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Why do we trust the financial priests?

Robert Peston | 07:00 UK time, Saturday, 9 January 2010

The Icelanders have risen up and humiliated their political class over its handling of the financial crisis, as I mentioned on Thursday.

But there's nothing terribly unusual about their sense of powerlessness and alienation from the writing of the rules of the banking and finance game.

Canary Wharf

When it comes to how banks are allowed to behave, sovereignty over decision-making rarely rests with citizens.

Did anyone actually ask us whether we wanted our banks rescued to the tune of £1.2 trillion during and after the crisis of 2008?

If they had, we might have said no.

So perhaps it's a good thing that politicians and central bankers simply did what they thought was best for us, without consulting - because if the banks had gone down, the contraction in our economy would have been far far worse than it turned out to be.

Better to leave it to the experts, eh?

But hang on a tick: who actually got us into this mess in the first place?

It wasn't the fault of ordinary citizens like you and me.

It was those self-proclaimed experts who allowed our banks to become too huge, too complicated, too addicted to taking crazy risks, and too poorly endowed with life-preserving capital.

We trusted the Treasury, the Financial Services Authority and the Bank of England to make the right decisions about the structure and stewardship of our banking industry - and they got it spectacularly wrong.

That's representative democracy - but actually normal representative democracy doesn't really operate in this sphere,

How so? Well, most of our elected representatives - including ministers - understand less about banking and finance than even those who actually ran the banks.

So, little did we know, we have been delegating most of the really important decisions about all this to a financial priesthood: faceless, unelected, unaccountable technocrats who make up a committee that meets in the picture-postcard Swiss town of Basel - what's known as the Basel Committee on banking supervision.

These financial priests let us down too.

The rules they imposed on banks that were intended to limit dangerous risk-taking actually had the effect of encouraging banks to behave imprudently.

Their rules made the financial system more fragile, not less.

Here's the funny thing. Although we as taxpayers have come to the rescue of the financial system on an unprecedented scale, we're allowing those aloof financial priests to design the new system.

It's true that ministers have published policy papers on the structure of regulation and the method for limiting the contagion when a bank gets into difficulties.

And the Tories have proposed that the Bank of England should have much more power to police banks.

As for the Basel Committee, it has set out plans to revise and rehabilitate its own flawed rules for the banking industry (and this weekend, the Basel Committee's host, the Bank for International Settlements - known as the central bankers' central bank - will warn commercial bankers that they may already be taking silly risks again).

But none of this represents a proper public debate on the big questions that matter, such as:

• whether there should be a limit on the size of banks;
• whether those banks that take our deposits and lend to business, and will always be supported by taxpayers because of their importance to the economy, should be prohibited from engaging in certain kinds of more speculative business; or
• whether our economy is excessively dependent on the City.

Since we've picked up an enormous bill for the banks' recklessness and fecklessness, you might think we should be having a proper say over what kind of banks we want, for our money.


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  • Comment number 1.

    Taxpayers haven't rescued the financial system and most of them are as implicated in its stupidity as any banker.

    The fundamental flaws are still unresolved and most of the debts remain unpaid. The next generation will pick up the tab, just like 'developing' nations did for the last one...

  • Comment number 2.

    "whether our economy is excessively dependent on the City"

    If we follow this to it's logical conclusion and all became Bankers because the rewards are higher, the economy would obviously implode because Banks are dependent on the 'real' economy just as much as the 'real' economy is dependent on Banks.

    It's pretty clear therefore that society ought to be asking itself how the rewards of Banking can be so far out of step with productive segments of the economy. Having met people on both sides of the fence it certainly isn't because of a radical difference in intelligence, so I have to wonder if the real "secret" to Banking isn't that they've managed to establish a form of anti-competitve closed shop whilst all the time preaching the virtue of competition.

    That, in my opinion, is what our elected leaders out to be working hard to address. Forget legislation about Bankers bonuses. Instead lets lower the barriers to entry. I think this supposes we remove the nice, solid name "Bank" from anyone engaging in bond, currency etc. speculation so a seperation of the mega Banks seems in order, and I can see a solid case for removing limited liability from speculators so they really feel the pain if the foul up, just as Names would in the (related) Insurance markets.

    I do however agree that expecting our current batch of career politicians to be up to the task is unrealistic, so my forecast is the current closed shop of Bankers will continue to protect their closed shop, nothing will happen, and my pension fund will fail to match the rate of growth in the managers remuneration.

    Oh, and my final prediction is the system hasn't been fixed so it's only a matter of time before it collapses again, and quite possibly in even more spectacular fashion.

  • Comment number 3.

    "Why do we trust the financial priests?" As an electorate I strongly suspect that "we" most certainly don't. However, given that "we" have little option other than to rely on those we elect to govern to act on our behalf then the question clarifies to "why does the government trust the financial priests" or perhaps even "why does the Labour party..." or even "why does Gordon Brown...". Surely by now both the general tone and the specific content of many (most, more likely) of the postings on this and other blogs make it abundantly clear that "we" are at best disenchanted with the entire current process of governance in general and the regulation of the finance industry in particular. "We" have no alternative to "trusting" because given the way our "democracy" seems to work (certainly at the moment) the only other option would appear to be armed insurrection. Others have suggested in other threads mass demonstration, but much as I sympathise with their reasoning and their goals the track record of demonstration actually achieving its intended outcome is poor indeed; the only one that springs to mind is the poll tax debacle of the Thatcher era. All the others finish up with genuine demonstrators being at best completely ignored or at worst having their heads cracked by over enthusiatic policing.

    And yet U14252332 in #1 has a point; we "are as implicated in its stupidity as any banker". However I suspect that our collusion with the finance industry was based on optimistic ignorance rather than anyting more sinister. For myself I have little sympathy with those who stretched their finances beyond their elastic limit. That was and still is plainly stupid, yet given all the crowing about "growth" it was perhaps explicable if not entirely understandable. The finance industry and its practitioners spent so long being deified by the Great Leader that they probably started to believe it, and no one bothered to notice that the much vaunted "growth" was in fact cancerous.

    This morning's R4 news included the snippet that bankers will increase their bonus pools to cover the additional tax levied on them. I doubt if that approach will be universally lauded, but I expect no effective response from any quarter; lynching is unfortunately illegal. I was always of the view that Sir Fred Goodwin should have opened his post one morning and found that from that day forward he was Mr Fred Goodwin; why he was not stripped of his knighthood remains a mystery to me to this day. Had that happened then bankers might just have realised they were not untouchable; remember the saying "pour encouragez les autres". Similarly Messrs Hornby and Applegarth appear to have escaped unscathed.

    We trust because "we" have no alternative; we trust our doctors to cure us (again not always successfully) and we trust our garages to service our cars properly. We trust our butchers not to sell us contaminated meat, and just occasionally that trust is misplaced... and so on. At least in those cases the possibility of redress exists.

    Until the Great Leader and his spineless sycophants realise the extent of the damage they have either caused or allowed others to cause we are, frankly, stuffed.

    I wish I hadn't typed all this; I think I have just spoilt my own day.

  • Comment number 4.

    presumed consent they will say that we aren't interested in politics and don't listen so they make the decisions but what can we do? It's all work work work. As if I don't want what is necessary to sustain my lifestyle. If we lived in a world where people were reasonable and rather than demanding and assertive it might be possible to make some progress but well I did work experience in a bank years ago and there were goings on that made me uncomfortable and while I would have liked to do the job and did perfectly well as a cashier I could see even back then the potential for blame, arguments and recriminations if people don't try and get to you one way they will try another. I wouldn't be in the situation I am in if I could get people to help me out a bit.

  • Comment number 5.

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

  • Comment number 6.

    They were really nice people and so easy to get on with!

  • Comment number 7.

    You can't have free markets without market corrections. In a true free market economy, those banks should have been allowed to fail. Yes savers deposits would have gone down with them (including my own), but we would have had revolution and all these questions would have been answered by the people and not by these inept bureaucrats, elected or otherwise.

    The only reason why the banks were bailed out was to avoid this situation. It's purely a power conserving policy by the ruling classes. Nothing more, nothing less. We should collectively act as a people and start this revolution ourselves. I'd rather we just picked up arms and marched on Westminster. But given the general apathetic nature of the British people, abstaining from voting at the next general election will send a clear and loud message to the ruling classes that we're no longer participating in this fake game called democracy. Who's with me???

  • Comment number 8.

    "It wasn't the fault of ordinary citizens like you and me."

    Hold on a minute Robert, you do yourself a disservice.

    We are mere mortals. You, on the other hand...

  • Comment number 9.

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

  • Comment number 10.

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

  • Comment number 11.

  • Comment number 12.

    don't want revolution don't even need revolution or unrest. What we want is no injury to self or others while we go about our business. There is nothing wrong with government or our institutions if they are handled rightly. At the moment people seem to be encouraging each othet to take things too far over the top and inevitably people get hurt. If you don't want to do the right things nobody can do anything about it.

    If people want war that is their problem they decided of thier own will to do it you can't stop a tank you get out of it's way until it runs out of steam and if we are expected to do something about other people's goofs I think that is not reasonable. I can't troubleshoot other people's problems if people have got guns that can shoot bullets then let them shoot and it's up to them. They insist on it because everyone else is has anyone persuaded them that it's not good for them?

  • Comment number 13.

    Why do we trust our financial priests ?

    We don't trust them. It is our elected politicians, on all sides, who trust them and, as you pointed out Robert, they trust them because they do not understand what they are doing.

    We, on the other hand, do not trust our elected politicians but the choice given to us at any election in this country will not allow ordinary people to vote for something that will cause any change.

    It is Catch 22. We know it, the policians know it and the financial priests know it and only something massive will change the status quo.

    The brits will not revolt so we have to wait for the meltdown and as you can see from this blog people are not happy about it but know they know it's coming

  • Comment number 14.

    Anyone over fifty will probably tell you that the real madness in all these financial dealings is the price of housing in this country.

    Anyone who works on a percentage commission and the banks of course, love the the fact that there is a dishonestly created housing shortage.

    How many times have politicians promised us affordable housing, which, as we know, has never seen the light of day.

    Young People have been shouldered with so much debt just to have a roof over there head, their quality of life is almost zero.

    Something is valuable when there is a natural shortage, like precious stones or metals (or honest politicians !)

    But housing ? No a housing shortage is a criminal act, we have the builders, we have the money ( we gave trillions to the banks) all we need is the courage to tackle the crooks who are forcing our children to be slaves to debt.

    None of us really know whats going on in high finance, but if we can sort out the ground level basics, our young people will have a chance in the future.

    The banks took the wrong road, it was the road to ruin, unfortunately they seem quite happy to take us down that road again.

  • Comment number 15.

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

  • Comment number 16.

    "It wasn't the fault of ordinary citizens like you and me"

    Who took out the 100% mortgages?
    Who participated in the buy to let boom?
    Whose pension funds demanded ever higher returns?

    Robert, we all played a part in this crisis - it's too easy and lazy just to blame politicians and bankers.

  • Comment number 17.

    Radiowonk: You might have depressed yourself, but you gave me a laugh!

    Robert: Ok, so you point out a flaw. But whats to be done? The trouble is, everyone can pick out flaws in a system. What we need is CHANGE in the system. We need change in the political system too.

    Its only now, that the British public have started to wake up the the facts. We are NOT living in a real "democracy", because the interests of specific power brokers is put ahead of the interests of the general population. Most people know this, but we've been duped into the image of our system being "better".

    Its basically the same issue over and over. Someone with lots of money wants to do something, so they go ahead and buy the right people and get on with it. I've seen this first hand with the legal system, but if you look at any market you'll see the same pattern. Take supermarkets, they have vast power over our daily lives and yet the food they sell us is often incredibly bad for us. There are plenty of sources that talk about how large food producers are using lots of very dodgy practices and yet there appears to be no political will to stop them. See "Food Inc" for an example.

    The only viable alternative I can see to this, is to start re-forming our own communities. Basically, decide not to participate in this system, form our own banks (in the form of credit unions), form our own supermarkets (in the form of communal farms), generally reduce the scale of our existance a bit so we arent as dependant on the large corporations for our continued existance.

    Anyone for a kibbutz?

  • Comment number 18.

    So they don't want us to be party to their decision-making.
    What a surprise. Not
    What a huge surprise. Not
    More fool us for letting them get it wrong again.
    "This old house.........."

    #16 you are wrong
    Us = don't know, (and never will or the whole system won't work. as in flummery and magic!)

    Them = don't know, but do it anyway.
    Sociopaths one and all.
    Politicians and bankers, all from the same genepool!

  • Comment number 19.

    Many people are expecting a hung parliament. Being a fairly humane sort of chap I would settle for lethal injection.

  • Comment number 20.

    #1 U14252332 I love the use of the word 'them' and not 'us'... how clever you are!!!

    Unfortunately I have learnt something from this last debacle Robert... and that is that I’m jumping on the next band-wagon as soon as it comes along

    I’m going to end up paying to clear the mess up whether I’m a part of it or not... so I might as well be a part of it and get myself ahead!

  • Comment number 21.

    Problem is not supermarkets they give the benefit of protection from seasonal variations in the weather. That is why we invented them because we had a problem to overcome. So they do the food while we do the money and everyone does their job and we get on.

    It doesn't matter what kind of community you form there is always going to be people who are dissatisfied and people who complain and people who have got a problem all you can do is set a post in the ground draw a line in the sand and say this is it after all in the real world there are actually limits to what can be done safely.

  • Comment number 22.


    You peddle the myth that "it would have been worse if we had allowed the banks to collapse". I disagree.

    1. We may have only deferred the collapse.

    2. We are up to our neck in debt.

    3. The bankers have got even richer but haven't put their house in order.

    4. We will be the last of the major economies to come out of recession.

    5. Why was it OK for you to play your part in the collapse of Northern Rock (financial stability is all an illusion and is based on confidence - your reporting eroded that confidence)?

  • Comment number 23.

    > When it comes to how banks are allowed to behave,
    > sovereignty over decision-making rarely rests
    > with citizens.

    That's the heart of the matter. Like other essentials
    (the protection of democracy, the military, etc.),
    banking must be controlled by the constitution.

    We wouldn't let our defence system be handled by
    a cabal of money-grubbing suits in London. And
    we (like Iceland) have learned that we also can't
    allow our financial system to be run by a bunch of
    socially useless, self-obsessed cronies.

    It's the first glimpse of light at the end of
    the tunnel. As soon as we've made the banks
    too small to give a hoot about, and bound
    what remains of them in constitutional chains,
    we can begin to have some confidence in the future.

  • Comment number 24.

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

  • Comment number 25.

    Thank you Robert for raising these questions on a national level in the mainstream media. Please keep raising them and keep on exposing the extraordinary mad state of affairs in global financial services. A small financial elite (a few ten thousand persons worldwide) enrich themselves in obscene ways. The vast majority of politicans turn either a blind eye or simply have no idea of what really goes on in the global financial system or they do not understand the cancerous longterm consequences for their own national economies. One of the real experts who has exposed some of the consequences of the current mad state of affairs in the global financial system is Nobel Laureate Prof Joseph Stiglitz. I would encourage the readers of this blog to read his publications and articles.
    Further arguments and more detailed information can be found on the following web site:

  • Comment number 26.

    I don't trust them. Never have, never will...

    Trouble is, there's not a lot I can do about it: I'm stuck with those "financial priests" whether I like it or not...

  • Comment number 27.

    Matt Durbin @ 16:
    "Who took out the 100% mortgages?" Yes: "we" did. But a sane banking system would have said "you cannot afford this and we are not going to lend you the money". In so doing it would have protected both aspirant borrower and itself from exposure to too high a level of risk.
    "Who participated in the buy to let boom?" Yes: "we" did; see above.
    "Whose pension funds demanded ever higher returns?" Less than clear this one; until defined benefit schemes more or less collapsed everything was ticking along nicely. And then we must not forget that the Great Leader (in his previous incarnation as Great Pretender) played a large part in that collapse by grabbing a large parts of the returns to fund his own grubby spending ambitions.

    "Robert, we all played a part in this crisis - it's too easy and lazy just to blame politicians and bankers." I think many people *may* have realised that their own actions were not beyond reproach and are trying to clear debt as a result. However bankers and politicians do not seem to have accepted that they have much to answer for, and they appear to be carrying on much as normal.

    zoombapup @ 17
    "We are NOT living in a real "democracy", because the interests of specific power brokers is put ahead of the interests of the general population." "Of the people" appears to be alive and well but "by the people" is looking a bit sickly and "for the people" appears beyond life support. I have long thought that many decisions made by politicians can only be explained by their having picked up a ringing telephone only to hear a rather threatening voice saying "Remember we still have those photographs."

    Above all it must be remembered that whatever hand wringing may be going on now governments in general (and I would suggest the Great Pretender / Leader in particular) had and have a vested interest in people spending money whether they've actually got it or not. Virtually every spend results in the Treasury cash registers going "ching" which in turn means that there is more money for ill - considered spending. This is called "growth". Of course to keep the illusion in place spending is called "investment"; British companies being bought by foreigners (beastly or otherwise!) is called "inward investment". Doubtless there are other examples of such rubbish.

    Yes "we" are perhaps as much to blame for our current predicament as the bankers and politicians, but only in the sense that we have allowed ourselves to be conned; those who perpetrate the confidence trick must bear the greater responsibility.

    Our biggest mistake was allowing ourselves to be conned time and time again. I live in hope that we will not do it again in the next few months. But then I suppose we'll be up against a different set of photographs...

  • Comment number 28.

    Our economy is far, far too dependent on financial services,and has been for two decades. Brown gives the figure at 8.2%, but this is ludicrously low: none of the other numbers work for the economy at that level. I think it highlylikely the statistic is nearer 35%.

    Basically, we deregulated and demutualised too much of banking,and gave everyone with a bank account(and those at a senior level in the banks) the motive of greed to carry it out to the letter. The salaries then available far outstripped anything manufacturing or farming could offer...and the rest is history, not mystery.
    This is Peston on top form for once, but the received wisdom about 'we had to bail them out,otherwise...' requires stiffer examination: the system is a crock - to let it fall would've produced greater pain but a better future. As it is,nobody went to jail and nobody got fired - so a year on,the insanity continues.
    The point about Iclandic truculence is well-made, but it's very easy to man the barricades when not to do so will leave you broke. Like it or not,this is a Sovereign default big-time, and there will be more of it.
    Very good posting on this at wry commentary at

  • Comment number 29.

    Heres a quote from Peter Stufford's book 'The Merchant in Mediaval Europe'

    Bank accounts were quite clearly part of the money supply by the end of the 'long thirteenth century' and legislation was introduced to protect those who used them. In Venice a guarantee of 3,000 lire was required in 1270 before a moneychanger banker was allowed to set up in business. In Barcelona, from 1300, book entries by credit transfer legally ranked equally with original deposits among the liabilities of bankers. Those who failed were forbidden ever to keep a bank again, and were to be detained on bread and water until all their account holders were satisfied in full. In 1321 the legislation there was greatly increased in severity. Bankers who failed and did not settle up in full within a year were to be beheaded and their property sold for the satisfaction of their account holders. This was actually enforced. Francesch Castello was beheaded in front of his bank in 1360.

    Happy days

  • Comment number 30.

    I think it was very obvious to most thinking people that back in the 1980's we were setting out on a very questionable path as far as banking was concerned. By shifting our economy from a manufacturing to a service base we opened ourselves up to this illusory and fragile economy. And I think anyone with half a brain would have been able to predict where this was going to end up. Throughout the noughties I was waiting and expecting an economic bust, as it was so obvious to me (the man in the street) that our economic boom was based on pure illusion. Two things I think are the main culprit: Allowing the selling of debt, and allowing the huge bonuses. Together these two things contributed more than anything to the mess we are in. The option lenders have of selling a debt coupled with huge incentive bonuses for bankers meant that credit was almost forced on people. Why we ran off to the never never land of credit is something I cannot quite understand of a nation that brought so much in the way of scientific and technological development in previous years. And although I am quite sure there will be many out there who do not agree with me, I blame Margaret Thatcher for it all.

  • Comment number 31.

    #29 Apologies. That should be 'Peter Spufford'

  • Comment number 32.

    #7 OffToOz - Good point. I agree with you about the banks being bailed out to preserve the power structure. Its really quite an insult to us isn't it? We are given the bill of holding up this unfair system. However, these ruling classes now find themselves in an awkward position. If they carry on as before, then the system will collapse again, and surely that will definately lead to unrest. But they don't want to change it because they don't want to loose their crowns. Either way it looks like the next few years are all they have left to sit on their purch.

  • Comment number 33.

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

  • Comment number 34.

    "Heres a quote from Peter Stufford's book 'The Merchant in Mediaval Europe'"

    It's Peter Spufford.

    "Power and Profit: The Merchant in Medieval Europe"
    It sells for about a tenner on Amazon.

  • Comment number 35.

    Democratic deficit? Of course. I have a first degree in economics and m therefore somewhat more literate in these matters than much of Joe Public. One cannot have a referendum and only allow those with appropriate qualifications to vote. I am proud to live in a country where it is strictly "one man one vote".

    So, O wise fellow contibutors to this blog, how on earth do you frame questions such that Joe Public can understand the central issues and cast a meaningful vote on the way forward. All he does understand at the moment is that a lot of highly paid people have let him down badly and his (understandable but irrelevant) reaction is to cut their pay.

    I would like to see Joe Public cast a binding vote on the matter. We have one of the most sophisticated electorates in the world. But I am utterly bewildered as to how you can fairly put understandable, unbiased questions to Joe for him / her to cast a meaningful vote.

  • Comment number 36.

    Mr Peston enjoys the luxury of saying the most priceless things without having to deal with the reaction.
    Yes, a referendum would have rejected State injection of funds and you shudder at the thought. But remember there were Banks that did not need it and could have carried the flag to some degree. Your conclusions do not make sense. You then raise the matter of who was responsible anyway, the implication, you may not have noticed, being that they were the ones deciding on the bail out. All in all it is a mish mash and for GB - I have serious trouble in acknowledging him as a Prime Minister or an Exchequer for that matter - to parade around usurping taxpayers funds to the extent that they are in hoc for decades and to boast of his indespensibilty, is dispepsic in the extreme. This man is truly unhealthy for Britain.
    Massive debt is our problem and we have simply done nothing about it. GB has watched it grow and nore than that multiply. He has no other philosophy. We are heading for an even greater economic calamity if it goes unchecked. Make no mistake.
    Yes, Mr Peston, we are but simple folk but we do know this much. That debt is what happens when goods are acquired long before the work has been put in to earn the funds to buy them. The answer does not lie in driving the borrower into greater debt. The art of responsible lending has failed miserably over the decades and this must be a priority for any financial system. Instead of puerile arguments about bonuses and other supposed rewards, it is for the Government now, as a start, to enter in on those state aided banks and strip out root and branch all those (and there were many) who have engaged in toxic lending on the front line right up to chief executives.
    Thats just for starters. I could go on and so could we all.
    What a mess!

  • Comment number 37.

    Are you snowed in Robert?

    It sounds as though you have actually been reading peoples comments for once. You are finally voicing the concerns that most of us seem to have expressed here about the lack of any real change in banking and finance practices and the fact that the big questions you raise at the end are not being addressed.

    Although posters here have opposing views, and I certainly dont pretend to have the answers, I'm sure everyone agrees that rather than just patching our economy up and sending it off down the same path we need to look at making some real changes now to avoid future instabilities

    Why then are no fundamental changes even being considered?

    Please devote more of your time to raising these larger issues in future Robert ; maybe if enough journalists ask these questions publicly prior to a general election the political classes will have to actually address them

  • Comment number 38.

    Well, congratulation Mr Preston, you have finally joined our club!
    It was about time, if you don't mind me saying so.

    Democracy is rather imperfect system, which does not fully respect the individual as 51% can overrule the other half of 49% of the voters. But representative democracy is is one big SHAMBLE. It's no better than totalitarian regime as no matter who gets voted in, their voice could be bought and influenced to serve the financial class.

    And please, can we stop behaving like sheep. You said it yourself - "Basel Committee's host, the Bank for International Settlements - known as the central bankers' central bank". The Basel committee represents the interests on the very top class. Do you really hope that they will chop the arm that feeds them?

  • Comment number 39.

    16 Matt Durbin

    "Robert, we all played a part in this crisis - it's too easy and lazy just to blame politicians and bankers."

    I agree many took out obscene amounts of debt and that was irresponsible and foolish. But in a previous era, bank 'managers' used to 'manage' debt and they made damned sure only people with a large deposit and good credit history got a mortgage - and that was limited to 3 x salary.

    The current boom was only possible due to the excess credit in the system (the responsibility of politicians) and the loose lending practises of banks (whose own risk managers were shouting at them to stop).

    I am not absolving people for taking out these loans but people at the sub-prime end of the market typically have less understanding of debt and economic principles (with 20-20 hindsight the govt is addressing that one in a, uh, timely fashion...)

    And lets face it, the banks knew exactly what they were doing offerng 125% self-certified mortgages. I mean, who needs a self-certified mortgage? If you've got the documentation to prove income why would you want to keep that proof from the bank and opt instead for a more expensive self-certifying mortgage?

    The banks knew people taking these loans were lying. The people taking these loans knew they were lying. Both hoped to flip the liability on before it bit them. But the bank managers were being paid to protect the finances of their investors and they flagrantly ignored those in the interest of a quick buck.

  • Comment number 40.

    I'd love to become a banker, but, unfortunately, I'm just plain too stupid to (and too old). I remember, when I was a student we used to sing a song: "Live should be as a gift from them who know and have to them who don't" We lost a bit of this spirit. The song, when you think about it, is undemocratic (A kitchen maiden should be able to govern the country - now the citation?*) but so is our life. There is no avoiding technocratic government in a national state entering a competition of national states. As a democracy we might have forgiven/written down all the debts of some small countries or invaded them with this purely democratic mood swing. As a technocracy we probably were doing more or less the right thing. The problem with technocrats is that they tend to develop structures which benefit them most. To live bankers alone for a second, you can take lawyers, teachers or physicians. In a developed and reasonably big society there'll always be this twist benefiting technocrats, the problem is that when the rules of the competition between them go wild they got no chance of second thought. A thought of balancing the system as a whole. It is their responsibility as well as mine and yours and the more is their the more they know about a state of the system. But it is their responsibility to inform (there, I guess, is another group of technocrats involved) the public about the general course of the ship. If you neglect this premise what you end up is 20 crew and 5000 of drunk public and stewards - how safe is this when the storm is nigh? People believe in their dignity, and one of the pillars of their dignity is understanding the world around them. If you steal this feeling from them they would fight for the second best - respect. At the end of the day: You who Have and Know; what do you prefer?

  • Comment number 41.

    37 bowboy75

    good comment - and while we're at it, how about some journalists asking some really hard questions? Come back Paxman!

  • Comment number 42.

    In the interests of helping any debates can I put the governments financial situation in as easily understanable way as possible.

    Lesson one

    THE GOVERNMENT DEFECIT of 180 billion (everybody has heard of it)

    Currently in one year the government spends 630 billion
    Currently in one year the government receives 450 billion in taxes

    Hence the defecit of 180 billion

    The government is SPENDING 180 billion pounds more than it is receiving in taxes THIS YEAR alone

    NEXT YEAR it predicts it will have to spend 175 billion more

    The DEFECIT then becomes the amount of money the government has to borrow in THIS YEAR.

    In order that it can do this it has to borrow 180 billion this year and another 175 billion next year.

    I apologise profusely to those people on this blog who understand what I am talking about. I just want to put things into perspective for those who don't quite understand.

  • Comment number 43.

    Lesson 2

    TOTAL GOVERNMENT BORROWING of 850 billion (last time it was mentioned)

    This is the TOTAL amount of money that the government owes. It is NOT the amount it is borrowing this year but the TOTAL amount when its adds everything up.

    It is true that this TOTAL is not that bad compared to other countries but due to the size of the DEFECIT each year it is growing much quicker than everybody elses.

    Currently because of the deficit this year the total borrowing is set to go up by 180 Billion to 1030 Billion THIS YEAR

    and then by a further 175 Billion to 1205 billion NEXT YEAR.

    As a footnote the government does not include in its borrowings the public sector pension commitments of around 1000 billion.

    If it was a limited company, by law, it would have to include this amount in its total borrowings.

  • Comment number 44.

    Life makes so much more sense when you start from the premise that the government is trying to bring down the average working person.

    If you start from the premise that the government is trying to help the average person in the street nothing makes sense for very long.

    So the obvious question is why they want to do that. A little thought and looking into what the current government is doing should make it all clear.

  • Comment number 45.


    True Grit!

    A very succint analysis - but how is it that we don't hear any of the political parties putting forward concrete plans to remedy ANY of this?


    41. At 11:29am on 09 Jan 2010, ArnoldThePenguin wrote:

    37 bowboy75

    good comment - and while we're at it, how about some journalists asking some really hard questions? Come back Paxman!


    I think that J Paxman has either gone soft and/or has been gagged by BBC bosses - he's missed two or three good opportunities to challenge the Darling/Byrne/Mandelson spin machine on Newsnight this week and has failed every time.


    The Opposition parties are very weak and very quiet at the moment and perhaps this National Road salt shortage is a Labour party master plan to prevent opposition MP's from driving out of their side roads in their rural constituencies?

    Are we going to see any real substance in their party political manifestoes to address these issues? - I doubt it.

    How much is this 'No-Grit' policy and attitude going to cost the country in terms of lost education and business, personal injury claims etc.

    A classic example of how a trivial government incompetent over-sight in basic resource planning can translate into a Natonal economic catastrophe - what do you expect from:



    This kind of incompetence has already led to the UK banking crisis being the worst on the planet, in relative terms. Thanks a bunch - Goondog Trillionaire.

    Since these incompetent negative agenda goons are incapable of keeping the national road system, schools, hospitals properly gritted in winter and are a national disgrace and in an ideal world would be 'sacked'- How on earth can these sleazing incompetents and their peers be expected to properly 'over-see' a banking system.

    As you say - most of our politicians (but not all) are just not up to the job - the greedy bankers are entrenched and as I've said before, the only way to deal with them, in real time, is to smash them up into little pieces and create new smaller customer friendly British focussed banks who reward loyalty of British customers and therby create fierce competition for our business and savings - that will make them think twice before paying obscenely high bonuses.

    British banks for British customers!

    We also need 'True Grit' from our politicians and public sector whimps.

  • Comment number 46.

    Good post as always Robert. However, you missed out one other "guilty party" that was asleep on the watch: The ratings agencies. All of them were giving top marks to banks while they were building up toxic debt, which is exactly the kind of thing that they're being paid to spot.

  • Comment number 47.

    The notion that ordinary people had nothing to do with precipitating the financial crisis is deeply flawed. The banks (more accurately the financial services and property industry) were culpable on two counts. Firstly by creating securitised derivative vehicles that were far too clever for their own good and secondly giving ordinary people what they wanted, the first being the means by which they did it, the second including rubber stamping any silly valuation that some idiot was prepared to offer for a property. They were encouraged to facilitate the credit orgy that was the noughties by both politicians and the media, including the BBC (who spent millions of public pounds on creating lifestyle programs that left ordinary people in no doubt that they were social misfits if there domestic arrangements were not based on owner occupation). The real villain of the crisis was in fact property greed but as almost everyone in the UK is guilty of that, particularly the political classes (witness the MP's and Lord's expenses scandal, almost all of which revolved around using the public purse to fund their own property greed) it has been more convenient for politicians and the media to use the bankers as scape goats. Ordinary people have been only too happy to go along with this line.

    Were this witch hunt to actually be successful we would really have a problem. Without some very creative and well calculated risk taking going forward there is little hope that pension funds will be able to meet their obligations in the future. Just imagine what that would mean.

    Mr Peston enjoys apportioning blame for the financial crisis. Try this: The financial services sector, estate agents and valuation surveyors (for being too clever and too willing to give ordinary people what they wanted) 25%. Politicians (for encouraging the financial services and property industries, and ordinary people, and failing to regulate valuation surveyors) 25%. The media (for making property greed a part of British culture) 25%. Ordinary people (for indulging in property greed to an obviously unsustainable level) 25%.

  • Comment number 48.

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

  • Comment number 49.

    A proper public debate on the bailout of banks? How much did the government give the banks on our behalf? The £1.2 trillion mentioned is a world record of nearly £20,000 for each person in the UK. We were hugely generous.

    It's worth emphasising that governments are elected to steward nation's purses in the global economy. But whatever governments say in their territories goes, apart from Iceland? They even have the power to scrap their responsibilities for good stewardship and act recklessly.

    There are big differences around the world in how governments interpret their remits, with little likelihood of standardisation.

  • Comment number 50.

    Great post Robert...your best to date!

    Keep posting

  • Comment number 51.

    trust no one son
    check your facts
    balance your accounts
    banks will pressure you with charge disproportionate charges
    but it was deemed not legal by the Ministry of Justice, Supreme Court that the High Court and Fair Trading Commission (FTC) determined Bank Charges were NOT fair i.e. UNFAIR and ILLEGAL... Pah Even if legal it is immoral and repugnant by my standards

    Pent House Strictly 4 Tha Strip Joint
    (*)=dat piff (free mixtape)

  • Comment number 52.

    47. At 12:07pm on 09 Jan 2010, Francis power wrote:
    Ordinary people (for indulging in property greed to an obviously unsustainable level) 25%.

    I didn't buy into that. I've always lived in rented accommodation. What is MY fault then? But in democracy the individual don't matter, so I'm also paying for other people's mess.

  • Comment number 53.

    47. At 12:07pm on 09 Jan 2010, Francis power wrote:

    The notion that ordinary people had nothing to do with precipitating the financial crisis is deeply flawed.


    No one forces a bank to lend on any single mortgage/loan - they make every one of these decisions themselves.

    What has done most damage is the banks relaxing re-mortgage rules which allowed millions of debtors to increase their mortgage debt to buy 2nd properties, boats, cars, plasma TV's and holidays etc and the government stood by and watched and said nothing.

    Most ordinary mortgage holders were approched by banks to remortage and are expected to and can reasonably assume that if a bank offers them a new mortgage and has failed to ask how the re-mortage monies are to be spent (e.g. not on house improvements extension etc) then it must be OK.

    These are the facts and you have a good point about estate agents and valuers!

    Apportioning blame and calling ordinary borrowers greedy for wanting a better life style is a bit rich I think - look at the greedy sleazing bank vulture bonuses and negative agenda government for criminal intent

  • Comment number 54.

    Lesson 3

    THE BUDGET every March

    In olden days (ie 2 years ago) the government had a budget every March where it would lay down spending increases or cuts, it wished to make, along with tax rises or cuts.

    The purpose of this budget was to balance the amount of money it spent with the amount of money it raised in taxes.

    Some years because of prudence or boom times it would actually raise more in taxes than it spent (this was known as a SURPLUS) and the surplus would be used to reduce the TOTAL government debt (see lesson 2)

    Basically the government would attempt to balance each year the amount of money it spent with the amount of money it received. If the government wanted to spend more money then it would increase taxes in order to do so.

    Given the old boom and bust scenario the government would tend to work on the maxim:

    During boom times you actually take more in taxes than you spend, so that when you had the bust times, that you would have some money left over to cover the increased costs that happened ie increased social security costs.


    If they got it a bit wrong they would either have to borrow a bit or would reduce borrowings a bit.

    In the past the large borrowings were created by borrowing in order to build Hospitals / Schools / Power stations / roads etc

  • Comment number 55.

    The usual pile of rubbish Robert? Why not a public discussion about if public should pay people like you, totally self-indulgent, for no other purpose than boosting their ego?
    Interestingly enough all this was the fault of the horrible bankers and people like you or the public were the poor hart basically people were too stupid to realise that borrowing more than the can afford was a bad idea, ah temptation...but at the same time now we should ask these very same “stupid” people what we need to do now? Tell you what will be the answer...bring back the cheap bubble next!

  • Comment number 56.

    God save us from economists especially those who boast exemplary status in the professions. Where have these boffins been all these degenerative years, then?

    I too am an economist but have long set theory aside in favour of realism and have been screaming in the wind for years but the louder you scream the more they lend. Let us not forget that bankers' figures had been deliberately hidden for years until a leak blew in the edifice. It is too much to even hope that all bad news is out. Better minds than mine know this for a fact and we glibly talk of recovery when we should be talking of repair. We are at this time buried in a political quagmire of small men from which the most important decisions affecting the short to long future of this nation emerge. I agree that journalists and commentators who set themself up as the nations watch dogs must do their utmost with strongest voice to ensure these decisions at this late hour are truly sound. Its not the time to be mealy mouthed There are people hurting out there to a degree that none of us have as yet.

  • Comment number 57.

    Robert, I'd question the idea that banking is so difficult to understand that only an elite priesthood can figure it out in remote mountain retreats. This is one of the big tricks played on us by the snake-oil salesmen running the show. I include politicians as partners in the confidence trick. For example we've been fed the line for the last 12 years that Gordon Brown is some sort of financial genius but, as you say, look at the mess we're in!

    Whatever it takes to understand financial systems, it has become patently obvious that the mumbo jumbo in which it is wrapped is there to conceal facts from all but the priests. A very old trick.

    The question of how much debt there is is one of those questions. It is a question asked repeatedly but never answered. How come? The unwinding of assets and liabilities (if I am using the correct jargon) can't be so difficult to calculate, but it remains a mystery as impenetrable as the mystery of the beginning of the Universe. Why?

    The three questions you put forward at the end of your blog are essential ones for general debate, but we should also ask for a very bright light to be shone on this debt burden we are supposedly crippled by. Where are the records? Not knowing the extent of the debt that the banks are in is the one fact that makes us totally powerless to remedy the system. It makes me wonder if there really is any liability out there, or are we just holding a raided pyramid scheme? In which case shouldn't there be a few geniuses keeping Mr Madoff company?

  • Comment number 58.

    Dear Mr Peston
    I find your articles quite unbalanced in general.
    You seem to be riding the wave of general hatred towards bankers as any politician looking for re-election would do. No objectivity, no deep reflection on how the UK got into this. Do you ever wonder why other European nations didn't get into this so badly? Don't they have bankers?
    And do you think, say, an Italian banker is less "greedy" than a British one? No. This is not the case. It is the British people who are completely unaware of what being balanced means. It was binge borrowing much in the same way as it is binge drinking. And now it is Robert Peston who suddenly finds a lot to explain to all of us. What were you writing during the housing boom? I think the BBC as a public service should consider a more balanced Business Editor. Just my personal opinion.

  • Comment number 59.

    56. At 12:23pm on 09 Jan 2010, Countertalk wrote:

    God save us from economists especially those who boast exemplary status in the professions. Where have these boffins been all these degenerative years, then?


    They're either in or have been removed from HM Treasury as under 'Knew Labour' they have been gagged, ignored and/or sacked by Blair and Brown and their 'Knew Labour', 'City of London spin machine/ 'Tax Cow' bandwagon' so as to pursue their insanely exponentialist public spending extravaganza and 'England wrecking'.

  • Comment number 60.

    #39 ArnoldthePenguin

    I would just like to point out that not everyone who took out a self-cert mortgage was lying.

    As a freelance IT specialist I prefer to work in a way that allows me to make life-style choices. This means that when I need some income, I find work. At other times I buy and sell books online, work on renovations to my house, whatever. Unfortunately, this model does not fit in with the financial world's view that in order to qualify for a mortgage one should be in full time employment. In these circumstances a self-certified mortgage is the best (and often only) choice, but thanks to the irresponsible actions of others, this option has all but vanished.

    It seems ironic to me that someone who has been earning a good living for many years and has an excellent credit rating cannot get a mortgage. Do the people making up these rules not realise that for most of the population there is no such thing as a job for life any more and that unemployment is only a few weeks away?

    At times such as these we need more flexibility in our approach to what constitutes gainful employment, not less. Why, for example, does the tax system penalise people like myself who earn foreign currency? Surely this should be encouraged - it has to be better than QE.

    Of course I know the answers to my own questions - the system is run for the benefit of the few and not the many. Isn't that right, Fred?

  • Comment number 61.

    58. At 12:32pm on 09 Jan 2010, radioactivezorro wrote:

    Dear Mr Peston
    I find your articles quite unbalanced in general.

    And for the sake of balance let's take a look at the mortgage condition in France, for example.

    · Maximum 85% LTV (loan to value)

    · No non-status (self-certified) mortgages

    · Some lenders will only offer repayment mortgages to foreign buyers

    · Total monthly mortgage payments should not exceed 33% of net monthly disposable income – i.e. your remaining income after all other expenses

    Do you see now why there was no binge binging in France?

  • Comment number 62.

    "When it comes to how banks are allowed to behave, sovereignty over decision-making rarely rests with citizens."

    It appears to rest with the politicians who will be picking up lucrative jobs after leaving. How much do JP Morgan pay Tony Blair again?

  • Comment number 63.

    Please look out for the new book of Nobel Laureate Prof Joseph Stiglitz analysing the global ecocnomic crisis. It is being published this month and should be available soon.
    The title of this latest book of Prof Siglitz:
    Freefall: America, Free Markets, and the Sinking of the World Economy.

    Happy reading to all.

    Similar information and links to some of his articles can be found here:

  • Comment number 64.

    I agree we should, but we won't!!!! One of the main reasons that it will not happen is it seems every Country (or it's Politicians) seems to frighten of looking uncompetive.
    For once they should listen to the voters i.e. the people that pay their wages, instead of listening to bankers (whom give funds to their election campaigns).

  • Comment number 65.

    63. At 12:59pm on 09 Jan 2010, invisiblehandadvisor wrote:
    Please look out for the new book of Nobel Laureate Prof Joseph Stiglitz analysing the global ecocnomic crisis. It is being published this month and should be available soon.
    The title of this latest book of Prof Siglitz:
    Freefall: America, Free Markets, and the Sinking of the World Economy.

    Stiglitz analysis are post-factious. It is easy to point a finger at the cliff after the car has already fallen off it.

    When he tells why Paul Volcker was replaced by Alan Greenspan and why do we need central banks AT ALL, then he might deserve more respect from us.

  • Comment number 66.

    How nice of you to finalally mention this comittie of bankers. After what? 18months of letting the public think it was all our bankers and our governments fault you finally admit that there is someone else to blame, the people who designed the system. The problem is the damage is done. People allready believe the stories you've been putting out for the last 18months and the mountain of negative press from people such as yourself may actually be responsible for the end of our current government. And now you tell us that, in effect, our government just took the best recomendation given to it by the group of bankers, the same group who Cameron will no doubt be listening too!

    The problem is most of the public in this country did no reasearch themselves to find out the "culprits" they just took what the media fed them, there are therefore very few people who are remotely informed enough to not only have an opinion, but make a sensible jusdgement on how we should go forward with banking! Most of the electorate don't have the first clue!

  • Comment number 67.

    lesson 4

    How come we are spending so much more than we are getting in Taxes

    During the last 8 years the government has been bragging about how much it has been spending. Which it definitely has, there is no question.

    However it was doing this whilst the taxes it was receiving were GROSSLY inflated because of the housing boom, and I mean GROSSLY inflated.

    Banks were making huge profits and paying large amounts of tax because of people lending in order to buy property.

    People were officially borrowing 60 billion against their houses in each of the five years between 2003 and 2007. This was money was then being spent and generating more and more tax revenue for the government.


    In spite of the large tax revenue that was coming in the government still managed to commit to spend even more.

    Now the housing bubble has burst the tax revenue has gone back to where it should have been but the spending still remains.

    What needs to be done about this problem is anyones guess but we have to get back to balancing spending and taxes.

    The difference between 450 billion and 630 Billion is larger than it has ever been in this country in peacetime. Even in percentage terms

    To put things further in perspective it was estimated that increasing tax on high earners would increase taxes by 3 billion. Increasing VAT by 2.5% raises 12 billion. Increasing income tax by 1% raises 5 billion.
    All of those are a long way from 180 Billion.

    All these arguments about cuts have to happen because we have to balance our spending and as you can see it can't be done by tax alone.

    Can't there be a reasonable debate.

    I still hear people saying they want the government to keep spending.

    Everyone is entitled to their opinion, but seriously!!!!

  • Comment number 68.

    "It wasn't the fault of ordinary citizens like you and me."

    Who do you think initially accumulated the bulk of the debt that the country labours under?

  • Comment number 69.

    If the taxpayer is to carry the risk of any business operation, which would normally fall on the shareholders, then they themselves should be the shareholders. No business that is privately owned should be underwritten by the taxpayer. What happened in 2008 was unfair to those who invested in National Savings to get maximum security, when, if they had known, they could have got equal security at an Icelandic bank and more interest. If we had a constitution, one of its clauses should be designed to prevent future governments behaving as the present one did.

    There is a need for a bank which is underwritten by the state, but this should be nationally owned. The government could set up such a bank using post offices as branches. National Savings could be incorporated, and full banking services would be available. It would then be made clear that only this bank would in future be bailed out by the taxpayers

    Customers would be able to choose to have high security at the national bank, or more risk, and presumably more interest to compensate, on deposits in a private bank.

  • Comment number 70.

    Two points:

    (a) We trust financial priests for the same reason we trust priests in general. They perform their rituals and tells us that if we follow them (give them authority) they will persuade the Gods to deliver the goods. If the goods arrive we then believe that this is due to the intercession of the priests.

    We, and Governments, believed these priests becuase for the last 25 years their mumbo jumbo has been delivering increased material wealth and greater tax revenues. The trick behind this mystery has now been revealed: a bubble built on debt (renamed credit)and the theory that this need never be repaid because asset price inflation would cover it.

    (b) #7 Off to Oz, I would be with you but do you think anyone cares whether we vote or not. If the turnout figures are anything to go by, roughly as many people "abstained" in the last election as voted for either of the main parties: but abstentions are not counted. I suggest, instead that as many people as possible vote for all three main parties: and we state up front that spoilt ballots (which are counted) will be seen as a vote for change.

  • Comment number 71.

    We have been told time & time again that we HAD to save the banks or the world would have come to an end - but as time passes I am less convinced by this, what exactly would have happen if we hadn't have stepped in and would it have been so bad.

    From an outsider point of view it appears that the whole thing was build on smoke and mirrors - did any money lost ever really exist outside a banker's balance sheet - what has happened to all the actual assets, they haven't disappeared, we are told that everyone is paying down debt where is this money going. Where has this profit come from for bankers to get bonuses, why did the Govt not put better measures in place when it helped them out, why is no profit money being paid to bring down the Govt borrowing?

    What happened to all the money the Govt gave to the banking system, where did it all go. For all the money paid out did we only get some shares in RBS and Lloyds in return - doesn't seem a good deal to me.

    The more I think about this, the more the whole banking industry seems to have been a modern day version of the Emperor's New Clothes.

    It is time we stood up and said we are not happy about this, if you agree please join our "we are not Happy" group which will give a chance for the ordinary person to be heard

  • Comment number 72.

    67. somebody_help wrote:

    "How come we are spending so much more than we are getting in Taxes"

    It is largely due to the recession. Fewer jobs = less income tax and more being paid out in benefits. Lower company profits = less corporation tax. Fewer people moving house = less stamp duty (as well as the reduced VAT from purchases associated with moving home, such as new fridges and TVs).

    There would still be a deficit even if we were not in recession, and it's something the government has to deal with as a matter of urgency - by raising income taxes and VAT, for example, and abolishing the ruinously-expensive child benefit.

  • Comment number 73.

    #14 AudenGray:

    I couldn't agree more. As one of the over fifties I look at the World our generation is leaving to the next and despair. However, before they are able to consider buying a house,which I agree they can't afford, they will first have to (a) find a decent job (not made any easier if the current genetation are now going to work beyond 65) and (b) pay of the grotesque debts they incurred in getting qualified for it.

    Meanwhile, at the other end of the spectrum, the possibility that their parents might have accumulated enough equity to leave them a stake is being eroded (a)by the practice of taking equity out of houses to pay for current consumption (holidays etc); and (b)by the medical/nursing/care home costs they face as they are maintained in an ever longer and more infirm old age.

    Offering young people more education and qualifications is no substitute for giving them a life.

  • Comment number 74.

    Good post Robert, as I said on Wednesday, Iceland is an interesting place and events there will have far reaching consequences for everyone else.

    As you say, the Bank for International Settlements is known as the central bankers' central bank, this is the bank that needs the spotlight playing upon it.

    Questions such as 'How do you operate ?', 'Who appointed you ?' and 'How can we get rid of you ?' spring to mind.

    The biggest question is of course is 'Who do you work for ?'

  • Comment number 75.

    In a world where making money is the biggest driver you will always find that risk taking is more likely to occur. The sad thing is that the level of promises made by financial institutions to continue to increase their intake of investors money was as is realised now at best mis advised at worst fraudulent. The way financial services have followed the supermarket theories of "stack it high sell it cheap" has failed. The future should bring forward more regulation and the blacklisting of countries and their banks who will not accept regulation, the days at the roulette table are over beware the next heralded period of growth as it will only continue to make the rich even richer. The change Cameron talks about is the loose change everybody else will have to survive on unless you are one of the fortunate ones whos parents have saved to leave you a nest egg.

  • Comment number 76.

    What is a sensible alternative to trusting the experts? Given that even experts can make mistakes, surely politicians and voters are even more likely to do so. A legitimate concern is that the experts, while knowledgeable, are also in some way biased against the interests of non-bankers. As far as I can see, the only solution to that issue is that expert advice is given to the politicians who represent us by people who do understand the banking system.

  • Comment number 77.

    This comment has been referred to the moderators. (moi)
    them common purpose rumours mut be true (rob)
    the Fourth Estate is becoming less than mediocre. The bigger point in the blog is the surrender of the Fourth Estate to business and government lobby.

    Nikki Alexander - Taking Down a Nation
    (*)=world wide web : public domain mayne

  • Comment number 78.

    If the bankers did know what they were doing there would not be this mess. They all use human greed to the employees with bonuses to whip up debt and are now moaning because humans took out the money.
    Then moan once again that it was not there fault.

    Has anyone found out who is to blame yet? Or are the questions not being asked. because if someone asked me for more than 1M let alone the billions I would be quite concerned as to where all there cash gone to.

    Human nature.....

  • Comment number 79.

    Robert you ask did anyone ask us? Who is the us? Is it a group of a few hundred people like yourself, Vince Cable, George Osborne, Alastair Darling? Perhaps throw in Sir Victor Blank, the shareholders of RBS and HBOS? And a few more pundits?

    The us is made up of 60 million people, 59.9 million of whom havent got a clue what you, or anyone else on these board, is talking about. So "they might have said no" is preposterous, unless you hold a referendum on everything. Even then most would put their cross according to what the editor of the Sun or the Mirror might try to tell them to do.

    We, the 59.9 million, rely on people like you to help to keep those with power on the straight and narrow. With a very few exceptions you were all missing when we needed you. When Tony Blair and Gordon Brown were leading us into a phony war, or when they were encouraging the credit boom that took us to the brink of total ruin. Like Iceland, and perhaps Greece. Somebody said we were a few days away from it.

    The first thing to purge your own souls is to own up to your own inadequacies between 1996 and (say) 2006. You all loved it because it looked like it would go on for ever. Pundits can try to predict the future and we know they are guessing. But in recognisaing their role in the past we are not dealing with guesswork but with actual outomes.

    I enjoy yuour posts immensely, but it would help enormously if you were to make yourself the first among the hundreds mentioned above by acknowledging your own shortfalls over the past ten years.

  • Comment number 80.

    Finally we see an article that mentions the Basel committee. Seems strange that this is one of the few mentions of this shadowy organisation since this whole crisis started, given that there should have been alot more finger pointing at it before now.
    We should remember that all major financial institutions have spent millions of pounds in the past 10 or so years developing infrastructure and systems that satisfy the capital requirements of first, the Basel1 accord, followed by the more stringent Basel2 accord. The was meant to be the financial "safety net" (conceptually similar to what some are demanding we need now), defining the amount of capital banks were required to hold, based primarily on a) the type of people they were doing business with and b) the types of financial products they were dealing (more risky product = more capital required, in theory).
    It is patently clear now that these requirements, as is the theme of the crisis, didn't really comprehend the full inter-connectivity of the players in the financial markets. The banks were pretty dumb, true, but their argument will always be that they were playing by the Basel2 rules, so why should they take all the blame.

  • Comment number 81.

    66. At 1:09pm on 09 Jan 2010, laughingdevil wrote:
    How nice of you to finalally mention this comittie of bankers. After what? 18months of letting the public think it was all our bankers and our governments fault you finally admit that there is someone else to blame, the people who designed the system.

    You are absolutely right. The Basel Committee is where it's at.

    I was too almost shocked when I read these recent revelation by Mr Preston. Quite clever (and brave) of him to post it on Saturday. Not sure though what the bosses will make of it on Monday though (if they make it to work).

  • Comment number 82.

    Here's a film by the UKTV History channel which reveal the role the Bank of International Settlements (BIS) played in the financing of Hitler.

    It's a must-see, Robert! ;)

  • Comment number 83.

    14. At 09:37am on 09 Jan 2010, AudenGrey wrote:
    Anyone over fifty will probably tell you that the real madness in all these financial dealings is the price of housing in this country.

    Anyone who works on a percentage commission and the banks of course, love the the fact that there is a dishonestly created housing shortage.

    How many times have politicians promised us affordable housing, which, as we know, has never seen the light of day.

    Young People have been shouldered with so much debt just to have a roof over there head, their quality of life is almost zero.

    Something is valuable when there is a natural shortage, like precious stones or metals (or honest politicians !)

    But housing ? No a housing shortage is a criminal act, we have the builders, we have the money ( we gave trillions to the banks) all we need is the courage to tackle the crooks who are forcing our children to be slaves to debt.

    None of us really know whats going on in high finance, but if we can sort out the ground level basics, our young people will have a chance in the future.

    The banks took the wrong road, it was the road to ruin, unfortunately they seem quite happy to take us down that road again.


    Audengray - spot on. I have posted before on how much of the financial madness was caused by housing booms created by cheap credit which because of the non-separation of investment and retail banking led to the banking system imploding.

    The key problem is that people who already own property react with horror to the notion of, for example, capital gains tax on increases in house prices since it mackes them feel 'poorer'. But this would actually help the housing industry - first time buyers would not have the barrier of having to pay any tax (could scrap stamp duty) on property since they will be renting. The housing industry would have a more predictable demand for first time buyer housing, house price rises would be restrained (fewer speculators) and the small builders would benefit from people extending their properties rather than moving.

    Still - wont happen - turkeys wont vote for christmas Gobble gobble!

  • Comment number 84.

    So perhaps it's a good thing that politicians and central bankers simply did what they thought was best for us, without consulting - because if the banks had gone down, the contraction in our economy would have been far far worse than it turned out to be.

    So if my personal finances imploded last year, yet I managed to survive the year by borrowing so as to make my life hell for the next 30, this would have been good? As the year would otherwise had been far far worse than it turned out to be?

    What is very frustrating is that economic/financial journalists are not exposing the details of the corruption within the financial system.

    For example, yesterday it was reported about Kilmartin going into receivership, causing an estimated loss to Lloyds group of £200 million, See:

    What I would like to know is who in HBOS arranged the £500 million loans in the first place, and what bonuses these people received as a result of the loan. You can be sure there was millions paid out. Why should I pay a penny extra tax to cover this £200 million loss until first ALL the bonuses that the HBOS staff got from arranging the loan have been repaid?

    Robert, why are you not calling for detailed exposure of the people involved in these deals and the clawing back of their cash? These guys still have their yachts and country estates. Why have you not helped press for new laws to claim back cash from them?

  • Comment number 85.

    Nice comment, Robert. It is good to see someone thinking with both their head and their heart. We need more of this.

    The country is now entering the early stage of a General Election. The current government has wrecked the constitution, blown up the economy, got us embroiled in a foreign war it is unprepared to fight, and is now only interested in saving the careers of its senior members. An alternative government does not yet exist. Between now and the general election it seems it is for the public to keep the real argument as to what needs to be done going on.

    What is happening now is quite unacceptable. All public policy has done is generously rearrange a few careers, move the catastrophic debts onto the taxpayer and reinflate the bubble. This is not policy it is an elite saving its own skin at the expense of everybody else.

    We need a division between retail banks supporting the real economy and the investment banks.

    We need to cease associating high risk activity with high rewards. High risk activity is plain stupid activity. If individuals want to indulge in it then they must use their own money.

    We need to audit the septic assets and determine how deep the debt hole truly is. I expect there to be arrests under the Theft Act and Insider Trading rules with certain individuals held to account in No 1 Court at the Old Bailey.

    We need to develop our real economy so that we add value through manufacturing what other people wish to buy so that our country can develop in a concrete sense rather than pursue faerie-gold at the end of the rainbow.

    We need to cut the size of the state to fit the available cloth. This will be the hardest thing of all to do but it must be done. We will not achieve any sustained economic growth in the real term without making substantial, significant and immediate cuts in government budgets. This must be done as one dreadful, apocalyptic act. If not then wider economic recovery will be deferred to the point of not happening.

    Whatever any of us may feel about any of this we just have to accept that we stand at a moment of social and cultural change. What we have had for the last twelve or more years has been easy-money. There was always a pension pot to loot, a bit of creative accounting here and there, some fiddling with the budget to roll money about, and most of all borrowing from the future.

    That future has now arrived and our emperors stand naked in a freezing wind. Do I see these emperors as priests? Not really, I have said before my stock is puritan, we have our own close affinity with the divine so we have no need of pedestals seeing statues as idolatrous.

    This is indeed a time for change but not in any sense that a political party can even comprehend. This goes deep into the psyche of the people. This is now about what sort of people we think we are. We already know what our self-appointed economic and social betters think of us. However, what we must first do is make it clear to them that it is they who are stupid for thinking themselves immortal. Once we have determined who and what we are then we will find the politics will follow.

    Many thanks for this article, Robert, you are helping the process of necessary along.

  • Comment number 86.

    So this is radical stuff from Peston ? referring to a "Priesthood, and underlining the institutions administrating the "Faith" ? Have you been reading your Golden Bough -

    "The danger, however, is not less real because it is imaginary; imagination acts upon man as really as does gravitation, and may kill him as certainly as a dose of prussic acid."

    The Brown King may indeed be at the end of his reign, but a new King will take the throne, and the priesthood will administer again to the faithfull - until maybe war and a new mythology usurps them .

  • Comment number 87.

    As we have moved through the banking crisis, we seemed to have lost sight of one of the main causes,which I believe was the deregulation of USA Banks after 1987.

    If you look at the UK banks that collapsed (i.e. HBOS, Bradford & Bingley, Northern Rock etc) these in large part were old fashioned commercial banking lenders. In straying into Investment Banking territory they started to use financial instruments to ramp up their lending. So we as taxpayers were underwriting the risk when these banks probably did not understand the risk of the instruments they were using.

    So we need a separation of bank types and as some others have commented tighter rules on how they lend and are capitalised. I hope Basel will look at this as well.

  • Comment number 88.

    So we all have too much debt.

    Even the Government.

    The solution is simple.

    Make interest rates ridiculously low, print extra money, and make the debts appear small by a good dose of inflation.

    Meanwhile, don't sell off your scrap gold as this is the only thing that will hold value. There will undoubtedly be adverts offering inflation-prone cash for gold.

    Oh! that's what's happening! Quelle surprise!

  • Comment number 89.

    60 downhome

    "I would just like to point out that not everyone who took out a self-cert mortgage was lying."

    You are quite right - I unreservedly apologise for my broad generalisation.

  • Comment number 90.

    85. At 2:53pm on 09 Jan 2010, stanilic wrote:
    We need to cut the size of the state to fit the available cloth.

    So, are you raising your hand and volunteering to move out to Cardboard City then?
    Or do you mean the size of the state must be cut, but as long as it doesn't force those who have lost everything in this recession out into the street, dependent on charity for bread?

  • Comment number 91.

    The reason we did not get asked whether to bailout the banks, was that by the time anyone could have possibly organised a referendum (i.e agreed the question, organsied information/debate and then the actual voting) it would have been too late for the action to have had any effect.
    Remeber your post of the extra billions secretly loaned? Whilst it was not made public, merely doing so woudl likely have resulted in disaster for those loaned the money making the situation worse so it was a right thing to do.
    This is the reason 'we' have 'experts' and unelected commitees to oversee these is that they have to make decisions quickly.
    You do not have a referendum over which treatment to give a dying patient, the expert acts and the patient lives or dies. If the patient dies then an enquiry determines whether the expert contributed - if they did they are struck off.

    What is galling to all is that the system, designed, operated and responsible for making these decisions failed spectacularly and that none of them have faced any serious enquiry into their competence or decisions, none have been dismissed and none have fallen on their swords.
    The question rightly raised is why are our governments leaving big questions unanswered/undebated and not addressing them - is it simply they are afraid that if they get serious about saying in future this shall not happen then the financial system will stop supporting their lending.

    It is in a grown up world why it is just as important that our Government deals with the deficit/runs balanced finances so that it can free itself from dependence on the financial behemoths of structural borrowing.

    It is oft quoted: He who pays the piper calls the tune. Currently it is the financial world who are paying the piper by ways of government debt - so they are calling the tune.

    When the Government stops relying on this they may then be able to resolve the big issue with the banks and financial systems which will require them to have a bargaining position.
    A system which relies on ever increasing debt will eventually collapse completely - we need to resolve it and do so whilst the opportunity is there. If we wait too long and the economies start to move again then everyone will forget again until it is just too late.

    Another thought which maybe someone can enlighten me on , in the various sacred texts there is almost universally a ban on Usury/charing of interest.
    Given than the majority of the other restrictions seems emminently sensible things to have in/enable a civilised society, why is it that this one area is the one we have given up on almost universally?
    What occasioned these ancient societies to forbid usury? What experience was it that was so bad for their societies that made it into the holy books?

  • Comment number 92.

    Robert, this is the kind of thing we need to see more of.

    For the life of me, I will never understand the brass neck of these people. The King really has no clothes

  • Comment number 93.

    90 copperDolomite

    I mean the size of the state has to be cut to fit the money available.

    It is you who have added those other implications.

    This is why I have made the points which I made. We cannot afford a big state any more so it must shrink.

    The next question is how must it be shrunk?

    In my view the state, if it has any purpose at all, is to sustain the people. If it doesn't then what is the point of it?

    With Job-Seekers Allowance at £65 a week for six months it isn't doing much for anyone in an economy with so few new jobs available.

  • Comment number 94.

    Apologies folks....there's seems to be a difference of opinion between Google and the site-link I gave earlier. The real one is re the article on the economic priesthood.

    Site-owner tells me lots of journos ferreting about in her incoming traffic; very unpleasant. Apologies again
    Why am I apologising for Google? Must be force of habit.

  • Comment number 95.

    65. At 1:08pm on 09 Jan 2010, plamski wrote:
    'Stiglitz analysis are post-factious. It is easy to point a finger at the cliff after the car has already fallen off it.

    When he tells why Paul Volcker was replaced by Alan Greenspan and why do we need central banks AT ALL, then he might deserve more respect from us.'

    Actually, Stiglitz's analyses are not only after the fact. For the last ten years he was often one of the first well known Economists to critisise various immoral and disastrous behaviours in the way Western economies malfunctioned. He has written about the replacement of Paul Volcker by Alan Greenspan in his article 'Capitalist Fools'. You can find this article here:

  • Comment number 96.

    In at last no rude words intended in first name - Sorry. I think it all goes back to the time when bankers no longer banks i.e. leaving school with slightly less than uni quals and working your way up until everyone quaked in your presence. (however women should be allowed in too). Everyone has made mistakes in judgements and contracts - people are human. Let us hope this current round of bonuses is the last payable and everyone puts greed aside and wants to be merely comfortable.
    It is odd that we now part own the banks and our interests should be looked after by our MP's who are so good with money and contracts!!!!!!

  • Comment number 97.

    71 smallgraycat

    I am no economist but...

    Asset bubbles create artificially high prices. People borrow money from banks (who assume the liability if the borrower cannot pay) to buy assets - e.g. houses. When the asset bubble bursts false confidence in the artificially high price is replaced by realistic assessment based on affordability in the existing economic conditions. However, although the asset is no longer valued highly, the debt needed to purchase the asset at the height of the boom must still be repaid to the lender.

    When you talk of smoke and mirrors you are possibly thinking of Fractional Reserve Banking whereby banks loan money into existence against a much smaller percentage of money held as reserves. However, this is not, as some argue, a sign of banks commiting fraud (by lending something they did not have to start with). Even though the money did not exist prior to the loan, the bank is, by creating the money, assuming liability if the borrower cannot repay. So if the borrower does default, the bank has to find REAL money to cover the liability.

    This is why traditionally banks were very careful to ensure that most of their borrowers were sound propositions, as they knew that if they had lots of defaulters they would not be able to cover the liabilities.

    The situation we have now is that lots of borrowers have defaulted due to the excessively high prices of the housing asset bubble (8-9 times average salary in the UK against a historical average of 3.5 times average salary). This alone suggests the crisis has some way yet to run.

    Where the banks went wrong was in continuing to provide lending in the face of obviously unsustainable house prices. And there were many (incl the IMF) warning of this bubble as far back as 2002. For example:

    The fact that prices did not fall is due to several factors:

    * Masses of cash coming back to western economies from China, looking to invest its manufacturing profits.
    * Excessively loose monetary policy, primarily in the US, to counter recessions - replacing the boom with a housing boom instead of a recession.
    * as with any system, increasing the money supply pushes up inflation. With lots of money in the system, house prices "increased", creating the impression that it was only necessary to paint a house beize, lay down some laminate and put in a new kitchen to make £100k profit. General inflation in the economy was muted by the import of cheap chinese goods and the export of labour to developing countries.
    * Like all asset bubbles, rising prices became the reason prices rose as many individuals paid over the odds to ensure they got a piece of the cake.
    * Banks were making huge profits providing mortgages and then selling them on as securitised debts. Due to the profits (and personal bonuses) and the availability of cheap credit (due to loose monetary policy) many banks eased their lending restrictions to ensure a regular flow of new customers as the normal pool of responsible borrowers were already serviced.
    * Other banks bought the securitised debt (secured against houses) as a way of building up 'strong' reserves against which to offer more lending. UK banks in particular bought a lot US securitised mortgages that were rated as AAA but in reality were anything but secure.

    If anyone wishes to add or correct the above, please do (e.g. who the banks liabilities are to - other banks? Chinese Investors?).

    I would just add though that there were plenty of people saying the housing bubble had to burst for several years before it did. I told friends not to buy in 2004 and put off buying myself. has been running longer than that and there were plenty of warnings in the press (as above).

    What were bankers and politicians thinking allowing such a clear risk to the economy to develop over so many years?

    The Guardian, Tuesday 4 March 2003

    "The International Monetary Fund issued a sharp warning about the risk of a collapse in Britain's over-inflated housing market yesterday, as Halifax bank said prices leapt by another 1.7% in February.

    Publishing its annual health-check of the UK economy, the IMF cautioned that the robust consumer spending which has kept growth on track has been partly fuelled by the property boom, leaving debt-burdened households vulnerable to a sudden downturn.

    The fund called for "heightened vigilance, especially regarding the possible existence of a housing price bubble with its potential deflationary consequences".

    Evidence that the bubble is still inflating came from Halifax, which reported yesterday that prices rose at an annual rate of 23% in February, making the average British house worth £125,558.

    Halifax's chief economist, Martin Ellis, said consumers saw no reason to cut down on their borrowing spree."

  • Comment number 98.

    94. At 3:43pm on 09 Jan 2010, John Ward wrote:
    That's a good article - thanks!

    95. At 3:49pm on 09 Jan 2010, invisiblehandadvisor wrote:
    Actually, Stiglitz's analyses are not only after the fact.

    The article is dated January 2009. Do you know when exactly was written?

    And I'm not sure I agree with his summary, which is:
    "The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal."

    The root cause is the power of the FED to issue the money and then loan it to the government, it's really as simple as that. No matter how much the government tries to regulate in bad times, they are likely to loosed it up in good time but the core of the problem will still be the same.

  • Comment number 99.

    No 85. Agree with you absolutely. We must base our economy on British manufacturing. Outsourcing
    employment to the cheapest possible labour force overseas has swollen Company and Investment profit
    at the cost of massive unemployment of our own workforce. This search for faery gold overseas has done as
    much to damage our economy as the Banking Industry's shenanigans.

  • Comment number 100.

    Our Great Leaders ( Brown and Darling) delegated banking reform to the Financial Stabilty Board and the Basel Committee. See 2008 Washington Action Plan and G20 Declaration April 2009. Our Great Leaders said they wanted to repair, not re-construct the system of banking and its market. Our Great Leaders pledged to act on the FSB's recommendaions. The FSB operates by a Plenary meeting. It acts on CONSENSUS. Our Great Tripartite committee of regulators represent us with seats allocated to states on the size of their economies and financial markets. The FSB and the BC want to make banks more resilient to shocks, not break them up or change the entire system.

    Who are the key individuals shaping our system, then. FSB chair = Mario Draghi, Governor Bank of Italy ; Vulnerabilities Committee = Jaime Caruana, General Manager Bank of International Settlements ; Supervisory and Regulatory Committee = Adair Turner, FSA ; Standards Implementation = Tiff Macklem, Canadian Finance ministry ; Cross Border Crisis Management = Paul Tucker, BoE

    Lets get this priesthood in front of the cameras, shall we Robert, and start shining light on their plans and minutes.

    Will our Great Leaders, or Leaders-to-Be, adopt the FSB's recommendations. Get them in front of the cameras as well.


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