Crunch: A new phase

Nice! How much longer before we turn the lights out?

My understanding was that the reason US & Asian stocks slumped yesterday/overnight is because Paulson isn't going to buy up the debt but is planning on buying stakes in the banks instead.

The markets clearly thought this was a bad idea and that it wouldn't solve the problem.

Isn't this the "solution" our great and esteemed PM is claiming worldwide credit for?

Brown said that every one was copying his approach.

If the Americans have changed their approach, then is Brown now on his own or was he telling porkies in the first place?

ps. Any update on Mandlesons confession of discussion of EU tariffs with Oleg? I am looking forward a week of hounding followed by his resignation - when is it scheculed to kick off?

At last someone sees sense and lets a bank fail,if the same had been done with Rbs, the Bank of Ireland,Northern Rock,Wachovia,Anglo Irish and Hbos the problem would now be over,Savers with these institutions would have been fully protected and the extent of the failure of these institutions would have been forgotten now and the economy would have showen signs of recovery yes the poor employees would have lost their jobs but then they would have had the large pension pots and bonuses earned to see them through.It makes no sense to prop up really toxic companies with vast sums of taxpayers monies when very good business are folding by the hour

How we all long for 'le crunch' which if I recall correctly was an advertising slogan for a type of French apple. (Or was it a French car accident?)

The American auto industry may not be allowed to fail at home, but when the parent is in trouble the overseas subsidiaries are cut first - so even if part of the 700 billion dollar fund is used to prop up the almost defunct American car giants we should not be surprised if the European subsidiaries are still sacrificed. (Goodbye Vauxhall, Opel, Sarb, Volvo, Ford Europe etc. etc. - or anybody want to buy one of them?) What of the European car industry bail out cash - for if the USA props up its car industry to maintain a level playing field Europe must do the same - protectionism here we come!

Another worry is the shape of the curve published by the Bank of England yesterday, if we assume it is their central projection then where are the error bounds? Even then with the turnaround coming in the third quarter 2009 the upturn seems far too steep to be a naturally occurring economic phenomenon. Anyway they will not have taken into account any further 'bad news' since their projection was made. It is a indictment that confidence bounds are not published as well as it makes the Bank look unnecessarily stupid when the prediction is not met.

Also, the upturn being so steep, the Bank must already be forecasting putting interest rates up really quite high to prevent overshoot. Indeed, as their often stated mechanism related to interest rates is a time lag of twelve to eighteen months they should have already put the rates up - clearly their prediction is a logical nonsense - which is very very worrying indeed.

What all this shows is that the Bank is scared of telling us the truth as they see it for it might scare us - but the untruth that they published is even more worrying.

The implications are obvious - the motivation suspicious. Is this the poison pill left by the outgoing Administration for Obama? Perhaps he should just take control immediately.
As far as cleaning the stables is concerned, the only way out now, given that there's no river big enough to swill the lot out, will be to seal off the block and begin again. That way, given a year to rot down, the old block will contain much valuable fertiliser for the new growth.

Hi Robert,
Another typo? Para five, should it not read 290bn not 290m? Detail my man!

Can you do a piece on how the global shipping trade is seizing up re tanked shipping rates etc? A scary leading indicator of demand evaporation!

Tighten your seat belts!

Wasn't Paulson talking about buying stock in banks yesterday?

[His read speech must have been constructed to obfuscate- therefore we need BBC analysts to explicate]

We should never forget that the main source of this whole problem was the "decapitalisation" of the banks over the last several years by the excessive levels of banker remuneration.

40 - 50% of bank revenues going out in remuneration and bonuses to people who were not - as is now obvious - particularly productive, was never a sustainable business model.

But they will go on linging their pockets for as long as they remain unsupervised.

SCRAP ALL BONUSES TO ALL BANKERS NOW.

DO NOT USE MY TAX MONEY TO REFILL THE TROUGH FOR THESE GREEDY PIGS.

Robert..........
Thank you for this update.
Seems we are now at the point of minus doom and gloom!
Surely the US now sets out the roadmap we face in the UK, but as with all recessions the economic climate will turn around.
Some positive articles are now required to cheer us all up for Christmas and the New Year.
I know what I want from Santa Claus..........

What about the UK buy to let market? I have an acquaintance who has 40, yes 40 Bradford and Bingley Mortgages. He has built his empire since 2000.

Property will drop to 3.5 times average earnings simply because there is no wholesale foreign money money in the system and deposit requirements will be a minimum of 85% LTV - once we hit the bottom.

These empires will not stand - they will collapse. Did no one foresee the immorality and lunacy in the Buy to Let model?

wouldn't it be nice if we could just start all over again; learn from these mistakes and try not to let greed get in the way?

it makes me sad to think that this is what the human race seems to have evolved into

perhaps we are better off extinct?
besides, think it's bad now? just wait until the oil runs out and the huge barons and cr4porations have no way to make billions of £££ at everyone else's expense ... will they force the hand of America to 'push the button' and call time on the human race?

I've got a very worrying feeling that we've only seen the tip of the iceberg so far...

If GM goes bust and the crisis spereads through the Motor Industry in the same way that it spread through the Banking industry, and its not bailed out because there's no more cash in the worlds piggy-bank now that we've spent it on the Banks...

Doesn't bear thinking about really...

I see that despite the rest of the world in an economic downturn, local governments in this country are still recruiting as if there is a bottomless of taxpayer money....

Look we're expecting 12 to 18 months more bad news. It'll all come out in the wash! In this case it needs Jet Wash!

We've all been carrying on with unsustainable financing and many companies don't deserve to be in business with the models they are trying to make-work.

This is all bad news but also great news for those who have put aside funds for this kind of scenario.

A good number of car makers need to go belly up.

Bigger fortunes will be made in this recession than in the boom that is for sure.

The Governments know they can only put on a brave face and tinker, ultimately the market will dictate what happens.

Now is the time to dig deep and negotiate hard. NOT for the faint hearted tho!

Dear Robert
The Financial world has Ditched capitalism, globalisation, and Thatcherism, for Socialism, and Nationalisations. What New Deal CAN we expect now.

It's a good news for Banks in USA and UK as this will speed up the process of strengthening the balance sheet of leading USA banks so that the Libor will come down to the lowest level, this in turn will further facilitate the money market flowing of funds for interbanking lending and for customers alike. This decision is especially good for UK banks to move forward rather waiting in the wind to expect something eventually come out from US treasury bailout. For UK banks such as RBS whoes share is currently trading at 54p, which is ironically below the 58p dividends payout, will focus on its own internal resources such as nearly 5 billion sterling shares RBS held in Bank of China which will be available to dispose next month, if some of the RBS overseas assets disposed successfully then there will have a good chance for the incoming CEO Mr Hester to turn the Bank around and start to resume dividends payment to shareholders within one year's time. After all the insurance arms of RBS such as Directline and Churchill are very profitable business so as the international money transaction business.

Either Paulson is very good at reading the market and changing his strategy on the fly, adapting to ever changing market conditions, or he simply has no idea what he is doing and simply changes his mind depending on who has the loudest voice and has his direct phone number.

Personally, I have my money on the latter, as I doubt he really has a clue what to do and is simply marking time by helping out his buddies in the banking and finance world ensure that they get their huge bonuses.

While it is good to have liquidity in the economy, pushing more credit towards a population that is already drowning in debt is simply not a very sensible solution, and can only be sustained for a very short term until the problem comes back in even more drastic form for you to deal with.

Oh well, I guess we will just have to wait and see what the future will bring, but I doubt it is going to be good news... Anyone know where I can buy a survival guide for living in the urban jungle?

Bring back British Leyland.

The patterns for the Marina and Allegro must be somewhere in the archives.

We seem stuck in this strange half-way-house where the state throws taxpayers money at the banks and then says 'please lend it to businesses and consumers'

We take stakes in private firms and then try to let the free market that has brought us so much woe continue as if nothing is wrong, only this time with huge amounts of taxpayers money

Surely if the banks remain truculent on the matter of loans Governments should set up state lenders of last resort and bypass the financial institutions by lending direct.

Given the volitility of the market at the moment it is very difficult to be sure of cause and effect but surely Poulson's decision gets us back to Groundhog day. The point of the bailout was to create some sort of a market for toxic debt with the US Treasury in the position of buyer of last resort. If their not buying institutions will again not be able to price the debt causing further write downs and a further tightening of credit.
Meanwhile why is it such a small story that the Pound has now lost 25% of its value against the dollar in 5 months? This is a far greater devaluation than Black Wednesday and will seriously impact on our Government's ever more desparate attempts to borrow yet more money internationally. Unless this stops further reductions in interest rates are for the birds.

To number 4

...yes the poor employees would have lost their jobs but then they would have had the large pension pots and bonuses earned to see them through.

I happen to know quite a few people who work for a bank who at their level will not get large pensions or have earned excessive bonuses.

Many need reminding that not all people working for banks fit into the top percentile greedy pig brigade and are decent hard working folk.

#14

a massive proportion of these are to work in job centres and benefits offices though. maybe they arent being quite as shortsighted as the national government....

The US government should pay off peoples mortgage loans with the remaining $400 billion dollars it has to a level at which people can keep up with the repayments.

The whole mess started by lending out large sums of money under the assumption so long as everyone paid massive profits would be made.

Freeing people from this unsustainable mortgage debt means they would have more money for the real economy. It would also slow down the house price falls.

While it is a bailout of some sorts taxpayers are going to have to pay more in the long term to cover the borrowing in order to buy out the mortgages wholesale.

#1 - You need to be patient for a while longer. You will probably get one or more "practice runs" in 2 or 3 years time, and in a further 2 or 3 years they will introduce you to the real thing.

No doubt the politicians of the day will claim that they had no idea and never saw it coming and anyway it´s a global problem, and if it´s good enough for California then surely it´s good enough for the UK, and it´s not all bad news just think of the carbon saving allowing the UK to claim pole position in the world green stakes.

August economic commentators and forecasters will spew forth a dictionary full of excuses to explain why their central forecasts for economic recovery and growth have been impacted in a not necessarily positive way by the systemic failure of the British power industry. No doubt this will be another once in a lifetime event, something for which it would be wholly inappropriate to hold any individual to account. Indeed any attempt to hold anyone to account for anything would be little more than spiteful vindictivenees. Unless of course an opportunity arises to blame Johnny Foreigner - this of course should be siezed upon immediately.

The only saving grace is that most of us will be literally sitting in the dark and hence will not have the opportunity to listen to the boundless puerility briefly outlined above.

#11 "Did no one foresee the immorality and lunacy in the Buy to Let model?"

Unfortunately not. My godson couldn't afford to buy a home, because B&B et al financed buy-to-letters had forced up prices to ridiculous levels. And of course the money to pump up this bubble came from overseas. Now of course people have to have less interest on their savings - partly to subsidise the people who have become a new landlord class on borrowed money. There should be fair rates for owner occupiers, but punitive rates for these parasites. (I have no personal interest in this as I am mortgage-free)

Mortgage to buy to let has certainly contributed to the current bubble and bust: just as borrow to speculate on the stock market contributed to the 1929 crash.

Robert Peston.....a short seller in disguise?

Robert there’s something I don’t understand :

Who is going to lend the UK the money to ‘borrow our way’ out of the recession. ?

Given the decline in the value of the pound to a new low against the euro and the sub $1.50 dollar just how are Brown and Darling going to ‘borrow’ us out of recession ( to fund tax cuts and public works projects ) – Surely our mighty currency will not buy in many dollars or euros, and whom are we borrowing from?

Maybe using sovereign wealth funds like Barclays have done, and they appear to be paying top dollar (sic) for their money. Doesn’t sound too good.

The IMF then, like Denis Healy did in the seventies, the last time the wheels came off a Labour government.

Maybe we could borrow it from Prudence, but I haven’t seen her round here for a while.

So who is going to lend us the money, in what currency, and on what terms?

Also this economic stimulus must be coordinated with other countries who will be doing a similar thing – so who are they going to borrow the money off?

Do I here the printing presses warming up?

Gordon always said we are uniquely placed to withstand the economic downturn. Given the state of the pound in the money markets, the rest of the world obviously agrees with him.

I get the feeling we are up a creek without a paddle. Hand me my brown trousers.

Robert

We are not looking at recession anymore. Commentators are talking of depression.

What will be a Depression in its current context? Nobody can really suggest that we will have a mirror image of that period, can they? Suicides(which were wholly hyped at the time) soup kitchens and mass depravation?

Will the world depression of 2009 - 2015, if it occurs have a financial industry on its knees and the 45% nof the population being supported and by who as corporation after corp' and small business collapse?

Will there be no alternative other than to invest heavily in social housing as the mortgage industry becomes non existent?

Will it accentuate the class divide futher as the middle classes become dependent on welfare?

Will communities come together with co-operative societies to even out hardship.

Will the effect of gorging on false prosperity enrage the people enough to support the overthrowing of existing regimes?

Will the BBC used to unite the nation as a Public Service Broadcaster?

Who knows, but its all to get pretty exciting isn't it?

giantirishrover.... thats some strategy!

Surely if all these banks go bust then all debts owed will be called in? Mortgage, commercial loans etc etc... everyone would go to the wall not just the Banks.

As for the Bank employees, maybe the top tier of the board can survive on bonuses and pension pots however think the normal employee being tarred with the same brush is a bit harsh.

If most banks are bankrupt, and can't or won't exercise their basic function in society, we might as well abolish them and look for a new model of finance.

Lending money, except very short term for cash flow purposes, should be abolished. Instead of banks we need investment houses which rather than lend, take a stake in anything they finance. They would then have an incentive to keep a business going rather than foreclose. The same with mortgages: People pay rent on the portion of a property they don't own, while paying off the capital plus a reasonable service charge on what they don't.

The purpose of a central bank should merely be to match the money in circulation with the amount of goods and services available. Plus we need state guaranteed deposit takers whose sole purpose is to keep money safe and enable it's transfer between people and organisations.

The function of banks has changed greatly over the centuries, as has the nature of money. Time for a complete rethink, and on an international scale.

And still the Guardian adverts abound for all manor of more needless jobsworths.

When will the world wake up to the fact that BROWN has busted Britain.
The list of his failed policies is endless yet still he spouts he is "Doing the Job"
If we had any decent Labour MP's who could stand up to the bully boy and (girl) enforcers they would stand up and be counted and get rid of the most incompetent Prime Minister Britain has ever been subjected to.
Unfortunately we dont have a decent replacement and not one in the Conservative party either. Cameron lost the battle when he tried to "Get in on the action" with his speech at the party conference. A serious misjudgement and one which history will show, lost him the chance to ever become Prime Minister.

Britain is BUST

The phrase that has defined the last 6 months or so was 'Worse than Expected' as bankers and economists fractically tried to catch up with what was happening and realised that none of them had any of the imaginary money that they thought they did - and the ones who did have any had lent it to a deadbeat named Cletus in a trailer park in Arkansas.

Well, my friends, the next 6 months or so are going to be defined by the words 'Longer, Slower, Deeper and Harder', which sounds absurdly like a porno movie, but refers to the strength and depth of the tidal wave of recession that is gathering in the deep and heading our way. 'Crash' Gordon is standing on the shore with his back to the sea and his trousers rolled up to the knee blithely blaming everyone else for problems that he could have prevented.

There are an awful lot of people who are going to get hurt in the next year or two by market forces that they don't understand - and they are going to want to know why.

The words 'no more boom and bust' sound a bit hollow now, eh Gordon?

The argument about the automotive industry being a key part of the economy just doesn't hold water. Any productive industry must weather the visicitudes of the economy, product life cycles, demand and supply and all, and the same argument was current in the UK economy in the 1970s about British Leyland. Its loss did not bring the UK to its knees, even though it was particularly unpleasant - to be gentle - for those concerned.
Another viewpoint is that the shake-out will refresh the corporate sector as a whole, and possibly do more to save the planet than anything a government can plan (particularly in the US, where they'd rather lose both legs than the car, even though they can't afford to replace it this year).

Well - at last we all know what the Third Way much trumpeted by Blair and Brown actually means.

An economy with the spivvish characteristics of capitalism combined with the sclerotic inefficiency of Socialism.

No wonder lending has frozen up. If the average existing car loan or whatever is only worth 80 cents on the dollar then any institution offering such deals will make an immediate accounting loss of 20% on any new loans offered if they are marking to market.

Gosh how depressing :(

Is there any good news out there?

Robert, please find a golden nugget of hope in the mire and write about that tomorrow just so I can face the weekend!

Thank you.

What we are witnessing now is the spill-over from the financial economy into the 'real' economy of goods, services and jobs. Despite the impression, fostered here and elsewhere, that the economy is really about financial flows and banking, these 'real' components of the economy are much bigger, so will be correspondingly more difficult (or impossible?) to rescue.

The loss of even one of America's Big Three auto companies would cost two and a half million jobs, maybe more, with a high proportion of those jobs being lost in Obama's back yard. He cannot conceivably say that saving banks is OK but saving auto jobs is not.

Therefore, GM, or Chrysler, or Ford - perhaps all three - will be rescued if necessary. This might be justifiable in terms of knock-on effects, but it perpetuates what are, frankly, failed businesses. Each rescue of a failed business draws funds away from the productive parts of the economy.

The word "tailspin" comes to mind here....

To number 22.
Oh do you now indeed: well tell me how many poor people in just say in south wales do you know you have lost their jobs in the last month with only the basic redunancy packaage, no pensions and no hope.
Any one working in a bank gets at least twice the redunancy package of the average person and also have a very generous pension package paid for by the taxpayer the very people who are being made redudant in South Wales.
Just to remind you Fred Goodwin from the Rbs walked away witha pension pot of 8.5m never mind his tax free package,now leave him with 1m of a pension pot and divide the 7.5m pension pot amongst 300 of the poor people of south wales in the last month and they would jump at it.
No have no worries about your friends in the bank

so letting Lehman's fail started all this?!

I don't think so! All it did was whistleblow on the entire finance market behaving badly!

Uncertainty is fanning the flames-total disclosure and honesty is needed, together with an instant stop of knee-jerking.

I don't think anyone knows how bad all this going to get. We need to stop throwing money into the air in the hope it will stop all the chaos.

If governments do this, the money they want to put into the system will go where it will work properly.

Fix the problem, then to relentlessly after the architects of this mess.

Incidentally, as banks are still not lending to each other, then perhaps LIBOR is redundant and should be scrapped? After all, it just encourages the bank to continue to borrow from Peter to pay Paul. Let's wean them off credit too!

#31

What you describe is what I understand is "sharia financing" as strict Islam forbids any type of interest being charged. There have been a couple of mortgages that use the principles you outline.

Now let's look at this a different way. We have a labour government who by it's very nature prefer state control over private enterprise, but 10 years ago any attempt to change the world would have been seriously resisted. So you play the long game, keep feeding to rope and encouraging behaviour which in the end is destined to fail. In the meantime, you rape the companies and pension funds of as much tax as possible to fund this economic miracle.

Roll the clock forward 10 years, and the system finally cracks under the wieght and the government step in with state control at the highest level. They allow the banks to withhold credit despite what they say in public and this feeds through to manufacturing, car makers, retail. Finally the doors are opened to China to "invest" in the economy at such a low rate and the project is complete.

Add into this a fast ticking clock to the next election which the government will resist until it absolutely has to and we are in for a very rocky 18 months, during which time the goverment will continue to blame capitalism for all the problems.

The population desperate for an explanation would much rather blame the capitalists than admit that they were conned in 1997... and don't say your weren't warned! Socialisim will be embedded in our society and we will never recover.

Zipitee Doo Daa, Zipitee Eh, we’ll that’s me cheered up no end! Time to spend ALL my cash while I can get some gratification for it as soon it WILL BE worthless!

Too many people have borrowed too much for too long. (with apologies to Winston Churchill). We have for the past eight years being funding a bubbling economy with, not next year's earnings, but the year after's earnings. The bubble has burst and now it is pay-back time. We will not fully recover until pay-back has substantially been achieved. However, this will not be a time to get on the same tracks again. A lot of people will have learnt frugality and caution. This will mean that the financial markets will have to rethink their business stratergies to cater for a world where a greater percentage of the population are savers rather than borrowers. Perhaps this will enable banks to lend more time, effort, and expertise to ensuring that borrowers, both personal and business, are responsible and have adequate ability to repay and have an assets that cover the borrowings.

I love it when you call a debt a security and them lend out on the back of it.

It will only be secure as long as the debtor pays back the loan. Now the debtors cannot pay and so we have insecurity.

Wonderful thing; logic.

I always knew I could never be an accountant as I had a proletarian attitude to money as I could never see it as a commodity. Now I know why I was never a banker.

This is not so much a loss of confidence but the return of reality.

Not nice is it? But welcome to the real world.

The problem with the UK economy in this global recession, is that it has a bloated, unproductive, ever recruiting public sector. We arrived at this recession with a large, structural, public sector deficit thanks to one Gordon Brown. When will Brown accept his part of the blame for the mess we are in? (Rhetorical question, since Brown is incapable of seeing any fault in himself).

"there will be attempts to stem the rising tide of foreclosures or repossessions of homes, and - which is the latest horrible phase of the credit crunch - Paulson will try to stem a threatened collapse in the provision of funds for car loans, credit cards and student loans"

"The foreclosure numbers are horrible. In October alone, 280,000 US properties received a default notice, were warned of a pending auction, or were repossessed"


Good job it's only America RP! But it's not is it?


You're British, right?

How about the story HERE? I'm beginning to think you belong in the same bucket as all those clever-clogs in the UK who think people who fall thru the debt-net deserve everything they get.

Look - it doesn't even make commercial and economic sense to 'punish' people and firms. We are going to need them all in position to have any hope of a fightback.


A MORATORIUM ON COURT ORDERS FOR DEBT REPOSSESSIONS LIQUIDATIONS AND BANKRUPCIES NOW

Why isn't David Cameron fighting for this?

I mean - Why ISN'T David Cameron - or someone in Parliament - fighting for this??

Am I the ONLY person in Britain saying this?

Cummon you guys..


GC

So where can there be any confidence in solutions which are put forward before the full stench of the problem has been experienced?

Paulson is now standing on shakier and shakier ground trying to present a controlled image. It looks like the guy has jus started to read the second page of a 100 page contract and is suddenly realising more of what he's got himself anfd the US taxpayer into.

Will Darling need to backtrack? If he does, where will it be?

The credit crunch is a series of mistakes and they are still being made. A crunch could now evolve into full scale decimation.

#31 and #41

Yes - this is very similar to Shariah financing in theory - but the economic reality of a Shariah mortgage is far closer to a traditional mortgage than you might think because it recognises that the decisions and responsibility must lie primarily with the borrower.

Oh dear - so $700billion isn't enough to clear enough toxic debt to make any difference. I hear old blue eyes echoing - "and now the end is near...."

If the toxic debts were cleared out then buying stakes in the banks to recapitalise them (i.e. provide new money for lending) would seem sensible. Buying stakes in banks still exposed to potentially huge losses is just throwing good money after bad - the root cause of the problem still remains. No wonder the markets didn't like it. Mr P is not going to refill their piggy banks but dilute their investments instead - of course they reacted badly.

It seems that one way out is just to simply void all CDSs period. This way the exposure to debt returns to the lender of the loan and stops the silly multiplying of the same debt which has resulted. At least the banks should know what they lent and to whom rather than trying to get the 'masters of the universe' to trawl their IM accounts to find out whether they did a deal or not. So a large number zeros dollars dissappear - well, so what, they never existed in the first place. The truly weak lenders will be exposed fully to light of the markets and should be made to pay the price. In the UK B&B and Northern Rock have paid this for dumb business models.
The true subprime lenders obviously will have nothing left but then frankly we don't want them lending to anyone anyway.

All that the uncertainty at present is doing is causing a recession which in turn will make more normal loans (to businesses) turn bad as their profitability falls, so they make people redundant/stop investment plans/cut back expenditure (all understandable 'good' business practice), ex-suppliers to these repeat the process, profits fall further and the cycle continues until we find the underlying economic position which is sustainable.
A point to note it at the last recession the companies which came out strongest were those which had invested (wisely) during it and continued to advertise strongly to maintain consumption.

Mr P can use the remains of the $700billion to buy the defaulted mortgages (not encouraging more bad debt)- he can then keep the people in the houses and charge them rent thus defraying the cost (oooh social housing I can picture the bile on republican's lips) - when the situation improves he can offer right to buy to clear: if the renter can actually afford it this time of course. He would of course need to get through congress a bill stopping that peculiar American practice which allows home owners to just walk away without penalty. That rapidly implemented should slow down the rate of default by 'owners' treating it like an investment.

Blogger 12 has made a valid point, I have long since feared that the elites have usurped mankind for their own greed filled selfish lives. To think that the bomb could also be used to cleanse the world is a very frightening prospect.

Its all a long way from the happy 1980’s where the Americans were the good guys, their country has been turned into a fascist state and the so called enlightened or educated indigenous population are none the wiser.

I honestly don’t know who to fear the most, the Americans, the Russians, the Chinese or Brussels!

Why is there such a huge disconnect between the soothing sounds (deceit) emanating from our glorious political leaders and this sort of analysis from Peston?

Indeed, even the BBC mainstream news seems barely interested in the earth-shaking events taking place in various dark quarters of the global economy.

There seems to be a polarity of views on what's happening at the moment. The man on the street - whovever he is - would seem to be largely oblivious to the earthquake now being signalled by the tremors being reported by Peston and other like-minded commentators.

On the other hand, people like me (are you one of them?) continue to hold the view that the situation is far, far worse than one might believe from simply listening to the lightweight, mainstream news reporting we're seeing/hearing/reading, and the patronising garbage being churned out on a daily basis by the likes of Brown, Darling, King et al, whilst the Tories look on dumbstruck.

Keep telling it as it is Robert.

I love it-Crash Gordon and Darling Canute!

Brilliant!

After racing vertically downwards and charging along the plateau, we suddenly encounter another vertical drop! How come every blogger on sites about this subject knew that:

The bailout plans around the world wouldn't work
There was more dirty laundry to air

How come those in control didn't?

A total waste of time and money-apart from delaying the inevitable to ensure it became another party's problem!

Ordinary people always suffer. All we now have left is our sense of humour!

A good thing though-my daughter is at Uni and has now learned a great deal very quickly about the world at large-she has a part time job, doesn't use her overdraft, won't ever get a credit card and is saving hard. She is now seriously thinking of withdrawing her cash and hoarding it as she isn't getting a decent interest rate. She has no trust for even National Savings as she thinks GB can't be trusted.

The speed, intensity and brutality of recent events is due, in part, to our lightning-fast technological world, but at least many more people are learning a massive amount very quickly about the world of finance. They are more cautious and cynical, and that, in the current climate can only be a good thing. No longer will people go meekly to the slaughter.

#18 I think you're exactly right re Paulson, Swervin Merve et al. Ever read War and Peace? This reminds me of the description of the battles between the Russian and French armies: a total maelstrom with every soldier reacting in blind panic while the Generals stood on a hill issuing retrospective orders to give an illusion of command.

These people have proven that they can't see past their nose in this crisis, but they still seem to have an important role to play in steadying the troops.

The fact that reality seems to unfold contrary to every prediction they trot out is denting any faith in their ability to lead us out of the crisis. Honesty in this situation really would be the best policy, as the erosion of any remaining trust and respect in these leaders will only serve to deepen the crisis.

At the moment they look like toddlers trying to command ant hills.

Great plan by Paulson to let Lehmans go bust! He must be worth every penny he gets.

One thing I don't understand is what is happenning to the money that would normally have been lent to the banks. Were is it now, and what effect is that having?

#11 "Did no one foresee the immorality and lunacy in the Buy to Let model?"

There is nothing immoral or insane about the Buy to Let model *provided* you have the money (hard cash) to buy them !! My godmother has 5 properties that she bought over her working life, scrimping and saving to buy each of them !! Now they are her pension fund and are , dare I say it, safe as houses when compared to the pension funds looted by our esteemed PM !! They will also be her gift to her daughter and grandchildren in the years to come.

The immorality and lunacy is in the fact that your friend did not *buy* to let !! He *borrowed* to let, expecting the rental income to cover the cost of borrowing and also help towards paying off the capital sum(s) borrowed !! To use a very ugly and hateful American word, he *leveraged* his small amount of wealth into what he saw was his empire only to see it dissolve in front of his eyes now.

Blaming the Buy to Let model for his own failure to curb his greed is a cowardly avoidance of responsibility !!

'waitingforthepain' sees the devaluation of Sterling as posing a problem for the Government to borrow to pay ourselves out of the mess. Is it no true perversley that you borrow less foreign currency to gain the same amount of Sterling. But this is a dangerous game, because if Sterling falls further (and borrowing pushes this) then you have to pay that much more back in interest. This is all a big gamble. And then of course as Sterling has fallen by 25% against the Dollar and the Euro etc prices of imported coomodities, goods, and services must go up by 25%. The BoE must have got its figures wrong if it is really expecting deflation. I do not see Energy companies reducing their prices, and what about prices in shops. I agree, any further run on Sterling should be curtains on interest rate cuts. If not then the Government and BoE are out of control. Help!

Mr. Peston, has the BBC re-discovered a real Tardis ?? Post #13 appeared before post #12 !! Or is it the someone cannot count ??

The system is not in decline, recession, or slump. The system is bust. With care we might come out of it very slowly over the next ten or fifteen years. Trying to restore it
quickly to its former running speed, with imaginary government money in the style of Germany in the twenties, Yugoslavia in 1990, and Zimbabwe in this decade, will lead to hyperinflation on a global scale. That will be something new.

Don't fear for your investments - fear for your life.

way things are going maybe obama can get fidel to come out of retirement and work as a consultant...... as a bonus the yanks will get decent health care and maybe there boxing team might scoop a few medals at the next olympics too!

#51

If I were you I'd fear Our dynamic duo the most!

hey everyone-time for Politicians Anonymous-

"My name's Crash Gordon and I'm addicted to power and credit"

How does one start a political party? We bloggers should be in No 10 and No 11!

Does anyone have any remotely concrete figures detailing the exact amount of money that has been paid out to banking executives in bonuses over the past 10 years?

I'd be very interested to know how many billions of £/$ have been handed out to these failing human beings, money that would have contributed towards saving the global economy had it been put aside for the rainy days we are now facing.

Also, had such ridiculous bonuses not been on offer in the first place, would we have been in such a dark place right now?

The other part of the equation that I'm having trouble comprehending is the whole repossession question. The whole point of repossessing a property is surely to recoup the loss that you are making on it by selling it again.

In the current situation, there are simply no buyers, so repossessing a property does the banks absolutely no good whatsoever, as it is not like they can sell the properties for anything like the amount of money they lent out on them.

Surely there needs to be some kind of recognition that there is currently no point whatsoever in repossessing a property and that the lenders need to come to some arrangement to prevent houses people being thrown out of their houses on a point of principle rather that goes against financial good sense.

If the USA is in such dire straits, why has the pound taken a hammering against the dollar and other major currencies. Weren't we told that the UK economy was well placed to ride out this recession, by Mr Darling.

The banking market (despite heavy protestations from the banks themselves) is a monopoly, or at least exhibits fine monopolistic tendencies. There is in reality very little competition, and very high barriers to entry through onerous box-ticking regulation.

We need to be able to wipe the slate clean when these things fail, rather than dragging them out forever. Who was it who talked about the sterilising effect of daylight?

There are clearly pension issues, but if the markets working properly, we've all suffered as a result of the write-offs we've incurred to date, and that is merely a matter of timing. Speaking as a person some way off retirement, and not looking forward to the gilt-lined super-annuated defined benefit schemes that have historically been in place, I hate the prospect that my lifetime savings will be wiped away at the last minute.

We fix this now however, 30 years before I retire, by making people accountable for their actions, realising that they run the risk of failure.

Government should levy a higher rate of corporation tax on these risky businesses, and protect the savers / pensioners from the potential defaults with the proceeds.

I can't imagine the Financial Whizzers at Breton Woods mark II, adopting the Brown approach in any way.

'Do what I have done to the UK economy'

- Destroy the currency against other currencies
- Introduce inflation as a time ticking result
- Ravage the Pensions
- Take from the hard working and give it to the Incompetents
- Have Unemployment and Recession
- and simply Ignore the People

To which the Bretton Woods mk II chairman will say

'Yes ok Mr Brown, you can do that but for what purpose ?

Now sit down.

In the next item on the Bretton Woods mark II agenda, we will see if anyone has anything sensible to say'

#41 Allahu i Akhbar!! (God is Great!)

Up to a point, but it's a bit more than that - it's a potted version of the Social Credit model of Clifford Hugh Douglas. I first came across the ideas years ago in a Robert Heinlein novel "Beyond This Horizon", and more recently in his posthumous novel "For Us the Living".

Heinlein loved above all to get people thinking. My point in proposing this is that if the present financial model isn't working, and can't be fixed without us expecting another breakdown somewhere soon along the line, we need to consider the alternatives.

#13 "If GM goes bust and the crisis spereads through the Motor Industry in the same way that it spread through the Banking industry, and its not bailed out because there's no more cash in the worlds piggy-bank now that we've spent it on the Banks..."

GM has long been the doo-doo before now. So has Ford and Chrysler !! GM going bust will only affect Ford and Chrysler. Ford will go down the tubes while Daimler-Chrysler had been desperately trying to sell off the Chrysler part for more than a year now !!

All that will really happen is the this will strengthen the hands of the other major car makers who may take up some but not all of the slack. Other minority car makers may also go to the wall. The only exceptions will be the truly specialist car makers. My friend in the armoured Mercedes business told me his business is booming especially in the Middle East and Latin America. He mentioned something about kidnap attempts helping to drive his business on !!

China has a tiny middle class of a mere 250 million; just a trifle under the entire population of the USA and they all want cars. However, they are not terrible enamoured with massive gas-guzzlers. I hear they have now become the Japanese car makers' best customers. Nanjing Auto is probably making more Rovers than the Rover Group did !!

So, to answer your worries, there will *not* be a knock on effect a la banks !!

Hmmn we landlords are loved even less than ever now.

Personally, I bought my 'buy-to-let' properties with bigger deposits than most residential purchasers in areas with traditional high rental demand. I rennovated and made improvements to them and rent them out for a small profit (for now at least!).

Good luck to all those who paid cash for their rental investments... and to all those out there without any mortgages. I'd have had to have worked as a fat cat city slicker (remember them) or been born with a richer father to have been able to afford it without some finance. Cheaper commerical mortgages were made more readily available, i did my research and i 'took advantage'.

Looks like my research wasn't very good, but no worse than most of the world's leading economists.

I've said it before, most people in life, as always, have just been trying to make a living and invest in their futures. But if it makes those of you who have to have people to blame feel better. Yes i, and those i know who have done the same, are all parasites. And we're reaping what we sowed.

#17 No dividends until the 12% coupon preference shares and other government loans are paid off !! Our Lord and Master has said so !!

and bankers anonymous-

"I'm a banker and I'm addicted to gambling with people's lives"

#18 Try Foyles !! They seem to have all manner of weird and wonderful books !!

Disclaimer: I do not belong to the Foyles family, do not hold shares in the family company and am not a member of staff of said company !!

#29 soup kitchens and mass depravation?

-We probably already have the mass depravation. Mass deprivation is on the way.

#31 Sasha
"Instead of banks we need investment houses which rather than lend, take a stake in anything they finance."

Erm - I thought we had that and it was the cause of the problem ( investment in CDOs etc). Most of the investment banks have switched to commercial banks, have they not?

#50 Spot on.

We need to know how DEEP these banks are in the clag.

Then the fear and uncertainty is gone.

Fortune favours the brave! Come on Gordon, we don't have to wait for the pre-Budget report, act now!

Lower the rate of VAT to15%.... NOW!

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

Buy-to-letters have "just been trying to make a living and invest in their futures"?

No, they've been skimming off other people's livings and making it that much harder for them to invest in their own future.

I have to shell out a third of my pay every month to someone who now controls almost my whole street and is allowing it to "elegantly degenerate."

Come the non-existent revolution buy-to-letters will be the third against the wall after the politicians and bankers.

Just a thought but why don't we let the nations with the wonga buy all (any left?)of our nations assets. Then just renationalise them for peanut compensation as they did with our assets in their countries when we were "rich".

Is it me or is everyone getting bored of comments blaming the current global economic crisis on Blair/Brown? If anyone thinks that these two would have averted (or caused) this disaster is living in cloud cuckoo land.

The seeds of this were planted thirty years ago and no individual or group were going or able to stop it.

Capitalism is rubbish, but is the least worst option. If you don't like it then you should have supported the Communists (or its relations) when you had the chance.

#32 Cameron is to the Left of Blair, or should that be Blair is to the Right of Cameron ?? The LSD, oops sorry, Liberal Democrats, are so far in the clouds that they are out of contention.

Either way, Cameron is no Maggie Thatcher !! And she, or her clone, is what we need now !!

46 (crowdedisland) is absolutely right.

The claim that the UK is "best placed" to weather the downturn is demonstrably nonsense, as is being demonstrated almost daily by job losses, the slide in the value of Sterling, reports from the OECD and others.

The reason for this greater vulnerability lies primarily in the bloated public sector and the resulting structural public debt-dependency. Private enterprise in general - and banks in particular - have made mistakes, but these pale into insignificance when one considers, for example, plundering more than GBP 200 bn from pension funds to pay for bureaucracy and benefits.

Not much can be labelled "made in Britain" these days, but we can paste this label onto many of our current problems.

If Paulson does do the U turn and as one of Bushs nurses, stops the transfusion, I think it will be an antithetical master stoke that only Bush could engineer.

Cuttin taxpayers funding to the Financials to try and slit the throat of the US's economy before Bush goes, leaving the President Elect with a headache, will in fact leave the door open to use the reserves to support the lame-duck Detroit 3.

Therefore, leaving the economy needing a transfusion anyway as it crashes without it seatbelt on!

The blue collar bankers cannot be saved, neither can the auto-workers, isn't it time the life support was switched off and the transfusions halted?

RP "toxic assets"

An oxymoron?

So there's a drying up of funds for credit cards, car loans and student loans.

It might be a bit 1960s, but why don't we start saving up to buy cars, and only sending the best people to university, so we can afford to fund it for them??

Is this financial "crisis" in fact a return to common sense????

@64.

If houses don't get re-possessed what incentive for paying back a mortgage (or rather penalty for not) is there?
As soon as word got out that repossession had stopped or were much less likely, everyone on the borderline of being able to pay will just stop paying and the banks/building societies will have even less day to day liquidity.

# "Why is there such a huge disconnect between the soothing sounds (deceit) emanating from our glorious political leaders and this sort of analysis from Peston?"

Could it (huge disconnect) be that they emanate from the opposite ends of the alimentary canal ??

Moderator

Can you get someone from IT to sort out the presentation, please?

There are problems with apostrophies and the pound sign.

See #12

"to make billions of ??? at everyone else's expense ..."

Thanks.

I really can't understand why the banks were bailed out. If they had gone to the wall yes it would have been difficult and we would probably still have the same problems as we have now. But in the longer term new banks would start up and surviving banks would have been recapiltalised after receiving deposits from customers from collapsed the banks. There would also be a few billion £ in the Treasury to help people through the difficult times ahead rather than ridiculous level of national debt.

#37

Good news...... the world will in future need less people employed as estate agents.

Good news......Paulson has peered over the edge and seen that pi$$ing away half of $700billion on toxic loans, instruments and the CDS market measured in $trillions is a bad idea.

Beyond that we're scratching around.

The buoyant economies of the last decade or so depended on demand created by easy private credit, particularly in the US and UK. The removal of that demand must either be reversed or it must be replaced, if a very serious recession is to be avoided.

Even if the banks can be persuaded to start lending reasonably freely again, it is most unlikely that in the short term they will get back to their former level. So governments must fill the gap with public investment.

Unpalatable as it may be to governments addicted to supply side economics, they must now invest massively in public projects. The recession is likely to be at least as bad as that in the 1930's, which was only finally cured by vast public expenditure brought on by the onset of WW2.

#65 "Weren't we told that the UK economy was well placed to ride out this recession, by Mr Darling."

And you believed him ??? Hahahaha...choke, choke...

@74 we needed to know how deep these organisations are in the clag two months ago. However, in their infinite wisdom HMG decided to allow them to continue digging (and there's yet another thread to be reawakened, the failure of the FSA to regulate, and the failure to call them to account, but rather to allow them too to keep burying the evidence).
The only possible way to do this is to use the NAO to lead assessment teams from every bank, bar its own, into each others accounts at 0001 hours on 1st January. That way there's a cat's chance in hell the year-end accounts will be objective, conservative, and precise.

I doubt the buy-to-letters, or to give them their more traditional name, the landlord class, will unduly worried by this crisis. Historically, they can often do well in times like this, whilst ordinary people feel the squeeze.

The problem is that they often use their increased power during these times to extract more and more concessions from the state, further enriching themselves and impoverishing everyone else. The false dawn of the French aristocracy before the Revolution comes to mind, when they cornered all the lucrative civil service jobs and exempted themselves from all taxes.

A wise government would adopt progressive taxation and try to stop them in their tracks. I suspect we're going to get a fudge instead.

Now is the time for GM, Ford et al to shift into Bicycle and Rickshaw production as that's all we'll be able to afford.

Personally I'm aiming to get the horse dung clearance concession for the West Midlands!!

The bail out was never a cure-all. The purpose was to try to prevent collapse. It will take months for all the problems to be exposed.

The end of the financial year, barring fraudulent accounts, sounds a reasonable point.

The banks from their behaviour are clearly expecting more problems in the financial system and in the economy. All that has been seen so far is a false dawn, a reflex to intervention, there are still dominos to fall.

The UK government is finding the obvious, that they cannot instruct the banks commercially, because it is the banks who have the risk not the UK government, and the worry is the loss of loaned capital.

Brown has trumpeted too early and too long that he is the saviour and it will bite back. Credibility will suffer which will do nobody any good.

In the meantime consumer trust, which is critical to recovery, has been all but destroyed. Consumer trust will only be rebuilt slowly, and then - and only then, will the UK housing market recover, which like it or not, is central to the UK economy.

The UK economy looks to have major problems. If you take 5 years bubble growth from a largely modest and steady, ie flat, economic growth history in that period you have to be concerned that things were actually in hidden decline entering this mess. Perhaps that is why the bubble was so welcome for some.

There is likely to be some bitterness about in the New Year which will also have adverse effects. The problem is not just fiscal, it is psychological. It is likely that things are seen as worse than they really are which will not help.

It remains about all fear, and having stoked up the fear in order to justify intervention the consequences have to be played out. If this view is correct then when a rebound does occur it is reasonable to expect it to be strong as things will have been driven too low. The problem is when it will actually occur and what happens in the meantime, which looks to be grim.

#65

I have read that the USD will become Bog Roll about February.

I do not know what this prediction is based on but the US seems deeper in it than we are.

These are historic times. I am gripped by it all.

Good News!

In all this gloom Siemens profits up 46%.

the quality of comments seems to have deteriorated on this blog.

paulson's u-turn means he has come around to brown's approach (buy equity in banks instead of buying their toxic assets). buying equity is a more effective subsidy, because it takes the first loss across all assets held by the banks. markets sold off because paulson has access to a lot more information than anyone else on the health of the us banking sector, so the fact he has opted for brown's more drastic medicine is an unintended signal to the market that the banks are in an even worse state than previously thought.

robert, as well as credit cards/student loans/auto loans (which i have been flagging since september), you also need to start asking probing questions about corporate debt. everyone assumes that corporate america cleaned up its act after the enron / worldcom scandals, with a significant fall in average debt/income ratios being reported in corporate financials. i suspect the reality is that a lot of debt has simply been swept under the rug via sale-leaseback and future flow securitisations and other such balance-sheet-flattering transactions. i believe us gaap is particularly porous when it comes to off-balance-sheet treatment. i suggest you start asking some of your banking contacts in credit structuring what their view on the reliability of corporate financial statements is with regard to their overall leverage.

another observation: the uk and american economies are basically in the same stew right now (burst credit bubbles, collapsing demand and risk of serious deflation). sterling has responded by plummeting in value, which is definitely the right response from the point of view the necessary economic adjustment. contrast that with the dollar, which has gone through the roof since lehman went belly-up, largely for a lot of technical reasons that have nothing to do with the health of the us economy (unwind of the carry trade, evaporation of short-term dollar refinancing, the floor on dollar rate cuts, flight to quality, prefunding dollar derivative cash calls, etc etc). imo this means that until we see a total capitulation of the dollar (let's say usd 2.00 / eur), the usa is going to suffer a much more profound recession than the uk (although the uk's recession is likely to be sharper at least in the next 6 months).

I was wondering if anyone can offer me some advise. I work for a large financial organisation whose share price recently (within the last week) went ex-divi. Within two business days of this event one of the company's senior managers sold a very large holding which was concluded the following day which just happened to be the day before trading in the stock was halted and the bank then concluded a multi billion institutional rights issue within hours.
So here is where I would like the advise. Am I a cynical person who needs to take a chill pill, or am I right to be concerned that there is a serious breach of at least ethics by this senior manager and more than likely (what my cynical mind believes) is a case of insider trading. This manager (board room level) must have known on the Friday that the company was about to embark on a rights issue. Considering the speed of the institutional placing, I have to believe that these investors had prior knowledge of the action pre trading halt.
I would appreciate anyone believing a regulatory breach has occurred, how I can ensure a thorough investigation is conducted into Mr Farhour of the National Australia Bank who by doing this saved himself over half a million Australian dollars.

If this breaches house rules, I am quite prepared for the last section, naming the executive and the organisation to be removed. Equally, I would be pleased to see some financial enquiry/investigation into this as I can not believe that the ASX (the financial regulator) seems unworried by his actions.

#68 Heinlein also said, "Dictatorship is defined as one person can decide better than a million people. Huh ? Democracy is defined as one million people can decide better than one person. Duh ?"

#70 "Hmmn we landlords are loved even less than ever now."

Sorry, nothing personal! If you lived locally I'd buy you a drink :-)

My point, really, is that this kind of borrowing to acquire assets is bad for society and bad for the economy long term, and should be discouraged by regulation and taxation.

The only people I really hate beyond forgiveness are those who buy fine wine as an investment but don't drink it. I've no objection to competing with other wine lovers for the better vintages, but when these *****s come in to deprive us of the pleasure unless we pay them a rake-off, then I see red! (or rather I don't - I switch back to beer.)