one scenario for 2009/2010 :

    By April 09, say another £500 billion in bad debt is uncovered.

    By June 09, all major banks are nationalised.

    By August 09, 3 or 4 million are unemployed and thousands of businesses collapse.

    By October 09, Imported food costs rise and becomes scarce. Local Government jobs are slashed.

    By December 09, another 2 million are unemployed. Unrest seen in inner cities.

    Early 2010, martial law initiated.

    etc etc etc

    Considering the speed at which things have developed to date, perhaps my timscales are too optimistic.


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