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Political risk premium soars

Robert Peston | 08:32 UK time, Tuesday, 4 May 2010

Before the credit crunch and Great Recession of 2007-8, the great cliche of my milieu was that the power of national governments and politicians was being eroded by globalisation and the clout of those running big multinational companies and financial institutions.

It was a trend. But that trend no longer looks quite as significant as it did.

How so? Well, I can barely remember a time when there have been more enormous stories in my patch, and all of them have at their very heart the actions or reactions of the political elite. Right now, elected politicians look like giants endowed with great strength - which doesn't mean they use that strength responsibly - up against pygmy-ish corporate bosses.

Here is a short, non-comprehensive list of what I am on about:

(1) The most interesting announcements on this morning's London Stock Exchange are the squeals of pain from BHP Billiton and Xstrata, which have laid into the Australian government's weekend announcement of a new 40% tax on the substantial profits earned from mineral and resource extraction in Australia. The Australian government wants the multi-billion dollar tax proceeds to finance tax cuts for other businesses, whose aim is to make corporate contributions into pension schemes more affordable. The fall in the share prices of BHP, Xstrata and Rio Tinto reverberates around the world, and especially in the UK where they represent a significant slug of the overall value of the stock market.

Oil slick(2) Much of the recent drop in BP's share price is the result of uncertainty about the damage to the company's prospects in the US that may result from how politicians and regulators react to the calamitous leak from its oil platform in the Gulf of Mexico. Petroleum is always a political business. But it has become more political than ever, as the environmental risks of its extraction are perceived to have increased in so many different ways.

(3) The fraud charge levelled by the Securities and Exchange Commission against Goldman Sachs is the most visible manifestation of a global trend of financial regulators attempting to tell banks who has the whip hand.

(4) All banks face material uncertainties about future actions by governments and regulators, which will determine what new taxes they may face, what activities they may be forced to withdraw from, how they pay their executives, what stocks of capital and liquid assets they'll be forced to hold, and so on.

(5) Then, of course, there's that refusal by European regulators and governments to trust the judgement of airlines that it was safe to fly around the ash cloud.

(6) Oh, and let's not forget about Greece. There have been months of uncertainty about whether the European Union would bail it out and whether the European Central Bank would continue to provide Greek banks with liquidity against the collateral of downgraded Greek state debt. The rescue of Greece shows both the extent and limitations of public-sector power: it will be some time before we can gauge the true consequences of the significant bailout package, for Greece and for the integrity of the eurozone and European Union.

What do all these stories have in common? Well they all show the extent to which market mechanisms are no longer trusted to sort out societies' assorted challenges and problems - which was a predictable consequence of the Great Recession, but has happened to an extent that may surprise even those who believe in big government.

So any investor has to think very hard indeed when putting money into a business about whether that business is likely to rub up against government in a way that is likely to diminish or - perhaps more rarely these days - enhance value.

Oh, and let's not forget that the outcome of an election taking place in a country called the UK will have big and difficult-to-measure consequences for the private sector.

Or, to put it another way: the political component in the risk premium of investing has soared - though the preponderance of cheap money (another manifestation of state power) may have clouded investors' judgement about the long-term implications and costs of the re-born state.

Comments

  • Comment number 1.

    Robert,

    The UK government isn't directly involved in any of the six examples you mention.

    (Well maybe numbers 4 and 5 at a push, but so far nothing has really changed here -despite being hit the hardest in this Great Recession).

    Is it tolerant or spineless?

    And it shouldn't be about waiting till after the General election.

    The general election is a side show anyway.

    People will vote for change and get more of the same!

  • Comment number 2.


    This all comes down to the question, "who is running things". There comes a point where, if Governments' actions are circumscribed by the likely reactions of the markets that the markets are, effectively, controlling the Government.

    But, whose interests are the markets acting in? They are not some invisible, divine hand directing an optimum outcome. They are self-interested players seeking enrichment.

    This becomes a particular problem when, as now, Government becomes a process of managing debt rather than managing the an economy. In the end, Governments that meet the exigencies of the market (cuts and taxes to balance the books) favour lenders over the people they serve.

    The alternative (default) is no more attractive as people are unlikely to lend to you again. A threat which for the time being holds the Government in thrall.

    The answer appears to be not to borrow so much in the first place: but who's betting on that?

  • Comment number 3.

    Yes Robert, "leaving everything to the market" has been a disaster in the last 10 years.
    We are now withdrawing somewhat from rampant "free-market" capitalism, to a situation where governments are taking more control.
    That "market" capitalism has led to an embarassingly obscene "rich-poor" gap, amid a general financial meltdown.
    The Australian government is saying to the mining giants....."you are making a fortune from our soil, so we now require your co-operation, and a great deal of your money".
    Isn't that something we should be saying to our banks?
    At a time when ordinary working folk are being asked to accept some hardship, to bail out those super-rich "marketeers", the government should perhaps be looking at other ways of sharing out the pain more fairly.
    The working people of Greece, Ireland, Portugal, Spain, UK and even the USA are going to have to get by on much less, whilst the finance bosses and their staff will still be in their ivory towers, "earning" fortunes.....they couldn't care less about cutbacks or hardship....that is for the masses.

  • Comment number 4.

    Most mature economies are suffering from an excess of govt debt. There is an inevitable consequence that taxes rise and govt spending falls, the only issue is therefore which taxes rise and what part of govt spending is cut.

    But lets take your examples

    (1) Australian tax on mining. Likely effect - miners re-organise themselves so Australia is a separate subsidiary (ie head office leaves Aussie), dump as much debt and overhead as possible into the Aud sub to reduce profits and change long term investment plans so less money is invested in Australian mines rather than other countries with taxes at say 20%. Net result Australian economy gets short term benefit and long term problems.

    (2) BP: there has been no change of law or interpretation. BP and its partners appear to have been negligent and caused a large environmental catastrophe. This would have been the case 5 years ago had it happened then so hardly a great example of new political risk.

    (3) This seems a fair comment on political risk, until you start to think about it. The SEC (which is rather better than UK FSA in bringing financial industry to trial) is supposedly politically neutral, enforcing laws rather than making them, as with all prosecuters there is a tendency to go after those cases that make your political masters happy (after all it can but help when discussing budgets), but the initial view of the Goldman Sachs case is that it is legally very weak.

    (4) So far on the banks there has been a lot of noise about what will happen but in the 2 years since the start of the credit crunch, other than the odd semi-nationalisation, what has govt (in fact any major govt) actually done to change the rules which the banks have to obey?

    (5) And of course it is gradually becoming apparant that the airlines were right and the EU wrong.

    (6) Greece definitely counts as political risk.

    Not exactly a great score card Robert

  • Comment number 5.

    "What do all these stories have in common? Well they all show the extent to which market mechanisms are no longer trusted to sort out societies' assorted challenges and problems - which was a predictable consequence of the Great Recession, but has happened to an extent that may surprise even those who believe in big government"

    No longer trusted? - don't kid yourself Robert, they were never actually trusted - but whilst fools made money from the concept and the merry-go-round of hubris clouded everyone's reality with paper money based 'wealth' - everybody kept their mouths shut. Politicians, Bankers and even the gullible public - through their private pension schemes were all 'paid off' to look the other way when it came to the sanctity of markets.

    How does a market assess anything - except in cold hard money terms - and as Marx predicted, human cost eventually comes second to the desire to accumulate capital.

    I'm glad Robert, and the rest of the Capitalist world have finally caught up (I mean it's only been nearly 150 years!). It's just a shame that once again it takes a crisis of Capitalism to wake everybody up to the corrupt and contradictory Economic system we employ - or should that be 'employs us' - 'coz it don't seem like anyone is in control of it these days now does it?

  • Comment number 6.

    > What do all these stories have in common? Well they all show the extent
    > to which market mechanisms are no longer trusted to sort out
    > societies' assorted challenges and problems.

    Markets are a utility, now, like the sewage system. To keep them
    working, we need to hose all the crap out from time to time.

    Things will be well if we keep City wages roughly in line with sewage
    cleaners (which is also a disgusting but necessary job).

  • Comment number 7.

    It does now seem that the markets as currently formualted are not an appropriate mechanism to fund all of society's needs. Pensions, healthcare (if you think that private insurance is the only way to fund health care then look at Ireland where a leading health care insurer is now in big financial trouble) and education these are all essential and the market can play a part in funding them. However when the market invents "products" that have no intrinsic value and exist only to have yet another thing to gamble on then it cannot be stable enough or relaible enough or secure enough to meet the needs of society. I suspect that the gap betweeen what society needs and what the markets can be trusted to deliver has to be plugged by taxation. It already is as it is taxation that will pay back the deficits governments have taken on to prop up the banks. However we all dislike paying taxes to governments whilst being easily convinced that we will benefit by handing over our hard earned cash to the market (a sort of "goldman scahs tax"). There will propably always be an overall shortfall between society's needs and what we are willing to pay.

    You're all doing very well !!

  • Comment number 8.

    Robert wrote,

    "Well they all show the extent to which market mechanisms are no longer trusted to sort out societies' assorted challenges and problems"

    The wonder is that society every believed that the market ever solved anything after the 1930s,1870s etc. We are in the worst slump since the Bank of England was created 350 years ago - based on the level on interest rates.

    Each new generation of finance kiddies has enormous and totally unjustified self-belief, and they are always wrong. That is, lessons from history do have something to teach us all.

    To a great extent we should blame the propaganda media (such as broadcasters) for perpetuating and expanding the myth of market solutions.

    The lessons from history are that markets tend to exacerbate difference. Mostly this is about access to information in unregulated markets, but in regulated markets this difference comes also from the regulation itself. (Such as regulations for example that require permission to trade.)

    Markets are very imperfect, but most other systems are worse. Regulation should be specifically designed to prevent monopoly or cartel operation and other kinds of fraudulent operation. This requires that big organisations are limited and prevented from dominating markets. Bad regulation is that which prevents new market entrants, by putting up or raising obstacles to entry. We have see far too many bad protectionist regulations in the last decade and far too few monopoly limiting regulations. Hence the market would most likely fail catastrophically - directly as a result of regulation.

    An example: Interest Rates - set far too low by the regulators - this encouraged to big market participants to 'invest' in increasing risky financial strategies such as the creation of CDOs etc. This interest rate policy was wrong, but it helped the big monopoly participants borrow at low coast, but still keep their lending rates high this increasing their profits and increasing their market domination.

    The only way interest rates could have been sensibly kept at the far too low levels would have been to introduce regulations that required the limiting of the profits of the big monopoly participants, but as these participants were already far too strong all such economic management options were ignored, by the regulators. This is why the crash occurred - directly as a result of regulation. (It might have been inevitable, but almost any half wit of a Treasury economist should have seen the inevitability and done something about it!)

  • Comment number 9.

    UK Government won't have the teeth or will to deconstruct financial institutions for the greater good when they have, like the Conservative Party, had so much money donated by those companies. Self regulation is no longer an option - we gave the kids a box of matches to play with and look what happened. The credit agencies' functions have to be brought within the control of the IMF. How can we allow these Goldman Sachs rejects hold the survival of whole countries in the balance?

  • Comment number 10.

    Now the election has came around it has made us all realise that most to all politicians were only just paying lip service to running the country for the good of the people. The future good of all and the quality of life for all now seems quite bleak. Sure a few have made a good living, but it is only a few. Big companies have always harked on about size is good for the consumer to bring down prices, Amongst a few other well worn out lies and mistruths.
    Off on a tangent now but when Cadburys and the like set up model villages for the staff and actually cared for the quality of the working force they went on to be a profitable company, a good return for the investors and lasted for years ( I reckon Kraft will shut down more plant to the sound of politicians ripping of their shirts and saying they promised they would not do that!!! A aspirational promise from a big firm? )
    Time to look to invest in the staff again, look to the longer term of more than a year and through that make bigger profits.

  • Comment number 11.

    Globalisation has not really changed. All your examples in effect reflect how Governements choose to deal with resource and utility type industries. An airline has a choice where it does business but if it wants to fly UK passengers it needs UK airspace. Similarly if a mining company wants to dig up Aussie iron ore it needs to be compliant to the Aussie government.

    Surely the Aussie model is a nod to globalisation - getting the mineral extraction industries - to subsidise the costs of industries which have discretionary capital flows.

    This represents an interesting model which others will take up - rather that just aspiring to low Corporation tax - to have low taxation for those who have options to be funded by those who do not. In effect the partial privatisation of profit (but not management).

    Of course politicians have short term horizons and the only long term option for highly taxed industries will be either higher costs for the end user or reduced capital flows leading to underinvestment.

    The market is not being replaced merely manipulated.

    Beware the laws of unintended consequences.

  • Comment number 12.

    With the exception of "6" the others are all government responses to the greed, avarice and irresponsibility of big business.

    No wonder ordinary people are trying to take back power in small but increasing numbers. Not enough to succeed at the moment. But if it keeps on building who knows.....

    https://www.telegraph.co.uk/news/worldnews/europe/greece/7675761/Greek-protestors-unfurl-banners-on-Acropolis.html

  • Comment number 13.

    The pendulum is swinging, and it is a good thing to.

    After decades of being told that the market is king and will always produce a good result, the more rational approach based on trying to control economic forces in the interest of the public good is making a comeback. The success of China's more controlled economy in competition with the developed western economies, is highlighting serious flaws in the free market model, especially the failure to make significant progress in developing third world economies.

    The development of computer technology should mean that much better analysis, not just raw data and crude simulation, will become available on which to base the decisions of those who manipulate the levers.

    It looks as if on Thursday an even more right wing UK government might come into power, which would no doubt try to swim against this ideological tide. We could be in for interesting times.

  • Comment number 14.

    Classical capitalism and profit and loss was built upon, or predicated upon, the enclosed economic society alongside other enclosed economic societies.

    The good outcomes sought were entirely within 'our' enclosed economic community; if this resulted in bad outcomes elsewhere in other of the societies/communities or units, that wasn't a concern of ours.

    Indeed bad outcomes for others were 'good' for us as our competitiveness increased.

    The changes since, say 1930, are that there really is only one world now and we cannot pursue outcomes without trying to factor in far more aspects; and calculate , or try to calculate far more complex situations with cascading effects that may not immediately appear bad (and may seem wholly good) but at the same time can cause a chain of effects which eventually do rebound to harm, either directly or indirectly.

    The old win/lose zero sum outlook is often derided in management analysis, but it's like an old component still at the heart of the global 'machine' ticking away and creating problems--- and for smaller companies win/lose CAN still work--just as it did for the mercantile empires of Britain, France, Holland in the 17th Century, operating in a less interconnected world terrain.

    But for Global sized companies, often rivalling some smaller countries in size, reach and power (but also in susceptibility to shock) the achieved pre-eminence means they are becoming far more conservative and (like the ancien regime in France)more attached to ideas built upon preserving the status quo.

    This puts them in conflict with some parts of their DNA, and some of the workings of those out of date components in their business machines, and so makes them unstable.....

    Look at Newspapers, presently coping with structural change and the consequent threats to cashflow by, in part, using their small suppliers to manage their cashflow for them (by not paying them) , which puts small suppliers out of business (thus removing some of the differentiated content needed to maintain their own business model) or forces small suppliers to seek new outlets for content (these often compete with the newspapers in the digital space)
    Either way, short term the large newspaper companies 'manage cashflow'--longer term they create content differentiation for new competitors while reducing it for themselves---at a time when they wish to have a product they can sell online as a new source of revenue.

    All companies disconnected from the human scale will eventually fail--but of course individuals within them can prosper fantastically --- another source of instability---or rather the same source of instability in a different form.

    To reconnect this to the article---- the large companies are finding that the global interconnect is forcing countries to react together but this isn't 'outside the market mechanism' it is just another facet of it; previously discounted.

    I suggest large companies follow the devolutionary model and maintain central operational offices only for a few functions and create completely independent smaller, national or even trans-national but regionally based companies--- These companies would function to form temporary global corporations for specific aims....and then break up again.

    The underlying companies would retain affiliation to their regions, Cities etc and remain very accountable there...the large agglomerations would be temporary or conditional--and the regional companies would be far more diligent in oversight of all aspects--not least because they would all be in other competing projects in other countries with other small companies.

    It will take some doing --but it's going to happen anyway so we may as well try and manage the transition to try and avoid the bumps.

    The credit crunch wasn't the end of anything--it's just the start of everything.

  • Comment number 15.

    What I find most distressing is the Tories £50 billion Loan Guarantee Scheme, it just staggers me that this kind of thing can be announced and yet attracts no real scrutiny or questioning in what is supposed to be a time when parties policies are subjected to examination.

    In short the Tories want to say to the banks...You lend the money and earn the interest, and the taxpayer will take all the risk!!

    Is this David Cameron's way of being 'tough' on the bankers? What questioning of this policy has taken place? None as far as I can see.

    Is it an open ended commitment? If so then at some point in the future we will go into another recession and what happens then? Where will the money come from? Will they raise taxes or cut spending? Or will they have a £50 billion war chest squirrelled away to cover the inevitable payout to the banks as businesses fail? They don't have to tell us because no-one is asking them!

    I find it funny that when it comes to £6 billion of cuts its 'taxpayers' money, but when its a £50 billion taxpayer gift to the bankers its 'government' money...I guess they are all the same whatever side of the political divide they come from...

    The banks can already borrow money at almost 0% interest and then lend it to us at 5%, more or less generating money from nothing, why should we take on this massive extra burden as a people, given the bill we are already having to face over the coming decades, just so they can make even more easy cash? Is banking still a business I wonder, where is the risk for all the millions these people earn?

  • Comment number 16.

    At this point in time, with "1" I can't help wondering why the Aussie government went solely for this choice. When many countries with large national resources (especially oil,) have chosen to create their own sovereign wealth funds - the obvious example being Norway. To give ALL the money away to "smaller businesses" seems incredibly short-term at best and at worst it wouldn't pass moderation?

    The Australian people should take a second more critical look at the real colour of its government - seems the ordinary people have been rooked!

  • Comment number 17.

    4. At 09:44am on 04 May 2010, Justin150

    A few points which are missing in your analysis....

    3) - I think the political risk is that the next Government is going to be forced to change the law (which makes the Goldman case legally weak), and even apply these retrospectively. I mean do you think a minority Government is going to chance not hammering the banks for their sins?

    4) - Again the political risk is that the current Government is going to be voted out for being too 'bank friendly' (amongst other things) - so what happens when the next one doesn't last very long for the same reasons. If you listen carefully in Greece - the people are not simply saying "we won't pay" - they are clearly saying "we won't pay for their mess" - a point brushed over by our glorious media empire.
    Greeks are not adverse to austerity measures - they are adverse for austerity measures when it's been created by the massive imbalance of wealth with a small number of bankers.

    "(5) And of course it is gradually becoming apparant that the airlines were right and the EU wrong."

    Wrong how? It seems if anything the airlines were 'wrong' in their assessment of the likelihood of the entire UK airspace shutting down and consequently their lack of insurance to cover such an event.
    It's interesting to note that in the washout of that particular crisis that NATS have said the ban "could have been lifted sooner" had the engine manufacturers stated the acceptable tolerance of volcanic ash in their engines - I would remind you that the engine manufacturers are private institutions and nothing to do with Governments.

    One section of the private sector was let down by another - no surprise there then.

    I think Robert's overall piece is to highlight that "Governments are panicking" - all over the world, and panicking Governments make rash decisions - which create uncertainty and cause markets to go all wobbly.

    I know I wouldn't want to be investing in such a volatile and hostile climate.

  • Comment number 18.

    I would like to know why the government deficit is so high.
    Presumably not money spent on preference shares in banks, as these should have appreciated.
    Is it because of the government's plan to "restart" lending, and if so was this plan successful?

  • Comment number 19.

    The free market in most transactions ceased to exist decades ago. There is a confusion of free enterprise with free markets. Free enterprise is all about the unchecked use of power and mass psychological manipulation by very large organisations that have to face states lacking in the means and confidence to intervene and in some cases to give away the power of the state to these organisations. Welcome to the real world!

  • Comment number 20.

    to add to your list:

    fiscal austerity - i.e. who bears the pain - will be the next big story, not only in the uk, but globally. which earners find their incomes hit, and how that feeds into the consumption mix. which companies get hit with taxes. what is done to incentivise investment - particularly in target areas like green technology.

    the "too-big-to-fail" subsidy, which has boosted the share price and reduced borrowing costs for any company considered critical to the economy (and politically well positioned).

    there is also the small issue of trade disputes, particularly with china.

    strategic energy policy - reducing dependence on the fossil fuel oligopoly by subsidising renewable and nuclear energy.

    whether the government decides to "influence" lending decisions of the state owned banks.

    changes to the takeover rules following cadbury.

  • Comment number 21.

    Frustratingly I find myself agreeing with WOTW again (at least in part). The problem is not a lack of trust in market mechanisms; the problem is that reliance on market mechanisms to address societies’ assorted challenges is a fundamentally flawed theory. The Perfect Competition model falls apart from simple rationale critique alone. However the model is certainly neither perfection nor competitive.

    "Here is a short, non-comprehensive list of what I am on about:"

    You’re not wrong there RP

  • Comment number 22.

    The day of big business is over,they just don't quite know it. A three-year old could work out where the world is going - and fast - economically and environmentally.
    Try calling it chaos, because no-one planned for it. And all the king's horses and Gordon Browns/Camerons won't be able to put it back together again.

    What will you be writing about in the Brave New 'Mad Max' World, RP?

    The 'Water Wars?'The 'War for Dry Land?'

    GC

  • Comment number 23.

    #17 WOTW you never cease to amaze me

    3) - I think the political risk is that the next Government is going to be forced to change the law (which makes the Goldman case legally weak), and even apply these retrospectively. I mean do you think a minority Government is going to chance not hammering the banks for their sins?

    The political risk of a change of law is true but retrospective legislation is extremely rare - unless of course you are governed by a dictator. In the UK true retrospective laws have been applied twice in 30 years (both for tax) and it is extremely doubtful that they would survive a human right law challenge

    4) - Again the political risk is that the current Government is going to be voted out for being too 'bank friendly' (amongst other things) - so what happens when the next one doesn't last very long for the same reasons. If you listen carefully in Greece - the people are not simply saying "we won't pay" - they are clearly saying "we won't pay for their mess" - a point brushed over by our glorious media empire.
    Greeks are not adverse to austerity measures - they are adverse for austerity measures when it's been created by the massive imbalance of wealth with a small number of bankers.

    Who knows what will happen with Greece, if you read a number of posters on other parts of the BBC website there are a number of Greeks who state that the current strikers are nothing more than those people who benefit most from the corrupt state.

    I really do doubt the current govt will be voted out for being too bank friendly - more likely is because they have completely lost control of public spending, immigration, the ability to switch off microphones..., all matters (ok ignore the microphone) which have made the recession far worse for us than in many other countries.

    "(5) And of course it is gradually becoming apparant that the airlines were right and the EU wrong."

    Wrong how?

    This one made me laugh. I have no problem with airspace being closed down on safety grounds and from the reports neither do the airlines. It may have escaped your notice but it is becoming increasingly clear that the govt's decision to close down airspace was wholly unnecessary on safety grounds, the science facts were not present, and they were not even checking the actual levels of ash. Mind you this is symptomatic of govt wanting "to be seen to do something" irrespective of whether needed, scientifically justified etc.

  • Comment number 24.

    Anyone who has any Economic sense will steer well clear of the Tories - for one simple reason.

    I think it's commonly accepted by many people that the lack of regulation was the 'cause' of the latest crisis in finance (I believe it goes deeper than that, but I'll play along for now). Even the banks themselves have cited lax regulation as the 'cause of the trouble'!

    Which party has a free market ideology which advocates a 'light touch' regulatory system? - just one, the Tories.

    Labour don't have this ideology - but idiotically followed it anyway.

    I don't think Vince Cable is a 'light touch' man.

    The Tories must decide - change their ideology, or continue (or even reduce) light touch regulation which has served us so badly.

    Any party who claims to alter their ideology right before an election is one that cannot be trusted. It's a real inescapeable bind for the boys in blue.

    Sadly Labour's actions have created a giant vacumn of ideology - as they can no longer be relied on as the party of left wing economics - they are as far to the right as the Economic liberals in the Tory party.

    ...this is why there will be trouble ahead - no party is truly offering a 'tough reguolatory stance' - not even the lib. Dems. - which is why eventually the people will need to step in and fulfill that role.....but you know 'the people' - not very subtle at the best of times, and currently they're pretty angry about it all.

  • Comment number 25.

    Yep, I agree with RP’s 1-6 (was there also something in Bolivia?), all indicate actual/potential return to investment could change due to political modification, and in a substantial way. So how to price (over-)active government into an investment increases in importance as a consideration…perhaps some corp’s may leave cash on the balance sheet whilst waiting for (panicky over-)activity to subside.
    Anyway
    15. muggwhump wrote:
    “What I find most distressing is the Tories £50 billion Loan Guarantee Scheme, it just staggers me that this kind of thing can be announced and yet attracts no real scrutiny or questioning in what is supposed to be a time when parties policies are subjected to examination.”
    Perhaps the problem is that the UK has failed to run appropriate counter-cyclic policies for the past decade and so capital requirements of banks and loan-to-value restrictions on investors (including residential housing) have been inappropriate, saying nothing of the inflationary bias of the BoE. Having solely a CPI target allows other asset price bubbles to occur and so dynamic restrictions on at least capital requirements and loan to value are additionally needed. Since the UK hasn’t had these a situation can be (has been) reached in which banks need to be recapitalised at a point in the cycle when it would be natural to reduce capital holding requirements (from what should have been a higher level); there is even more of a mess in residential property.
    Balancing aggregates overtime though is only one aspect, ignoring the political posturing aspects of RP’s examples (1) & (4) there may well be a genuine ‘Boston Box’ requirement that governments and political parties are at least trying to consider for their nation’s economies– how to reduce support for your cash cows (e.g. finance or mining) and increase support for your rising stars and question marks. If the nation cannot spot winners then increase the taxation on your cash cows (mining, finance) and drop it elsewhere (rising stars, question marks, dogs).

  • Comment number 26.

    17. writingsonthewall wrote:
    "I know I wouldn't want to be investing in such a volatile and hostile climate."

    WOTW you are obviously not a Buffet - "invest when others are fearful!" Great time to be a Contrarian.

    I have never seen so much hysteria generated as in these blogs. The world is still revolving. We can sort out the mess left by the Clown and the Banks by studying the actions of the Great Depression of the 30's.

    Hopefully the next Government will take the right actions and focus immediately on our debt first. We are leaking money and our futures at the moment just because we have not addressed our deficit sooner. Total madness!

    As to the governments taking private enterprise to task and taxing them while the going's good, rearrange this well known phrase or saying - myself, shooting, foot, in. However Obama is right to keep the pressure on BP - that was poor risk management by BP and they must pay for the consequences of that.

  • Comment number 27.

    21. At 11:44am on 04 May 2010, Kudospeter wrote:

    "Frustratingly I find myself agreeing with WOTW again"

    How do you think I feel - I have to agree with him every single day!!

  • Comment number 28.

    Yes Robert, very well said and welcome article.

    It is better when our elected politicians (as much as I don't trust most of them) take on the big business rather than people smashing MacDonald's and banks windows for 1st of May.

  • Comment number 29.

    #22 Guy Croft - of course the problem and the solution are one and the same.

    We are overconsuming and overpopulating the world and the world can not stand it.

    We need a world war to kill a lot of us off - quite possible, I think a lot of the ingredients are out there.

    We need a plague - I think obesity might help here particularly as funding dries up.

    We need to stop overconsuming and get back to working to survive - I think the breakdown of the financial system might achieve this. This in turn will of course solve the obesity crisis (caused by being provided with food rather than having to make it)

    We need famine - I think the water shortage will achieve this and may also lead to the world war.

    Ultimately we will have a lot smaller population trying to survive in a much more fractured world on a lot less resources.

    I fear for my future, more so for my childrens' future and even more for their future.

    However none of these are election issues just the real issues - money is the distraction that means everyone is looking the wrong way - IT'S BEHIND YOU!!

  • Comment number 30.

    18. At 11:00am on 04 May 2010, 3g3z9p wrote:

    I would like to know why the government deficit is so high.
    Presumably not money spent on preference shares in banks, as these should have appreciated.
    Is it because of the government's plan to "restart" lending, and if so was this plan successful?
    _________________________________________________________________

    It's predominantly because of the recession causing a fall in government tax receipts - that's the deficit issue.

    However, there's the deficit and total government spending. In terms of the overall total, every one of us will have a different opinion as to what we need in terms of hospitals, roads, schools, numbers of civil servants and their pensions.....etc.

    Problem is politicians never extrapolate, from what they are told by people, that we can't afford more and this means we must have less!

  • Comment number 31.

    Afternoon Robert,
    now then, an article about Australia, America, Greece and their problems.
    Do we not have any business stories in the UK to wax lyrically upon?

    BTW I looked up how to spell gulibel in the dictionary and it's not listed!

  • Comment number 32.

    I still think that the finance industry is dragging politics around the nose like a dancing bear.
    - Financial market regulation: Politicians produced lots of hot air about it, but nothing has happened in effect.
    - Governments owing banks: Voluntarily and in a planned manner, or after having been forced so by guess whom? Bailing out all the bank owners?
    - Greece: Every blind man can see how "the market" (obviously identical with S&P) pressed the whole EU to action. Amazing to see how a handful of S&P analysts is more powerful than leaders of 500 million people.
    - Also amazing to see Mr. Schaeuble (german financial minister) begging Deutsche Bank these days to help Greece, since he has no money left. Where did he loose the money? He lost it to the banks (at least a large part of it). And each month again the now government-owned banks requires some additional billions of Euro. Its a hole without a bottom. Guess who made the profit before leaving the mess to the public?
    - ECB, Fed: They are still lending money to banks almost without charges. What do the banks use it for? For speculation, producing the next bubble. Its an ever continuing heavy slap into the face of taxpayers.

    I cannot see any priority of politics or reason in it altogether. The only logic it follows is greed. Still, after 3 years, politicians do not tangle it.

  • Comment number 33.

    Robert,

    I think you also made a good socialogical point here, namely that the public's attitude towards governments; banks; and large institutions has now radically changed.

    People have began to realise that where they put their faith and trust before, has now been abused and exploited by self-centered people. People only interested in their own profits and bonuses.

    Once the Great Recession is finally over, I think we'll find a braver and more analytical world. A world where people are not prepared to take decisions which effect us all, at face value.

  • Comment number 34.

    23. At 11:50am on 04 May 2010, Justin150 wrote:

    "#17 WOTW you never cease to amaze me"

    I try my best.

    "The political risk of a change of law is true but retrospective legislation is extremely rare - unless of course you are governed by a dictator. In the UK true retrospective laws have been applied twice in 30 years (both for tax) and it is extremely doubtful that they would survive a human right law challenge"

    Human rights? - don't make me laugh - what happened to the rights of the Germans in the bailout conditions which rode roughshod over the Maastricht treaty? Are you not aware of the trust law changes which led to backdated taxation on users (or abusers) of this loophole about 5 years ago? I know a few contractors who had to 'pay back' years of legitimately avoided tax because the law changed.

    "Who knows what will happen with Greece, if you read a number of posters on other parts of the BBC website there are a number of Greeks who state that the current strikers are nothing more than those people who benefit most from the corrupt state."

    ...what the 'middle ground' is not the one making all the noise - well surprise Surprise! I bet there are a lot of Greeks who are still watching X-factor and won't realise the impending disaster untill they find all the shops are empty. There has never been a revolution that started from the 'centre' - it's no surprise the centre is oblivious to reality. They just become cannon fodder for the right / left battle. The point is that the 'minority' in Greece also happen to represent a majority of the workforce (the same as in Britain, the actual working population is tiny - and as the signalmen have (or will) prove - it only takes a few key workers to stop and the system grinds to a halt. It doesn't matter what 'ordinary Greeks' think as they are simply being bypassed - just as the 'ordinary Britons' will find themselves bypassed here over the next few years.

    "I really do doubt the current govt will be voted out for being too bank friendly - more likely is because they have completely lost control of public spending, immigration, the ability to switch off microphones..., all matters (ok ignore the microphone) which have made the recession far worse for us than in many other countries."

    Oh really? - that's what you want them to think - but fortunately people are not stupid, they know public spending was about 40% of GDP - and they also know that after the banks collapsed that figure rose to about 80%. Ask 50 people in the street today where our Economic troubles come from, and unless your in a clueless Tory heartland about 40 will say "The banks". People blame their politicans for a lot of things, but when they compare MP wages (including expenses) to Bankers wages - they know which is the lesser of those 2 evils.

    If you genuinely believe that the people of Britain think this financial crisis was caused by the new hospital that was built down the road - then you are sorely mistaken.
    I mean at least Gordon can point to things that have been created off the back of that spending - what can banks point to except their Ferrari's and Porsche's etc?

    "This one made me laugh. I have no problem with airspace being closed down on safety grounds and from the reports neither do the airlines. It may have escaped your notice but it is becoming increasingly clear that the govt's decision to close down airspace was wholly unnecessary on safety grounds, the science facts were not present, and they were not even checking the actual levels of ash. Mind you this is symptomatic of govt wanting "to be seen to do something" irrespective of whether needed, scientifically justified etc."

    So this report is entirely incorrect then? Better get on to the Press complaints comissions then...

    https://news.bbc.co.uk/1/hi/business/8654559.stm

    "If airline engine manufacturers had specified a safe level of ash earlier, the Civil Aviation Authority says it could have reopened the skies then."

    It seems you are intent on blaming all manner of problems on the Government - now why would that be just before an election? Could it be you wish to divert attention from the real culprits in all these problems who are associated with a particular party running for election?

    Your pattern of blaming the poor (which is what you do when you blame public spending for the crisis) is expected and predicted by Karl Marx many years before you and I were even born.

    It's no good though - you can't hide the truth - it's there for everyone to see.

  • Comment number 35.

    24 WOTW wrote: "Which party has a free market ideology which advocates a 'light touch' regulatory system? - just one, the Tories."

    The NuLiebor party have been negligent in control of the economy. Brown's first act was to set up the disastrous three headed control system emasculating the BofE, handing some oversight control to the FSA and Treasury - i.e. no one in charge. That is part of the reason for our dire economic state.

    I have just read the Tory policy, which is shown below:

    "Reform regulation of the system.
    We will create a strong and powerful Bank of England with authority to ensure financial stability. We will make the Bank of England responsible for macro-prudential regulation, judging and controlling risks to the financial system as a whole. We will create a powerful new Financial Policy Committee within the Bank, working alongside the Monetary Policy Committee, which will monitor systemic risks, operate new macro-prudential regulatory tools and execute the special resolution regime for failing banks. The failed Financial Services Authority will be abolished."

    It looks to me that the Tories are not flinching from sorting the mess out and setting up a good control and oversight framework. Couldn't be clearer, certainly better than what we have now - but you still won't believe, will you?

  • Comment number 36.

    Govts are responding to disasters, symptoms if you like.
    The problem is that they, themselves, are part of the disease
    What we are seeing is crisis management.
    What we need is a revolution

  • Comment number 37.

    Most of what you list are attempts to regulate, they are not yet actualities and often in the political arena where big business and banking maintains a hold over polticians these attempts are only shows for the public and as they drag on and are diluted in the process end up being of very little meaning. Taxes on big business, when they pay any at all, are off-set with credits write-offs and other such advantages that other businesses do not have. One would need to look at total percentage paid to understand if moves to tax industries, such as coal in Australia, are in fact a burden of any kind compared to others.
    The current situation with banking and big business is the result of an uneven influence that these sectors have gained in the political arenas. That means that there are politicans that decide and vote for such advantages at the expense of others. In an electorial system the people you vote for does matter and if they do not represent your interest or the interest of the community, you should find someone else.

  • Comment number 38.

    24. At 12:03pm on 04 May 2010, writingsonthewall wrote:
    Anyone who has any Economic sense will steer well clear of the Tories - for one simple reason...................

    LOL - Labour didn't just follow they made it much, much worse. Funny how this all happened on Labour's watch after a decade in power but it was still the Tories fault. I feel your pain how could the party of the people have betrayed them so badly - instead of looking out for the people they were too busy sucking up to those slimy city types and feathering in their own nests.


    Never mind come May 7th Labour will have their civil war and like a phoenix from the ashes a new party will rise old comrades together forming the New Old Labour Party.

    What to do in the meantime though - you could vote for the greens I suppose (assuming you are eligible) - good luck with that. Don't pin all your hopes on Vince Cable though he seems to have done a good job on spinning his past - making us all think that he and only he saw what was coming. His status seems to be inflating just like the bubbles of the past.

    You could of course announce to us all how WOTW will vote, or thinks we should vote. Just like the Sun will on Thursday - who knows it might be you what won it!

    P.S. What happened to your big May day event that was going to shock the political/financial elite - I didn't see anything in the news?? Unless that was you at Luton Town??

  • Comment number 39.

    26. At 12:16pm on 04 May 2010, dontmakeawave wrote:

    "WOTW you are obviously not a Buffet - "invest when others are fearful!" Great time to be a Contrarian."

    - and have you ever heard markets can stay irrational far longer than you can afford to stay in them? I do love investors who override their inner fear with exuberant arrogance. You're obviously so clever, we'll see if your still in business next year...

    "I have never seen so much hysteria generated as in these blogs. The world is still revolving. We can sort out the mess left by the Clown and the Banks by studying the actions of the Great Depression of the 30's."

    ....maybe it's because we've never seen 0.5% interest rates ever, and never seen rates held down at any level for such a length of time, and have never seen the debt bubble up to it's current levels, and never seen a global slowdown on this scale, in fact we've never seen anything even remotely like this - making studying the Great depression a little bit pointless.
    I realise you live in the hope that "somebody" will sort it all out - as per previous experiences - but that's not going to happen this time buddy, there is no one who can prevent the inevitable.

    "Hopefully the next Government will take the right actions and focus immediately on our debt first. We are leaking money and our futures at the moment just because we have not addressed our deficit sooner. Total madness!"

    Addressed the deficit sooner? - it was only built up in 2008 when the banks failed - how quickly do you want Government reaction to it? It may have escaped your notice, but we (or rather the Government) has been 'leaking money' since before we were born - this is not a new phenomenon - it's merely an acceleration of a trend. Didn't anyone tell you that Governments are on a constant decline into debt? - just like the rest of us. The only salvation was when the Tories sold off some prized assets in the early 80's to show a surplus - which we now know was a complete fake and only a short term gain - followed by long term pain.

    As to the governments taking private enterprise to task and taxing them while the going's good, rearrange this well known phrase or saying - myself, shooting, foot, in.

    ...so Governments (and taxpayers) should be 'insurers' for private sector collapse? - what ever happened to survival of the fittest? It seems somewhat contradictory.


    However Obama is right to keep the pressure on BP - that was poor risk management by BP and they must pay for the consequences of that.

    The only reason Obama is keeping up the pressure on BP is because he promised off shore drilling wouldn't have a detrimental effect on coastlines recently when he justified the opening up of drilling off the US.
    It's got nothing to do with morals - merely saving face with the voters. As for BP's 'risk management' we can add it to the list of 'failed risk management in the private sector' this year alone. (of course history is littered with failed risk management)

    1) Banks failed their risk management
    2) Airlines failed their risk management
    3) BP Failed their risk management

    ...now I don't want to sound cynical - but is risk management being affected by the lure of profit per chance?

  • Comment number 40.

    ...and I don't want to come over all "I told you so" - but the "profit" in Lloyds and RBS which the BBC were so keen to promote only a week ago - seems to have evaporated somewhat.

    If anyone thinks the taxpayer will make a 'profit' (in the very narrowest sense) out of these two in the next 3-5 years is living in cloud cuckoo land.

    Layers and layers of deceit does not change a single ounce of the truth. You can paper over those cracks - but the cracks still exist and will eventually start to show through.

    Every day the lies from the Capitalist supporters and the banking apologists get louder and more ridiculous - however their lifespan is reducing rapidly as the wheels start to come off....

  • Comment number 41.

    #24 WOTW I think I have posted about this before but here goes.

    All this jargon about "light touch" and "heavy touch" is designed simply to confuse not clarify. We did not lack regulation of banks, there is loads of regulation.

    The issue is whether or not the regulation is effect and whether or not the civil servants responsible for enforcing the regulation are competent or not.

    What is clear from the credit crunch is that the regulation was ineffective at controlling risk and that BOE, FSA and Treasury had no idea what was going on.

    The two examples I use to show how inept (or possible examples of the law of unintended consequences) regulation and regulators were:

    1. Mark to market accounting - in effect gave a very strong message to all banks that rather than indulge in relationship banking they should all by trading all their loan book. The point is that why hold a loan to maturity if you have to account for it as a trading asset, you might as well trade it and get cash in.

    2. Northern Rock according to regulators was absolutely fine merely 6 months before it crashed - the regulators completely discounted the possibility of the wholesale credit market taking fright.

    Effective regulation starts with identifying and assessing risk. Unless risk is put at the heart of all that a bank does, then the regulation is wholly inept. There is a good argument for returning banking to the Basel I rules which are much cruder than Basel II for correctly identify allocating capital based on risk, but the crudity also makes them a lot easier to understand and apply

  • Comment number 42.

    Faith in a system that brings you this??

    Private sector greed infects every area of the world these days - and the poor old taxpayer foots the bill again.

    ...even better - a cover up denying the FOI request - (those rights Justin150 was mentioning earlier) - simply trodden all over in an effort to retain wealth at the taxpayers expense.

    https://news.bbc.co.uk/1/hi/england/london/8659792.stm

    My favourite line has to be:

    "He said: "It would be completely wrong. That's how the financial system works.
    "Just because I am in public life I don't see it's necessary to guarantee the debts of every organisation I am involved with."

    ...however just because you're in the private sector - doesn't mean your debts aren't guaranteed by the state!

    Drowning in a sea of hypocriscy - get used to it folks, it's going to get a lot worse before it gets better...

  • Comment number 43.

    Another trend that makes the involvement of Government more frightening is that most politicians have done nothing but politics . Nobody in Government has ever run anything and ignore when business makes a comment (note Vince Cable's recent comment that business leaders should let the politicians run the economy). After the great depression most politicians had some experience of business unlike today when politics has become a career in itself.

  • Comment number 44.

    #24 writingsonthewall wrote:

    "Which party has a free market ideology which advocates a 'light touch' regulatory system? - just one, the Tories.

    Labour don't have this ideology - but idiotically followed it anyway."

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

    Ah!...so you have been taking on board SOME of what 'Statist'/'jaded jean' has been posting on these BBC websites; however not all.

    The three main political parties in the UK are all free-market liberal democracy promoting parties i.e. Libertarian. They all promote free-market anarchism....as it's good for business.

    You are being disingenuous if you state that the current Labour Party 'don't have this ideology' as a core ideology.

    Please do not confuse 'New Labour' with old 'Labour'. Only old Labour were truly statist. Statism is the only ideology that promotes the heavy regulation of the markets (think China).

    New Labour were/are completely at ease with people being obscenely rich ref. Mandelson/Blair statements. Yet New Labour publically talk of their commitment to reducing the gap between the rich and the poor ( and improved social mobility). Yet over the last 13 years the opposite has happened.

    You cannot judge New Labour (or any Libertarian party) by what they say or have said. You must only judge them by what they have done (it's all about actions and outcomes....you MUST see through/ignore the rhetoric).

    Essentially it's why there has been a steady decline in living standards for the lower-middle/working classes in the UK since the 1950s/60s. Successive Labour/Conservative governments have engineered it this way....and btw, it's why it would make absolutely no difference if, say, the Lib-Dems were to win an overall majority come Friday (maybe as a result of a massive protest vote).

    You get Libertarianism which ever way you vote...it will just either come in a red, blue or yellow wrapper.

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

    FSA refuses to publish Blair letter to its chairman
    https://www.independent.co.uk/news/business/news/fsa-refuses-to-publish-blair-letter-to-its-chairman-503912.html

    *In a speech to the Institute for Public Policy Research, the left-wing think-tank, Mr Blair criticised the FSA for creating an environment which some perceived to be "inhibiting" towards efficient business.
    "Something is seriously awry when ... the FSA that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone," *

  • Comment number 45.

    WOTW

    I think this person sums it all up better than you or I!

    https://www.bbc.co.uk/blogs/newsnight/paulmason/2010/05/anything_can_happen_in_the_nex.html

  • Comment number 46.

    Sorry Robert - I think your judgement is superficial.

    We are being held in a vice and screwed by a global financial system which has failed, but is expecting us to destroy services and living standards to pay off its gambling debts. Your illusion of greater control and scrutiny is just a manifestation of us wriggling in the trap.

    "Too big to fail" means "Everybody must pay".

    As the following article makes clear, politicians are avoiding main issue; in my view because they are either out of their depth, or scared stiff (so am I):

    https://www.guardian.co.uk/commentisfree/2010/may/02/banking-reform-election-agenda

  • Comment number 47.

    39. writingsonthewall wrote:
    "I do love investors who override their inner fear with exuberant arrogance. You're obviously so clever, we'll see if your still in business next year..."

    I am not clever and have neither inner fear or exuberant arrogance... I walk the walk in that I spread my risk ..... small eggs in many baskets from widows and orphan funds to risky funds and investments...however, if I go belly up then we are all belly up!

    "Addressed the deficit sooner? - it was only built up in 2008 when the banks failed - how quickly do you want Government reaction to it?"

    Sorry WOTW you a wrong with a capital W. Brown increased our overall debt by 70% from under £300billion to over £500billion between 2001 and 2007. He was imprudent - see my last Stephanie blog entry for details. He more than assisted in our bust, sorry Buddy! If you extrapolate the graphs he was probably responsible for another £150 billion from 2007 to now excluding the bank bailouts.

    Have a look at this link if you don't believe me:
    https://www.telegraph.co.uk/finance/financetopics/budget/7473001/Budget-2010-the-economy-under-Labour.html

    And don't use the excuse that the D. Telegraph is a Tory paper. If you look at many of the graphs you will see worrying trends pointing to economic bubbles. Why didn't Brown and his system see it? Because of poor economic management, typical of Labour Governments who seem to have an IMF season ticket.

  • Comment number 48.

    35. At 1:30pm on 04 May 2010, dontmakeawave wrote:

    "It looks to me that the Tories are not flinching from sorting the mess out and setting up a good control and oversight framework. Couldn't be clearer, certainly better than what we have now - but you still won't believe, will you?"

    Thank you - you have clarified the position of the Tories. Abandon principle and ideology in an effort to gain power.

    ....or has the underlying free market ideology of the Tory party been cast aside forever - making it a rudderless and directionless ship?

    The Tory policy you cite is words - just meaningless words. I can do it to - watch "writingsonthewall will bring ensure a BoE structure to regulate the markets and watch out for risks and control the Economy".

    ...unless I say how, when and why - it's all meaningless waffle.

    You cannot get out of this one I'm afraid - it's ideology or regulatory - you cannot have both under a free market principle.

    P.s. This is in no way a defence of Labour - who have proven their inability to regulate - however jumping to the party of light regulation is not going to bring about any change in that area.

  • Comment number 49.

    Well that means we are managing to go back to the way it should be.

    Companies have been allowed to behave as though they are inheritors of the earth. They are plainly not, we and every species on the planet are. Just as there are laws that apply to me, there are laws that apply to business. With one huge difference - I get to vote, I get to a say in who will be forming government and who will not, and what those laws should be. No business has a vote, rightly. Businesses are there to provide goods and services, not dictate society, laws etc.

    As WOTW says, the Greeks are refusing to pay for corporate mess. BP will be paying the clean-up bill, not the Americans. Has that been understood? Good.

    Business has pushed their luck way too far and in so doing, the wall is about to fall down on top of them. If the market takes a hit, good. Greedy investors will find that when they put their fingers in the fire, they get burned. Squeals won't help. If the investors can't afford to have their investments fall (remember, investment value can go up or down, pleb investor!) then they had no business gambling in the first place. Just the same would happen to anyone who put their savings on the 2:40 at Ayr. Don't complain when you are too afraid to go home and announce the loss to your family. Businesses must operate within the paramaters we not they set. That's life, a good life.

    We set the rules, the laws, the tax rates how we so please. Live with it. It is our society, our world and at least for now, you are stuck with it. Perhaps investing in space-escape would be more fruitful than whinging like a little child who doesn't see why they should clear away their own toys and go to bed at a reasonable time.

  • Comment number 50.

    1:37pm on 04 May 2010, writingsonthewall wrote:
    " it was only built up in 2008 when the banks failed"

    Hmmm, I think you need to look a bit more.

    To suggest that the goverment were only in deficit since 2008 is the sort of statistic/statement/lie I would expect to hear from GB or his cronies.
    There has always been a deficit, but now they cannot hide it. To blame the banks is just plain stupid. Yes, some of it has gone there, but where has the rest gone? Probably to maintain his voter base, sorry, the welfare and civil service budget.

    And that is excluding PFI etc which is some of the biggest off-balance sheet activity ever.

  • Comment number 51.

    This apparent feeding frenzy by Governments, regulators and shareholders to pick at the admittedly amply meated bones of Goldman Sachs worries me greatly. I am no lover of the banks and there is no doubt that they bear a huge responsibility for much of the economic malaise we now face, but so publically to round on such a significant financial institution surely cannot serve the greater good of settling the markets? After all, surely nobody believes that Goldman Sachs was the only financial institution aggressively selling complex instruments without either full disclosure or, alternatively, with inadequate due diligence? Didn't the collapse of Lehmans precipitate the market collapse in the first place and haven't we learned from that? Goldmans may well deserve some censure and there is no doubt the more effective regulation is needed in the future, but I think it's time that the politicians and regulators stepped back from this blood-lust and looked at this again with a cool head. Decimating Goldmans would be bad news for everyone.

  • Comment number 52.

    38. At 1:35pm on 04 May 2010, StartAgain

    It's so easy to draw out the Tory trolls....

    I don't think you get it do you - the cycle which has brought us here wasn't started in 1997, it's been going on far, far longer than that - only people with short term memories think any of this was a recent change in Government policy.

    Is the only defence to inconsistent policy / ideology simply to point at Labour for being 'worse than us'?

    Maybe the Tories should change their banner line to be "Vote for us, we're rubbish, but slightly better than Labour" - once again the assumption by Tories is that anyone who opposes them are Labour supporters (which is why both parties continue to campaign against each other and have totally missed the runners from the back of the field)

    This response is almost as pathetic as Labours call to vote Lib Dem in marginals - which the Tories jumped upon as a sign of having no faith in themselves - what is good for the goose and all that...

    I don't attempt to persuade anyone who to vote for - I merely point out the fallacies in the presentation of the various parties positions when they are contradictory.

    It seems you are only impressed by outward violence on May day - well if you bothered to look outside of your tiny insignificant country you will have seen there were mass protests in just about every other country in the world - including those who risked their lives to do so in China and Russia.
    ...it's not writings fault that the British are still living in fairyland and won't do something about it until it's too late.

    Although I would point out that despite the 'press blackout' there was a bigger march in London than in previous years - showing the discontent is on the up.

  • Comment number 53.

    41. At 2:22pm on 04 May 2010, Justin150 wrote:

    "The issue is whether or not the regulation is effect and whether or not the civil servants responsible for enforcing the regulation are competent or not."

    Problem 1 - how does the public sector afford suitable regulators of a 'good enough quality' without paying huge salaries (to compete with the Private sector) and creating the 'bloated public sector' you all love to talk about endlessly?
    If the regulation was not effective then the people who designed it are not adequate for the task - but dont you want to cut public sector wages? How are you going to attract the best candidates to design 'super-regulation'?

    "1. Mark to market accounting - in effect gave a very strong message to all banks that rather than indulge in relationship banking they should all by trading all their loan book. The point is that why hold a loan to maturity if you have to account for it as a trading asset, you might as well trade it and get cash in."

    Errr - because it's outstanding? You seem to be attacking the symptom of a problem that's rooted in Capitalism. Banks sold on their assets on is to pursue profit - not for any other reason. You don't get rid of rules simply because people keep breaking them - otherwise speed cameras would have been finished years ago.

    "2. Northern Rock according to regulators was absolutely fine merely 6 months before it crashed - the regulators completely discounted the possibility of the wholesale credit market taking fright."

    ...and Northern Rock? - they have to be watched so they don't make elementary mistakes? Sorry - it's either Capitalism's supposed "survivial of the fittest" - or it's not.

    This is ultimate hypocriscy - it was the regulators fault for not inspecting every banks model to ensure they hadn't cocked up?

    Does that mean if I ride my motorbike with no helmet, crash, and have a serious head injury then I can blame the police for not 'regulating me properly' - I mean I rode past a policemen without it on - why didn't he stop me???

    Now we're getting to the root of it - total and utter contradiction.

    "Effective regulation starts with identifying and assessing risk. "

    ...so what is the job of the banks risk department? - sitting around making hay?
    Is this good news for shareholders (those risk teams eat into the profits, they don't come cheap you know).

    I'm sorry Justin150 - but if you cannot see the absolute hypocriscy in this attack on the regulator then you are being deliberately obtuse.

    I don't blame the police when I crash my car speeding, so why does the regulator get blamed for banks reckless and thoughtless behaviour.

    Ultimately it the law of unintended consequences - something Friedman didn't quite grasp when he suggested we should all pursue our own self interest.

  • Comment number 54.

    44. At 3:28pm on 04 May 2010, DebtJuggler

    Which is exactly why none of the 3 parties will get my vote - with regard to Labour, I guess it's still essentially a party of large state (I mean that's what it's backers, the Unions think) but with some insane concoction of Economic liberalism thrown in.

    It's correct though it doesn't matter which party you vote for - you will receive the same result - Economically speaking.

    ...which is why revolution is the only way forward - sitting around voting people in and out will solve nothing....and we wonder why people turn to more extreme measures.

  • Comment number 55.

    ... as an interesting thought, if GDP was artificially kept high, say by QE, would that mean the government borrowing would appear to be lower as a percentage of GDP?


    The answer is I believe yes, this implies that the real state of government borrowing is less sustainable than we have been led to believe. Grease currently has a borrowing of about 13.6%, and the UK at about 12.5%. This we all know, but if the GDP number is lower, then the borrowing as a percentage goes up.


    Does this mean that we are in fact closer to the Greek situation than we think or have been lead to believe?

  • Comment number 56.

    45. At 3:42pm on 04 May 2010, DebtJuggler wrote:

    "WOTW

    I think this person sums it all up better than you or I!"


    ...and it's the politics of 3&4 which will tear this country to pieces - just as it did Europe in 1939.

  • Comment number 57.

    ...and it seems the markets are determined to show their 'efficiency' today by catching up on what the rest of us knew months and months ago.

    This comes after Merv's revelation that he expects interest rates to be 'very low' for 'up to four years' - usually a certainty to boost equities.

    Things must be very, very, very bad in the eyes of markets - all today's good news seems to have been swept aside for the good old favourite - PANIC!!

  • Comment number 58.

    I'm just waiting to see who it is that will make a bid for BP.

    Anyone got any ideas? Will it be a Private Equity Company, a Hedge Fund or three, another oil and gas company or a Chinese state funded company?

  • Comment number 59.

    Hurray clever Government officials to save us !- Why didn't we think of this earlier ! "We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand" - Alan Greenspan - recently released 2004 minutes regarding the coming housing bubble - we should have more clever Government officials sorting things out for us ! - and the less know about it the better otherwise "is possible to lose control of a process that only we fully understand" - so either he/clever government officials in general are intellectual upstarts or this mess was a ‘controlled’ deliberate financial demolition of the Western World, either way don’t trust’em.

  • Comment number 60.

    "Or, to put it another way: the political component in the risk premium of investing has soared"

    We've managed to almost destroy our capital base, transferred willingly into vastly overvalued property and investment portfolios. Soon we'll be in a position where it could actually appear beneficial to allow our incompetent and corrupt politicians to control the economy entirely.

    If only they had let the market do its job, instead of finding new ways of propping up the Ponzi economy.

  • Comment number 61.

    It is fun when WOTW says the truth is out there and then loads of posters start correcting him on his economic facts.

    I particularly enjoyed
    "Oh really? - that's what you want them to think - but fortunately people are not stupid, they know public spending was about 40% of GDP - and they also know that after the banks collapsed that figure rose to about 80%"

    The official govt statistics (so obviously take this was a large dose of cynicism) are that just before the credit crunch public sector spending was very slightly under 44% (which is extremely high for so called boom times on a historic basis) and will rise this year to 52% (a record for peacetime between the previous record of 49.2% set by... a labour govt).

    Now I do believe those figures are somewhat manipulated, for example by PFI projects, but even allowing for that WOTW grossly underestimates the level of public spending before the crash and grossly over-estimates the level of public spending ow

  • Comment number 62.

    #57. writingsonthewall wrote:

    "Things must be very, very, very bad in the eyes of markets - all today's good news seems to have been swept aside for the good old favourite - PANIC!!"

    But market panic is no more significant than market over-exuberance. And you can't reasonably point to the current falls in the markets as significant when you have been insisting for months that the relentless rise in the markets was irrelevant. Either you believe the markets reflect the true economy or you don't.

  • Comment number 63.

    #54. writingsonthewall wrote:

    "...which is why revolution is the only way forward - sitting around voting people in and out will solve nothing....and we wonder why people turn to more extreme measures."

    There will be no revolution. Not because the current system is good, or that the public is too short-sighted to see that there is a problem, but because any alternatives that may be achieved through revolution are even less appealing. Nobody wants a Marxist state.

  • Comment number 64.

    Yeah right. As all the big banks post record profits and the richest 1000 gain 30% on their earnings, the global menace you describe has not gone away, it's got bigger and is about to start eating countries.

    How long will you sit on your hands, tamely reporting what's going on as if it's a football match? You made your name reporting on the crisis when it first materialised, is that it? When the bond markets blackmail the country back to the 19th century, will you still be reporting the situation as if it's a kind of weather phenomenom, beyond our control. This is real life not an economists fantasy. People are going to be hurt and a whole generation or more, including my son, are going to grow up in this reality and it will be the complacency of experts such as yourself that smoothed the way.

    Thanks a lot.

  • Comment number 65.

    As Danny Schecter says we need a Jailout, not a bailout.

    Now, hm who will I vote for, who will best serve justice and democracy or am I being asked to vote for a return to medieval servitude with a score of rich overlords, kings and a mixed bag of plundering, horrors....

  • Comment number 66.

    61. At 5:30pm on 04 May 2010, Justin150

    Help me understand this here.

    If my monthy outgoings (food, transport, housing, tax, utilities, etc) rise above 52% does that mean I've a terrible problem, or is it a terrible problem only for governments?

    I'm just trying to grasp the scale of the problem in a more understandable, every day scenario.

  • Comment number 67.

    63. At 6:06pm on 04 May 2010, rbs_temp wrote:
    There will be no revolution. Not because the current system is good, or that the public is too short-sighted to see that there is a problem, but because any alternatives that may be achieved through revolution are even less appealing. Nobody wants a Marxist state.


    Do you really, really think that Marxism is the only alternative.
    We are in a revolution right now. A long slow, seemigly bloodless revolution if you don't count the too-early deaths from poverty, the suicides out of desperation. People in vast areas of Glasgow die far younger than those who are in the more affluent areas - and it most definitely is not a lifestyle problem in terms of diet, drink, smoking etc. It's called Capitalism, brutal, insidious Capitalism similar to the spider wasp Hymenoepimecis argyraphaga

    Not heard of the Water Wars, then? You should have; people died. And it has developed into quite a beautiful, budding flower. IMHO

  • Comment number 68.

    The Tories have always believed in the "free market economy", but as we all have seen it pampers to the greed and dare I say arrogance of a few very wealthy people.
    The ironic bit in all this is its Chinese Banks (heavily regulated economy)that has stepped in to save the Wests bacon.Who would have thought we would see Communism helping Capitalism how weird is that? Look to Denmark and Sweden as the best financial model, the wealth created from the countries natural resources is channeled into schemes and business enterprises that benefit every citizen.
    We cannot go on like this, virtually every western government is bankrupt as labor is pushed onto the state system which means even more public sector debt!
    Global corporations are moving to the next rich fertile ground - China, Malaysia,Russia, India etc.Its right to hit the profitable corporations with more tax they are raking in millions of pounds at the expense of every citizen( financially and socially).

  • Comment number 69.

    When we have 3 million people unemployed and scratching for food from the state may be people will take this situation seriously. While at the same time banks and corporations every where are declaring record profits what do you think will happen.
    Social unrest will be the main problem and its fairly obvious the governments around the world are already putting plans in place for this.
    Look at Greece, Spain, Ireland you have already seen people marching in protest that what is going down is not right.
    Banks will go down in the history books as creating a major uprising and civil unrest.Portugal has 20% of its workforce parked in dole line ups, America has people living on food handouts, Greece the workers are virtually ready for a national strike. All for what?, because the free market model failed miserably.

  • Comment number 70.

    52 WOTW It seems you are only impressed by outward violence on May day - well if you bothered to look outside of your tiny insignificant country you will have seen there were mass protests in just about every other country in the world - including those who risked their lives to do so in China and Russia.
    ...it's not writings fault that the British are still living in fairyland and won't do something about it until it's too late.

    Although I would point out that despite the 'press blackout' there was a bigger march in London than in previous years - showing the discontent is on the up. "

    Well I have to say you are good value - let me guess it's the end of the world as we know it. So, much rage it's not good for you. You are not going to get a revolution in Britain however many posts you write on here.

    If it was something significant the press would have reported - face it whatever you were up to (I do hope it didn't involve graffiti or frightening the Bank Holidat shoppers)wasn't worth covering.

    You are starting to sound like a bit of a Walter Mitty.

  • Comment number 71.

    The common denominator is that the State is being forced to pick up the tab. Or passing laws to deflect the tab.
    And if that means that the State (us taxpayers) end up paying more then tough.

    Big companies are finding it easier to get the State to do their dirty work.
    After all we are expected to blame the State.

    It amazes me that some folk are that power crazed that they actually want to be in control of the State.
    I wonder if they realise that somebody else is pulling their chain?

  • Comment number 72.

    And the debt burden that's being created and loaded on to the donkeys back (your average worker) is so high most will fold under the strain.If you want to see massive house foreclosures, cars being repossessed, and people just saying that's it I have had enough carry on.
    What worries me is the debt burden for my children, they have no hope of ever affording a home and having a decent standard of living. Or may be that's been the plan all along drag the Wests standard of living down to match India or the Philippines. God help us if the UK goes that far down.

  • Comment number 73.

    How does the UK move from a spiv based society and back in to a manufacturing and design based economy? Germany and Japan have it cracked they either export or die! But they have a society built on manufacturing quality products and yes they do charge a premium for these products.
    What has UK got, Banks, Supermarkets(shopkeepers), Landlords, Estate Agents, Insurance Brokers, Recruitment Agents, Travel Agents.
    Hmm then we wonder why we are falling down every league table!
    You watch as the hosing pimps move in and buy up all the houses that have been foreclosed and start jacking up the rents.

  • Comment number 74.

    Revolution and debt repudiation are beginning to look, very much, like the only solution to this country's problems.

    The question is...why does public spending exceed the aggregate tax take. The answer, in large part, is that the losses of private institutions (banks) have been socialised.

    These losses were socialised because someone (in fact the owners of those losses) sold the argument that they were too big to fail. If this argument is accepted then the public spending that relates to the losses of banks cannot be cut.

    It therefore follows that other public spending must be cut. The providers and users of whatever services are cut will be net losers. Why should they lose out? They did nothing to cause bank losses. They lose out because they are the weakest players in the game. The strong get stronger and the weak get crushed.

    None of this is fair, moral or reasonable.

    No-one knows how large the losses are in the financial system, but it is known that these losses will be covered because the loss holders are "too big to fail" So what happens if these losses alone exceed the aggregate tax take? You can cut all other public spending to zero but the books still don´t balance. In such a circumstance the only possible way to balance the books is via debt repudiation.

    The only ways to create wealth is by growing things, extracting things or making things. Nothing else. There are less and less things to extract, and growing more things is not going to make much difference to 60 million people. That leaves making things, something that we have been progressively doing less and less of.

    Rise-up or get crushed.

    The choice is simple.


  • Comment number 75.

    Robert,

    I am confused. Have people expected markets to sort anything out? not really - that's why you have regulation put in place by government. for example, industrial emissions - you cant just put out what you want - there are certain limits.

    Left to themselves markets tend to concentrate wealth and increase social divides and pollute mercillessly - that's why regulations are important but equally sensible regulation rather than over the top regulation.

    As for the greeks, it is time to pay the piper and everyone knows it is but the politicians are too scared to kick the weaker members of the Euro out and get back to doing something sensible.

  • Comment number 76.

    #72 Wrote : "Or may be that's been the plan all along drag the Wests standard of living down to match India or the Philippines." -
    - now your getting it ! Bilderberg are meeting in June in Spain to continue the job.

  • Comment number 77.

    #73 KeithRodgers

    "What has UK got, Banks, Supermarkets(shopkeepers), Landlords, Estate Agents, Insurance Brokers, Recruitment Agents, Travel Agents.
    "

    You missed out Regional Development Agencies.
    These government bodies encourage "Serial Entrepreneurs", AKA Spivs, to take out loans and pretend to be job creators. They are actually just bolstering The City.

    It is what the UK does.

    We no longer have entrepreneurs. Dirty word.

  • Comment number 78.

    The bank debt has not gone away, rather its been transferred off there respective balance sheets to make everything look rosy.
    And then dumped on the public finances as a public deficit to make it look as the government has over spent!
    Then they think the ordinary taxpayer has the surplus cash to clear the debt !, sorry guys what if every person in the UK on average wages is already maxed out by paying over the odds prices for products, interest on loans and mortgages and credit cards which are still charging a fortune in interest rates!
    Credit cards need to have the interest rate regulated but again no action to regulate these either why not?

  • Comment number 79.

    #74 DebtJuggler wrote : "Revolution and debt repudiation are beginning to look, very much, like the only solution to this country's problems"
    - Oh Really ! Revolution - Replace the Devil you know with a worse Devil you don't - Great plan - worked a treat in Russia ! - "Those who cannot remember the past, are condemned to repeat it" - George Santayana.
    As for "Debt Repudiation" - if I pay you £1 to make me, a Businessman, 1 widget, then I sell it to you (now the Consumer) for £1.20 then someone somewhere needs to go into debt for £0.20 for you to be able to pay it. More generally, as shown on the NEFS (Net Export Financial Simulation) Site , the equation we live and die by, as we don't yet use NEFS, is Retained Profit = Fixed Assets + Debt. It' s called the Sisyphus Equation as the moment we take the burden of work and put it on machines and computers, and do it well, and make lots of profit is the moment it all comes crashing down under the weight of artificial financial debt. Debt Repudiation just re-sets the counter back to zero but plays the same game – “OK folks, let’s start rolling that boulder back up again… and again”

  • Comment number 80.

    # 73 KeithRodgers wrote: "Germany and Japan have it cracked they either export or die! "
    - Well SETI - "Search for Extra Terrestrial Intelligence" are busy looking for new Markets to Net Export to ! - Be serious ! The planet is a wash with fantastic high quality reasonably affordable cars - Japan alone could supply the whole World with them - How ? - they press a button on a computer - like you press 1 or 5 or 5000 on a photocopier and 1 or 5000 super cars are produced - we don't use/need 'labour' anymore - that is so 17th Century ! So what is your plan ?
    That we 'Net Export' to whom ? " - Net Importers ? - Greece, Ireland ... what will they give us in return ? Greek Government bonds ! - Whoopee ! that'll make a a useful base for a cat litter tray - What is you plan for all the countries in the World ? - to All be Net Exporters ! - check the SETI site to see if they have found somewhere we can do that to !
    You have half a point though, despite Net Exporters ending up with worthless Debt paper from chronic Net Importers it 'looks' like they are doing OK.
    So why not use a Financial Simulation of Net Export - yet keep the produce in your own country - so your own people will benefit ? - it's called NEFS - Net Export Financial Simulation .

  • Comment number 81.

    @63 RBS "Nobody wants a Marxist state."

    I certainly don't, but if you walk amongst the tower blocks of Hohenschönhausen in the former East Berlin, you'll find plenty of people who do, despite everything, and support has spread to West Germany. See https://en.wikipedia.org/wiki/The_Left_%28Germany%29

    Those neglected by "democracy" will turn to something nastier!

  • Comment number 82.

    .
    Barclays Capital is looking very seriously at moving to Switzerland.

    The unaffordability of high income multiple UK mortgages hasn't gone away. The banks' defence to the mis-selling accusation is that govt guaranteed the interest payments on these ridiculous multiples through means tested housing benefit and tax credits.

    So what next. Govt has t Robert o decide what to do about these mortgages. Protecting them means years of low interest rates, tax raising that avoids non-discretionary consumption, and a couple of decades of 10% budget surplus. All this means a permanent 20-25% reduction in public services.

    Lets look at what one of these public service reductions would mean.

    Criminal Legal Aid is the cinderella pillar of the welfare state. On the face of it providing equality of arms for the individual against the state in court. But that isn't really what it does. Without Criminal Legal Aid, every public servant with the ability to grant a benefit or police some activity becomes open to blackmail by false accusations. The private legal cost of defending against a false accusation is £10s of thousands and these costs are not recovered on being found innocent. So the choice becomes give in to the blackmail or oppose it and either go to prison or beggar yourself and your family.
    It took 30 years of Legal Aid to get widespread corruption out of the police. It will take just a few years to corrupt them.
    Granting Planning applications can make millions, a conviction for making a false criminal allegation is only a short sentence.
    Before legal aid the prisons were empty compared to today because real crooks didn't go to prison.
    This is just one example of the difference our modern welfare state has brought that we have forgotten about. We take it for granted that social housing is allocated on the basis of need, that the police are honest, that treasury officials don't spy for criminal organisations, that health and safety officers work to protect workers, that our judges are incorruptible.

    Are we really going to turn the clock back 70 years to keep people in homes they could never really afford, or do we let their mortgages fail, let the banks fail, and pick up the pieces afterwards. I'm for keeping the welfare state and letting the mortgages and banks fail. Put taxes up and ask public servants to take a wage cut, renegotiate the PFI's, cut govt rules and regs on business but keep the services, stop wasting money on pet projects like video conference trials, remote weapons systems, HIPS.

    Sorry for all the people that paid too much for a home or work in a bank, but protecting you mortgage and job is too high a price, even for you.

  • Comment number 83.

    The private sector and industry may, just may be starting to recover after much pain. It will not however be able to support the current size of the state and its debt or indeed the monopolistic exploitation of the banks.

    How big a difference is there between Greece's public sector and the UK's ?

    The irony is that the riots in the UK will be initiated by public sector workers if and when the axe falls.

    Would it be possible to use the excess profits of the banks to finance efficient and necessary public services? If so we can't allow an increased tax burden and further bureaucracy on small and medium sized businesses and employers.


  • Comment number 84.

    #66 Happy to help you understand. T

    The simple explanation is that your figures are wrong. For govt income is 37-40 and expenditure 52. How long would you survive if your monthly expenditure was 125% of your monthly income?

  • Comment number 85.

    84. At 08:11am on 05 May 2010, Justin150 wrote:

    See the thing is:

    The official govt statistics (so obviously take this was a large dose of cynicism) are that just before the credit crunch public sector spending was very slightly under 44% (which is extremely high for so called boom times on a historic basis) and will rise this year to 52% (a record for peacetime between the previous record of 49.2% set by... a labour govt).

    is it 52% or 125%?

    And before I make a start on my papers for the day, %age of what, exactly? Maybe I've just had enough - and only Wednesday!

  • Comment number 86.

    #85 I think it is a simple maths thing - 125% of 40 is 50, so expenditure is 125% of income.

  • Comment number 87.

    # 41. At 2:22pm on 04 May 2010, Justin150 wrote:

    > Unless risk is put at the heart of all that a bank does, then the
    > regulation is wholly inept.

    Bankers have no heart, and precious little brain. They have big pockets,
    though.

  • Comment number 88.

    #66 Happy to help you understand. T

    > How long would you survive if your monthly expenditure was 125% of
    > your monthly income?

    I'd last several decades, until I'm about 90. Yourself?

  • Comment number 89.

    #85 fortunately #86 has explained - I think it is a function of elections where every party throws statistics around so that in the end nobody remembers anything about the actual meaning behind the numbers

    #88 you must have a lot of savings - not everyone can spend £1.25 for every £1 they earn, or maybe the plan is simply to borrow until you die in ever increasing amounts which come to think of it is exactly the plan of our politicians.

  • Comment number 90.

    79. Glenis wrote:
    "- Oh Really ! Revolution - Replace the Devil you know with a worse Devil you don't - Great plan - worked a treat in Russia !"

    Well, unfortunately corruption rarely ever fixes itself, especially when the corruption is inbuilt and systematic. You could sit there on your backside and hope the parasitic City of London mends its free-booting ways of its own accord (good luck); you could twiddle your thumbs and hope that MPs wake up one morning and decide not to be venal, mendacious and self serving, or you could look to ways to bring that change about yourself.

    Revolution doesn't have to be a dirty word.

    Think of revolution, even a bloodcurdling and gut wrenchingly bad one, as the unpleasant but necessary vomiting after a night spent drinking too much alcohol. In the long run, we'd all be better off and feel all the more chipper for it.

    And it would serve to deliver to our wayward elites, who have forgotten who they are supposed to serve, the spanked bottom they so achingly crave.

  • Comment number 91.

    What pretentious drivel and nonsense.

    It was the free market of Standard & Poor, Fitch, and Moody's the ratings agencies that were responsible for "wrong" labelling and selling of USA sub primes which resulted in this current and ongoing economic and financial catastrophy.

    It is ALSO Standard & Poor, Fitch, and Moody's who are currently further undermining the markets AND NATIONS while ripping huge profits from nations via extortionate interest payments, like some illegal street money lender.

    At the same time, the people that Standard & Poor, Fitch, and Moody's actually work for, the banking/investment gamblers, are actually doing very well out of this, and it is the very same investment gambling arms of banks that also hugely contibuted to this economic and financial catastrophy that are now gaining massive profits from such devious underhand behaviour of Standard & Poor, Fitch, and Moody's.

    The result is, is that European economys and national debt management is being smashed to pieces by the power of the "free" market. There is NO recourse or important information provided for these agencies attrocious reasoning of downgrading nations credit ratings.

    The "free" market of Standard & Poor, Fitch, and Moody's and fellow conspiracy instititions are basically swinging nations around by their tails.

    The "free" market it seems is in direct collision course with nations, it is flexing its power and via its course of action is basically attempting to threaten nations if they do not conform to "free" market demands which are basically being manipulated and directed/managed to achieve maximum damage/profits.

    Its basically a HUGE gamble on who can hold out or who will give in. Ultimately nations will NOT be able to dig any deeper to fill the pockets of this "free" market conspiracy.

    These markets and all those involved forget history, if they think the French Revolution and its consequential outcome for the rich is something never able to repeat itself, i personally believe they are wrong.

    The markets seem to be amazed at the growing level of violence in Greece, 3 people dead already. What do they expect, do they expect ordinary people to lose everything while banks and investment gamblers are basically undermining whole nations so they can feast on the panic and gain as much profit as they can manage.

    I personally would suggest that the actual Political risk premium is far far beyond what most governments are capable of withstanding if this manipulated and deceitful financial catastrophy is not STOPPED in its tracks. The cause, effect and consequences may very well be that whole political stuctures, as well as financial and economic structures will be smashed into nothing.

    There is massive massive anger in many nations and some will take even just a minor spark to set the flames of social implosion.

    These credit rating agencies, Standard & Poor, Fitch, and Moody's among others, as well as the gambling financial banks/institutions and individuals may be setting a political and economic fire storm that is beyond most countrys capabilitys of putting out the flames.

    The reality of this Pestons Picks subject is actually totally the opposite to which peston suggests.

    The "free" market is wagging nations, NOT the other way round.

 

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