Mervyn and leverage

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"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance."

- Cicero - 55 B.C.

So basically. We have a bunch of zombie banks which can't be allowed to fail because it is unthinkable. Sounds like Japan all over again.

Once again there is the implicit assumption that banks must 'keep lending', that the flow of credit is vital. When are we going to learn that building an economy on credit is like building a house on sand?

Continued British banking loans? ..computer says:"Nooo.."

Why call them 'our' banks?

Ian Murray

It looks to me that the gentle prodding into nationalisation will become a big shove. Banks still do not know the value of their bad assets, yet their credit ratings are improving at the expense of the Treasury. Banks may be too big to fall, but they may be too big to save!

I suspect not many of Peston blogers have youth on their side, but if they do take this message at least from Mr Mervyn King - no one can ever predict the future and this is the message that is vital to remember - if you have youth on your side things will get better again - everyone is very quick to predict and claim they were right and when all markets go up (its much easier to do going up), the biggest gamblers suddenly become insightful messiahs that we all think are gods - well the lessons is they are no more messiahic than you or I they are just full of ego (and they have a gambling addiction). Lesson for life is listen to everyone but only act on your own advice then you only have yourself to blame.

How scary is this? Doesn't printing money actually just mean all the rest of the money in the economy (savings etc.) becomes devalued?

Sterling will fall even further.

I think deflation is the least of our problems.

With lower sterling, the cost of imports rises, which causes inflation.... and then they're going to print money... more inflation.

Very frightening.

If confidence is needed then it should be made public just who (institutions or individuals) are trashing the banks shares?

Share prices dive because of lack of confidence, but someone is still buying and selling those shares and making a killing and the consequence of that (apart from profit for some) is that further confidence is eroded.

This now looks like an enormouse game of bluff between the funds, the banks and the government as to who is 'king' in the market place.

Confidence could be restored if some of the big funds stop trashing the banks.

Perhaps the FSA would care to elaborate?

We have all tasted the good life, fast cars, extra holidays, etc.. now it is time to pay the bill.

We are all ready for it so lets get it over with.

Pull the plug Gordon go down in history as the guy who started the real change in Britain, let the banks go, be ready to pick up the pieces and start us all on a new adventure.

I get the impression that this is the mark of someone who is about to leave office and knows so.

Otherwise, why be so open and honest about a situation which he must know will clearly cause issues for the problem he is in charge of clearing up?

The problem I have with the admission of "we don't know" is why are we paying you?

Or is there a third agenda?

The banks are broken, accept that. We must have a different instrument to keep the rest of the economy healthy whilst the banks ring fence the contamination and deal with it or give up the fight.

#3
I used to work for the Co-op and they forced me to join their bank if I wanted to get paid. I never moved and am now surrounded by a banking crisis. But no-one ever mentions the Co-op. Am I missing something?

'But such was Minerva's following that his statements were themselves affecting the money markets' - from the BBC's report:

https://news.bbc.co.uk/1/hi/business/7839375.stm

It may have been S. Korea but could it happen here?

Watch out Robert (and perhaps many others)!

Some analysts believe the western world, or even the whole world, is heading for a great depression. If this happens, it will take many years to shake off, and economic growth will not return in the foreseeable future.

Other analysts believe stock markets will fall further but will reach a bottom in the summer of 2009. For instance, the FTSE is expected to hit a bottom of 3,200 in July.
Once the bottom has been hit, these analysts believe a bull market period will occur lifting the FTSE to around 4,600 by the end of 2009.

I don't know who is correct. At the moment all the pointers are down.

The general rule is that banking and finance crises do cause much deeper recessions, keeping asset prices low for longer periods.

Mervyn is the marvellous great one in the sky, creator of all things fiscally toilet paper.
He is also the great omnipotent one that (I might add with the benefit of hindsight) was so astute and perceptive that he knew that the debt bubble was dangerous (commenting on the subject over time as he claimed last night) but did nothing to contain it or modify regulation accordingly.
I love all these economic experts like Mervyn who are so good at their job they could miss such a big obstacle. We are not talking a large iceberg ahead of the Titanic binocular deficient watch tower, we are talking the whole north pole ahead of us.
That is the scale of the failure of these so called experts who even when the obvious was plainly in sight, still didn't see the calamity for what it was. A mild correction. No impact on the 'real economy'. Oh dear, why should these people be employed.

One does wonder how things would be if Brown had won his 2007 and had time to sort things out instead of solely attempting to patch things over for the election in the short term.

Out of interest does anyone know of an economy that did not go the low interest route 2001 through 2007, or are all politicians only interested in short term maintenance of power?

To 1 & 2 puerileinsult

"Get a better handle if you want to be taken at all seriously"

-Thorntonheathen 2009

If you look at the FSA and King as if they were a cheque, you would see that the words and figures differ.

That used to be grounds for bouncing it.

Following the announcement of the proposed merger between Co-op and Britannia, could we have some more detail on the Butterfill bill? Is it the equivalent of the repeal of the Glass Stiegel Act for mutuals?

I hope not, as we're just coming to terms with banks' bad behaviour. I'd like to think building societies weren't getting ready to repeat those mistakes!

Dissociation of Ideas
Distinguish between wealth, illth, and money
Wealth - changes in environment that are benefit to humanity
(eg bridges)
Illth - changes in the environment that are detrimental to humanity (eg weapons)
Money - is neither wealth nor illth, but merely tickets for the transfer of wealth or illth

Proof : If all the money disappeared overnight, the national standard of living would not change and things would be back to normal as soon as the treasury printed more tickets, But if all the real wealth an illth disappeared - all the industrial plants, roads and real capital etc, we would be plunged back into the Stone Ages.

#13

Many months ago when I suggested here that the BoE should bypass the banks and lend direct at low rates, Alexander Curzon said that the Co-Op may already served that purpose.

With tax payer ownership of RBS it looks like we now have both options!

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What is all the fuss about deflation?

If a 4 pint bottle of milk costs 1.50 today and .75p tomorrow I will still buy only one bottle and save .75p.

If my employer employs 2 of us with weekly wages of 1.50 each he could cut his wage bill by sacking one, thus saving 1.50. He could alternatively reduce our wages to .75p each.

He again saves 1.50 and my colleague and I are no worse off as we can still afford the bottle of milk, and we both have our jobs.

Must have missed something.

I first looked at these blogs having been taken for 10k by WWedgwood. Small biz of 750k employing 6.
What on earth is happening to us all??
The dollar rate which we rely on is at 8yr low (crippling!) Inland rev calling at premises to collect! I have a fixed rate mortgage of 5.6%! Have average credit card balances.
I have just managed to pay wages, but not myself. There, vented !!(one more thing-Vat reduction = joke!)
But....... why is the government chucking all this money at the banks. sURELY TO GET THINGS MOVING IT NEEDS TO BE THE PERSON IN THE STREET THAT NEEDS COMFORT TO SPEND.
None of the measures taken so far seen to stop the downward spiral of the economy and nothing to stop unemployment and house repo.
Should not those seemingly never ending government funds (billions/trillions) be delivered straight to the people and not the banks!
I have come to understand that some of you bloggers are running huge companies etc. So, Please tell me if i`m being stupid as a lot of people i know think the same as i do. Are we missing something? Is there a way of getting this money to the people in a sensible way? and if so, why the .... dont they do it!

just how long will it be before the government/BOE realise that the only way to save the banking industry...and by extension the UK economy...is to attack the cause not the symptoms? They need to create the "bad bank". let the banks dump everything toxic. Then raise interest rates and the money will pour back and the pound will rise.......
Mervyn's method of printing money ("unconventional measures" he says euphemistically) will only devalue the money in circulation, raise inflation and in the end solve nothing!

Instead of trying to coerce the banks into lending and promising them access to taxpayers cash if they do, the Government should 'cut out the middleman' - the banks - and do the lending itself.

We are familar with governments of national unity when things get tough, so how about a 'National Savings and Loans bank owned and operated by Government whose policies are dictated by national strategic and economic needs and not by outside considerations and shareholder desire for returns.

And in case anyone thinks this would take time to establish, we already have the National Savings side of the equation - taxpayers willingly investing their cash in NSandI - and guess what - we almost have the loan and deposit taking side of the equation in the about-to-be-nationalised by the back door RBS group.

Come on Treasury, nationalise RBS, sell off Coutts and AMB Amro, give the new group access to NSandI deposits and let's have a national savings and loans institution run for the benefit of commercial and domestic borrowers in the UK and for the good of our economy.

Other banks would soon realise that in order to survive they had to compete and I have no doubt that their natural greed would very quickly force them back into the lending market.

Mervyn has nothing of value to say anymore to the British public, he has been behind the curve at every stage of this crisis and should be shown the door for presiding over the worst banking crisis in the UK history!

As I understand it, all staff at Northern Rock are to receive a 10% BONUS in their salaries this week. Is this really where we want out tax to go?

Let RBS die peacefully, without life support machines. Guarantee domestic personal and business deposits up to £100k for any single company/ person by a levy on other banks but base it on total liabilities not deposits (fairer to building societies). Then see what happens and be ready to help if there are unforseen effects.

Oh, and take away its licence to print money in Scotland before RBS banknotes cease to have any value.

Also take away Bank of Scotland's licence to print (or create) money. Threaten to take away the right of other banks to create money from debt if their market capitalisation becomes too small for them to be regarded as worth saving (say £5bn).

#10

"This now looks like an enormouse game of bluff between the funds, the banks and the government as to who is 'king' in the market place."


I started to wonder that back in November when the TARP bill was initially blocked in the US and the Dow plunged - a case of the market saying "don't you dare not give us the cash!".

I wonder if a similar thing is happening here and those who can rememer "Black Wednesday" (I think it was Weds!) governments cannot beat the markets. They tried to save the pound and ended up not saving the pound and giving George Soros 4 billion into the bargin...

Maybe a final recsue plan should be a Good bank / Bad Bank arrangment so that savings are safe and people can still function - we need banks to make society work currently - and let all of the cr@p stuff go.

I'm really not certain why any faith is vested in the 'stimulus' plans as described, either here or in the U.S.

Understandably, in the search for an intellectual framework upon which they can hang excessive spending, they seem to be downplaying that Keynes didn't support this Keynesianism.

Keynes had two virtues: he could drape as magnificent theory what financially drained British governments were going to do more in desperation than hope. This was a virtue in the eyes of some, anyway. And his second virtue was his willingness to admit the following under interrogation by a Parliamentary Committee convened on a very similar topic to today: his theory applied only to "a closed system". It did not apply to an open trading economy, certainly not one where cash was draining out via deficits as to an open sewer. In fact, his purported inflationary policy coupled with today's disregard for purchasing parity and the harmonisation of economies being admitted to trading systems has led us to this dreadful pass. Though, I stress, this was his theory, not his policy, and would be disregarding his own exceptions.

Let's cut to the chase. If we follow the current course we are heading for bankruptcy on a national scale. Hyperinflation will follow as a way of debt default and sterling will collapse.

The problem is too much government not not enough. Governements have no business in business and here we are on the verge of full nationalisation of our major banks.

This is the road to totalitarianism if we are not vigilant.

24. joeplumber:
"What is all the fuss about deflation?"

Your milk comes in an plastic carton made from imported raw materials which now cost more so your milk is still £1.50. But your wages are lower.

Yesterday was certainly a good day to bury bad news and the appropriately named Mr. King seems to have not buried it too well.

Perhaps he did not intend to bury this news but The Treasury and the FSA tired to arrange it that way.

I have enjoyed reading Barak Obama's inaugural address. Two passages I particularly enjoy.

`...Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many: and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet...'

`...And those of us who manage the public's dollars will be held to account - to spend wisely, reform bad habits, and do our business in the light of day - because only then can we restore the vital trust between a people and their government...'

I hope when we are required to see the revolting sight of the ghastly and incompetent Mr. Brown fawning before President Obama in the hope of a ten dollar tip that some journalist forces him to acknowledge those words.

After which he can resign and get out of our lives so we can rebuild them with what little resource we will have left to hand.

I think we will be going to the IMF before long and joining Iceland on the naughty step.

Time for change!

re 24

mortgages would rise from 3 to 5 times salary to 6 to 10 times salary and lead to more repossessions.

The relationship between the bank's debts and their capital resources remain at unsustainable levels is what he meant.

Just as the relationship between the mortgage and the homeowners salaries

Just like the relationship between the unsecured debt and the salaries

Just like the relationship between the population and the unemployed

Just like relationship between Sterling and most other currencies

The required adjustment will happen quickly, its happening quicker than any other cycle and this adjustment will be massive and hurt many.

#29

"As I understand it, all staff at Northern Rock are to receive a 10% BONUS in their salaries this week. Is this really where we want out tax to go?"


Northern Rock is owned by the Government but the staff are not employed by the government so they aren't being paid by us. It is a business which is being lent money to keep it going and restructure. I believe that the bonuses are being paid as rewards to staff for reshaping the business in the right direction.

Why doesn't the BoE use tax payers' money to build up the gold reserves instead of taking on all this bad debt? It might at least stimulate some faith in the sterling.

If you click on explain you get the following message.

'Messages on our boards are checked by a team of trained moderators.'

How long does it take a team to read three lines, OK sometimes 20, but a team?

How many in the team?

The speed with which they work presumably it is Peston on his own.

I am sorry to say that we have now reached the end game for the British banks.

The only choice left is to nationalise them whilst we still have got an economy.

It does not matter what bailouts or incentives Crash gives them, banks will hoard money in order to protect what little shareholder value is left. They have no choice as they are private institutions after all.

For once in his life Crash and his MacCabinet have to act decisively and pro-actively rather than piecemeal and retro-spectively. The only way that lending can be guaranteed in the present circumstances is if the banks are controlled 100% by the HMG. Once we have navigated our way out of this mess, then we can think about bringing private investment back into the banking system.

In the meantime, get on with it man and stop dithering.

Nationalised bank should lead the way with the lending, they should get matters started, ignore the private one, if they want business they will soon get the message.

Yoyoing with banks share seems to me that there are still quite a lot of people ready to play monopoly on the stock market, who has the best interest in all collapsing?

It looks like we are throwing good money after bad, give them some money, wait a few weeks give some more etc etc, dithering is not a way to deal with such an issue, this issue is beyond party politics.
We should pull ourselves together, and get cracking.

As we all seem to be committee/commission crazy, may be we should create one made of ordinary people, like the types who have survived on budgets for years, making end meets come what may a few lessons in common sense seem long overdue.

Every UK consumer should cut up ALL credit cards, take out no loans for 15 years (not even mortgages), and as soon as the wages hit the bank – Take them out.

Since pensions are failing as are insurance companies, we should avoid these products also.


I wonder where this would leave the banks and the rich?

Another good article from Mathew Lyn on Bloomberg today. Go to the following link

https://www.bloomberg.com/news/commentary/columnists.html

and click on:

"Obama Will Get One Shot at New Financial System"

In the days when things were going well, remember them, Merv desperately wanted to see house prices come down. Guess what he got what he wanted plus a lot more besides. Do we really now feel that we can trust this man and his team anymore. Their credibility has been shot to pieces along with that of their chums in Europe. Sure pile the blame on the banks and their insane lending practices. This is disingenuous and overly simplistic and poses the real risk that the BOE is let off the hook. The same can be said of the FSA. Weren't they "stress-testing" the banks post NR? They are not worth the fat salaries they are getting paid nor the fat pensions they'll take into their retirement. At least Cox of the SEC has had to guts to admit his failures and quit.

#24 What is all the fuss about deflation?

The problem with (severe) deflation is that it stifles the economy even more than it is already as people put off buying things as they see the prices falling. This is happening in the housing market already as people are not buying because they believe they can save thousands by waiting until prices hit bottom, whenever that may be.

People would of course still buy food and other necessities, but sales of big ticket items would probably be affected and this could lead to even more companies going bust.

However, I would agree that a certain amount of deflation is a lot less of an evil than hyperinflation, printing money is folly surely?

The old adage that 'you can take a horse to water, but you can't make it drink' has never been more apt.

The government has supervised a mass orgy of consumer spending, financed by crazy credit terms. ('Got a pulse? Great, have a loan!'). The economy grew, tax returns went up, whoopee - who cared if it was unsustainable?

Certainly El Gordo didn't, or perhaps he was too short-sighted to realise what was going on. Perhaps he knew but couldn't work out how to slow it down and didn't want to cause a panic? One imagines him as a small child with a packet of matches watching the living room curtains going up in flames and wondering if he should tell anyone or whether they might not notice.

Now the party is over and everyone is wondering what they did the night before, the government is screaming at the banks to lend to unrealistic levels for the national good. In doing this he is only compounding earlier errors. The banks have to be able to rationalise their positions before they can assess what they can lend and to who. Business in the UK as a whole has to go through a period of retrenchment.

It's inevitable that this is going to take a few years, and will be painful for all concerned. It doesn't take a rocket scientist to work this out - anyone who thinks the economy can suddenly turn the corner and the good times will return just because the government backs the banks is deranged.

It will take years for the banks to finally realise what they have lost - the trust of the common man.

Banking, in a word, has to become boring again.

typical new labour - a poor attempt to re-write history ?

"A weak currency arises from a weak economy,which in turn is the result of a weak government" Gordon Brown, 1992

The Governor of the Bank of England MUST go.

Reason: Under his watch the whole financial system has been wreaked. He and the MPC are abject and absolute failures. Ditto for the men at the Treasury and the FSA.

Remedies:

It seems to me it is the globalised financial services part of the banking system that is completely broken. So it would make sense to separate the 'foreign' and 'home' banks so that one does not infect the other.

So: Set up a UK National Bank and transfer all UK deposits and UK loans etc. to this bank and A UK Foreign Bank to hold the rest. (These could be within each existing bank or in separate banks) All transactions between these two banking sectors should be subject to exchange control.

This solution allows government (i,e, UK Taxpayer) help to the UK commerce and industry to actually go to that sector - otherwise UK Taxpayer money goes into all sectors and the worst condition sector will absorb most - i.e. the foreign banking / CDO and other synthetic financial instruments sector.

Quantitative easing is effectively a devaluation of the pound. If you increase the money supply without increasing the value of goods and services produced by the country, you effectively dilute the value of sterling, hence value of sterling drops against all other currencies. So lets stop using this euphamistic term and recognise it for what it is EFFECTIVE DEVALUATION. Nu-lab = old lab, with plenty of experience here!

Also, if Mervyn King has no idea when we'll come out of recession (as I agree no-one else knows) then why are we paying him a king's ransome for simply messing about with BOE interest rate which the market promptly ignores?

Joeplumber.
The problem with deflation is the sustainability of debt, like mortgages.
Initially, commodity prices fall, which is nice.
Eventully, wages fall as well. not so good.
Accordingly, your ability to service debt in the long term falls.
You may get cheap milk but get to drink it sitting outside a repossessed home.

37. PetersKitchen:

"The relationship between the bank's debts and their capital resources remain at unsustainable levels ......Just like the relationship between the population and the unemployed"

Yes. And just like the relationship between government spending and national economic output.

The economy will pick up when house prices have fallen around 50% back to where they should be in terms of long term affordability ratios. When this happens banks will be happy to lend and more importantly first time buyers will be willing to borrow. This crisis was caused by the housing bubble (which went too far because of the unregulated behaviour of the banks lending too much on the back of it for short term gain). It's not rocket science. I pointed out that this was going to happen around 2001-2002 (despite the fact I have only a GCSE in economics) - every second of every day that passed between then and 2007 made the looming crisis even more certain and larger in scale.

The BoE ignored the housing bubble and did not put up base rates when it was necessary to do so (around 2001-2002) to take the heat out of it. The government changed the remit of the BoE MPC in 2003 by taking house price inflation out of the CPI index thus sowing more seeds of our doom and when in 2005 it was obvious that house prices needed to correct, Merv lowered interest rates again and the crazy bubble went on further. Mervyn King is the chief architect of our doom and the scale of the problems we are now facing.

If the banks are nationalised and we, the tax payers are the shareholders are we allowed to attend the shareholder meetings etc. Can we vote for the board or demand resignations? Before anyone jumps in here and mentions elections, no it isn't the same.

The government wouldn't own the bank the nation would.

So since I would own the bank would I give myself bank charges. Would I allow an appointment to be made under the recommendation of the board that created the mess or indeed the government that didn't stop it.

Would I allow contracts for anything to with my bank go outside the UK including IT, services, building maintenance, transport etc.

Would I allow the managers to get together in expensive hotels when they could use video conferencing.

Well the answer is No.

However the people who will be running our bank will, by and large, be the same people as before. The old principle of lightning not striking twice.... well we've all heard stories to the contrary on that one.

Robert, please would you make it clear that phrases such as:

the great cause of our woes (will be fixed), the reduction in borrowing and lending by banks and other financial institutions.

are merely in your opinion. I would dispute that reduction in lending is a cause rather than an effect; the underlying cause being an unsustainable inflation of asset prices, which itself was caused by excessive lending. It does not inform the public to present government sponsored falsehood as fact.

Sorry 27

The government has already committed, spent if you like, all the NSI deposits.

NSI is only a form of government borrowing like gilts.

The government is purely and simply a spending machine, the more you feed it the more it will spend.

NSI rates are some of the most miserly in the market because of their implied safety.

The process of earmarking income for certain expenditure is hypothecation.

We have national insurance and road fund licence which sound and might appear to relate to their names but do nothing of the kind.

Governments are controlled by politicians. Party politicians CANNOT be trusted, even Mr yes we can.

When the politics goes against a politician they will invariably sacrifice (as GB would say, do whatever it takes) the country's interest on the altar of the party interest.

This is an immutable law of party politics.

With all your savings start to forget interest rates altogether.

If you have cash in sterling pounds you can simply open a current account in dollars or euros or yen.

In doing this I have made 25% on my dollars in six months and about 20% on my euros with even more on the Yen

Yet I have received no interest on any of my cash but my capital has increased

Start thinking outside the box here as sterlibng continues down, encouranged by both the BOE and the Government as they want to raise inflation so as to get interest rates back up and cut their debts by that inflation.

By the way, I AM NOT stating any of the above as financial advice only what I am doing, risk assessment is always a matter for each individual

#17

"Out of interest does anyone know of an economy that did not go the low interest route 2001 through 2007, or are all politicians only interested in short term maintenance of power?"

Australia and NZ had higher interest rates than the UK throughout, I think the current bank rate in NZ is 5% and like us they have cut theirs substantially in recent months.

Although the bank rates were higher down under they still experienced a housing boom, but it wasn't as extreme as our one.

Australia and NZ are feeling the pinch just like every other country, but they are not facing nearly as many difficulties as the UK/US as they don't have to keep their banks on life support.

Interestingly, the outgoing Labour goverment in NZ left a budget surplus, how I wish it was the same in the UK!

Frightening.
That King is saying what he says is a sure sign that Brown and Labour have well and truly cocked it up.

Confidence built on integrity and trust is the only way to fix things. Mark my words.

Brown must allow the opposition to take over gracefully before the crumbles in UK society go out of control.

#23 - of course good businesses need credit - it's called investment. They borrow to invest the money in their business in order to create growth by creating efficiencies, developing new products, expanding into new markets etc. This is how new jobs are created, wages are increased, standards of living rise and economic growth occurs. Remove these credit lines and the exact opposite will start to occur, which is already happening and is what the Govt is desperately trying to avoid worsening.

The bad debt needs to be flushed out so this process can return to normal again with much greater controls on the behaviour of the financial institutions and the sooner the better or a lot of people are going to suffer.

"First, as John Gieve, the Deputy Governor of the Bank of England, told me in an interview for my Panorama documentary before Christmas, the Bank of England was too sanguine during the boom years that there was some kind of cordon sanitaire around the debt and asset bubble, such that when the bubble was pricked it wouldn't infect the real economy too much.

That turned out to be spectacularly wrong.

I appreciate the the Bank of England is not Mervyn King, but my recollection is that Mr King was pretty consistent and tireless in his warnings since 2004 that the house price bubble was dangerous and unsustainable.

For the real instigator and force behind the cloud-cuckoo land thinking that this wasn't the case, one would have to look no further than the great helmsman of Kirkcaldy himself, Gordon Brown.

I wonder why Mr Peston continues, against all the evidence, to hold Mr Brown and the Labour Government to so little account for the entirely avoidable financial collapse that we are currently witnessing?

ONE PARTICULAR UN CONVENTIONAL

MEASURE??

MASS RESIGNATION PLEASE

DO IT NOW

DO NOT DELAY

PLEASE GO.

Robert, I very much "enjoy" reading your blog as it helps explain the very real problems we face. Willem Buiter's Mavercon blog is sometimes also very enlightening did you read his entry for the 20th Jan?

Looks like we are entering the THIRD phase of realisation of HUMAN ERROR.

The panic shown in stock and asset pricing where doom overshoots and pessimism become commonplace.

Human nature is so predictable how is it that governments are so blindly ignorant to this when setting its policy in these tough times.

They make big mistakes every time, last time it was interest rates up to 15% this time its getting BUSY BUSY BUSY before allowing time to see what the impact of what they have done will have. THIS BUSY BUSY approach is causing worry fear and a level of pessimism, which can cause the spiral, which they are attempting to STOP!

NOW all take a DEEP BREATH!


CALM DOWN!


BUNCH of HEADLESS CHICKENS!



FACT the British banks have lent to foreign BAD borrowers.

DO we care about GLOBAL yes but NOT TODAY maybe tomorrow TODAY we need to look after HOME.

SO lets concentrate on UK plc.

I say GORDON now WE own the BANKS do NOT give the Americans a chance NOT to give us back our MONEY!

The exchange rate is key MAYBE we should GET RID of STERLING and MAKE OBAMA EXCHANGE EVERY POUND FOR 2 DOLLARS right now!


NOW that would be FAIR would it NOT!

Other wise THE very least we should EXPECT is CHEAP / SUBSIDISED GOODS FROM THE USA. (Grain oil meat etc etc)

TO keep us SAFE from IMPORTED INFLATION.

WHAT do you THINK GORDON is our SPECIAL relationship WORTH IT ?

I TOLD YOU ALL LAST YEAR we WILL BE PRINTING MONEY!

#34 FreeSpeech2

I presumed the milk was held in something other than his bare hands when it was reduced to 75p!

This financial crisis started with the US property market and the recovery needs to be fuelled by our property market.

Everyone seems to be aware that the banks need to start lending to stimulate this recovery.

On one hand the banks don't seem to be able to do this as they are so over leveraged. The support that the banks are getting is being used to reduce leverage and combat the attacks on them from the stock market. (This is a waste of money)

On the other hand the public WILL NOT change their mortgage or move house until they can get a better deal than the one they have at the moment.

Inter bank competition in my view is the way to start banks lending. Where one bank goes the rest will follow.

The Northern Rock is owned by the government and is used to lending at competitive rates.
The new Northern Rock policy should be lower interest rates to attractive levels, along with higher deposits to secure the mortgages and have the continued support from the BoE to stimulate responsible lending.

Confidence will return once house prices start to go in the right direction.
The loans can then be re paid to the BoE, at a profit I’m sure.

The Lynn Bloomberg article is interesting and the trench warfare analogy set me thinking.

What we need for financial restoration is a totally radical approach such as the equivalent of a tank.

The working and non working populations will need a different approach; here Marx had a comment, from each according to his means to each according to his needs.

Here is an idea for those in the working population.

Ban bonuses altogether in ALL walks of life.

Let anyone’s pay be contractual and if they do not meet agreed targets, take OFF a predefined amount and those doing better get promotion. Thus, people who exceed agreed targets get a higher rate next year as a base, those meeting targets stay where they are, and those failing to meet targets get a new lower base. Make an allowance of inflation minus a small amount on annual pay rounds.

Ensure EVERYONES pay is in the public domain so people can see where the opportunities are.

All expenses and benefits that are claimed should also be public knowledge.

Yes that includes you, you snout in the trough MPs.

People should only be allowed to borrow against their publically declared incomes and borrowing should also be made public, including mortgage and credit card and personal loans.

Fait accompli

No matter how painful things get at some point the UK and the World will come out the other side of this mess.

The way Gordon Brown and this Labour Govt are handling things it is inenavible that the UK is going to be left behind by the rest of the leading countries in the world when growth does return. In this regard I would agree with Jim Rogers that "the UK is finished".

For a perspective on the health of our banks, as perceived by the markets - take a look at RBS preference shares. When Wall Street closed last night they were trading at a yield of nearly 36% - pure junk.

This is how the world views the backing of the UK government for a bank. We've a while to go to recovery, and as Mervyn says: who knows when it'll be ?

All those folk beyond our shores who wanted to buy British and could not because of the very high pound - thanks to the Govt's much vaunted 'macroeconomic' policy (and I have it in writing from the Treasury) will be laughing their socks off at our shrinking pound because now we will want them to buy from us to shore up our trade deficit.

We gave no mercy to them when the wretched pound was over USD 2 to the pound, what is there to suggest that they will give us any now? None in my view esp as our manufacturing shrinks too, and I'm a manufacturer - of race engine parts. And i depend on xport.

If I'm right - and I've been watching this closely for 7 years - we're stewed, lock stock and barrel, because the UK will have to exist on a rapidly dwindling pot of fiscally-recovered 'internal' money and no amount of persuasion to borrow or borrowing per se is going to pull us out of that exponentially deepening hole. And it's nothing to do with banks or the BOE for that matter, it's just an unremarkable knock-on consequence of it all.

GC

I would like to pose a question to contributors here.

Imagine that a young person comes to you for advice. He (or she) is single, has marketable skills, has not bought a house, has no debts, and has some modest savings, so he has lots of choices.

He feels no responsibility whatsoever for this mess. He has never:

- Worked for a bank
- Speculated
- Run up debts
- Voted Labour

Yet he feels that, if he stays in the UK, he is going to end up paying for others' profoligacy and mistakes.

Please tell me what advice you would give this person:

1. Stay or go?
2. If go, where?

#46
'The problem with (severe) deflation is that it stifles the economy even more than it is already as people put off buying things as they see the prices falling. This is happening in the housing market already as people are not buying because they believe they can save thousands by waiting until prices hit bottom, whenever that may be.'

It is sometimes forgotten that housing is a base requirement, everyone needs somewhere to live. It should not be an investment oportunity. Houses will devalue over a period of time, granted a long period, but devalue they will.

There has only been house inflation due to the shortage of housing, If Prescott had built the number of homes he promised, we would not have much of todays problems.

Therefore deflation with housing is desirable in that it may mean people like nurses can actually afford to live and work in London without the need for the NHS having to offer financial inducements, to staff hospitals. The same could be said of teachers, etc.

Instead of pumping billions into banks why not spend some of that building homes both private and council. Lets have a building boom as we did in the 50's and 60's, with Northern Rock lending the construction industry the money, whether printed or real.

Buying commercial assets does not sound too bad, especially if we can buy it at a good discount. The government is geting something in exchange for the money it prints. "Quantitative easing" is reversed when these assets are eventually repaid to the Treasure.
Hopefully, it will all happen and balanced out in a few months/few short years.

What am I missing ???

People working in the real economy will save the country from the devastation caused by the reckless, irresponsible, financial dunces, and the minority of crooks and thieves that have been involved working in the world of high finance since the disastrous decision to adopt the poisonous ideology of Neo- Liberalism by Thatcher, Reagon and their cronies.
The most important question now is whether future governments, New Labour or the bankers friends, the Tories, have the guts or the courage to ensure that never again will they be allowed to exercise such influence with its inevitable consequences.

If the governor IS right and the banks don't have enough capital then I would rather that we knew now. Surely it is better to take the hit and sort the problem, rather than pretending that it is OK and facing yet another nasty surprise further down the line.

If and when we do start to pull out of the current malaise/disaster, it will be interesting to see which sectors of the 'real' economy step up to the plate and show the growth that the UK requires. More discussion on that point at https://thedailycrazy.wordpress.com - someone find some lights at the end of the tunnel!

We have all tasted the good life, fast cars, extra holidays, etc.. now it is time to pay the bill. Post 11

This is the big myth is it not? Decades of unprecedented prosperity which have benefitted us all. No they haven't. It has been boom and bust since the last Labour government was in power-remember the three day week? No power when you came home from work-if you still had a job.

Where I live there has been growth alright-population growth- more houses, and yes more cars, but no sign at all of increased prosperity-in fact the town is far worse than it was in the 1960s. The only beneficiaries have been the public sector and the big supermarkets which between them have hoovered up the prosperity.

It is very far from the truth to say we have ALL enjoyed the so-called good life. Some have, but they have done so at the expense of others as is now manifestly clear..

#33

"Governements have no business in business and here we are on the verge of full nationalisation of our major banks.

This is the road to totalitarianism if we are not vigilant"



(From Wikipedia) "Totalitarianism (or totalitarian rule) is a concept used to describe political systems whereby a state regulates nearly every aspect of public and private life. Totalitarian regimes or movements maintain themselves in political power by means of an official all-embracing ideology and propaganda disseminated through the state-controlled mass media, a single party that controls the state, personality cults, control over the economy, regulation and restriction of free discussion and criticism, the use of mass surveillance, and widespread use of terror tactics"

Sounds quite familiar to me.

Seems to me the banks are the last thing to put in place.

This is all nonsense. The capital ratios will be eroded by actual loan defaults. Given the high capital ratios that the Banks were forced to achieve by the FSA in October the Banks can start to allow some erosion of this capital from loan defaults before they get anywhere near the requirements of the Basel II Accord. So what was reported back in October is true, there would have to be a nuclear war before the banks losses would put them in a position of difficulty with respect to capital ratios. The only thing that would cause Banks to face difficulties is if the FSA reversed their requirements on the reduced capital ratios they announced on Monday (something not widely reported in the press particularly by BBC journalists).
The reason bank shares are being routed is not a fear of them going to the wall, but the fear that they will be nationalised either literally or by the treasury obtaining all profits for the foreseeable future. This fear also means that despite the perceived safety of a government backed institution institutional investors are unlikely to want to invest in a goliath nationalised banking system bringing the obvious problems that shortage of funding brings.
Nationalisation should be an absolute last resort, but now it appears to be the preferred option by almost all politicians and journalists. The reasons nationalisation is a very bad idea are multiple and too lengthy to outline on this bog(go speak to someone who was alive and working during the 70s). Everything possible should have been explored to avoid the need, this is not the case. The gov't should not be taking equity stakes in these banks the BofE should be meeting it's remit of lender of last resort under extraordinary circumstances. It should also have addressed it's obligations to ensure stability in the financial system, this failure alone should warrant the sacking of the Governor and anyone on the monetary policy committee who supported his policies. Every time the Governor of the BofE opens his mouth he damages confidence in the UK economy, he should either be gagged or removed from post or both.
I'm sure all politicians across all nations are telling their electorates that their country is best placed to weather the downstorm. Quite obviously they cannot be trusted, the real indicator of a countries' economic strength is the value of it's currency. Given sterling's unprecedented fall it's clear we are in the biggest mess.

I used to think that the Daily Mash was OTT satire, but I am not so sure nowadays.

https://www.thedailymash.co.uk/news/business/only-twelve-more-bank-bail%11outs-to-go%2c-promises-darling-200901191519/

Check this out as darling says that the bank bail outs will be limited to 10 or 12 at the most!

Economics has been proven to be a pseudo science that should not be measured in NVQ’s let alone Degrees.

What we should fear is fear itself... very little has changed over the last few months. The roads, hospitals, schools, electricity, services, etc still work. We still have over 150,000 manufacturing companies.

OK, the banks have screwed up and have changed credit rules. This needs to be fixed.

One real problem is the hysterical meida reporting; which helped us get into this mess; and is now getting us deeper into it.

Peston is a classic example of a journalist who loves a crisis - as they all do - and talking things down. We are paying for the BBC to damage our economy.

What we need is some positive thinking; buy yourself that nice new car you will never ever be able to afford in the future (if you have the money); but stop living in crdit you can't afford.

Let's accept that the economy will drop a couple of points; house prices will go down; some people will lose thier jobs and some firms will go bust (as they should have done ages ago).

We need to stamp out City greed; and the sooner it gets done the better.

But who should run the country after this I have no idea - Brown has done a poor job; the Tories have no idea (and a cabinet fuill of old Etonians) - so where do we go from here?

What we should fear is fear itself... very little has changed over the last few months. The roads, hospitals, schools, electricity, services, etc still work. We still have over 150,000 manufacturing companies.

OK, the banks have screwed up and have changed credit rules. This needs to be fixed.

One real problem is the hysterical meida reporting; which helped us get into this mess; and is now getting us deeper into it.

Peston is a classic example of a journalist who loves a crisis - as they all do - and talking things down. We are paying for the BBC to damage our economy.

What we need is some positive thinking; buy yourself that nice new car you will never ever be able to afford in the future (if you have the money); but stop living in crdit you can't afford.

Let's accept that the economy will drop a couple of points; house prices will go down; some people will lose their jobs and some firms will go bust (as they should have done ages ago).

We need to stamp out City greed; and the sooner it gets done the better.

But who should run the country after this I have no idea - Brown has done a poor job; the Tories have no idea (and a cabinet fuill of old Etonians) - so where do we go from here?

I think it would be preferable for the gov't to Nationalise all the banks now, to enable the shareholders to pursue their legal cases for compensation before this current administration is gone.

Re: Bank Bailout 2

I think Merv and the Govt are fogging a dead horse here. Looking at it from a purely capitalist point of view I see no alternative other than nationalisation of all the High Street banks with the State only guaranteeing new loans etc and not the old toxic ones.

@steves_point_of_view
"Confidence will return once house prices start to go in the right direction.
The loans can then be re paid to the BoE, at a profit I?m sure."

Price are going in the right direction. When they have reached where they should be then people will start buying houses again. The whole housing (and mortgage) market is dependent on first-time buyers. These buyers have virtually dissappeared for several years (well before the peak of the bubble) because 1) they couldn't afford it and 2) they new it was a bubble that would burst and were waiting for house prices to correct. That is now happening and FTBs are in no hurry to buy until prices stabilise after the correction.

Can someone explain why the banking shares are not currently suspended, pending a full audit of them? That would then allow King, Darling and Brown to come up with a proper plan.

Are these three people so incompetent that they don't realise the damage they are doing by leaving banking shares on the market. Are we actually being serious that Barclays is now worth less than its likely annual profit? We are in danger of scaring ourselves into a depression.

And for those 'I'm all right Jack's' who say that banks should go the wall, they seem to overlook the fact that they employ hundreds of thousands of ordinary people in the UK. On top of that are all the pensions and assets of many other ordinary people.

We are a country of morons , run by them. Can someone please sort this out.

For a better assessment of the economy and the roots of what we need to replace this failed system read this blog by economist Molly Scott Cato: https://gaianeconomics.blogspot.com/2009/01/starting-to-feel-queasey.html

Robert Peston does a decent job at trying to assess things but he is working in an old tired paradigm of adolescent growth and competition - it is over and the quicker it is allowed a quiet death the better. Try reading Green Economics for the way forward we need to aim for - if we don't it is more war, more pain, more ecological disaster.

66. A thinkb4 wrote:
"#34 FreeSpeech2
I presumed the milk was held in something other than his bare hands when it was reduced to 75p!"

Fair point. But it wont be a simple case of lets halve costs and prices all round.

This morning I received an email from a lady who has relied on my guidance thru' her divorce and the rescue of her assets from her portfolio prior to the 'credit crunch'. She now has her money sitting in Lloyds TSB and asked me whether she should panic...

Here is my reply:
"Good morning...

If the Governor of the BOE doesn't know (see Peston) how on earth should I know? My hunch is Yes - panic! It's not that your money will be lost if TSB goes bad - it's more a matter of Sterling collapsing and the money that you have on deposit (which is implicitly guaranteed safe by the gov) being devalued when the BOE prints more (which is any time now - if it hasn't already started).

The zeitgeist tells me that somewhere around the time of Sterling, the Euro, and the Dollar reaching parity; the 'Amero'
currency will be introduced, we will re-enter the European financial Union, and the Asian currencies will merge; then an International Gold Standard will inevitably be resumed and our cash will be worth whatever 'they' say it is - which will inevitably be less than its current value.

There's nowhere to move cash to except to gold (and that can be confiscated by governments) so, although it's priced high, it can only go up in value by my reckoning. So buy gold coins (if you can find any), or buy a house
whatever the cost (at least you'll own something other than worthless paper) and sit tight for a thrilling ride... we ain't seen nothing yet!

Of course I'm probably being hysterically wrong about all this; but my guess is as good as anyone elses at the moment it seems.

Have a good day
luvus
xx"

sLigHtLy oFf ToPic buT WhY dO SoME pEopLE fiNd It nEceSSaRy tO WrITe eVeRyTHIng In CaPItalS?

If YoU HaVE sOMetHinG iMpoRTanT tO sAY YoU CaN TrY uSInG yOUr woRDs witHOuT ResorTInG To eYeCaTChinG gIMMickS tO mAKe yOUr pOiNt.

SoMe PeOPlE maY FInD thE wAy YoU ExPReSs yOUrSElf iRriTaTiNg (aT bESt) & pOsSibLy eVeN ArRoGanT.

As I have said before he real scare is when all the ATM's say that 'This service is no longer available' and the banks all shut. This what GB etc are desperate to avoid as civil unrest would soon follow. Massive public debt, quantiative easing, nationalizing banks are all better than total financial collapse.

I am probably more self sufficient than most of you but I still rely on my pension every month. The politicians may be floundering and they may look fools but they are staring into the abyss.

Thank you Robert for being frank with us. That is why we hang on your every word. When you get a call from Merfyn to say that the banks are all going to close for a bit while they sought this out please let us know.

#72 friendlycard

I would advise them to go. Probably go to Australia, New Zealand or Canada in that order. If they are fluent in foreign languages then there are more possibilities.

The Gulf states Dubai and Abu Dhabi should not be discounted, but they would have to be prepared to live a lifestyle with their rules. Even though I am no longer a spring chicken I am considering a move abroad.

How can Merv the swerve be saying that banking ratios remain at very high levels at the same time as our inglorious leader demands that they lend more? Do these people not speak to each other any more? The logical conclusion of Merv's comments is that lending will continue to fall.
It is time to reverse course. We must cut government expenditure radically ( I favour a 10% cut of all public sector salaries), increase taxes, increase interest rates (to boost savings) and stop guaranteeing hopeless cases such as RBS. This will cut consumption but will give people hope that there is a future. All I see at the moment is national insolvency. The only rational response to current policy is to save funds (not in pounds) and hoard food.

Post 70. Definitely go.

I would suggest New Zealand and failing that either Canada or Australia.

They will find the following very useful

https://www.immigration.govt.nz/

82 - perfect statement, so good it deserves to be there at 83 too well done

There will be a time when a long hard look will have to be given to the role of the press in all this

May be some measure instead of rushing for a scoop, a cooling off period before calling all 'breaking news'..

It's disgraceful how this gov't has spun this sorry saga as the complete fault of the banking industry, and that they need to be punished and the form of that punishment is being promoted as the nationalisation of the banks. A quid pro quo way of getting some return on all that tax payers money being risked to save their skins. This is complete bull but yet again we've swallowed it completely thanks in no small part to the government sponsored financial journalists who for most people are their only source of information on this subject.

This nationalisation frenzy is being driven by the peevish nature of one man. Gordon is angry that he has egg on his face with this re-capitalisation plan, currently this is a £20Bn egg due to the losses from RBS alone. He is being made to look foolish and this is one thing he simply will not tolerate, he is a man of towering intellect you know, written books an everything, but not read many economic ones it appears. He is also annoyed at Barclays not wanting to play ball with him and turning to the private sector in the form of rich Arabs which undermines his cunning plan to fill the black hole in public finances with bank profits. Here's the news Gordon a privatised banking system is not going to make any profits, even with comparatively small industries gov't racks up huge losses in nationalised industries, imagine the losses from a nationalised bank! The assistance for banks should have been provided in the form of loans at not too penal a rate and the underwriting of bad debt, again and not too penal a premium to make the banks completely unprofitable. That way the gov’t avoids being an integral part of the market system. For years we have mocked the French and their flawed model of having government ownership of some parts of industry, and yet today we seem to be calling for full nationalisation of the last industry that should fall under gov’t control. With a fully nationalised banking system this country will be doomed to an economic wilderness for a generation at least. No other country across the planet will follow this model. It needs to reversed now before it is too late.

A little off the point but still pertinant.

For any economy/government to base it's entire financial system on house prices, loans and taxes it can expect to raise from such things a petrol and the shuffling around of imaginary money, is in my humble opinion sheer stupidity.

It says a lot about the intelligence of those who are apparently in charge or are they as I suspect as 'thick as two short planks'.

As my late grandfather said, 'the day the started paying politicians was a very sad day!'

Sadly changing horses (Tories) I don't think will make one iota of difference. I'm not convinced they are any brighter.

We really need a monumental change in our whole way of thinking both on a personal level as well as political and economic. If we continue like we are and try and hang on to system we have; which we know has failed us then we will not have learnt anything and be doomed to disappointment again and again.

I wish I knew the answer to all of this but I know for sure we have to look at things differently and pretty damn quick.

There should be NO political parties only those who can do the job whichever side of the fence they are on. Political in fighting and point scoring is becoming out of date.

I don't care who has the good ideas.

Don't just blame Brown and Co; the whole system is too blame.

It's a DEATH SPIRAL!!! Jim Rogers is saying dump all your sterling. Flee the mud island! Flee to the East!

Private finance? Public debt?
Surely the increased level of public ownership of the banks is now blurring the lines between the two, and therefore bringing the risk transfer issue, so far as PFI and PPP schemes are concerned into question.
Were a PFI/PPP project to get into trouble, then the recourse for the public sector would ordinarily be to the private banking sector. But what if the banks are publicly owned? Is any risk at all being transferred?