Hampton for RBS

Quite imbecilic.

The Stock market has reacted in a predictable fashion. RBS share price nosedived since 4pm today to a now all time low. I foresee RBS being 100 pct nationalised at this rate.

Things just get dumb and dumber!

Barclays also down 24pct on the day, must have lost half its value this week? And the decision to allow short selling again is nothing short of visionary by the authorities!

Whats going on at Barclays The share price is down 20% or so in the last hour.

Round and round they go..

A new Chairman will now be able to face the Shareholders and the Savers with RBS and indicate the new tranche of vast billions of write offs and losses the last Board over saw.

Its old politics with few new solutions and I feel that we have yet to see the real rotton meat of write offs in the British Banking Industry. What with CDS's, new asset ratings, mortgage write downs and toxic assets covered in the USA housing market, I estimate that RBS may well be back for a further tax payer tranche of £20 Billion or so.

There should be a Parliamentary Election and New Government before such huge decisions are contemplated. Brown is acting as the British Economic Tsar and simply ignoring mistakes and consequences for our future. Its all about holding the headlines and keeping his job for as long as possible.

A new Chairman for RBS will make no difference whatsoever at this stage to confidence or the credit crunch as the Public trusts none of these people.

I assume he will have to stand down from UKFI then?

Looking at share price he might be working for govt by time he starts!

What's the Barclays story??

Hey Robert.

Firstly to say, love your work; impressive and well-considered which is altogether too rare.

A question for you which on it's face may seem facile, but which I believe to be actually a very elusive obvious.

The current banking crisis: given wealth doesn't evaporate ( like matter and energy, it takes a new form when it's traded ), where have all these 100s of billions gone?

Quick example. I package up a Credit Default Swap. I sell it. Let's say I then buy gold with the proceeds. I now have gold, whereas the CDS perhaps now becomes worthless. I maintain the wealth from the sale of the initial asset.

Where has all this wealth gone?

I'd be most interested to hear your take on this seemingly simple riddle.

Thanks in advance for your time and insights.

~ JH

I believe a lot of bankers will be returning the favour by working in supermarkets very shortly.

Shortselling ban lifted all the Gamblers are pilling in.

I have no moral criticism of short sellers; if it's legal for the financial system to be hijacked into a casino, anything goes: but it's crazy. It should be stopped for good!

The "make money not things" philosophy should be excised from our culture. Money should be earned by making something useful or doing something useful. I accept that the latter might include making us laugh - after all, man cannot live by bread alone - but bread comes first!

1: The Gov't must surely be aware and complicit in the undermining of the Banks.

Leaks of Northern Rocks lender of last resort request.

Dragging their heels on stock lending and short selling.

Punitive rates of Interest on Preference Shares.

The Gov't is HAPPY to sink the Banks.

And our Pension Funds.

The Chinese example, poor workers/people are easier to control and accept less reward.

I suppose when Flash starts printing money RBS will be offering 2 for 1.

Post 1 and 2 (at least) Barclays is bombing as they were naughty, Gordy is cross with them, so is suggesting they are not going to be included in the septic bank idea.

#6 - Its complicated but I think its gone where it came from - nowhere - the money never existed. Just somebody found out. Bit like what Madoff did except a lot more complex.

6 jh

The 'disappeared' wealth has gone to:

(a) the Chinese, whose goods the west has 'consumed' using largely borrowed cash, lent largely by guess which country?

(b) Opec and the Russian raw materials oligarchs, that's why they can buy football clubs etc.

(c) drug and gun runners, and other crooks.

(d) bankers, hedge fund managers, and other crooks

(e) but a few pennies (relatively speaking) into western savings, mainly invested in the stock markets as advised by your friendly banker...

This cannot be simple incompetence by Brown and Darling. They(via FSA) lift the ban on short selling a day before they plan to announce that they will be injecting more capital, capital required because they have raised the capital adequacy ratios. They probably leak info. about having a plan to inject more capital, spooking the markets sufficiently to cause a 20% fall in Barclays shareprice. Enabling them to obtain a much larger proportion of Barclays when they announce that it will finally have to take it's begging bowl to the treasury. Suprised it wasn't you Peston leaking the info. These actions quite clearly demonstrate the real agenda of Brown and Darling, the effective nationalisation of the financial system and hence the economy, I think this is called communism.

7. At 5:00pm on 16 Jan 2009, steviefboy wrote:
I believe a lot of bankers will be returning the favour by working in supermarkets very shortly.

Got my belly hurting!

Excellent !

Come on Robert - what about the news from Honda - this could be the beginning of the end for manufacturing which only last week you said was important!

If Honda leave the UK becasue no-one seem interested in manufacturing here anymore it will be the end of the UK as what remains of our manufacturing will be gone for good!

We can't all work for Tesco AND buy all our shopping at Tesco! We need manufacturing to add value!

Re: The New Capitalism

Just thanks.

I sent it to my family and friends along with, "Robert Peston is the BBC's Chief Business Editor.

Over the past 18 months he’s provided some of the most honest, accurate, astute and even borderline prophetic economic analysis I’ve seen anywhere.

The next time you’re concerned with where we’re heading, definitely worth a look."

High praise, well deserved.

~ James

RBS & Barclays share price dives
Short sellers in with a vengance presumably?

These hyenas would sell their granny, they MUST be shut out of the system.

They have no morals, no ethics, no value in times like these. Someone could argue that they might have a purpose in soporific, cozy times, but certainly not at this point.

Boat-rockers? Ship-sinkers more like!

Regarding the late falls on the Stock Market prices in the banking sector, Reuters is plumping for short selling as the main reason.

https://uk.reuters.com/article/businessNews/idUKTRE50F59W20090116

Clean house.

That is all.

If:

The flawed tri-partite system for financial regulation had not been created.
Brown had addressed the structural problems with the UK's economy during his 10 year tenure as chancellor.
Lloyds had been allowed to and supported with a takeover of Northern Rock in early 2007.
The govenor of the BofE had not bleated on constantly about moral hazzard and made the decisions on liquidity injections ahead of the financial armagedon.
The govenor had also kept his gob shut over the valuation of sterling instead of constantly talking down our own currency leading to a huge devaluation.
Peston had not been so enthusiatic and egocentric in his reporting of sensitive financial news fueling the already fragile status of the financial system...

I wonder what situation we would be in today?

People to blame:
Brown, Darling, King, Investment bankers(particularily American) and over zealous financial journalists.

People who suffer:
The newly unemployed, home owners, shareholders, pensioners, the starving and poor of the third world.

NB. all the culprits get to keep their jobs, apart from a handful of investment bankers who probably weren't involved in the fraud that started this mess.

Heads need to start rolling and all those unjustified bonuses from every sector(public and private) need to be repatriated back to the unjustified loosers.

Robert,

"His appointment to head the partly-nationalised bank comes as ministers and officials are working frantically to put in place measures
1. to improve the provision of funds to banks and
2. to limit their losses from the bad loans they have made."

(my numbering)

Aren't points 1 and 2 sort of mutually contradictory?

Put more money in banks and they will respond by seeing more of their losses as bad and palm them of on the government so that they make more (artificial) profits at the cost of the Tax Payer!

It is certainly contradictory to force banks to limit losses from bad loans at the same time of insisting that the balance sheets of banks are strengthened.

#6 jhocutt
I'm no Peston, but here's my take on it.
(I think you mean CDO rather than CDS in this instance, but either way, much the same answer I suppose.)
The "wealth" in the CDO was what the buyer thought was a fair price for the return over time, from the cash flows coming in from the assets held as against the risk. Because of the intentional opacity that was probably harder to judge than it should have been. The market to sell the CDO onwards dries up and most of the value of the CDO disappears. There is some inherent value left as if you hold on to it not all the assets will default so you will get some return, just perhaps not as much as you expected and not when you may need it.
a more real-world example:-
I sell my 1million pound house and buy gold with the proceeds. But then the buyer finds out that it's going to be knocked down for say, a runway. They now can't sell it and it becomes pretty much worthless, again they can strip down the house and sell the bricks and tiles, and fittings etc. but they won't get their million back. The "value" has gone to the same place.
Ie the market's (misjudged) premium over the real worth of the assets was just an error in the original valuation.

Dear GRIMUPNORTH77

Ref:
"#6 - Its complicated but I think its gone where it came from - nowhere - the money never existed. Just somebody found out. Bit like what Madoff did except a lot more complex."

... I would say in reply,

“The greatest trick the Devil ever pulled was convincing the world he didn't exist.” ~ The Usual Suspects

Wealth, like energy and matter, are not destroyed. They change form. There's a hell of a shell game being perpetrated upon us all. See the nefarious banker? See the evil Hedge fund manager? The biggest pea is under neither of them (some Hedge Funds have made billions, but very few billions relative to the amount of wealth that's been slight-of-handed from view).

I think MunichMadrid7980 strikes closer to the truth, but I would still ADORE Robert's analysis on this subject.

6. At 4:58pm on 16 Jan 2009, jhocutt wrote:

….where have all these 100s of billions gone?….

I say TAG the money and follow it all by satellite every 5 10 20 and 50 pound note so we can see where it all is via the interweb.

If this was possible then we would see that there are far fewer real notes in existence it’s mostly electronic.

Nobody knows exactly how much there is or where it is.

This is especially true of the us dollar.

Printing more money doesn’t really involve printing at all just a few clicks on a pc and hey presto. A loan to a bank and a payment to xyz and new money enters the system,

It may have all disappeared in the inflation ether.


This is one of the financial worlds mysteries one of many financial mysteries just like the mystery of how the regulators didn’t see we were heading in credit crunch.


They don’t KNOW…


The tentacles are every where it’s like a Giant organism a virus a disease which has mutated and evolved into many many strains self replication unchecked and out of control.


Some fictitious some real.


The BANKS themselves have been efectivly printing the electronic money which was never really there. All done very cleverly via electronic trading systems gearing up the real money they actually did have.



Robert

Should be able to tell you but errrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr



He CANT

No ONE CAN

Interesting to note that Fred the Shred's punt on ABN was never allowed to go everywhere he wanted it to go. He only managed to spend 10 billion, and not 31 billion, because Bank of America snapped up Lasalle from under his nose for 21 billion, thus taking away RBS's "prize" of the venture.

And now look at Bank of America.

If Fred had been fully "successful"... Another vast mountain of sub-prime, etc, for RBS....

Blimey. This guy might be temporarily unemployed, but he's still a multi-millionaire Knight of the Realm, and the rest of us are paying for the folly, only nothing like as much as we might have been.

No wonder Phil and Steve want the jobs of McKillop and Goodwin; no matter what they do, they can only emerge looking good by comparison.

I note that JCB a British Manufacturing company is finding it harder in the UK than in other countries because other countries provide more support during short working - that means foreign countries are supporting British companies better than Britain.

Everyone remember this when complaining about helping Honda; Jaguar Land Rover, Toyota and Nissan!

# 7 steviefboy yes excellent comment; I'm expecting to see a former Master of the Universe stacking shelves in my local Morrison's soon

as for Barclay's this afternoon they could be described as FUBAR BUNDY, or as Robert would say 'mullered'......

this may have a bit to do with the return of the shortsellers but I think there is something more fundamental going on

which is that the big banks remain in deep trouble despite all the bail-out payments

in the US this afternoon Citibank admitted to a $9bn loss in the last quarter; BoA to nearly $2bn but we should note that that didn't include Merrill, whose merger into BoA formally took place on Jan 1st; Merrill Lynch lost a truly astounding $15bn last quarter; and then there's the Irish situation

it seems to me that the authorities must be very close to the point where they will have to proceed to full nationalisation of many of the banks; of course the Anglo-American gov'ts are hugely reluctant to do this because it goes against their free-market philosophies

BUT AT THIS STAGE IT SEEMS TO ME THEY REALLY SHOULD proceed to nationalisation, AS MANY OTHER POSTERS TODAY HAVE SAID

other options seem exhausted; can't see a BAD BANK working; too complicated and the banks will remain very reluctant to step forward with all of their toxic stuff as they don't want to admit how much they have; even if a fair price could be established for buying it - at say 10 cents to the $; can't see it somehow

Doubt that Brown will do either the nationalisation or the bad bank any time quickly; events are once again overtaking him, and he seems to have lost his nerve since the Christmas break and reverted to type: dithering about what to do and announcing small(ish) initiatives every couple of days

I suspect things will unravel quickly again in the banks though; the EU are going to have to relax or abandon their competition rules that discourage nationalisation aren't they?

And how long until the IMF have to do something to save some smaller eurozone members? Latvia and then the Irish?

There's been a particularly nasty story doing the rounds about Barclays this afternoon, hence the share price fall.

The fact that this rumour has coincided with the ending of the ban on short selling is presumably just a huge coincidence.

The ban should be reintroduced on a permanent basis. The restriction of the opportunity for a few to make (or lose) a fortune this way is surely far outweighed by the broader public interest.

As roubini has been saying for over a year, Triage is neccessary on the financial sector. In other words, save the few that are not too badly off and let the rest go. By continuing to pour taxpayers money and guarentees in to these bankrupt institutions we create zombie banks that continue to undermine confidence for years, that crowd out sound and new business', and waste billions of taxpayers money. It mignt not be palatable, but we'd do better taking the hit now on the bad banks and recovering, rather than the living death of the whole economy. This is exactly the mistake the Japanese made, by a slightly different means, but the same result.

So can we expect some new innovations in banking from RBS's new chairman?

Banking Basics perhaps?

After all they already have a Sale on!

IF:

The flawed tri-partite system for financial regulation had not been created.
Brown had addressed the structural problems with the UK's economy during his 10 year tenure as chancellor.
Lloyds had been allowed to and supported with a takeover of Northern Rock in early 2007.
The governor of the BofE had not bleated on constantly about moral hazard and made the decisions on liquidity injections ahead of the financial Armageddon.
The governor had also kept his gob shut over the valuation of sterling instead of constantly talking down our own currency leading to a huge devaluation.
Peston had not been so enthusiastic in his reporting of sensitive financial news fuelling the already fragile status of the financial system...

I wonder what situation we would be in today?

People to blame:
Brown, Darling, King, Investment bankers(particularly American) and over zealous financial journalists.

People who suffer:
The newly unemployed, home owners, shareholders, pensioners, the starving and poor of the third world.

NB. all the culprits get to keep their jobs, apart from a handful of investment bankers who probably weren't involved in the fraud that started this mess.

Heads need to start rolling and all those unjustified bonuses from every sector(public and private) need to be repatriated back to the unjustified losers.

This really has nothing to do with the short ban being lifted and everything to do with what's going on in the US, Ireland, and the rest of the world. We have a government that is trying to tell us that there is nothing wrong with our bank sector and that they have pumped enough money in, and a bank sector that hasn't yet confessed to the full scale of its troubles.

If you read the Bank of England's stability report for, I think, Q3 last year, there is an extensive discussion of the bail-out. There was also, in that report, a hint that even then the Bank recognised that the banks might need more capital. That report was based on a rather more optimistic set of assumptions about the likely depth of the recession and the likelihood that the banks could generate some profits themselves than I think would be remotely credible today.

So...just as last time when the short-sellers were blamed for the woes of the bank sector, we should all recognise that sellers (whether short or not) are just messengers. People sell shares because they are overvalued. The bank shares remain overvalued, because the majority are slowly going bust. It's as simple as that.

Ref: 24. BerkoParko:

Yes, agreed CDO is a better example, though as you say, both will work.

Thing is, you're still watching one side the equation:

1M Gold : House.
( It only 'equals' it at a given juncture. )
House declines to 500k relative to demand.
That in no way explains where 1M Gold got to, i.e. I agree the buyer of the house won't "get their million back." But the guy who got the 1M gold? Where'd that get to? Put another way, if you buy a house of cards for 1M, someone still got your Million.
To see the trick, don't see what the magician wants you to see. Still hoping Robert will explain the Trick for us all ;c)
All I'm say'n.

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

This is a much more believable view on why Barclays is getting crushed today. From FT Alphaville site.



What’s rocking Barc?
Posted by Sam Jones on Jan 16 16:45.
BARC down 24.85 per cent. RBS down 13.03 per cent.

- On an afternoon when the market is up, and the next nearest faller is Lloyds, down 5 per cent.

A flurry of rumours abound. Talk that Barc won’t be included in the putative UK government bad bank scheme; talk of monoline exposure; and talk of the impact from the downgrades on credit card companies to which Barc is exposed.

None of which, as rumours, seem to have the mettle to force Barc to lose a quarter of its value on a Friday afternoon - by our judgment at least.

Mayfair’s finest must certainly be enjoying this. It certainly seems like there’s been a raid on the day the short selling ban on UK financials expired. (Though on the other hand, Barc’s performance has been dismal all week.)
But we would draw readers’ attention to one other set of facts - presumably not the proximate cause of this afternoon’s panic, but certainly worth bearing in mind.

Last week, Sir Nigel Rudd resigned as deputy chairman of Barclays amid rumours of a spat with chairman John Varley over the valuation of certain assets on the bank’s balance sheet (a notion which has been dismissed by friends of both Rudd himself and Barclays).

Barclays is an industry leader in synthetics - corporate CDOs, structured credit products, et cetera. Before Christmas, there were a number of warnings circulating about the potential for disaster in this market - on almost the same scale as that seen in ABS CDOs.

Yesterday, rating agency Moody’s issued this notice (emphasis ours):

New York, January 15, 2009 — Moody’s Investors Service announced today that it has revised and updated certain key assumptions that it uses to rate and monitor corporate synthetic CDOs, a type of collateralized debt obligation backed by a pool of credit default swaps referencing corporate credits.

Moody’s is revising its assumptions to reflect the expected stress of the global recession and tightened credit conditions on corporate default rates, which are likely to be more variable and extreme than those in other recent historical downturns. Specifically, the changes announced today include: (1) a 30% increase in the assumed likelihood of default for all corporate credits in synthetic CDOs, and (2) an increase in the degree to which ratings are adjusted according to other credit indicators such as rating Reviews and Outlooks. Moody’s also announced an increase in the default correlation it applies to corporate portfolios as generated through a combination of higher default rates and an increase in investment grade and financial sector asset correlations.

Based on initial assessment, Moody’s expects to lower the ratings of a large majority of corporate synthetic CDO tranches by three to seven notches on average. The actual magnitude of the downgrades will depend on transaction specific characteristics such as tranche subordination, vintage and portfolio composition.

Those kind of cuts could have disastrous implications for banks’ asset risk weightings under the Basel II regime. Although many banks use their own internal methods to calculate risk weightings, rather than relying on an external rating-based approach, it will be very hard for banks to justify to auditors the use of models that are out of line with the kind of assumptions the rating agencies are now adopting.

Conclusion: any bank with large holdings of synthetic CDOs may be forced to make large writedowns and more seriously, stump up huge extra amounts of regulatory capital.

And which UK banks are big with synthetics? Barc and RBS, by our memory. More info to follow.

I suppose a grocer may be better at running this Bank than a banker.

I am not a regular reader of this blog and certainly not a prolific contributor.

I should be grateful if Mr. Curzon would accept my apologies; at least he gives out figures that can be checked.

I have in mind all the 'actual' and projected numbers regarding Global debt, GDP, economic shrinkage etc. Even the Chinese figures must have a margin of error [or should I moot, an error of margin?].

Would it be treasonable of me to ask whether our Sovereign can rescind the Honours that she has bestowed or are they purely politically motivated?

All contributions to this dialogue will be gratefully accepted and recognized.

So watch out for BogOffs at RBS.

The Government ie us, should be able to get the banks for nothing now if this afternoon is anything to go by.

Not sure we would want them. How about letting them go and starting again with a clean sheet of paper and return to the old method of using deposits to fund loans.

Why appoint another grocer to lead a bank?

#30
Of course it's a coincidence surely not one of our profoundly honest and moral bankers would perpetrate such fraud knowingly.

No doubt as usual any investigation will get nowhere and it will all be just a strange coincidence.

Hopefully someone at the regulators will have the commonsense to look at this and very simply say "OK had your chance and you blew it, short selling is banned from now on (not just for financials)."

Is it possible that the short selling of shares began again today after the ban was lifted?

Self fulfilling prophecy in a low volume market.

Not sure why it moots a blog entry unless it is to say "my personal mole handed me this document"

Hope you didn't get your feet wet after the yacht party

Is it incompetence or corruption that has allowed the short selling ban to be lifted today?

To what extent have hedge fund managers' political contributions influenced this decision?

Or their "wining and dining" of politicians and senior civil servants?

Or their employment of former senior civil servants and politicians?

It is very clear that the massive falls in bank share prices in the final hour of trading was caused in the main by short-selling, which of course then prompts genuine shareholders to sell in panic.

Our pension funds, savings and the economy are further decimated - but don't worry at least a few people who have influence will make money.

BBC, are your moderators changing shift or having a tea break?

Ho-hum, another day on the SS Britannia rearranging deckchairs.

In an idle moment, I looked up the definition of 'Tier 1 Capital Ratio' on Wikipedia.

Yes, I know it sounds stunningly boring but a news item yesterday said that Barclays Tier 1 Capital Ratio was around 6%.

If I've figured this out properly then imagine 100 depositors open accounts at Barclays and each deposits a single pound.

A short time later, all one hundred people turn up and form an orderly queue to withdraw their pound.

As I understand it, only the first six people will get their money back there and then.

The other ninty-four people will be told that their money has been loaned out (along with a lot more that has been conjured up out-of-thin-air) and could they come back later/never.

Can't we all open banks, it sounds like a great scam.

PS. That was slightly tongue-in-cheek, nevertheless, I'll be sticking with a bank where the system is such that all depositers can get back all their money at any time, even in the rare event of them all turning up at once i.e. 'a run'. I suppose technically this is a bank that has a Tier 1 Capital Ratio of 100%.

Did Sir Tom get his "Sir" for being a great banker and finacial expert???
Some of our great financial experts have suddennly realised that "final salary linked pensions" are not viable, especially the 60% ones.
As a lowly engineer I cancelled my company's scheme 20 years ago, I could see it was not sustainable then.
My Bank still thinks it knows better than me, treats me like a customer, although they are now employees of mine, as I now own part of it.
Cheers.

#35

Absolutely right - the focus is on the debts now circulating but the original money mostly went somewhere, a few of the locations:

1: Bankers bonuses - after all this was highly profitable wasn't it.
2: Holidays, consumer goods, BTL property, funding GDP growth etc - all the remortgages got spent on something.
2a: Our houses - whilst they are not worth what once they were we still paid good money for them and need somewhere to live.
3: Private Equity Funds - banks got money back quickly so lent it back out to fund big ticket PE deals - as we see much of this debt got dumped back into the companies plus some. The original 'money' likely resides in Zurich, Monaco or some other tax haven. (much will be waiting for the original companies to fold before the money mysteriously appears to buy back the remains in prepacked deals at much lower costs - banks/pension funds/HMG pick up the loss).
4: Property developers pockets - someone built or owned all the properties that were funded with the original money.
5: Pension funds and private investors pockets - some of this debt was used to complete huge mergers so the money went back to the original shareholders.

Not all of it is sitting in a bank account waiting but is now the capital part of companies and individuals assets - these are literally devaluing and thus a proportion of this money is literally disappearing just as it magically appears when assets appreciate.

#19 and others. Why all the vitriol with regard to short sellers.

These guys are simply putting their money where their mouths are and telling you that in their opinion these banks are a busted flush.

They´re also betting that the conscripted army of taxpayers will be unable to save the day.

They are taking on some formidable odds - you should admire them, not bemoan them.

If you really don´t like them tell Mr. Brown that you want to pay more tax and that you are prepared to take exactly the same risks as the short sellers.

You are many they are few - If you all volunteer to pay more tax you will win and the short sellers will be vanquished.

excellant catblogger has said it, it is all crazy.
Where has all the money the Banks have lost gone, I have not got it.
They still have a safe mortgage on my home.
Will my pension fund collapse so I can't pay the mortgage so they will then take possession, then 1 year later sell at a great profit, is that the intent.
It's quite laughable if not so serious
Cheers.

You know in future Historians could look back on this crisis, and see it as leading to social and economic changes as radical as when the Roman Legions withdrew from Britannia.

We are all going to see a lot of major changes in the next few years !

#37 hrwilliams you have an impressive heap of detailed technical info which is beyond my Economics 101 level of understanding of synthetic CDOs etc, but what you say seems to confirm what I was suggesting in my post #29

which is that, simply put, several of the big, aggressive players like RBS, Barclays and several of the US banks (oh and whatever happened to the very unconservative Swiss banks BTW?) are hiding several more huge tranches of potentially toxic stuff

maybe #15 needaflip is right that HMG are involved in trying to push the shares down for devious reasons but I find it hard to believe they'd be that cunning
--------------------------
thinking of BIG BANKS and their TOXIC assets, I wonder if you have seen the marvellous Japanese animation
SPIRITED AWAY

remember the STINK SPIRIT who visits the bath house and CHIHIRO removes some junk from its side....... and then a huge wave of stinking toxic junk from the river sludge comes pouring out of it

well that's our marvellous banks

I'd recommend that you watch SPIRITED AWAY if you've never seen it; it is a lovely film; or watch it again; and when it gets to the STINK SPIRIT scene just think of a big bank; take your pick

he should sell the bank for a profit like all his predecessors did as they were all jolly good fellows

Just a figurehead & a sinecure of a job: He'll do exactly waht Crash tells him to.

He must be thicker than I thought, allowing himself to be suckered by these politicos !!

Robert,

Could you, at some point, give us your take on the strange things going on with the Oil Market?.


WTI is dropping while Brent is steady at present . I've been told that the Cushing Oklahoma Hub storage is brim full and that the septic banks (Citi et al.)are scouring the world's shipping for spare tankers for the oil bought months ago with effectively no one buying for first quarter 2009 to sell on to. Apparently they have to store at sea waiting for the market to recover at some future date to sell above what has been paid!.They can't even unload the stuff. There is nowhere to put it.

One can only assume that in 2007 and until Sept 2008 the "players" realising that the end was nigh and realising the stock markets were on the edge, piled into commodities to extract a few more months of virtual solvency before crashing in flames. Our gas prices in Europe are linked to the oil price so our bills are the direct result of this and this money has already evaporated out of our economy even though we will still have to pay up.

54 blefuscu:

There is indeed something pretty odd going on in oil markets. There is a huge overhang of surplus crude, and only today the IEA revised its 2009 demand forecast downwards by 1 mmb/d, a massive revision. Yet oil prices have remained comparatively robust, when they really ought to be below $30/b. It cannot all be attributed to the Gaza effect. Strange.

Ref 47 : Whistling_Neil

Most plausible.

I'll be interested to see any proper investigative journalism done on the topic (dangerous work, m'thinks, as the Devil won't like anyone knowing he exists). I know... let's blame the short-sellers. Easy answers for hard questions. Perfek.

37 HR Williams gives a plausible explanation of the short selling of Bank shares today. Could I suggest that the Govt was well aware of this possibility when it relaxed the rules. All the talk is of more bail outs on the back of the amount of tax payer money already invested. This week the Govt had to put up £xms more to fund the new Lloyds Group as the shares were shunned by investors. With such a volume of shares in RBS etc showing massive losses for the Govt 9 sorry taxpayer ) then Calamity sees the only solution as nationalisation - so what better way than drive down the share prices so much that capital values are lost and the Govt nationalises virtually for nothing. Calamity can then order the banks to lend East Germany style to encourage elector support as otherwise he is dead in the water if we have an election.

Robert:

That is very sobering news, for the Royal Bank of Scotland that they will be getting an excellent advocate in the form of Sir Philip Hampton....

~Dennis Junior~

I am sure the short sellers have been at the banking shares today- they could not resist it.

People on the blog are still asking where money "lost" by banks has gone. I think it goes right back to the sub-prime mortgage issue, and the fact that house prices have fallen (initially in the US, and now here).

Suppose I own a house.

In 2007 people thought it was worth £200,000.

In 2009 people now think it is worth £175,000.

Where has the £25,000 gone? Who has got it?

The answer is: nobody has got it.

My personal wealth has gone down by £25,000 and no-one's has gone up.

If you added up the total wealth of everyone in the world it would be £25,000 less because of this.

People have just realised that the house is not worth as much as they originally thought.

Disappointing for me, but not a major problem. But it would be a major problem if I had to repay my £190,000 mortgage right now - I'd be bankrupt!

And that is the situation the banks are in - having to find money at short notice effectively to cover debts they thought they had covered by assets, but now don't have covered because the assets have gone down in value.

#48

My objection to short sellers is purely a moral judgement on the practice.

If you sell something you don't actually own this is immoral to my view.

If I borrow your car for a small fee, then sell it to a boy racer who takes it stock car racing after which I buy it back (at new market value - a few dents and so dependiong less) and then give it back to you. What would you think?

Would you thank me for revealing your car wasn't that good at stock car racing (the short sellers we're doing yo a favour for exposing weakness in your shares argement) or would you have the police called?

Following on from excellentcatblogger, how for are we from a communist state.
What is the divide now between Labour ,Conservatives and Communists
We brivatised our railways, a dissater, now taking Banks in to public ownership.
Cheers.

Yes, its all down to the Satanic short sellers.

The usual demonisation of the market by the prejudiced left wingers.

A short sale is essentially a bet that something is going to happen. You gamble when your information is better than the rest of the market. As #37 mentioned there is good reason to devalue Barclays.

In the market the first one to get his hands on the info will make a killing. This is why a stock market is essential. It permits the flow of information driven by greed.

The short sellers have been right before. HBOS fell because it was full of toxic debt, not because of the market.

If the market was able to take care of this and let failing companies go bust then we would perhaps not have the truly reckless gambles the banks have made safe in the knowledge that the government will bail them out.

# 48 (short sellers)

My point was that they are going to manipulate the market, they are not passive gamblers trusting just their instincts on it's likely direction.

At times like this, they will wilfully cause a disproportionate amount of turbulance and chaos (and damage), to further their own ends.

Regards,

#6 and others. I would also like to know where the money has gone. The total amount of physical assets in the world (houses, factories, roads etc) is still the same, but the nominal value of those assets has reduced. What does that mean? We're not actually any poorer overall in terms of those physical assets (though the effects of the recession might change that), but presumably the distribution of that wealth has changed.

So people with large outstanding mortgages on houses which have diminished in value have a smaller slice of the overall pie. Pension funds that put their money in the stock market have a smaller slice of the pie. But who's slice has got larger? It would be really good to know.

Another question I would really like to know is "who is all the debt owed to". All debt has to be owed to someone. A lot of us owe money to the banks, but the banks themselves owe money to others (like the "international money markets" which Robert has often mentioned). So who are the net creditors in the system? An if we can find them and persuade them to write off the debt, will this whole mess go away?

'Where has all the money gone?'
A very valid question, not all of it has evapourated as optimistic valuations for the buyers benefit. The sellers have wound up with the other part of the transaction. A lot of cash has gone into buying US gov. treasury bonds which has forced the yield right down, and quite a lot of it is just sitting on deposit in the US fed reserve

https://www.federalreserve.gov/releases/h3/Current/

as a lot of people are quite scared for their money and are buying things that appear safe. Unfortunately I think the next big blow up after bank nationalisation here and in US will be gov. bonds, as the controllers of huge amounts of global capital suddenly realise that the unpayable size of the bonds written by various governments including the US and our own are exactly that, unpayable. This will start when the US gov. defaults on a bond. At that point, anything could happen but most likely will be some sort of martial law and suspension of forex/stock markets.

Robert,

When will you post a blog and explain fully to everyone fractional reserve banking?

When everyone understands who creates the money, how it's created and the implication of the system real debate can begin.

Didn't HBOS appoint some ex-supermarket bloke to run that bank? How did that work out in the end?

To all the fellow warmongers out there,
Why don't we declare war on all of the tax havens:

Andorra

Anguilla

Antigua and Barbuda

Aruba

Bahamas

Bahrain

Barbados

Belize

British Virgin Islands

Cayman Islands

Cook Islands

Costa Rica

Dominica

Dominican Republic

Dubai

Gibraltar

Grenada

Guernsey

Isle of Man

Isle of Wight

Jersey

Liberia

Liechtenstein

Luxembourg

Maldives

Marshall Islands

Mauritius

Monaco

Montserrat

Nauru

Netherland Antilles

Niue

Panama

Samoa

San Marino

Seychelles

Sri Lanka

St Lucia

St Kitts and Nevis

St Vincent and the Grenadines

Switzerland

Tonga

Turks and Caicos

Virgin Islands

Vanuatu


It's 'funny' innit....that so many have ties to UK....dontcha think?

BTW ....as Jasper Carrot once mused, I don't care if they burn all the money....now there's a thought eh!

# 66 rogcay

"At that point, anything could happen but most likely will be some sort of martial law and suspension of forex/stock markets"

I have a close friend connected to the highest echelons of Goldman Sachs. He holds a similar view to yours. Small wonder our political elite (ha!) are running around like headless chickens trying to figure out what's happening. That's why their remedies are so risible; they haven't got a clue what's really going on.

My philosophy these days: self-reliance is the future. Whatever you do, don't rely on the current generation of politicians to get us out of this one; they're idiots.

#60 sal196

"Disappointing for me, but not a major problem. But it would be a major problem if I had to repay my ?190,000 mortgage right now - I'd be bankrupt!"

we bought a house in 1989 for 165k putting down a deposit of 100k

in 1994 we sold it to move jobs - but the market had crashed - we got just 110k for the house

the mortgage was paid off in full - every penny of the 65k we owed the bank, the bank got back

and we walked off with 45k - lost 55k in five years

how come we got to take all the loss and the banks just rode out the crash?

now we are in another crash - and still the banks get bailed out and we - who have managed to save a bit - still take the loss

I can't believe this appointment. It was an ex employee of Asda who brought HBOS to its knees and now we have another grocer heading the RBS.

First thing Monday I'm withdrawing my savings from RBS. There's something going on between London labour and the banks that stinks.

Where are all these highly qualified accountants/bankers? Are they of the wrong political colour for Westminster.

Scarey stuff here, Third World right enough.

For a really good explanation of fractional reserve banking, look up a video called 'money as debt'

https://video.google.com/videoplay?docid=-9050474362583451279

It is really easy to understand and walks you through it.

For some reasonably sensible discussion on whether we are due a decade of Depression or some sort of Zimbabwe style hyperinflation check out Karl Denninger on 'The market ticker'

https://market-ticker.org/archives/725-On-Hyperinflation.html

For an introduction to the causes of this mess and current thinking on ways out, also very sensible check out Chris Martensons 'Crash Course'

https://www.chrismartenson.com/crashcourse

I actually found a great graph yesterday which explained why the banks seem to be swimming as fast as they can but getting washed away by the current.

https://www.chrismartenson.com/blog/crisis-explained-one-chart-debt-gdp/11570

How this helps us all to prepare for a different world over the next 5 years, I have not exactly figured out yet! Suffice to say I am not investing any money in the stock market at the moment!

55 Friendlycard

I've done a bit of research on an american site:

"hedgefund implode o meter" crude situation.

Apparently WTI normally trades at a premium to Brent being easier to refine with a lower sulphur content but the current price reverses this massively. Apparently anything that floats and can limp to a terminal is being chartered to store oil because our septic friends have spotted a 'contango' opportunity which will enable them to make a tasty arbitrage profit if the price rises to $50 by late spring/early summer. The oil majors are on board, of course, they are flush but the usual suspects Citi, Merrill, Goldman-Sachs etc are on board together with a string of hedgies.They are all bidding against each other for what they believe to be rock-bottom oil!

It could all head south though if demand continues to fall. They'll run out of storage and balances will frazzle further!

What do they say in Monte Carlo when the wheel is about to be spun?

# 73 rogcay

What one needs to do right now is rapidly develop self-sufficiency skills and knowledge (I'm not joking); figure out how to live without cheap, fossil-fuelled energy (especially motor transport); develop strong community ties; ignore politicians (they've reached the pinnacle of self-serving spin and deceit); be wary of bad guys taking advantage of the forthcoming mess (I'm talking about social breakdown here ...); understand that when we get though this, the world could well be a better, sustainable place. But steel yourself for a very rough ride meantime.

#48 short sellers

Dont be surprised to find -when the dust settles- that the usual suspects have been behind a late Friday afternoon hit on Barclays and RBS shares to foment a crisis and make money for themselves.

That Moodys or Standard & Poors were likely to announce a re-appraisal of their credit rating principles was well overdue, and entirely unsurprising. There is other mischief afoot.

Do you also think that getting the oil price to 150 USD/barrel last year was on the basis of world demand? Not a bit of it.

That was a concert party too.

The short-sellers want turbulence, they have no interest in the companies they play with. Lock em in a small room for the next couple of years I reckon.

Does the fall in bank shares have anything to do with the end of the ban on short selling? That combined with the news on Citi Group will help feed the fire of chaos

#67 anvil13

Oh dear!......You have just mentioned the one subject in your post that dare not be mentioned!

This is the one subject that Robbo daren't go near.

The last poster that raised this subject has had all his posts erased and his name obliterated from this site. It's a shame cos he saw through the greatest of Ponzi schemes known as FRB (and its inherently unstable exponential characteristic/flaw).

It's the only subject that Robbo's sworn to secrecy on....you know Free Masons n stuff, nudge, nudge, wink, wink....funny handshake etc.

He was probably visited by MI5 in the middle of the night.

72 quietscotsmac - isn't Hampton an ex Finance Director of LLoydsTSB Group and a well qualified accountant so his appointment is not that far fetched.

60. sal196 see 35. (i.e. your post also focuses on the more obvious side of the equation, to the exclusion of the other.)

No: 76 Allmyfault

Spot on (if you'll pardon the expression)!

It was not just oil but all comodities. Just find the charts in market data on this site. Stocks went down as the commodities went sky high. Look at where they are now.

The speculative greed bubble fixed on anything it could. Look at cereal prices and the havoc it wrought in the third world. The septics needed liquidity. They knew what was coming. They tried anything to stave off if only for a few months what was obvious in the boardrooms and the central banks and governments knew.
The market now consists of looters after the massacre.

I logged on hoping to read about whether there is a connection with the fall in Barclays share price and the top level meeting at no 10 this afternoon. Come on Robert, where are you?

BankSlickerminustheR

Ha! I'll expect my call from the men upstairs shortly.

Of course once you understand fractional reserve banking (which it appears you do) everthing else is just noise.

50. At 7:15pm on 16 Jan 2009, supercalmdown wrote:
You know in future Historians could look back on this crisis, and see it as leading to social and economic changes as radical as when the Roman Legions withdrew from Britannia.

We are all going to see a lot of major changes in the next few years !


Yeah mate, in our tax bills!!!

#29 somali pirate

Good post, I agree Barclays are a dead bank walking and with announcements in the states today the tipping point for nationalisation has been reached. It is only a matter of time, Barclays is the UK's Citygroup in waiting, the rest will follow as night follows day.

If the government is in a small sector of banking ok, above a certain point, especially in a crisis, it becomes unbalanced. The people will get very angry with banks soon, the banks may all run willingly into the security of politics in the end.

They just need to get on with it now and be ahead of the game for once rather than forever playing catch up. the tipping point has been reached...deal with it.


Jericoa

I'm only pottering about the web at this time of night cos I bust a gut this week and nearly cleared my action list.
Too tired to go out and spend spend spend as required by the saviour of the world, the noble Gordo.

UK plc is basically bust, needs a hawkish venture capitalist to clean out the Augean stables.

I give you Jon Moulton of Alchmey. I think he should be told to come to his country's aid in its hour of need......... install him as head of the FSA and gove him carte blanche to write his terms of reference.

Someone who doesn't need to be loved by his quarry and isn't looking for a cushy job back in the financial industry when his is done.

Hampton is not a grocer. He went to Sainsburys in 2004 from being finance director at Lloyds TSB.

He has reportedly dropped the UKFI gig, but remains chairman of Sainsbury - half owner of Sainsbury's Bank in a JV with HBOS.

'Britain is a nation of shopkeepers ' Napoleon

If in doubt appoint a grocer.

#86 Moultons's just another asset stripper....hence his company's misnomer.

I wan't somebody who has grown something from humbe beginnings and who has lasted the distance i.e. somebody who's not 'flighty' i.e. loyal to company and country!

#89 (asset stripper)

actually he isn't.

#89 (Moulton)

Moulton would have saved Rover, instead they got a real asset-stripper.

FRB is easy.

YOu go to a bank and pledge an asset (house, car, your future earnings) and the bank creates some money and gives it to you - so you can pay the person who previously owned the asset.

Where did the money come from - nowhere!

The money, though has now entered the economy - the person you gave the money to can buy goods and services.

However - when you pay back the loan (5 years, 30 or whatever) you pay BACK more than you were given - the difference is the bank's gross profit BUT the rest of the money you paid to the bank disappears - like through a bank hole.

Thus virtually all money in circulation has been provided by banks - if everyone in the world repaid their debts then there would be hardly any money left in the world.

Occasionally, however, banks get it wrong and they don't get their money back - this is a disaster as they have to write off the balance of the loan. This has a knock on effect as the amount they can lend is, say 10 times the assets they have.

Work it out. The bank has £1,000,000 assets - it creates £10,000,000 - however the loan goes bad - is worthless - literally 'written off' the asset column. The bank has to reduce its assets by £10,000,000 - which means it has to reduce its lending by £100,000,000 i.e. 100 times the original assets.

Obviously if the percentage of bad debts is sufficiently low (less than 10%) there is no problem for the bank - it just reduces the rate of growth. But a higher figure sets in train positive feedback of asset destruction - loans must be called in - but borrowers cannot repay the loan, thus increasing the amounts that must be written off, thus forcing the banks to reduce the amount the have lent, thus forcing them to call in loans . . .

The Government saved the world (banks) initially by giving them capital - however this destruction of ability to lend is still continuing . . .

OK....maybe I'm being a bit harsh on JM ....he did raise the alarm bells on the CDS merde about 18 months ago (probably a good while longer, though fell on deaf ears). He did give a pretty good performance in the HoP the other day.....though like every other 'so called exspert'...sounded a little like he was 'shooting from the hip'....must have been a little bit daunting though. From what I've seen of him on TV...he seems reasonable enough.

BUT as we all know.... (hate the phrase now) the 'elephant in the room' is the great secret ....the bank's balance sheets.

Oh 'It's a Wonderful Life' ;-)

I have to mention AGAIN a certain Mr Peter Montagnon on Radio 4 this morning trying to justify fat cat bonuses. This 'bloke' was by far the most irritating and pompous person I have EVER had the misfortune to listen to on radio. For the sake of repetition (again)....I am completely unsure how this 'man' will ever extract his cranium from his anus.

Yours in anticipation (not constipation).

BankRSlicker

#76 Of course short sellers are trying to make money for themselves. But they could be wrong in which case they will lose money - no special pleading for these guys, no bail outs, no public sympathy, no nothing they take the hit.

Like I said you want to beat them, step up to the plate, pay more tax, let ´em know that you won´t lose.

Why do you think oil went to $150/bbl? Just a bunch of spivs manipulating markets, or the market trying to tell you something?

I´m aware of no mechanism whereby the oil markets can be manipulated to the extent necessary to drive oil from its long term average (1873-2002) of $17/bbl to $150/bbl If you know different tell me exactly how this is achieved.

On the other hand if you prosecute unsuccesful wars against Iraq, prop up Wahabbi extremists in Saudi Arabia, try to threaten Russia, fail to overthrow Chavez and watch his influence extend to Bolivia, Ecuador and Brazil, and witness exponential Chinese demand growth then maybe the market might try and tell you something.

Equally if you think you are going to see demand destruction (as the IEA belatedly does) on a suddden an unparrelled scale then maybe the market will also try and tell you something.

You are a free man, you can choose to believe either the market or Gordon Brown. Believe who you want - and place your bets accordingly. Basically that´s all hedge funds or short sellers do.

Testing comms - sorry, folks

#74 I think you will find shipping markets and national oil companies are also involved in this.

Freight rates a very low - zero in some cases. This means ships have no business, so may as well become floating storage. After all some money is better than no money.

Once you tie up enough tonnage freight rates rise. This is good for shipping companies. It´s also good for national oil companies as oil prices rise. Supply and demand is the long term price setting mechanism, but deliverability is important short term.

Oil traders/speculators know this and also join in.

Short selling should be banned.

I can see why in a free market, short selling is a healthy thing, but the way it is working in the real world - an imperfect information market - it is causing real damage.

You only have to look at this blog to see different sources showing claims of why Barclays is in trouble - rumours of it not being part of the government plans for help with bad banks, plus other rumours of hidden liabilities etcetera. Funny how detailed explanations suddenly turn up on the day that short selling is unbanned,...

The market consists of traders looking for volatility, with short term volatility being particularly attractive. If you can panic/scare the market, particularly when it is already jittery, then under normal conditions you can spread rumours, watch the price fall, and then buy the stock low. If you held the stock in the first place you could have sold high.

However, with shortselling, you can sell high on your chosen target without even owning any shares to start with, flood the airwaves/forums with false information, watch the market panic, and then buy back low.

I would be amazed if Barclays does not regain most if not all of the 25% it lost today by this time next week.

We've seen the damage that having swathes of traders looking for quick profits made from trading instead of manufacturing or making something has done, with the gains privatised and the losses socialised. The reality is that the UK and the world economies will innovate and (probably) grow over the next few centuries, depending on whether new fossil fuels are found or other alternative energy sources.

Today even if you knew nothing about Barclays, nor had any interest in the company or holding shares long term, if you got the 'news' early it was easy to spot which way the wind was blowing, join in the queue of people shorting it, and crash the shares for a tidy profit. The real game is to not be last in the queue when there is a bubble, either upwards or downwards. Dont' get left carrying the baby.

Short-selling does need to go as the ability of people to convincingly spread false information quickly, preying on people's fears, is more powerful than the availability of information to the market. Many banks/pension funds have stop losses as values in a stock or the market plummet, and by law have to dispose of their shares once the price reaches a certain level, in order to maintain the value of their capital. Many of the people today will have had their positions in Barclays closed out as the share price fell, and if indeed Barclays shares are back up this time next week by the 25% they fell today, these people will have been mugged.

#27"Interesting to note that Fred the Shred's......etc..........Blimey. This guy might be temporarily unemployed...."

No he's not, unfortunately: he's chairman of The Prince's Trust. "Helping Young People to Help Themselves". Obviously something that bank executives are rather good at.

#61 Lots of things are immoral. I guess the definition of immoral is something of a personal judgement, but in my opinion lots of things (war, famine, the destruction of the environment etc. etc.) would rank a long way ahead of short selling.

With regard to your analogy I couldn´t care less what you do to my car just so long as the fee charged covered all damage. If the fee didn´t cover the damage then maybe I should find another business.

No need to call the police under any circumstances. Anyway from what I read the police are fully occupied dealing with death rates made by illiterates by way of text messaging.

#92 "YOu go to a bank and pledge an asset (house, car, your future earnings) and the bank creates some money and gives it to you - so you can pay the person who previously owned the asset.

Where did the money come from - nowhere!"

this has to be wrong. the bank will take deposits from savers, and then lend them out to borrowers.

i don't think any bank can just 'create' money from nothing, and if they could, why are they not paying every banking employee bonuses of a trillion pounds each per day?