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Why did Bank of England keep shtoom?

Robert Peston | 18:23 UK time, Tuesday, 24 November 2009

I am still away, sorting that family problem I have mentioned before, but I could not resist making a couple of points about the Bank of England's clandestine emergency loans to HBOS and Royal Bank of Scotland.

The first and obvious question is why on earth the Bank, Treasury and FSA thought it was a good idea to keep the £61.6bn of lending secret.

It's not as though they hadn't publicly stated at precisely the time the loans were being given that both banks were effectively bust.

On 8 October and again on 13 October of last year, the Treasury publicly announced - with its unprecedented package of support measures worth around half a trillion pounds - that the entire British banking system was in dire straits.

As for RBS and HBOS, they were identified by the authorities as kaput as commercial operations - because we as taxpayers had to inject more than £30bn of capital into them.

Against that backdrop, it might actually have been reassuring to depositors, investors and taxpayers to have had confirmation that the Bank of England was providing loans to replace private-sector finance that was melting away from RBS and HBOS.

Mervyn KingHowever, as often happens, the authorities - led on this occasion by Mervyn King, the Governor of the Bank of England - were fighting an old war, not the one actually being waged.

They were so bruised by the run on Northern Rock, which began after I disclosed a year earlier that the Rock had asked for emergency loans from the Bank, that they felt that they had to take advantage of new legislative powers to keep such loans secret.

But there was a big difference between the Rock on the one hand and RBS and Lloyds on the other: the Rock and its depositors had received no pledges that the bank would not be permitted to collapse when the emergency loan was confirmed. The Chancellor, Governor and head of the FSA all refused to promise that the Rock's depositors would not lose a penny.

But a year later they all showed in word and deed that HBOS and RBS were too big and important to fail.

So keeping secret that additional Bank of England support will seem fatuous to many.

Has the cloak-and-dagger performance done any serious damage?

Well, some shareholders in Lloyds will have their fears reinforced that they weren't in full possession of the facts in approving their banks' takeover of HBOS - although it's unclear whether those Lloyds owners who want redress will have their claims strengthened in a legal sense.

Also I am not sure that this example of covert ops by the Bank of England will promote financial stability in a long-term sense.

There will be many in the market who will now wonder what other horrors the Bank of England feels it can't unveil "devant les enfants".

Update 09:35 GMT, 25 November: A number of your comments are giving me pause for thought about whether I am being either naive or too knowing in querying whether the Bank of England was being rational in cloaking those emergency loans to HBOS and RBS.

It is true that, last October, it was of little interest to me whether or not the Bank of England was providing short-term emergency funding to RBS and HBOS.

How so?

Well, as I have said, it's because we had official confirmation from the Treasury, Bank of England and FSA that they were more-or-less bust - but were being propped up by the state.

Let's just take one item of taxpayer support announced at the time, the Credit Guarantee Scheme.

This was - in effect - a promise made on 8 October by the Treasury to lend £250bn to the banks.

In that context, £60bn of very short-term emergency funding by the Bank of England - which was necessary until the banks could complete technical arrangements to issue funds under the CGS - doesn't seem that significant.

Also, the Bank of England increased to £200bn the exceptional facility it had created allowing the banks to swap mortgages they had already provided for Treasury bills, the equivalent of cash.

So I have to say that - at the time - I really didn't give a fig whether the Bank of England was providing emergency bridging loans, until the effect of these other taxpayer-backed schemes kicked in.

We as taxpayers were up to our necks in financial commitments to HBOS and RBS. In that sense, surely it was irrelevant that they were maxing out their credit cards with the Bank of England until they could take advantage of the new overdraft facility at the Treasury?

Well, the truth is - as some of you have implied - that perhaps I am making the silly mistake of assuming that markets would have taken this cool and rational view.

There was a mood of utter irrational hysteria among banks and investors at the time.

And I guess there's a risk that the formal disclosure that financial institutions were calling in their loans to HBOS and RBS on such a colossal scale - which would have been the unmissable implication of the Bank of England lending tens of billions to them - would have fomented even greater panic.

So perhaps the Bank of England was right to keep shtoom (or perhaps "schtum", as my Yiddish coach has pointed out) at the moment of highest anxiety.

But many would say that there was no sound reason to keep the secret for quite as long as it has done.

Comments

Page 1 of 2

  • Comment number 1.

    Little changes in the world of fantasy finance.

  • Comment number 2.

    Embarrassment?
    Embarrassed that they have been looking after the sweetie jars - and those jars were empty. On their watch.

    Dread?
    That it would be contagious.

    Sheer disbelief?
    That companies that have been licensed to magic money out of thin air could actually have got it wrong.

    Or something else was going on that we know nothing about, as yet..

  • Comment number 3.

    Somewhat naive commentary Mr Peston. The mindset of markets and the public in general were in state of alomost hysteria back in October. What on earth makes you think that disclosure by the BoE would have been of any use to anyone other than send markets into further tail-spin, wiping many billions more off the collective net worth of people. All in the interests of public disclosure? Please ... Surely you can do better than this in terms of 'expert'opinion.

  • Comment number 4.

    Surely, this must lend more weight to personal negligence cases against the then Directors of HBOS and RBS.

    It just cannot be that a hole of this size was not visible to them many months before.

    They must have been happily trading for a considerable time while knowingly insolvent.

  • Comment number 5.

    Greetings Robert,Thanks for taking the time out from your family affairs,I have missed your take on things.
    Here we go again! What ever happened to openness and transparency?I don't think I would be far wrong in saying that the average bank user is sick and tired of all these secret deals.This situation does not put the battered reputation of the banks in a good light.
    The Bank Of England should know better, remember it is the tax payer who are keeping the banks afloat. For one I would like to know were my money is being spent.

  • Comment number 6.

    The reason why BoE had to do this is because the wholesale markets completely dried up in the last quarter of last year and these two banks were therefore unable to fund themselves as they were doing pre-crisis. Their over-reliance on wholesale markets resulted in a situation where they either (i) went under, which meant the government paying out on its promised guarantee to depositors, or the (ii) BoE acted as lender of last resort until such time as these banks were able to resume funding themselves without recourse to the BoE. Hence how the BoE got repaid in January. This is exactly the role of the BoE (in the extreme). The idea that this would have been announced the same day is preposterous. Firstly, as I said above, it would have resulted in panic. And secondly this would have most likely resulted in the govt haveing to pay out to all depositors rather than take an equity stake in the manner we all know, which actually means there is some value upside for the Treasury rather than just dolloping out cash to depositors with nothing in return.

  • Comment number 7.

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

  • Comment number 8.

    A very worthwhile question, Mr Peston.

    Always love your stuff. Family matters can be fraught, but they are of enormous importance. All the very best with yours!

    May it all go your way. Meanwhile, I shall ponder with the rest of us, what you have been writing.

  • Comment number 9.

    Post 4 agree with your thoughts re any negligence claims. Equally if I was a Lloyds TSB shareholder, which I wasn't and still aren't by the way, I would be absolutely livid.
    No statement as to how much went to RBS and how much to HBOS?
    The Lloyds shareholders were sold a massive pup and had they have been aware of the true state of HBOS's books may well have turned the merger down.

  • Comment number 10.

    Will it do any damage? Wrong question ....... Will it do any more damage is what you should be asking? Well u bet your pants on fire it will..

    What this proves is that the commissariat lied to us and distrusts parliament. They should resign now - instantly...... be gone for breakfast tomorrow.

    As for Lloyds then if I was their chairman I'd be calling the fraud office and having Brown and Darling arrested for conspiracy to defraud....

  • Comment number 11.

    Schtoom? Surely you mean "schtum"? Or have you concatenated the latter with "doom"?

    https://www.phrases.org.uk/meanings/215700.html

  • Comment number 12.

    I just dont see what good hiding the truth does,all it does to me is make me worry what else they are hiding.

    Things are no different,just that we now cant trust statements from the bank of england,i do however agree that they did there job as lender of last resort,its up to the public what they do with their investments, but any of the big banks would be my last choice. they have broken our country irretrievably in my view and we will never get back to any position of world importance, if we have ever had any since WW2.

  • Comment number 13.

    It now becomes clear why the Government told the valuer of the Bradford and Bingley to ignore any financial assistance that could have been given in for the process of valuing the company. there are obviously different sets of rules for different organisations. Printing money, an apparent lack of accountability, the FSA it's absence of regulation and supervision, the bonus cultures within failing organisations all promoted by government pretending to be competent. They spend millions on advertising but do little of substance to solve the problems. The period of labour growth was financed by greed funded by easy credit and the backing of inflated property values. No one was prepared to accept the fact that tangible assets did not have the appropriate values assigned to them. This was the case throughout society but nobody accepted that the crash would occur, as long as a commission was earned or trading volume revenues could continue assets would increase in traded value without any recourse to source and real value. Lack of understanding, regulation corporate greed and ineffectiveness of internal and external audit all have contributed to the problems.

    Government and regulators are ultimately responsible through failure to oversee effectively. The covering up of transactions does not bode well for the faith that we have to put into the system. How confident can we be that other major incidents have not been misrepresented.

  • Comment number 14.

    Lets be honest.....HM Govt has been collecting billions and billions over the years from the banks in Corporation Tax and from income tax on employees bonuses. Regrettably a big chunk of it has turned out to be shall we say " creative accounting". However HMG has spent all this ficticious dosh. They had no alternative other than to prop up the banks by the B of E creating money to provide lost working capital in the belief that at some future date things will get back to normal and this large income stream will return.

  • Comment number 15.

    Another fine example of the democratic non-accountability of the institutions for which the public actually pay, and another fine example of the rigging of the market by such non accountable bodies.

    If my money is being spent (whcih it is), I most certainly should be informed (at the very least).

    While all this has been happening, our elected representatives have been busy filling in their expense claims....

  • Comment number 16.

    Did the board of Lloyds know?

    Would they have agreed to, or have been so keen to, take over HBOS if they had?

    If they did know and still took it on they should be out of work.

  • Comment number 17.

    Post 7 I very much doubt them being Scottish was a hindrance with a Scottish PM and a Scottish Chancellor in power.

    Had Messrs Brown and Darling let them go to the wall I think we all could have foreseen political armageddon for Labour in Scotland.

  • Comment number 18.

    Why did the Bank of England keep schtoom? One thing this crisis has given most thinking people is great scepticism of the mainstream media, including the BBC. Who honestly believes Robert Peston wasn't kept well informed by Gordon Brown and senior bank officials? And not just Robert, many other "official" journalists besides.

    The reason the B of E, government and the MSM "kept schtoom" is because we are little people and they are big people. God knows what they're really up to, we'll only know when we're no longer in a position to react - and perhaps when the key figures have moved on.

  • Comment number 19.

    I had been hoping, Robert, to get your take on this important issue. I am very grateful you took this opportunity to write for us. I wish you well with whatever your family problems may be.

    I consider the views expressed by Noideaatall in #4 deserve highlighting. Trading while insolvent must have been going on and is a criminal matter. The boards of RBS and HBOS should by now have been at the very least been interviewed by police under caution and a file being prepared for the procurator fiscal - or whatever is the modern day Scottish equivalent to the CPS. But it isn't happening. WHY NOT???

    But aside from this, did Lloyds TSB directors KNOW about the loan to HBOS prior to the merger going to the shareholders? If they didn't, the Governor or the Bank of England should seriously consider his position. He manages our currency. It is fiducary. How can you trust a currency when its manager does something like this?

    If the Lloyds TSB board DID know, they had a clear duty to inform their shareholders and did not. If they did not because they were told they must not, then they should have called off the merger.

    Something entirely rotten happened last January in respect of this merger. We are still governed by the same regime as perpetrated it. Yet honour seems to count for so little in this country that nobody is going to do the honourable thing and quit.

    Do these people understand how they have debased themselves?

  • Comment number 20.

    Could it be that the BoE were avoiding scrutiny and comment from The EU Commission until the government had time to negotiate the terms of a bail out that would be acceptable to our European confreres. We are now no longer masters of our own destiny in these financial matters.

  • Comment number 21.

    I think what REALLY upsets you is that something happened and no one told you about it.

    And of course, you and your colleagues are the very people that King WANTED to keep out of the loop, or you would have made things worse - again.

    Interestingly, the city seems to think that this is very old news, that many people in the city, including major share holder groups were aware that this was happening. It is just that the media were not invited to the party.

    Oh, and of course, this was a short term loan, it was paid back in a timely fashion and the tax payer made a profit.

    You are in the privileged position of being able to say anything you like and spin it anyway you choose. The Bank of England does not have that luxury - they actually have to run the finances for real.

    A very, very senior economist at a huge company once said to me when he was meeting with my father.

    "The difference between a chief economist and a chief financial officer is that no once cares if the economist gets it wrong."

  • Comment number 22.

    Best wishes to your family.

    It was obvious before the collapse that it was game over for HBOS: the bank was raising finance in the markets in the year before collapse on terms that were never sustainable for a profitable business.

    Banking is all about confidence: no bank has enough liquid capital to pay all of its depositors on demand. Hence why the Bank of England has to intervene to stop a run on individual institutions becoming a loss of confidence in the system, which can be viewed as a State-sponsored array of Ponzi schemes. Supporting the mirage is best done in secret, as was the case here.

    My sympathy is severely limited by four factors:
    1) Any informed investor should understand the 'confidence trick' nature of the banking business and the risk of a catastrophic run;
    2) There was always going to a massive public interest in preventing collapse of the banking system;
    3) Directors of failing institutions and the Bank of England are always going to be 'economical with the actualite' to save their institutions and the economy;
    4) Taxpayers have lost far more than investors.

    How we ever ended up with this crazy system is an important question which needs to be debated, as its results seems to be the transfer of risk from the City of London to the taxpayer, with taxpayers capital flowing in the opposite direction to feed the grossly inflated egos and 'remuneration packages' of bankers and the other finance-related professionals.

    The thing that worries me most now is sterling. The sham-strength of our banks has been exposed, yet the bankers still believe they are worth millions and the sector dominates our economy. Meanwhile we run huge balance of payments and budget deficits. The collapse of sterling is inevitable.

  • Comment number 23.

    Robert it would be useful to know the timeline of all this. Two events impacted many investors. One was the rights issue from HBOS. The second was the takeover of HBOS by Lloyds. At a glance this secrecy of support seems mighty close to these two events. That indicates that investors may have allegedly been misled by this secrecy.

  • Comment number 24.

    This disclosure by Mervyn King is indeed fascinating and rather ghastly. It says so much about the financial system, that secrets on this scale have to be kept!

    I find it even more fascinating that the secret is out now. Any thoughts on why now, and not earlier, when the loan was repayed? Or is this information strictly for the (very very rich) grown-ups?

  • Comment number 25.

    Welcome back. Mervyn told the Treasury Committee today that this covert loan was a bridge loan pending government recapitalisation. Wouldnt the problem have been that recapitalisation itself could have been impaired by the disclosure of the loan.If the recapitalisation was put at risk, the loan was at risk? Perhaps here the shareholders of Lloyds ( Buying HBOS ) could have a gripe.I am fascinated by the BoE's keeness to point out that the loan was repaid quickly - by whom? The taxpayer, ofcourse.Difference being that BoE earned interest and defrayed risk with collateral ( not best for their balance sheet) whereas the taxpayer took risk capital and shouldered the risk full-on.

  • Comment number 26.

    I suspect that Mervyn King is a law unto himself in these matters. I agree that it would have made more sense to make the information public at the time. How else are markets to operate effectively if important information is suppressed and withheld from investors?

  • Comment number 27.

    Here we go again. Backroom dealing and where did that get Nick Leeson (this list is not exhaustive). Are those party to the newly revealed shennanigans any better? Is the pound in your pocket worth anything? Q.E.D. And what is worrying is that people are fooled into believing that this is OK, the done thing, good practice, ad nauseum!!! As the ol' man said "I don't ...."

  • Comment number 28.

    In post 3, At 7:14pm on 24 Nov 2009, namuncura wrote:

    'Somewhat naive commentary Mr Peston........... Please ... Surely you can do better than this in terms of 'expert'opinion.'(sic)

    Excuse me 'namuncura', are you aware that Mr Peston is probably under more pressure than your car's hydraulic system, or are you ignorant of the circumstances?

    Back off with your sneering attitude buddy, this column is for gentlefolk.

    Message ends. Out.

    Good Evening.

  • Comment number 29.

    Because the BoE were under pressure from HM Treasury to keep the matter secret?

    Presumably the BoE would have had to consult the Treasury due to the size of the loans - unless the BoE is a complete law unto itself?

    The bad press is not what the Brownites would have wanted to hear with those in his cabinet and party looking around; but too scared themselves to make a challenge for the Leadership of the party?

    It's hard to believe this was the sole action of M King - he must have been guided by HM Treasury?

  • Comment number 30.

    Hope you're able to resolve your family matters Mr Peston; must be serious/complex stuff to take this long away; wish I had such an understanding employer as you have!! I run my own business, so just a few days away = crisis ... particularly in the current economic conditions.

    On the topic, I'm with those shareholders who are going after Lloyds' directors: they were in breach of their duties by not making the existence of this loan clear to the shareholders. HBOS was worth no more than one pound when Lloyds was forced to buy it, being insolvent at the time. This is another lamentable episode in a miserable era in banking and political history.

  • Comment number 31.

    Is there an element of foot stamping here? The media were relishing every poor result that came out - showing suitably scaled graph highlighting the decline - and were intent on talking the country and world into depression. Panic and misery are, after all, good copy.

    Clearly, it was decided that disclosure would only make matters worse and cost the country even more. So you were not told at the time.

    Now the recession is receeding do we see graphs showing the upward turn likely to encourage confidnce? Nope, or at least considerably more rarely than we did then.

  • Comment number 32.

    Robert, I hope your family are well.

    Gordon Brown said he would do "whatever is necessary " repeatedly throughout the crisis which Britain is working to contain. He has done, and is still doing this. I believe his teams' only motivation for agreeing such action would be because it was necessary to protect the interests of the country and the global financial system.

  • Comment number 33.

    In Sept/Oct 08 everyone in the relevant "markets" (i.e. GBP liquidity markets) knew that RBS and HBOS were effectively bust (i.e. could not "roll-over" their liabilities)- the Bank did what needed to be done, lack of transparency was a small price to pay to avoid the risk (very real at the time) of the whole banking system collapsing and bringing the UK economy down with it.

    The UK banking system needs to be much, much smaller.

  • Comment number 34.

    Grow up Robert. For someone who supposedly reports on the business world you seem to know very little about systemic risk. Are you really trying to tell us that if it had become public knowledge that RBS and HBOS were being propped up by the BofE on a daily basis then we wouldn't have had a run on both banks. Of course we would and most likely an entire collapse of the banking system. I'm no fan of Mervyn King but on this occasion he got it right. Oh and a word to Vince Cable, if you had been in King's shoes you would have done exactly the same.

  • Comment number 35.

    We can only judge these actions by considering: 1. the horror at the run on the Northern Rock. This wasn't supposed to happen in a modern monetary system. The last thing the authorities needed was a re-run. 2. the state of panic in markets at the time. As we now know, some banks were within hours of running out of money. Had that happened, the entire UK banking system would have fallen over, with devastating consequences for the global financial system.

  • Comment number 36.

    Robert,
    You know absolutely how much the shareholders suffered in the Rock debacle (not helped by your own contribution at the time).

    You know that only about £4Bn was asked for by the Rock - as a contingency only - when they had liquidity problems in Sept 2007. Your leak of the LOLR need, and, as you say now, the lack of assurances to depositors at the time, caused the first bank run in a hundred years, forcing the Rock to draw down £28Bn in LOLR funding to replace the funds removed by the panicked people..

    HMG seized the company in Feb 2008 and not pay anything at all to shareholders for their confiscated property.

    What is your comment please: just how can Rock shareholders lose everything after just a £4Bn contingency LOLR request, yet £62BN LOLR is provided to 2 banks, on the quiet, and those shareholders there continue to hold their assets?

    You helped this sad and incompetent Government to discriminate against Northern Rock company and shareholders, surely? And ruined the lives of many.

    You clearly will not ever repent (despite many requests you have had).

    I therefore call upon you, in the light of these revelations, to recognise and publicly state the discrimination and the very unfairness of the treatment meted out by this pathetic disingenous administration to shareholders in the Rock case, at the very least.

  • Comment number 37.

    The reason it was secret is obvious, to mangle a well known quote.

    To lose one bank is unfortunate but to lose three would look like carelessness.

    Without this prop both banks would not have been effectively bust they would have been actually bust which is a very different kettle of fish to consider. Probably the right call but not good for trust in the system long term.

  • Comment number 38.


    Why did the Bank of England keep quiet about the loan to RBS & HBOS

    For the same reason it keeps quiet about funding Government without breaching section 104 of the Maastricht treaty.

    ARTICLE 104
    1. Overdraft facilities or any other type of credit facility with the ECB or with the
    central banks of the Member States (hereinafter referred to as ‘national central banks’)
    in favour of Community institutions or bodies, central governments, regional, local or
    other public authorities, other bodies governed by public law, or public undertakings of
    Member States shall be prohibited, as shall the purchase directly from them by the ECB
    or national central banks of debt instruments.

    I suspect there is no longer a market for fixed interest UK Govt debt.

    QE will keep us going to Christmas, then self employed tax payments and festive v.a.t. till the end of March.

    The end it’s either more QE or Public and Private sector job losses.

    You’ve gotta hand to Mr King, with sleight of bankers hand he has kept government funded, saved the country from financial collapse, and fooled journalists by the bucket load.

    Well done that man

  • Comment number 39.

    better bank secrecy that keeps the market functioning than vain journalists blabbing that crashes the market or creates runs on banks in a time of crisis?

    after all statecraft is about making sure granny gets her milk for her tea in the morning [ie keeping a functioning society] not about if a journalist gets awards?

  • Comment number 40.

    What earth are you Fullers or the Planet, if this was let out everyone would look upon the Bank of England supporting our banks NOT! the queue's would be around the block to take very penny out of the ailing system, and has for Vince Cable, well let's hope he is never in charge and he alwas seams to end up with the wrong end of the stick, but sounds good, well he is a politician.

  • Comment number 41.

    Robert and Ian the Chopper

    I am a Lloyds a shareholder and I am what you (Ian) describe as absolutely livid.

    There is the usual caveat emptor with any investment and particularly with shares. But what has happened here is a sequence of events where it is impossible to find the space to name all the guilty parties. But here goes with some of them.

    1. I start with myself. On the face of it I thought the announcement in Sep 08 was good news. A merger that would never have been countenanced in normal circumstances on competition grounds looked like good business for Lloyds and its shareholders. I couldnt understand it then, and still thought up to the very last moment that it would be referred. Guilty as charged (although in my defence I was not given the proper information).

    2. The next Group is Sir Victor Blank, Eric Daniels, and the rest of the Board. Given what we know now how on earth did they go into this at all? Even as late as Jan 09 when they still could have pulled the plug. Were they greedy? (probably), stupid? (undoubtedly). Again, guilty as charged, most particularly on the issue of due diligence - what did they do and was it sufficient given Daniels' statement on the subject?


    3. The Government have the most blame. They flouted all known rules of the relationship between themselves and public companies by cynically allowing a monopoly to be created, by allowing shareholders in Lloyds to be misled, some even into buying shares at 1.73 that were traded in the market soon after at 30p. I would like to see all the minutes of meetings between Brown/Darling/the FSA/The Bank/Lloyds and HBOS Boards/the MMC and EU regulators in the period Sep 08 to Jan 09 when the bid was finalised. Guilty as charged.

    4. The next group is the institutional shareholders, who could have stopped the bid in its tracks. My take on this is that they owned shares in both banks and were trying to save their HBOS bacon. They are guilty of failing to look after the interests of their clients within their funds or pensions, and in the process their negligence cost their clients a great deal of money. In my book the great and the good should always look after the small people. Not here, where they failed to ask even the most basic question on what Lloyds was buying. Again guilty.

    5. The regulators in UK and Europe and the Bank of England and FSA, who all watched a monopoly being formed and did nothing. And had more than an inkling of the extent of the toxic assets within the books of HBOS, which were shuffled off onto LLoyds. Guilty, although what Neelie Kroes has come up with recently is surprisingly measured and without any hint of vidictiveness against Lloyds.

    6. The press, the media, MPs and all the rest of the pundits or what I would call society's policemen. All asleep in Sep 08 although they are all indignant now about what went on and what they are inferring was a grand deception.

    The Government owes Lloyds big time, and some way will have to found to give restitution for cyncially using Lloyds to save the Country. Not its job, however laudable it may be. They can start by giving back the penalty (was it 2.5bn?) they propose to charge Lloyds for withdrawing from the Asset Protection Scheme. Something they would not have had to be in but for the Government's cynical use of Lloyds in the way I have stated above.

    We are a country that believes in fair play. In this case that is not what has happened.




  • Comment number 42.

    The economy is built on trust, that has vanished in a puff of smoke (& mirrors). As for the Northern Rock (ex) shareholders, the damage done to markets themselves should not be underestimated.

  • Comment number 43.

    It would be helpful if the media would do more to inform the public of the nature of the loans. The vast majority of the public will not have the expertise to differentiate the difference between providing capital and providing short term liquidity funding which is a normal practice day to day in all banks.

    These loans were not a 'stake' or taxpayers in putting more capital into the banks, it was the Bank of England replacing a normal market function of providing short term liquidity at a time when the money markets were traumatised following the collapse of Lehman Brothers.
    With RBS and HBOS in the spotlight receiving Government capital bailouts at that time there was little likelihood of these banks being lent anything by other banks on the interbank market at that time – hence they would have had to close their doors, in the absence of the Bank of England stepping in as lender of last resort.
    As for the secrecy, it could argued that the untimely intervention of the media in the Northern Rock story a few months earlier caused a run on that bank which considerably worsened the situation by them losing most of their retail funding. Not much wonder the Bank of England chose not to start a further media frenzy with a risk of starting a further public panic of two considerably larger banks which could have wrecked the economy completely.
    The media rally do need to decide are they a propaganda machine against the banks or is their job to educate and inform the public.
    I am also surprised at the likes of Vince Cable, who knows better, jumping on the bandwagon this one.

  • Comment number 44.

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

  • Comment number 45.

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

  • Comment number 46.


    These bansters (in cahoots with the politicians) are ensuring that parents cannot pass wealth onto their siblings, this is what its all about

  • Comment number 47.

    There are two dimensions to this argument. The first is that the Bank of England gave covert support to boost the liquidity of two UK banks. The second is that they apparently then encouraged a third UK bank to merge with one of the ailing institutions without shareholders being aware of the scale of this liquidity problem.

    In the first instance it is absolutely right and proper that a central bank be allowed to intervene to support an institution. It is essential that this support is covert in order to avoid unnecessary panic in the financial markets and a potential run on the bank that would be disastrous for small investors. Only the Liberal Democrats could take such a principled stand over this "outrageous deception" which illustrates probably why they are permanently unsuited to government in the real world.

    The second point however is more serious. It is, at best questionable whether Lloyds TSB shareholders would have approved of the merger with HBOS had they been in full possession of the facts. They went ahead, rescued HBOS (and Labour in a Scottish by-election) only to see their investment shrivel to nearly nothing. No wonder they are angry.

    To support a bank clandestinely is fine. To withhold that information in a shareholder prospectus for a government inspired merger is deception. Who knows, maybe Gordon "I will sell Britain's gold reserves" Brown learned a lesson in self-aggrandising statements to the market the first time and kept things too quiet the second time around.

  • Comment number 48.

    I read the BBC article yesterday stating that even where original loan agreements were missing (or could not be produced), loans could still be enforced.

    Why is this? How can you enforce a loan WITHOUT a legal document which dictates the terms of the contract? If you have NO contract, you have no loan right?

  • Comment number 49.

    This is all terrible news.

    There is no doubt that Lloyds shareholders had a right to know.

    They have paid a price for stopping a bank collapse and weren't given the full facts.

    There is nothing you can believe from this government any more.

  • Comment number 50.

    36 mennisdennis,

    Totally agree 100% (I'm not a NRK shareholder, but have every symapthy for what happened there)

  • Comment number 51.

    I sincerely hope people take this as further proof that your Government won't think twice about lying to you, me and everyone else in order to save it's own skin.

    ....and now we have the bank charges decision overturned by the new 'unelected and unrequested supreme court'.

    It's time to shut the Government down - it no longer has our best interests at heart - and I don't mean call an election.

  • Comment number 52.

    It's interesting that you say "run on Northern Rock, which began after I disclosed a year earlier that the Rock had asked for emergency loans from the Bank" - and then you seem aghast that the loans to HBOS/RBS were kept secret. Personally I think that a very difficult decision was probably made, I agree with a lot of intelligent comments above, but these have been made by intelligent and generally informed people. Joe Public (on average) is neither intelligent nor informed, that is the reason that we live in a nanny state. I would prefer that all of this had been open but I can only guess at the further damage that would have been done (largely due to the media egging the public on).

  • Comment number 53.

    These (b)ankers have NO SHAME!!!

    https://newsvote.bbc.co.uk/1/hi/business/8376906.stm

    Fill your boots folks, then go BUST (repeat cycle until death)

  • Comment number 54.

    51

    I agree with your view.

    But can you tell me when ANY government has had "our" best interests at heart?

    Or am I missing something?


  • Comment number 55.

    What a shame they could not have provided the same Finance to Bradford and Bingley, Alliance and Leicester, and Northern Rock.

    But then they would not have been able to give them away for next to nothing to a Spanish Bank !

    A Spanish Bank no better off than RBS was..................

  • Comment number 56.

    54. At 10:29am on 25 Nov 2009, StephenBlencowe wrote:

    "But can you tell me when ANY government has had "our" best interests at heart?

    Or am I missing something?"

    The way I see it is we all want to believe the Government is on our side and working in our best interests - as we also want to believe the individuals of Government are too.

    Many cynics believe the Government is 'probably' corrupt and not working in our own interests, but it's only when proof of corruption is dangled in your face that people get really angry.

    It's the same as MP's expenses, before the scandal many people would have said "they're probably on the take" - whilst not wanting to believe it and having no proof. Once the proof is laid out all those who called corruption are justified (although many would prefer to be wrong) and those who defended the Government are exceptionally angry because they feel let down (as any parent of a teenager would have felt at some point).

    The combination of the cynics proven right and the defenders proven wrong makes a cauldron of anger. Add into the mix the lies told about the Iraq war (and the impending whitewashthey call an inquiry) and there are a lot of matters people are livid about - and we haven't even touched the Economy yet!

    Take this as your proof folks and start working out how we all get even. There is no point in participating in Democracy when the end result is a system in crisis failed by the unruly participants who are within the state.

    We all know it's a hassle - but unfortunately we will now have to get off out backsides and give this Government the kicking it deserves.

  • Comment number 57.




    Robert

    May I quote the statement put out on Tuesday 16th September by HBOS, that is 3 weeks before the emergency funding.



    "Owner of the country's biggest mortgage lender, Halifax, HBOS insisted it was "a strong bank" and there was no reason for the dramatic drop in its shares, which are the most widely held among UK private investors. A spokesman said: "HBOS is a strong bank. We have significant capital resources and the largest deposit base in the country."

    Source https://www.guardian.co.uk/business/2008/sep/16/hbosbusiness.lehmanbrothers

    Shareholders were misled.







  • Comment number 58.

    56

    The difficulty is how you give the government a kicking...

    We don't get a vote very often and they have tanks and things.

    The only instruments available to us is our labour and money.

    Now we could generate a run on a bank as the Dutch did recently but it's a bit of a pain.

    Might I suggest all premium bond holders immediatley request their money back. No great personal loss as you are not likely to win anything any way, you don't need to rearrange direct debits etc but would send quite a powerful message...

  • Comment number 59.

    Come come Robert. You are only peeved that your sources are not as good as you had thought. If the BBC can keep secret the amounts it pays to its top talent, surely there is a place for important State secrets in times of market hysteria.

  • Comment number 60.

    Stephen 58

    What a good idea. Actually I have just withdrawn some of my premium bonds....to pay for the Lloyds rights issue! I'm off this afternoon to see a shrink about my recent weird behaviour

    Major Major

  • Comment number 61.

    It is claimed that although they had liquidity problems, HBOS and RBS were still solvent at the time. IF this were the case it is difficult to see why the loans were concealed, since, as you say, against the background of other banks refusing to lend to them, the fact that the BOE was doing so, was reassuring.

    Perhaps the truth is that HBOS and RBS were not solvent at the time. The other banks which refused to lend to them presumably thought so. If this were the case, it would not be surprising that the BOE should wish to conceal the fact that it was lending, essentially taxpayers money, to insolvent private banks.

  • Comment number 62.

    I am beginning to think the UK banking system was deliberately sabotaged. Some Spanish banks that received ECB cash have done rather nicely out of the mess (that was engineered)

  • Comment number 63.

    The policy makers need to line up against a wall.....

    This country needs to be looked after by a syndicate of individuals who will do it for the benefit of the UK; not for their own career benefit and six figure salaries. The current outfit are driven by greed and are responsible for over inflating the UK position for many years. They've been cooking the books in every aspect for far too long now.

    I imagine they didn't want mainstream media to report for fear of a run on those banks. By keeping quiet they took individual's choice's away from them! Bit like an aeroplane about to crash land, just that the pilot didn't say 'brace' and get the life jackets because he was adverse to screaming.

    Time to end politics as we know it!!

  • Comment number 64.

    Post 41. I agree with your list of villains. I thought of many stronger words than livid but the joy of the preview button and calmer reflection allowed me to use a word that I felt would get past the Mods. Out of interest I agree with the sentiments you put forward when you blame yourself. I too thought at the time that this might be a once in a lifetime opportunity to pick up a bargain. How wrong we both were.
    As an expert in insurance I am amazed that in view of the various comments made by Directors of both HBOS and RBS immediately prior to the initial bailouts and during the time up to and during the secret loan period that someone doesn't sue the Directors personally for breach of their duties. I magine someone will shortly. Then the real fun might begin.
    The more I hear about the sordid dealings involved in these banks the more I am glad I work in insurance rather than banking.
    Can't wait to hear Alistair Darling's statement re the secret loans and how he justifies them!



  • Comment number 65.

    Alistair Darling has spoken

    https://news.bbc.co.uk/1/hi/business/8378087.stm

    We didn't lose any money so apparently that is all right then. Move along nothing to see here!
    Could someone please correct me on any of the following points.
    1) Both RBS and HBOS were traded shares on the LSE at the time of the secret loans.
    2) In the event of any material changes to their financial positions or outlooks the Stock Exchange regulations state that a disclosure must be made publically via the Exchange by the relevant companies. I imagine knowing that they had had to be propped up by a GBP 60 billion secret loan would be a pretty useful piece of inside information for anyone in the know considering buying or selling HBOS or RBS shares.
    3) If secret loans which are undislosed totalling over GBP 60,000,000,000 are not a material item then what is?
    I wonder if Mervyn King and Alistair Darling and the relevant boards know the meaning of the words 'ultra vires'?

  • Comment number 66.

    ...so do the free market lovers still think the banks should have been allowed to collapse?

    Who would have picked up the tab for the £61 Billion of additional loans we didn't know about?

    Now do you see why the banks were saved? We were already committed to save them - and a lot more committed than we all thought.

    Oh it would have been tragic if the banks had been allowed to fail and we lost all that bailout money - not that we might still loose it anyway - but it would have been a real shock to the system.

    I bet Lloyds shareholders are feeling sore today - and just to make them feel a little better they are being 'tapped up' for more money to pay for the abortion of a takeover - and I can guarantee this won't be the last time either....

  • Comment number 67.

    RP

    for what its worth i'm quite surprised at a number of the blogs too. Personally i did not invest in Northern Rock because its business model of borrowing on short term markets to fund mortgage lending was clearly heading for a disaster one day. If people bought these shares, and to an extent that it would be painful to them if the company colapsed, then the only person they should blame is themselves. I lost money buying shares in other banks but not the the extent of suffering as i'm not daft enough to over commit on a punt.

    I do have sympathy for the arguments that at the time the BBC and others were likely to completely overreact to the news, rather than the in context commentry you have given today. However is it right for apparently one person, irrespective of how arrogent and self opportunist i find Mervyn King, to keep a secret of a £62bn loan of the public money from the public and investors.

    Surely its this kind of behaviour which should be blamed when a correction to share value takes place, rather than shooting of the messenger

    If a capitalists' market is to work i would suggest decision making based on open and full information is a necessity

  • Comment number 68.

    I find it easy to believe that these billions were surreptitiously passed around without our knowledge. I just find it difficult to remember which billions we're hearing about at any time. Mr Peston says above: "..in that context...60 Bn doesn't seem very significant" £60Bn of our money given away isn't very significant!!!

    Through all the talk of billions in support, bail-out, QE, or whatever, I still keep in mind that EVERYTHING that is going on is the result of mismanagement and a total lack of proper governance. The property bubble in the UK was a disgraceful tale of either deceit or incompetence. It followed bubbles in DotCom and later Energy (Enron). The bubbles were encouraged, to give the impression of wealth creation, so that taxes could be creamed off for government projects.

    The reason Merv secretly piled billions (of our - the people's - money) into HBoS/RBos was to prevent a collapse on the entire financial system. I can just about understand that. And the reason he and the government are dwarfing that figure with QE is that they still need to prevent that collapse. I don't really agree with QE, but I understand the thinking.

    What I will never forget, though, is that the same BoE staff, Treasury staff and politicians (Balls, Brown, et al) got our country into the state of collapse from which it needed rescuing. There IS a global boom and bust, but its seeds were planted in the UK and USA, and those countries bear much of the blame for inflating the boom and making bust inevitable.

    Labour was only too willing to feed off the boom while it lasted. My problem is that I can't tell whether Brown, Balls and Co. were merely stupid or whether they knew what they were doing. I think it is the former, because they (and some regular posters on here) think that spending on government activity (I hesitate to say "projects") of any sort will be a way out of this situation.

  • Comment number 69.

    Did the BoE do a 'credit risk assessment' before it lent the money? Surely a requirement when setting the rate of interest.

    I believe there is talk that 'the taxpayer made money' from this deal, does this 'money made' take into account the opportunity cost of the loan or the devaluation of the repayements due to QE devaluing the pound?

    ...or is this just for the 'simple folk' - so we got back more in monetary terms than we lent out = 'making money'.

    I don't believe a word of it - and why should I?

    today we have seen that the giants of banking:

    a) Run Government and the BoE through blackmail
    b) Run the legal system - through the supreme (kangaroo) court
    c) Run the regulator (FSA) by threats of 'poor growth' and 'expatriations' of talent should they try and do their job.

    The banking system is AN ENEMY and should be treated as such by the honest hardworking citizens who are left with the bill.

    I start a motion to "Invade the financial system of Britain to take back that what was stolen from us".

    A much more 'productive and vital' war than either that in Iraq or Afghanistan.

  • Comment number 70.

    9. At 7:45pm on 24 Nov 2009, Ian_the_chopper wrote:
    Post 4 agree with your thoughts re any negligence claims. Equally if I was a Lloyds TSB shareholder, which I wasn't and still aren't by the way, I would be absolutely livid.
    No statement as to how much went to RBS and how much to HBOS?
    The Lloyds shareholders were sold a massive pup and had they have been aware of the true state of HBOS's books may well have turned the merger down.
    -------------
    I was a small shareholder in both HBOS and LLoyds, and am now an even smaller one. I voted against the merger because I didn't think that at least one of the men involved had any credibility (OK 2 if you count Brown) now none of the 4 have. I wonder how many small shareholders voted against? I bet it was the Fund Managers who voted for. So whilst I as a shareholder lost out, I bet most people with private pensions did too. Nice to know that as Shareholder, Pension Owner and Taxpayer I am doing my bit to keep my betters in the manner to which they have become accustomed. Most galling of all, is that if, as I hope, Brown's Political career is condemmed to extinction next June, he won't be worrying about his pension, although I guess sitting all day long and realising that

    The Moving Finger writes, and having writ,
    Moves on: nor all your Piety nor Wit
    Shall lure it back to cancel half a line,
    Nor all your tears wash out a Word of it.


    and that History has already written you down as 'The Man with the UnGolden Touch' may be a tad galling for him, but is slight satisfaction to me.

  • Comment number 71.

    58. At 11:32am on 25 Nov 2009, StephenBlencowe wrote:

    "We don't get a vote very often and they have tanks and things."

    The tanks are driven by 'US' - our soldiers, our military - not the Governments. The military is in revolt - look at the scathing attacks by the normally reserved senior military personell.

    "The only instruments available to us is our labour and money."
    ...and pitchforks, spades, wooden bats, molotov cocktails and most important off all - RIGHT and JUSTICE.


    "Might I suggest all premium bond holders immediatley request their money back. No great personal loss as you are not likely to win anything any way, you don't need to rearrange direct debits etc but would send quite a powerful message.."

    I think it's too late for that now, those with any savings are still clinging on to hope that this will sort itself out. The rest have already started making plans....

  • Comment number 72.

    58. At 11:32am on 25 Nov 2009, StephenBlencowe wrote:
    56

    The difficulty is how you give the government a kicking...

    We don't get a vote very often and they have tanks and things.

    The only instruments available to us is our labour and money.

    Now we could generate a run on a bank as the Dutch did recently but it's a bit of a pain.

    Might I suggest all premium bond holders immediatley request their money back.
    -----------
    Been there, seen it, done it, and spent the money on reducing my debt. I had a lovely feeling when cashing them all in and wondering how many others might be doing it and so causing Gordon and Alistair even more nightmares.

  • Comment number 73.

    56. At 11:04am on 25 Nov 2009, writingsonthewall wrote:

    Take this as your proof folks and start working out how we all get even. There is no point in participating in Democracy when the end result is a system in crisis failed by the unruly participants who are within the state.

    We all know it's a hassle - but unfortunately we will now have to get off out backsides and give this Government the kicking it deserves.

    ---------------

    Here is a link to a site that, although it says copyright 2009, was actually put up in about 2007/8 as the '2 years to an election' suggests.


    https://www.turfthemout.me.uk/

    We may not have the answers to our problems, but none of our great and good do either, given that this was written prior to the expenses scandal, maybe it was an idea before its time, and maybe its time is now. Basically, you vote against the sitting MP, Councillor etc. If ALL the encumbents were to be voted out, a) imagine how entertaining election night broadcasts would be, b) How could any party spin that it was support for them!

  • Comment number 74.

    As all have seen there is a system in place where banks have free access to funds that will be provided by taxpayers at no costs. The real secret was the financial industry insistence on no regulation of the (un)insurance schemes for loans that lead to the crisis and the elected officials who fostered this. But we are talking accountability and that is not a requirement in government or banking. The government still thinks that the funds belong to them. Taxpayers needed not be informed of transactions between friends...where would that lead, disclosure, honesty, accountability...not in government or banking...traditions must be maintained.

  • Comment number 75.

    On the 31st October 2009
    'Boilerplated' (and the other Mere Pseud Moderator Impersonators) ... DID NOT write;

    ''Secrecy:King knows Best-Wink''

    Wasn't it the case, at that time, that other Central Banking institutions were also keeping their cards close to their chest, like Mr. King ??

  • Comment number 76.

    I wonder what date the UK government has declared (to European competition authorities)as having a direct interest in their banks visa -vie European competition rules ??
    Is the aforementioned Bank Of England's actions satisfactory?
    If so, by proxy, can the government circumvent the ''necessary'' break up of banks currently mooted ??

  • Comment number 77.

    32. At 11:21pm on 24 Nov 2009, U14233048 wrote:
    Robert, I hope your family are well.

    Gordon Brown said he would do "whatever is necessary " repeatedly throughout the crisis which Britain is working to contain. He has done, and is still doing this. I believe his teams' only motivation for agreeing such action would be because it was necessary to protect the interests of the country and the global financial system.

    ----------
    So I guess the election will be cancelled and Lord Protector Brown installed shortly to save Britain and the Globe.

  • Comment number 78.

    38. At 08:31am on 25 Nov 2009, Dempster wrote:

    Why did the Bank of England keep quiet about the loan to RBS & HBOS

    For the same reason it keeps quiet about funding Government without breaching section 104 of the Maastricht treaty.

    ARTICLE 104
    1. Overdraft facilities or any other type of credit facility with the ECB or with the
    central banks of the Member States (hereinafter referred to as ‘national central banks’)
    in favour of Community institutions or bodies, central governments, regional, local or
    other public authorities, other bodies governed by public law, or public undertakings of
    Member States shall be prohibited, as shall the purchase directly from them by the ECB
    or national central banks of debt instruments.

    I suspect there is no longer a market for fixed interest UK Govt debt.

    QE will keep us going to Christmas, then self employed tax payments and festive v.a.t. till the end of March.

    -------------

    Dea Mr Prime MInsister (sorry I can't remember if you got the Premiership in the Stephanomic blog) but as your favourite Justice Minister, I need to raise my voice at this Cabinet meeting, in particular re the statement

    "QE will keep us going to Christmas, then self employed tax payments and festive v.a.t. till the end of March. "

    I can't comment on QE until Christmas, but the 'sef-employed' part gets a bit interesting, as in the next few days I am about to grovel, again, to HM Customs and Revenue. Cliffs and income falling off them, are the subject of my grovelling. If the Self-Employed are suffering anything like my business, forget being funded by them for the forseeable future!

  • Comment number 79.

    It would appear that the UK financial system and government are fast becoming crooks..... why is it when we unknowingly lend banks “tax payers money” to the sum of £60 billion........and we do not charge them interest........do we find ourselves being swindled by the banks for going a little over drawn.

  • Comment number 80.

    Back to where we started. Had the government acted quickly enough and guaranteed all investers money at the time there would have been no cause to have kept this quiet. As it happened even with the secret loans investors were withdrawing their money and transferring to those banks guaranteeing 100% security.

    Many mistakes were made at the time which have had serious ongoing repurcussions and there must be many more that we still don't know about.

    I can only think that the secrecy was necessary because if Lloyds shareholders had known the true state of HBOS they would never have voted for the merger. This is something Gordon Brown was pushing for and nothing was going to get in his way.

    Why it has taken so long for Mervyn King to admit these loans is also questionable. Does he feel that perhaps with a new administration likely to be delving in to the country's economic state it is better to start opening up Pandora's box now rather than later. I do hope so....

    This is a separate matter

  • Comment number 81.

    41. At 09:07am on 25 Nov 2009, majorroadaheadagain2 wrote:
    Robert and Ian the Chopper

    I am a Lloyds a shareholder and I am what you (Ian) describe as absolutely livid.


    -------------
    So am I, but I was also an HBOS shareholder, and I had already had dealings with CENSORED AS THE MODS PULLED MY LAST COMMENT ON THE TRAIN SET MAN

    so when LLoyds said 'Do you think we should take this lot over"

    I said NO, for exactly the same reason I say NO when I get an email saying

    "Dear Mr Senseless, I am Mr Scam Merchant, Chief Accountant of the Gullible Bank, and I have 12 Billion ......"


    Hmm, please tell me Mr Brown didn't reply to one of these emails when he was Chancellor?

  • Comment number 82.

    Just realised looking at the figures again. The secret loans were the equivalent of GBP 1,000 for every man, woman and child in the UK.
    More salt on the wounds of those whose claim against bank fees was effectively turned down by the Supreme Court this AM.
    I won't say any more it just depresses me.

  • Comment number 83.

    78. At 2:30pm on 25 Nov 2009, DevilsAdvocate

    I'm a self employed Joe, and I know where you're coming from.

    Mr King's most recent speech, indicated that QE is likley not to continue next year, which is a worrying thought.

    But you've got at least give him some credit,

    To keep a £62 billion loan to RBS & HBOS quiet and fund Government through the back door to the tune of £200 billion. And fool most of the journalists and economists at the same time. It’s no wonder he got re-appointed Governor is it.

    He might be an old boy, but kept all the young guns fooled.

  • Comment number 84.

    Merv. uses up a dogs life, he doesn't have many left.
    If you lose the trust of your (subjects), your position is less secure.

    I can agree that in the hours after that bail-out decision, it perhaps made sense to not publicise the act; however to suppress the information for over a year, and in particular not to declare it when the loans were re-paid? (or were the financial journalists just lazy?) I feel insulted.

    We, the taxpayers, have paid for this bail-out and everything else that has followed. If we aren't kept in the loop, don't be surprised when a section of the workforce decides to opt out from the tax system altogether some time in the future.

    You only have to look at the unrest in USA with the way their banking system and regulators are behaving. We are at least lucky that Merv. prints the money and then buys it all back before it gets too far out in the market. It will end in the same tears unless he puts interest rates up soon.

    Regards, and good luck
    Family comes a long way before £61 billion

  • Comment number 85.

    Ignoring the Shred's Bank, having read all the blogs and the article, I am still somewhat bemused as to why Lloyds took over HBOS. Even if the shareholders didn't know of the large loan to tide HBOS over, the Lloyds Board must have known. Even if their due diligence on HBOS was a bit flakey, surely the large elephant of a loan must have aroused some suspicion that all was not well? If memory serves me Lloyds toned down their offer for HBOS during the run in to takeover the bank. So why did they take it over?

  • Comment number 86.

    Are we all talking about the same crisis? I seem to recall an event similar to that described in this article:-
    https://www.bloomberg.com/apps/news?pid=newsarchive&sid=aMfETcYI2t7Y

    I also seem to recall that in January that some banks were a hairs breath away from shutting down their High St cash machine systems because they may not of had enough funds to continue trading and that the domestic banking system only just survived.

    That would have caused a massive run on all the banks.

    It was only decisive action by the Government that prevented the collapse (I know I hate saying it too!)

  • Comment number 87.

    83. At 2:54pm on 25 Nov 2009, Dempster wrote:
    78. At 2:30pm on 25 Nov 2009, DevilsAdvocate

    I'm a self employed Joe, and I know where you're coming from.

    Mr King's most recent speech, indicated that QE is likley not to continue next year, which is a worrying thought.

    But you've got at least give him some credit,

    To keep a £62 billion loan to RBS & HBOS quiet and fund Government through the back door to the tune of £200 billion. And fool most of the journalists and economists at the same time. It’s no wonder he got re-appointed Governor is it.

    He might be an old boy, but kept all the young guns fooled.

    -----------
    As Justice Minister I feel it incumbent upon me to investigate Mr King, as I am now concerned that he may have been sending emails to people beginning


    "Dear Mr Senseless, I am Mr M King, Chief Accountant of the Bank Of England, and I have 61 Billion ......"


  • Comment number 88.

    78. At 2:30pm on 25 Nov 2009, DevilsAdvocate

    I’ve mentioned before I’m self employed.

    My experience of work was: went quiet after Northern Rock failed, picked up in January 2008 albeit not a great deal, kept going modestly till end of September 2009, then there was a definite and very noticeable slow down.

    The volume of enquiries has dropped significantly.
    And, I’m quoting on very few jobs.

    What about you?

  • Comment number 89.

    48. At 09:26am on 25 Nov 2009, JavaMan1984 wrote:
    I read the BBC article yesterday stating that even where original loan agreements were missing (or could not be produced), loans could still be enforced.

    Why is this? How can you enforce a loan WITHOUT a legal document which dictates the terms of the contract? If you have NO contract, you have no loan right?

    -----------
    I think you might call it the 'IR35' principle. IR35 is an invention of this Government and is an Inland Revenue rule that allows the inland revenue to ignore the actual contracts as written, but to infer an imaginary contract, and then use this imaginary contract to determine whether a contractor is a 'disguised employee'. IF that contractor is then deemed to be a 'disguised employee' then said contractor has to pay all the taxes that an employee would pay, in addition to all the taxes the employer would pay. Thus logically one would think, well if he is the 'disguised employee', surely the agency or the client is the 'disguised employer', but no that is not the case. It is the 'disguised employee' who pays the 'disguised employers' taxes as well as his own. Thus we have a 'disguised employee' who also appears to be the 'disguised employer'. any sensible person would think he isn't actually a 'disguised employee' at all and so shouldn't be caught by IR35's imaginary contract.

    You may say, what has this to do with the original post? MOney is the answer, money in the hands of ordinary people and the need to transfer it to the Government or Banks, and, as we see in this thread, and have seen time and again, if you make the laws, you can make them so you don't have to obey them.

  • Comment number 90.

    "There was a mood of utter irrational hysteria among banks and investors at the time." And journalists as well if my memory serves me well.

  • Comment number 91.

    What is soooo frustrating is how our society is so dependant on the banking system that without it... it would collapse. It's no wonder there is a feeling of constantly being ripped off by these people and there not being any law that can really hold them accountable.

    Peoples lives have been ruined. jobs have been lost, families have broken down, crime is no doubt increasing and these bankers are given pensions and more bonuses!!

    Our society is failing people.

  • Comment number 92.

    I have been thinking about this and with hindsight, a great tool I know, surely the best actions the government could have taken at the time would have been to follow the Irish governments lead and effectively stand 100% the UK High Street banks and in effect nationalise RBS and HBOS.

    However to allow them to limp on under a massive and undisclosed financial lifejacket that without which they would have gone to the wall spectacularly and then to allow shareholders to be encouraged into putting in more money and voting on a merger that should never have been allowed to go ahead is unbelievable.

    This then leads us back to the often previously stated issue of a Scottish PM and Chancellor not allowing two Scottish banks to go under.

    As to the board of Lloyds agreeing to the deal we can all only wonder what really went on behind closed doors at that intimate private meeting at number 10.

  • Comment number 93.

    91. Atman1972


    Society is failing only to us poor fools that actually have to live in it.

    To our masters who view it from the decks of their super yachts and from the windows of their private jets, everything is turning out nicely again.

  • Comment number 94.

    dontmakeawave 85

    "So why did they take it over"?

    In my thoughts I start with what went on at that fateful evening meeting between Brown and Blank in September 08. It would be important to know who raised the subject of a takeover and whether they met by accident or by design. Was anyone else there?

    If they met by accident, then I can imagine GB scurrying back to meet Darling and telling him that there could be a deal there with Blank and Daniels and to see how it would play with the competition people in London and Brussels. "Tell them we can't have anyone upsetting the apple cart with a little thing like creating a monopoly because this deal is vital for the country". (From memory the meeting was the weekend immediately after HBOS shares went really pear shaped?)

    At the same time as Brown met Darling and the Treasury Blank and Daniels would have met with the HBOS board and with the institutional shareholders on both sides (probably the same people). Due diligence would have been high on the agenda for discussion and a plan of action to have it carried out.

    If the meeting was by design on the part of the government then it was a straightford set-up, and all the discussions on monopoly considerations would have already been done. All the key players would have had to be onside before news of the meeting was leaked

    Whichever event is true we would need to know how this happened, what meetings were held, exactly who was involved and when, and anyone carrying out an enquiry would need a copy of all the papers generated at those meetings.

    Blank and Daniels had from September to 19 January 2009 when the deal was finalised to change their minds and pull out. They didnt. History will show why that was so. Was it just bloody-mindedness? Stupidity? Vanity? Promises? Or was there some other reason why they went along with a deal that was turning more disastrous by the minute?

    On the due diligence point, were the auditors (internal and external) involved? How was it documented and who signed it off? Did anyone seek to conceal the real state of HBOS books from the buyer? Who knew in government what was lurking there, as someone must have done to agree the secret money now the subject of today's discussion. To get that much someone surely has to come forweard with at least some numbers on what was needed? Or was it all back of fag packet? Did Blank and Daniels get any idea of the toxic stuff at any date before January 19? If so, could they have pulled the plug?

    If all this was examined, in the way that the KKR takeover of RJR Nabisco was in the late 80s, then somewhere along the line things have been done that were not just on the edge of financial probity but probably over the edge into dodgy and worse. I doubt you can put the clock back (any dispute might end up at the Supreme Court....) but someone's head should roll. And Lloyds should at least get their money back for not taking part in the APS - something they shouldn't have been in in the first place.

    I have gone on a lot, but one last thing. It has always been assumed that prudent LLoyds was a strong bank broght down by a dud. It ought to be possible to do the sums on how much of the toxic stuff so far revealed was HBOS and how much was LLoyds. In other words where would they be now if the bid had not taken place?

    Major Major




  • Comment number 95.

    Post 94 an excellent summary of the cogent points re why Lloyds bought the pup that was HBOS.

    I have one suggestion as to why they didn't pull out of the deal. There is a saying that there are none as blind as those that don't want to see.

    I fear their egos, the chance to be in the biggest deal they could ever be in with or maybe even unwillingness or plain embarassment at making a u turn after having got so far could have stopped them pulling the plug.

    Sadly history is full of people who continued to blindly follow a disastrous route when common sense dicates the opposite action.

    To use an over used cliche were the Lloyds shareholders lions led by donkeys? Were they let down by the very people who were elected to the manage their company and protect their interests?

    I'm sure in due course there is a wonderful book or PhD thesis in business or economics on the subject of the lloyds TSB takeover of HBOS.

  • Comment number 96.

    # 80 Virtualsilverlady

    Why it has taken so long for Mervyn King to admit these loans ?

    Probably because it was his ineptness which was mostly to blame for the run on Northern Rock deposits.

    It was the Bank of England who was regularly telling us the system for liquidity did not need overhauling, it was the Bank of England who lost touch with the banks prior to the crisis and taken by surprise, it was the Bank of England who refused mortgage backed security from Northern Rock forcing them to overtly go to the B of E as lender of last resort, it was Mervyn King who was on the moral crusade of Banks taking responsibility for their own actions (rather than minimising the effects of the problem), giving the example of the old lady whose bank would not write of her debt as it would be a bad example to others.

    It was also the B of E who it seemed originally was favourable to guaranteeing Northern Rock's sale to lloydsTSB giving value to Northern rocks shareholders and then changed their minds

    for other who have been blaming Peston, I would suggest you re read his blogs from the time, I have just done so and despite many's perceptions it does on hindsight seem quite balanced and to be reporting on the issues rather than causing the problems. If anything he gave the case to why a run on deposits was not necessary




  • Comment number 97.

    47. At 09:23am on 25 Nov 2009, Anglophone wrote:
    There are two dimensions to this argument. The first is that the Bank of England gave covert support to boost the liquidity of two UK banks. The second is that they apparently then encouraged a third UK bank to merge with one of the ailing institutions without shareholders being aware of the scale of this liquidity problem.

    ----------
    Exactly.

  • Comment number 98.

    75. At 1:43pm on 25 Nov 2009, SSnotbanned wrote:
    On the 31st October 2009
    'Boilerplated' (and the other Mere Pseud Moderator Impersonators) ... DID NOT write;

    ''Secrecy:King knows Best-Wink''

    Wasn't it the case, at that time, that other Central Banking institutions were also keeping their cards close to their chest, like Mr. King ??
    ---------
    Given the price fluctuations of HBOS shares at this time, someone knew, and I imagine made a lot of Money out of it. Ought we to be investigating that too?

  • Comment number 99.

    Not quite sure why people think Alistair Darling is Scottish. He was born in London, England.

  • Comment number 100.

    99. At 4:53pm on 25 Nov 2009, Niall Murdoch wrote:
    Not quite sure why people think Alistair Darling is Scottish. He was born in London, England.
    -
    Born in London, Scottish roots, education and parliamentary seat.

 

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