Will banks' medicine kill them (and us)?

Isn't the big point that our economy is already weak due to a recent financial crises ?

and that the banks are not exactly helping strengthen the economy by their keeping the bail out money we (our government) gave to them and not lending to business, especially small businesses, in an expeditious way - which rather holds up the 'dynamic engine for growth' somewhat. And that is right now, the banks do what they like, and as for owners and creditors - what is a bail out worth, what does it count for, anything?

And so on and so on

The big point is that the banks don't want any one to rock the boat, so the longer transition time (do nothing) the better. It is disappointing to read your article appears to agree with that.

Yet another stalling tactic to put off the strict measures coming down the track. Sorry but they do not deserve any more time its been a good 2.5yrs since this crisis /crash happened and they still try and wriggle out of the rules and regulations.

What "Recovery" Peston?

Robert Peston.

"But it is the stuff of high-powered negotiation between the leaders of the world's biggest economies: it'll be more-or-less centre stage in Toronto this weekend, at the summit of G20 government heads."

more's the pity; the G20 ought to use the opportunity to press the US of A, which has a current account deficit that puts the PIIGS to shame, on addressing her financial problems instead of, for instance, 'leaning' on Iran (for trading oil in Euros, IMO).

why do you think, Mr Peston, do Standard & Poor's or Fitch Ratings appear unable to downgrade the US of A's credit rating when it was so easy to do in the case of Greece?

Morning Robert,
a fine explanation of the problems of liquidity for the banks...but hang on a minute....
"And, what's more, it genuinely matters to you and me. Because it's all about getting the right balance between reducing the likelihood of future taxpayer bailouts of the banks on the one hand and giving banks enough financial freedom to provide the credit essential to entrench the economic recovery."
What future taxpayer bailouts for the banks???

Surely the situation is unchanged from 2 years ago?
The banks were saved by massive injections of taxpayers money, the banks were told to go easy with foreclosures so that their losses were not crystallised, the banks were told that they could value their assets using any figures they liked to prove that they were now making profits (so bonuses could be paid).
Now, if, as seems likely, we enter a new financial order where the mortgagees cannot repay and in fact are more than 3 months behind with their payments, then surely the banks must start to begin the foreclosure program which will show the markets how weak the banks really are. The core1 capital plus any buffer that they manage to accrue will not save them so let's inject another £60 billion to keep them afloat (not).
Both Labour and the new Condems have refused to address the too big to fail problem, everyone seems to think that the passage of time will fix this systemic problem and as the USA are finding out, elapsed time just delays the inevitable logical consequence of their actions.
The Americans are wrestling with new legislation to try and head off the next banking crisis in the US. May I ask what we are proposing to do (apart from denying that bank fragmentation is feasible or desireable)?
Here's a suggestion, until the systemic risk can be solved, make all banks who were the recipient of taxpayers money use their fudged profits to buy back the shares that the Government holds, that would at least ensure that the banks don't have acess to gambling money and the taxpayer starts to see some return on their "investment". No net profits left so no bonuses, the share price should slowly appreciate and confidence will slowly return.
The only snag that I can see here is that the banks bosses wouldn't like it but who cares what they think now?

... so the line we are being sold here is that the economic fragility caused by the staggeringly reckless behaviour of the banking industry is the reason why regulation to reduce the possibility of a repetition should not be introduced - thanks for the offer, but I pass.

The country is too dependent on the banks. It's perhaps a good thing if they are subdued by the medicine.

I see the little ones are still squabbling over the toys in class. Does teacher have ANY control?

There is a school in the neighbourhood who sorted this out very simply. Not enough toys? Make some more.

An orderly bankruptcy of the banks in trouble would seem to be in order. No more socialism for the rich.

"But the fear is that if we insist that banks lend less and less riskily relative to their capital at this particular juncture, they'll respond by turning off the credit tap more-or-less completely - and we'll be tipped back into recession."

It would be helpful for people's understanding if Robert were clearer on what "we insist" means ...

Banks all have strict regulatory requirements to maintain carefully calculated amounts of capital against their lending. If "we" in the form of elected and appointed regulatory bodies and accounting standards bodies, "insist" that banks must measure their capital requirements in new more conservative ways (Basle II, creeping Basle II/CRD requirements, new accounting rules), then they are not permitted to lend and in general actually have to shrink by dumping loan exposures as quickly as possible to get within the limits imposed on them by the tightening rules.

Dumping such assets onto the market tends to reduce the market prices of similar assets they still have, and by implication (and relatively recent mark-to-market accounting rules) this means that they have actual losses on assets they are keeping (which loans may or may not have any less likelihood of actually repaying in full on original terms - that does not matter to the accountants).

"Actual" losses need to be accounted for in their financial reporting, which directly reduces their available capital, so meaning they have to dump more assets or raise more capital.

We do not insist that banks lend less - we require it, already.

The government is (or was) going around saying they are "telling" the banks to lend more, and everyone whinges that the banks are not doing so, but they are in fact prevented from doing so by rules established by the regulatory bodies set up by OUR collective governments.

The crisis was largely caused by banks offloading loans in various forms to separate companies which funded themselves in the highly liquid short term commercial paper markets, invested in by various parties, including pension funds investing OUR money.

The key problem was that these "separate" companies relied on ratings for their short term paper which were good enough to obtain cheap funding, but these ratings themselves depended on a large bank standing behind the "separate" company to lend it money to repay its short term paper on occasions of "market liquidity" problems - in other words, if the market will not buy more short term paper to replace the current lot at any time, for any reason, the bank will lend it the money to repay the paper.

Everyone assumed that this would be for some unlikely short term technical reason, and the money markets continued to happily buy the short term paper in larger and larger amounts, so the banks and their regulators were not concerned that there would ever be any significant problem with these companies borrowing more money in the short term markets.

With the realisation of colossal amounts of outright fraud in US subprime, and the realisation that the complexity of the securities meant that no-one had a clue where the resulting losses would show up, the short term commercial paper markets simply stopped buying ANY commercial paper from these special "separate" companies, and all the banks which had set them up suddenly had ALL the special backstop "never going to be needed" loans drawn in full.

Simultaneously all the loans (maybe $500bn) held in these "separate" companies were suddenly on the market as available for sale (with no buyers), suppressing the value of any similar parcels of loans the banks and the hedge funds also held for their own account and causing huge margin calls and mark to market losses.

The banks then needed more capital to replace that lost because of the mark to market issue, plus to cover all the loans they now suddenly received from the now bankrupt "separate" companies.

We bailed them out with respect to this capital requirement by handing them cash or making government guarantees or by making central banks accept much of these parcels of loans as collateral for (cheap) central bank funding to keep the banks alive.

Banks are still NOT ALLOWED to lend money out unless capital and accounting rules are actually relaxed a little, in a controlled manner.

Tightening the rules further will just extend the period within which they cannot lend.

The solution will come naturally over time - the vast majority of loans will be repaid over a 5 year horizon, mostly in full - IF WE PAY THEM BACK. This will make the problem go away, and the capital released can be used for new lending.

In the meantime, we have to do some important things to make this possible:

1) repay debt without borrowing more to do so.
2) allow or even require our pension and other investment funds to buy commercial paper backed by these "asset backed" parcelled loans again.
3) wait

This is because in the last 20+ years we have:

1) kept borrowing larger and larger amounts of money, often to repay prior debts
2) stopped, though various means, our investment funds investing in OUR OWN DEBT
3) been very reluctant to wait for anything.

We are now complaining bitterly that "the banks" are misbehaving, but they are not - they are following OUR rules.

There are clearly some huge excesses out there, but this is largely because we are talking about vast amounts of mony moving about and any tiny slivers which can be chiselled off them in passing turn out to be very large amounts of cash compared to ordinary income levels. The system on the whole has been very very efficient for most borrowers (ie OURSELVES) who have had cheaper and cheaper access to capital as a result. Until now, of course.

Now it is payback time.

Pay off your debts - you signed the contracts, now honour them.

... and stop whinging about the banks and the system - most people within it have not set out to defraud people and try very hard to follow what are often extremely complex rules to the letter. There are bad apples and incompetents in every walk of life, but most people are trying to make a reasonable living by doing a competent job as well as possible.

And, what's more, it genuinely matters to you and me. Because it's all about getting the right balance between reducing the likelihood of future taxpayer bailouts of the banks on the one hand and giving banks enough financial freedom to provide the credit essential to entrench the economic recovery.

Robert NO! Credit must be over! The UK had far to much of that drug and cold turkey is the only cure. To postpone it means not to win the fight against the addiction. And you know what that means? No future! Fingers crossed, there will be no "extended transition" (BOE jargon for "can we please forget it and go back to business as usual")

Nobody seems to want to talk about the elephant in the room.

Namely the $US1000 Trillion+ of derivative debt sloshing around the global financial system.

With a global GDP of about $US70 Trillion, it's patently obvious that this debt will never be paid back, which is probably why it's kept off the bank's balance sheets.

The eventual proper price discovery of this debt (ie. when someone tries to sell it) will be catastophic.

Our current system is broken beyond repair. No amount of G20 tinkering can fix it. It will collapse at some point, which is why I've taken up gardening.

10. At 07:51am on 25 Jun 2010, wreckless wrote:

A very interesting piece, and also wrote:

'Now it is payback time'
'Pay off your debts - you signed the contracts, now honour them'

Trouble is, for many the answers 'No', can't pay, won't pay.

In fact if the lenders had done their due dilligence they would have realised this before creating the loan in the first place.

There are still too many promises to pay out there, that have little hope of ever being honoured.

The creation of money as debt should be state controlled, not privately controlled. After all, it is the most potent economic tool available to stimulate or balance an economy.

The way I see it, is the world's economy is 'broke', drowning in a sea of debt. The only means of recovery is by providing credit, to enable more borrowing to fuel more economic growth. Which is exactly what got us into the problem in the first place. The monetary system seems to have clearly failed. But rather than face up to this, the governments of the world are attempting to put in place a whole bunch of props to keep the shed of a system erect. Its pathetic, and these props will inevitably fail in time, they are simply delaying the inevitable. Lets face it the banking system does not create wealth, it simply moves money around, and pays handsomely those that are involved. We need a new system that is sustainable and fit for purpose, and not the current one that simply allows a small number of people to fill their trouser pockets at our expense.

So senior bankers think they should be able to take risks and pocket bonuses as they wish with no recourse to their actions. Well we all know what happens when they do that, financial meltdown. The bonus when you win idea should only be allowed if countered by the idea of lose it when you fail. However the banks failed, got bailed by the taxpayer but are now carrying on as if nothing ever went wrong. The simple truth is if proper Capitalist/market economics had been allowed to run the banks would have all gone under and they wouldn't get anything.

The sad truth of it is the taxpayer has been bent of over twice and now everybody else is paying the price whilst the same arrogant bankers are happy as larry paying themselves huge bonuses again. It now appears this government and the bank of england are too feeble to do anything about.

Roll on 10 years time, when if history has taught us anything, the next financial meltdown will happen only probably worse, happy days!!

There's a simple measure we need to apply and that's the trade deficit. If it improves it would suggest that the banks are actively helping to rebalance the economy. If it gets worse or stays roughly the same then it would suggest that the banks are misbehaving again. If the latter happens then we should go for full nationalisation.

If the banks are to take fewer risks and to operate with larger reserve ratios, then is it not obvious that to supplement the smaller amount of credit, which would then be available, it will be necessary to increase the money supply. In other words to offset the deflationary effect of the banks' caution, larger unfunded public deficits will be required.

European governments, apparently oblivious to the lessons of the 1930s depression are doing exactly the opposite with their hair shirt austerity programmes. If they continue a new depression is not merely a possibility, it is extremely likely.

The only hopeful sign is that the US government seems to be more enlightened, maybe the Europeans will listen to Obama's plea.

#10 wreckless

Oh, you were going so swimmingly well until this sentence...

"....most people are trying to make a reasonable living by doing a competent job as well as possible."

Now I have choices upon which to make sense of this truly inaccurate or aphasic statement. Either "most people" means "outside of the financial sector", or the word "competent" needs to be removed. You see I happen to know, proof positive from my own experiences, that many (not most) people were being greedy, especially in the financial sector, because there were big bucks in commission. Now of course these people were trying to make a decent living (for themselves), but I am afraid the means were as indecent as you can get. Bad apples? No, the whole orchard was condemned.

The real problem in the system is the inability of regulators to distinguish between well run and badly run banks and adjust their requirements to reflect the quality of management. That this is not easy is well illustrated by the case of Lloyds. The old Lloyds operation has performed well throughout the crisis and the need for Lloyds to access government help was driven exclusively by the mess they acquired with HBOS. You might suggest this acquisition reflects bad management but, of course, the government lied through their teeth about the situation of HBOS and enticed Lloyds and its shareholders to proceed with the takeover based on false information. In an environment where governments lie to save their skins and regulators are staffed by those incapable of being employed by real companies (I speak with first hand knowledge of the FSA and insurance industry) then why should we believe a word they say about what represents the best way forward? I look forward to the forthcoming court case on the Lloyds/HBOS takeover and the forced disclosure of documents showing the culpability of the government.

thanks Robert for the 6-45 update very good - that would make a good interview, simple questions and actual answers...

As for conspiracy theory?

https://www.bbc.co.uk/blogs/seealso/2010/06/daily_view_bilderberg_group_co.html

Where is the 'theory'?

I am tired of all the navel-gazing. We have reached crunch time: decisions have to be made.

We need to identify pronto the exact size of the debt-hole in the UK economy: both private and public indebtedness.

We need to identify in the same way and as quickly the size of the debt-hole in the world economy.

We need to find a method by which we can avoid the worst consequences of these debt vortices.

Retail banking has to be separated from the investment casinos immediately.

The taxpayer guarantee to banks will apply only to the retail banks.

The concept of a banker as a risk-taker is logically absurd. Banking is about stability and the elimination of risk. To reward a banker for taking risks is just plain stupid. Stupid people should not be allowed to run banks.

Lastly, the first banking crash could have only happened as a result of deliberately overstated financial prospectuses designed to achieve a pecuniary advantage for their protagonists. So when are we going to see certain high-powerd bankers up in No 1 Court at the Old Bailey to answer charges under the Theft Act? The people badly need scapegoats so that we can all move on.

Tinkering with banks' capital requirements ignores the underlying cause of the problem, which is structural. Countries that consistently import more than they export must - in order to balance payments - continue to borrow money from abroad, or sell off assets. Attempting to stop this inward flow going through the banking system will simply divert it into other forms of credit, these will be repackaged and stamped with AAA and then end up on bank balance sheets anyway.

Only if the economy manages to balance its trade will it be able to fund investement from stable long-term domestic saving. Unfortunately, there are hundreds of millions of low-cost workers yet to emerge from the fields of developing countries, hence there is no other way for the west to balance trade than to take cut in living standards, the only question is how much. And there is no use in bleating on about lending being cut back - it's supposed to be.

10. At 07:51am on 25 Jun 2010, wreckless wrote:
"In the meantime, we have to do some important things .....
1) .....
2) allow or even require our pension and other investment funds to buy commercial paper backed by these "asset backed" parceled loans again.
3) ....."

I thought your blog was well reasoned but I choked a bit on point number 2. If this is going to happen, surely there has to be more transparency on the assets and more consistent regulation across the world on the nature and rating of these assets?

As to the general health of banks, Robert did cover stress testing in a previous blog. Why not establish an approach of continuous stress testing as part of the normal accounting cycle. With IT systems ever pervasive, surely these systems could be built and monitored by the BofE?

> banks' owners have apparently been happy to make
> significant financial sacrifices while bankers
> preserved and possibly enhanced their own living
> standards.

No. We're unhappy that we've suffered a slump,
while our employees have money to burn. We need big
cuts in the wages bill, now, to bring them within
the national average for semi-skilled workers.

Robert wrote:

"Mervyn King and the Bank of England are.. implacable enemies" of everyone!

Mention the name "Mervyn King" and the only thing that comes to mind is ineffective and ineffectual non-regulation of the things that actually matter.

If the Bank of England is supposed to do anything it is to ensure that the price of money is appropriate fro controlling inflation and general financial stability. (and I actually think the name suggesting that it is a Bank is unfortunate to say the least!)

The Bank of England simply ignored the most damaging aspects of inflation for the whole of the last decade. They knew they were ignoring asset price inflation but being ineffectual dupes of the city and govenrment they considered that OK. Those letters that the Bank kept sending out, when challenged about this, that claimed that all they had to do was to ensure that the cpi was within an agreed range are economic nonsense and were always economic nonsense.

The economy needs price stability - even banks, need price stability - yet that Bank of England couldn't be a..ed! This is fundamentally why the Bank is just a joke in the city and of course because it wasted enormous energy (and 200 'trained and qualified' economists) in making excuses for its failure.

Mervyn King MUST go!

We need a new Governor who is untainted by the enormous regulatory failure.

All inflation matters - and secured asset price inflation more than most - (or we are all Japanese now and we will be heading for a prolonged stagnating depression.)

The management of money needs a step change and we have to flush out all of the un-repayable debt in the housing sector. Individuals will suffer, but unless and until they suffer and house prices (and commercial property prices) drop dramatically (50%?) the economy cannot recover. The history of the last decades in Japan proves this. We cannot let the Bank of England destroy the country for the next twenty years.

The Bank needs to regain control of interest rates.

We need a statutory minimum interest rate that all deposit takers must pay and this needs to be set at a level that provides a decent return (at say 4%) to small savers. We also need to reintroduce usury (at say 20%) and similarly ensure that no loans charge more than this. We also need a minimum secured loan rate (of say 7%) to clamp down of the stupidities of the last decade. These rates should be progressively raised and lowered to limit the maximum profits of commercial banks - this squeeze will control the banks, re-vitalise the economy and work towards the establishment of fairness between savers and borrowers and the banking institutions.

The reformed Bank of England must take back control of the price of money or the economy will not recover! It will be painful.

The limiting of banker's bonuses should be gradual.

The ordinary working man's working life should be extended immediately to continue the funding.

Off topic but I see Hazel Blears is being interviewed for her opinions - she's on her way back! Nothing has changed!

wee-scamp said that we could measure if the banks were not misbehaving if the trade deficit improved. but there is nothing in banking rules to say they must lend to manufacturing (whats left of it) they would be fulfilling their lending obligations just as much by lending to importers and to consumers to buy imported stuff. To make this work we would have to have potentially protectionist rules that said banks must lend to manufacturing at low rates and others at high rates.
But past governments have been happy to let manufacturing jobs go abroard as they put their faith in financial companies to make the money to keep the country going. So there isnt anyone much to lend to
This is why the government is so afraid to tackle banks as they ARE OUR ECONOMY we have no plan B.

#24 Jacques Cartier

"We need big cuts in the wages bill, now, to bring them [bankers] within the national average for semi-skilled workers."

Semi-skilled? You are being over-generous or sarcastic or both?

Whew, there are some good comments here, Mervyn should read them. Robert offers no solution so just read above!
The basic problem stems from the fact that the staff reward system has changed from salary based to incentive based on selling. That percolates down and up, from the bottom to the top. Banks are often criticised for poor service - that's why, they are not interested in providing a service any more. It would be interesting to know what percentage of staff get over £50k including bonuses - I bet it's small. Cutting bonuses will have minimal affect on the great proportion.
Salesmen are like politicians - they don't tell all the truth.
The economic mess is not all down to the banks. Banking has always been and will continue to be a risk taking business. It's the level of risk that has to be controlled, or syphoned off to a separate business that has no government support.
Unfortunately there's no one clever enough; the banks will still continue to run rings round the regulations.

Which is striking, because it indicates that banks' owners have apparently been happy to make significant financial sacrifices while bankers preserved and possibly enhanced their own living standards. Or perhaps those investors just haven't noticed the uneven distribution of financial pain (which would be more worrying).

========================================================================

Is this a joke? If so it isn't a funny one. I include myself (and every other UK citizen) as one of the "owners" of RBS and Lloyds. Believe me, I have noticed the uneven distribution financial pain, and far from being happy, I am incandescent with rage about it. I doubt if I am the only one. Unfortunately, my stakeholding is managed for me by a bunch of crooks, who appear to live in the bankers' back pockets.

Surely, all these financial expert, pundits, analysts etc overlook the thing that is right under their nose ... that cuts in government spending mean that the monies that are cut are not 'lost into the ether' ... the money just stays in our wallets and in our bank accounts.

The question is how can the rest of the real economy as leaving out the public sector, stimulate enough beneficial transactions to compensate for the government bureacrats having less of our money to chuck around ... as if this bureacratic spending binge has ever significantly been beneficial for all and sundry?

A modicum of thought, imagination and radical thinking please.

My view is that new variant(s) of UK curency money are required e.g. issued by the bank of England, that can anly be redeemed in England and cashed at certain banks and can only be redemmed by the banks themselves at the BoE ... so that the money does not leave the UK.

This would allow the banks to take ... excessive but controlled risks ... in trying to stimulate the UK economy without poisoning the rest of the banking sector ... but still achieve the same result as the government bureacrats in the valuable making of real business transactions in our domestic economy ... of the kind that generate tax revenues.

This would be very radical but worth a try on a limted scale and the key issue is to localise the effect of the money to the UK and prevent it being spent overseas or on overseas goods even avoiding spending on imports. The key issue is that the banks would be prevented from cashing the money to e.g. send around the world in e.g derivative trading and stipulations could be that the temporary money (as it could have a expiry date on the money to ensure it is spent) could only be used by the banks for UK routine lending purposes ... 1st time buyers and SME's etc.

Is it worth a try in e.g. under-resourced regions like the NE of England?

Only radical solutions will break the impasse within the UK /European economy?

Has it occurred to anyone else yet that reforming and regulating our UK GBP money is easier and more convenient than regulating the banks ... and the UK and all other banks can be forced to lend in a particularly beneficial risk measured ammner simply by altering our money with restrictions on its use and where and how and when it can be redeemed.

All of the current UK, European and global growth and money problems can be fixed by simple reforms of ... MONEY ... regulate and rewrite the money ... and the banks and markets will have to follow and all that money stashed in the tax havens will have to spent and ... the BoE can trade money for gold again and force the gold bars out of the tax havens and into circulation for bank liquidity with 'new restrictions on new money'.

Simples ... where's me Nobel Prize?

The banks need a huge recession. How else are homeowners who have mortgages going to be forced out due to inability to pay, allowing the bankers to pick up the properties for a fraction of their previously assessed value?

Throw in the ridiculous rules on benefits where the welfare system won't pay your mortgage if you lose your job but if you move into rented accommodation it will gladly pay someone else's mortgage, and it's easy to see where this is heading.

You heard it here first.

I agree with John-from-hendon that low interest rates are a problem.
If interest rates are low (and loans are made by companies who must make profit) then to make said profit it is necessary to make ever bigger loans (ie low margin high volume lending), this is what has driven the property bubble, this is what has lead to the debt mountain that is too big to be allowed to fail!
In an ideal world lending would never be in the hands of profit making institutions. But with current situation of regulated private sector banking, regulators have got it wrong in thinking that the solution lies in low interest rates and that everything must be done to keep them low.

re *25 John from Hendon
excellent post. The whole world seems to be suffering from a lack of clear purposeful leadership.

Personally I believe where we are is like being in a car and the clutch is nearly burnt out, when it goes you just can't change gear even if the gears are good, and like it or not, a complete stop is inevitable. You could say the 'clutch' is many things - 'growth' 'liquidity' or perhaps the willingness of large numbers of people to change, or to put up with years of hardship because of their belief in the system... we are stuck in the wrong gear and are inevitably going to stall, miles from anywhere and in a bad neighbourhood.

However totally missing now (and with good reason) is trust and belief in 'the city' . "All politics is local" it is the same here, what people are going to do things, or put up with things that they do not believe in because they are told to by people they don't trust- so please add in - transparency - in every kind of well reasoned way, because without it no one will trust 'the city' or Government here or anywhere else.

If the banks require a decade then so be it, that is then the date that they can start paying bonus's.Until then they get nothing.......

Banks have been and still are fundamentally insolvent when using proper accounting rules. Some of their debts have been transferred to nation-states now struggling to avoid sovereign default. All this was done to buy time. Massive losses on all asset classes, particularly property, will be realized when they actually try and trade them. The 'recovery' was to rescue 'the system', so that everything could continue as before. But it is clearer than ever that this is simply not going to happen.

The only solution left for those still intent on a return to what they consider normal (ie pre-2008) western growth is to resume printing money and to debase the US dollar. Prepare for the Bank of England resuming its QE programme soon. China and Germany won't become debt/consumer type societies and rightly so - who in their right mind would want to emulate the crisis-ridden Anglo-American debt/consumer society.

The full consequences of the 2007/8 solvency crisis have still to work through the system. No amount of wishful-thinking and tendentious hype about a largely fictitious 'recovery' can prevent 'the west' entering a full-blown economic depression.

Robert or Stephanie please explain,
Money multiplier,Debt Peonage,Fractional Reserve Banking,Exponential Growth,and its effect on the money supply,my bank says they only deal in real money (what ever that is)

Anyone heard from WOTW lately?? Never thought i'd say this but i do miss his comments!!

Bertie Wooster is unconcerned at making millions of the underclasses unemployed, but he remains in awe of his wealthy backers in the city.

As I understand the tories ... gordon brown was responsible for the melt-down because he did not regulate the bankers' greedy and foolhardy behaviour.

By the same logic, the current lot are no better if they fail to carry serious regulatory changes through.

My belief is that they are no better - lets see.

"Tinkering with banks' capital requirements ignores the underlying cause of the problem, which is structural. Countries that consistently import more than they export must - in order to balance payments - continue to borrow money from abroad, or sell off assets. Attempting to stop this inward flow going through the banking system will simply divert it into other forms of credit, these will be repackaged and stamped with AAA and then end up on bank balance sheets anyway.

Only if the economy manages to balance its trade will it be able to fund investement from stable long-term domestic saving. Unfortunately, there are hundreds of millions of low-cost workers yet to emerge from the fields of developing countries, hence there is no other way for the west to balance trade than to take cut in living standards, the only question is how much. And there is no use in bleating on about lending being cut back - it's supposed to be."
Interesting points. The reason we, as a country, import so much stuff is obviously because its cheaper to produce abroad and import than make it here. However, in environmental terms, we should really be self sufficent as a country, making our own products locally, not importing oil etc. Unfortunately the monetary system which applies a value or price to products does not reflect the environmental consequences of production and importation. If it did we would make significantly different decisions that were more sustainable. In this respect the monetary system is no longer fit for purpose. I think we need to look more at the bigger picture, and how we value things and change the system to suit our objectives.

If all banks were under state ownership/control then all this fuss would go away and the hardworking poor would really be better off and their pensions more than a day dream.
Never has so much been taken from so many by so few.

#38. At 11:58am on 25 Jun 2010, JonofStoke wrote:
"Anyone heard from WOTW lately?? Never thought i'd say this but i do miss his comments!!"

He's stocking up his remote cave, stashing his gold and off road bike in a hidden nook and securing the entrance.

Normal service will resume when his fermented guano powered generator kicks in :-)

"31. At 10:56am on 25 Jun 2010, nautonier wrote:

Surely, all these financial expert, pundits, analysts etc overlook the thing that is right under their nose ... that cuts in government spending mean that the monies that are cut are not 'lost into the ether' ... the money just stays in our wallets and in our bank accounts."

No, the financial experts, or at least the real ones, are aware of this point.

Government cuts mean that they do not need to borrow so much, so they do not issue so many bonds and Treasury bills. Banks and other financial institutions need to buy these securities, so if the supply is reduced the price will tend to rise and the BoE will need to sell bonds into the open market to reduce the price to the target set by the MPC. This intervention by the BoE will reduce the money supply.

The situation is much more complicated than you imagine, the fact that the money "just stays in our pockets" rather being spent by a benefit claimant, who cannot afford to do otherwise, also reduces demand. So growth and the resulting jobs suffer a double whammy.

The problem with our Banks is that our money is not fit for purpose.

We need new money ... that encourages our spending of it in particular ways that are beneficial to the economy:

e.g. money that is worth e.g 10% more on face value for e.g buying particular goods and services

e.g. money that has a time stamp on it that is worth say 15% less if not spent and redeemed by a retailer within e.g. 6 months

The problem with our banks is our money - we need to alter the banks behaviour by the use of new money

Banking executives bonuses be issued in money that can only be spent in the UK or at certain other UK banks so that e.g. banking piggies lose e.g 50% of their self decided bonuses if they try and spend it overseas.

The problem is that our money is too robust and this gives the banks to much control over its use when in fact the money is issued by the Bank of England on behalf of the country (taxpayer/general population).

We urgently need to reavulate our money to put the banks under pressure to do the right things and get the UK economy moving again.

Yes this is far fetched and ultra-radical - will it work ... you bet and achieve your earliest redemption of your time stamped funny money that it will work!

Only mental shackles and lack of vision prevent us from laughing at the deficit and getting ourselves moving with an explosion of activity in our domestic economy ... the place to achieve growth is in our domestic economy ... and not wait for foreigners.

Hold open air markets for recycled goods bought and sold using the new money for early redemption

.... have some imagination ... BP cannot sustain us all ... we have do do it ourselves ... the BoE can do this ... they will know how to do this

We should not be obsessive about the banks .... only obsessive about making the money and banks work for us all... the banks and money are our servants and not our gods ... we need to make it happen and not wait for things to happen in our economy

#33. At 11:12am on 25 Jun 2010, cark wrote:
"I agree with John-from-hendon that low interest rates are a problem.
If interest rates are low (and loans are made by companies who must make profit) then to make said profit it is necessary to make ever bigger loans (ie low margin high volume lending), this is what has driven the property bubble, this is what has lead to the debt mountain that is too big to be allowed to fail!
In an ideal world lending would never be in the hands of profit making institutions. But with current situation of regulated private sector banking, regulators have got it wrong in thinking that the solution lies in low interest rates and that everything must be done to keep them low."

As an ex-banker I can inform you that interest is relatively small beer in terms of bank profits. Retail banking is not the moral promised land it was forty years ago hence the risk takers, as far as the banks are concerned it is exactly that - RETAIL. If retail banking was profitable there would be no need for mega bucks hedge fund and CDS traders.

Besides, the banks aren't exactly charging low interest rates are they so their interest profit margins are probably higher now than when the BoE base rate was 5%, why do you think there's no clamour from banks to Merv to "get it up son." The rates are low artificially low because when the rates go up banks will fail, they're buying time hoping against hope the inevitible will never happen. Too late the sovereigns are rolling down the hill and the banks are tied to them by elastic, lets hope the banks are hevier than the sovereigns when the elastic is at full extension.

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

#27. cark

That's right - banks can do what they want and that's what has to change. If a UK bank doesn't operate in the UK interest then it needs to be sanctioned. We can't afford to worry about their sensibilities anymore. If they're not going to work with us to rebalance the economy then they have to be prepared to suffer the consequences!

Peston why do you assume that the crisis is over? The banks may even be in a less stable condition now because of the increasing lack of confidence in credit ratings agencies.

The politicians did not "save the world" in 2008 as they claimed. Only a global reset (writing off trillions of dollars of bad debt) and following that a global rewrite of banking fundamentals can do that.

Its scary listening to euro zone leaders all expressing the same spin to their respective populations.
They want more exports at competitive prices. - Who do they think they will sell these goods to? Who has a manufacturing industry anyway?
They want less 'Big' government and less unemployed. - Where are all the ex public sector workers going to find work?
They want everyone to pay their share. - Obviously this wont be a proportionate to income share. If it was, then problem solved.
We are spiralling out of control and this will lead to even greater chaos and anarchy than we are seeing at the moment. So we can look forward to more demonstrations on our TV screens, demonisation of individuals and then the oh so predictable draconian control measures or the creation of a greater foe threatening our shores. Its all so predictable its boring.

Robert, how can it be that Europe's banks "have rather less capital as a proportion of their assets than either the UK's or America's", when they suffered significantly less in the credit crunch?

Surely they took fewer risks, had less exposure to hedge against, and so actually had more capital relative to the financial risks they were taking? Has anything changed since then?

@ *4

"more's the pity; the G20 ought to use the opportunity to press the US of A, which has a current account deficit that puts the PIIGS to shame, on addressing her financial problems instead of, for instance, 'leaning' on Iran (for trading oil in Euros, IMO).

why do you think, Mr Peston, do Standard & Poor's or Fitch Ratings appear unable to downgrade the US of A's credit rating when it was so easy to do in the case of Greece?"

There is a saying from the Americans, that the US Dollar may be the currency of the United States, but it is the World's problem. Who is going to cash the cheque of $11 trillion? China holds $2 trillion, so if the USA's credit rating was downgraded, on the yield spreads, they would lose a lot of money. The world uses dollars, the US govt knows this and so can spend as many of them as they like! It is not as if the US govt could be forced into default, that would be obscene and then we would really have a financial catastrophe.... They would fire up the printing presses EVEN more, meaning the dollar would plummet, and all those holdings of US treasuries would lose a lot of value because of the inflation.

On an aside, why does China not decouple the Yuan peg perminently? Well thats because long term some argue that the renminbi is c30-40% below PPP. But wait they have c2 trillion $, so if they let the revaluation occur all at once, well they could lose at least $600 billion... Not the greatest trade in the world really!

Bankers /traders/pension fund managers etc., live on your cash flow, in an entirely different planet stratospheric bubble, we will live and die and never experience?

For every £50 per month pension contribution, that you and me pay; 40% will be spent by your pension fund managers today on the high life and totally unaccountable to you and me when we retire? Why is that? Because those fund managers will have retired in a lovely place with a lovely fortune?

Big surprise. Of course nothing will be done about the banks. Not under the status quo. Its not part of the plan.

That's what happens when you allow pondlife to control the governement, and scum to control the money supply.

The banksters sirvived a decade sucking on their own snakeoil without becoming stretcher cases in public so why should a bottle of homeopathy affect them or any other medicine that they might pretend to take with addishanal liquidity.

Once they get their fangs back into the two tiered mortgage markets [0% for some fiends to sustain capital prices and 10%for others to pay their bonuses}it'll be Jeckylobite and Hide business with their debt rattle AAAspurrusual

Rather than protecting depositors from banking losses ,they [depositors ] should be made fooly liable for all banking leveraged losses which could be 50 times their deposits ,this would encourage the development of a full reserve parallel banking system plus higher interest for and scrutiny from leveraged depositors that could afford to take a risk .


At the moment the banks leveraged funding of hedge funds is the equivalent of giving a child a gun and asking him to be a sheriff with losses[risks] hidden off balance sheet and rolled over and profits be brought on balance to be converted to bonus pie.

Heads they win ,tails others loose.


Its the intercest rate stupid!

The economy is dead ,if you cut a tree down the magic mushrooms will still grow on it and produce a meerkat high .

Long live the economy !

I am neither a banker, politician or economist, which possibly explains why I don't understand;
(1) Why the people who caused the economic crisis seem uniquely positioned, in fact protected, so as not to suffer from it
(2) Some 2.5 years later no serious attempt has been made via legislation to prevent it from happening again
(3) Why the general population don't seem that bothered

38 & 42

I believe WOTW has run off with Copper Dolomite who is also conspicious by her absence this week........either that or he's off to protest at the G8.

34.
"Personally I believe where we are is like being in a car and the clutch is nearly burnt out, when it goes you just can't change gear even if the gears are good, and like it or not, a complete stop is inevitable. You could say the 'clutch' "



VVVVVVVVVVVVVVVVVVVVVVVVVROOOOOOOOOOOOOOOOM


The /bankster cargo cultists have a spare clutch behind their gearstick which allows them to get grip with political realty and purrform handbrake turns leaving the rubber on the road to ruin in exchange for a slap on the wrist.

"38. At 11:58am on 25 Jun 2010, JonofStoke wrote:
Anyone heard from WOTW lately?? Never thought i'd say this but i do miss his comments!!"

He dropped his tinfoil hat and THEY got to him.

In better times they would be providing these comments from the Tower of London. It just shows how distant they are from reality. The bankers refuse to accept any responbility for what they caused. They will pretend to the very end that this was all some technical matter and their collusions to knowingly finance loans with nothing to back them and collect all fees upfront with the position that all the bad debt could be put on the taxpayers because they owned the corrupt governments. The money that they stole from individual accounts will never be discussed. All the retirement accounts and personal investments have never been calculated and no discussion has been made about what responsbility the banks may have to make the people whole since they have been made whole. They spit on the depositors, they have elected officials to vote for whatever they want. The governments have learned that the bailout was a second robbery by the bankers and now they have to deal with the consequences as the bankers want to take taxpayer monies and fund economies in Asia. First take their passports, next issue the charges in court that should have been made two years ago and lastly use the public ownership to vote them out and bring in people with at least some sense of decency and integrity. These are the real terrorist.

I find it facinating as to what the BBC choses to highlight from the BoE stability report. The issue which interested me was another chart showing how an expectation of government support improved UK bank ratings by up to 5 notches, quote "Moody’s ratings
suggest expectations of government support improve their
bank ratings by up to five notches (Chart 3.21)." A rise in sovereign risk would reduce the value of perceived support to the UK banking system putting downward pressure on bank credit ratings. This would increase bank's funding costs when uk banks have 60% of their funding maturing in timescales less than 12 months. That would directly further constrain credit in UK.

This explains the reason why Mr Osborne bangs on so much about the credit rating of UK gilts.The UK Government and UK banks are linked at the hip whether we like it or not!

I've just been listening to two news stories.

First, all the parks in Detroit will be closed as of next week. The trash cans will be removed, maintenance equipment will be left to waste because the parks will be left to return wild, and they will be barricade to prevent any events taking place.

Second, the G8 and G20 meetings going on just now have cost one billion, possibly rising to 2 billion (think the figures are US dollars because it is a US show). Is there any reason why the BBC news report I saw earlier didn't mention the cost of security? A billion is a lot of money when we are looking at what our budget will mean to the people of this country. A billion! Oh, the books I could buy with that...

Why the expensive protection? Boris, like some European royalty go about on bikes doesn't he, so why not those at the big meeting?

One possible interpretation is the public simply do not accept this continual support for big business at their expense and our mighty leaders know it. Did anyone notice the garment workers of Bangladesh were out on strike recently complaining about wages, working conditions etc, the kind of conditions we have have brought back to these shores as we are driven further and further towards cheap jobs and unregulated business? How much protest has gone on in China and other Asian countries this year alone? How many demos in the US and across Europe?

I mean, honestly, John Lennon, Robbie, all of those guys didn't/don't cost so much to keep from being torn apart by fans do they?

59. At 2:47pm on 25 Jun 2010, Freeman wrote:

Probably gone off on holiday for a week - he's been gone for a few days in the past and always makes his way back to give us his take on things.

#45. NorthSeaHalibut wrote:

How do you reconcile two statements that you made in #45:

1. "As an ex-banker I can inform you that interest is relatively small beer in terms of bank profits"

and

2. "The rates are low artificially low because when the rates go up banks will fail."

My central thesis is that the Bank of England needs to regain control of interest charged and paid in the market and without doing so there will be no recovery.

If your first statement is correct then paying higher rates to all savers, not just a privileged few large ones will not hurt the banks. But then you write that if rates ever increase banks will fail. There is clearly something amiss with your two statements.

The relationship between the price of money and economic bubbles is I think self apparent and it is/was that that caused the problem we are trying to solve. In essence: we must solve the problem, or it will still exist! If that requires that banks go bust, then so be it, as the solution is critical to any recovery. We must a all costs avoid become mired in collapse like the Japanese economy - so the 'impossible' must be done! There is, I think, no other way!!!! Do you have an alternate solution?

59#
Don't worry about WOTW, as a reader of the blog for ages, he occasionally goes AWOL for a short period and comes back more prolific.

#50. You say the European banks performed better in the crisis. Of course they appeared to when most of them continue to hold their property assets at par rather than having written them down in a similar way to UK banks. There are some good banks out there but many French and Spanish banks are just a paper facade based on wholly unrealistic valuations of their assets.

60. At 3:58pm on 25 Jun 2010, ghostofsichuan

Look, this is how it works.
My brother moved across several county borders because he wanted to join the police force and not have the pressures of dealing with handcuffing the people he might have gone to school with.

A future politician can not move across national borders.

Think about what that means in terms of lobbying, in terms of those who do not or cannot grasp evidence in policy making. Look at the deregulations that led to the BP disaster, how those deregulations were dismantled and the results. Now think of say, someone selling opium as a medical treatment and the steps they would go through, indeed did go through in the past to make sure everyone believed it was effective. You'd create a marketing campaign to tell people what they want. That will work if you have a population that simply does not understand science. Then you'd begin lobbying politicians and perhaps even employing them or their best friend, make sure your kids are friends with theirs, employ their wife/husband, rubbish and generally thow public fits when the medical/science professions appear with the evidence etc. Hey presto, you have parliament deregulating the drug laws in a few years and you rake it in. For more profitable and personally safer than trying to get the local police to look the other way.

How many of us have a deep understanding of global finance, global economics, risk, and the endless list of things we need to understand when we cast our vote?

#65 #59
Summer equinox and also Glastonbury.
Obviously grooving with a pict.

And there was me thinking WOTW was actually an interactive computer program.

It is long overdue that we stop rewarding recklessness and punishing prudence in the UK. The idiots that got us into this mess have been let off scot-free, whilst the sensible people have seen their savings and investments withered and their taxes raised to pay for the damage imposed by the reckless.

When I say idiots/reckless I'm talking about the greedy arrogant self-serving bankster shysters who have been enriching themselves MASSIVELY at everyone else's expense, and also the stupid fashion-victim credit-card junkies who have run up huge debts in order to have a huge shiny brand-new 4x4 parked outside their 3-bedroom urban semi, which has probably never been off-road since they bought it. These credit-card junkies are up to their eyes in debt from trying to emulate the meaningless lives of vacuous "celebrities" who are even more shallow than their moronic wannabe fans. Such people need to stop living beyond their means and start paying their dues to society.

Because of the recklessness of these idiots, we are now all going to suffer, in the form of increased taxes and reduced public services. Thanks a lot.

The idiots need to be punished. It is obscene that banksters have been able to continue grabbing their huge (& hugely undeserved) multi-million pound bonuses despite their industry having had to be rescued from oblivion by the taxpayer. They are lucky to still be in a job, never mind receiving a bonus. And don't give me that rubbish about "We need to pay top money to attract the best talent!". Clearly they are not so clever or else they would not have brought the economy to its knees. This "talent" argument is complete nonsense put about by those with a vested interest. Were they born as banksters? Of course not. They learned it. And so can anyone else (and we don't need to pay them millions of pounds in bonuses!). The government should pass a law to retrospectively tax such bonuses at 100 percent. As for the credit-card junkies, anyone with a credit-card debt of more than half of their gross annual income should be banned from having a credit card or loan for the next 20 years, with the possible exception of a (reasonably sized) mortgage.

On the subject of mortgages, remember the idiots who borrowed more than 100 percent of the value of a no-doubt-already-overpriced house? I'm not sure who is the bigger idiot, the borrower or the lender? Both should be punnished. Interest rates should be raised immediately. The sensible people could see at least 5 years ago (probably more like 8 years ago) that interest rates were far too low. Keeping rates so low for so long is part of what got us in this mess. How can the solution to a problem involve doing more of what caused it?!

The bankers, being bankers, will not consider their behavior reprehensible in the slightest. After all why should they? They are still trading and they are making money for themselves. Why stop a good thing?

Only a killjoy would tell them to slow down.

Only they "really" understand what they are doing.
And if it does go wrong then you and me can be relied on to step in and bail them out.

But of course without the bankers the economy is toast.
So to paraphrase a certain Palin:

Bank baby bank.

#64 JFH

John, forget about the pittance paid on your savings for a moment. Banks will fail because when interest rates rise defaults will rise and write offs will roller coaster ending in collapse for the over exposed. Banks are charging ridiculous margins above BoE at present and I suspect won't be able to resist maintaining those margins at a BoE base rate of say 5% and hey presto millions of over indebted defaults at around 9% - 10%. Even if banks reduce margins to previous levels and charge around 7% the economic tightening will cause massive levels of default because previously manageable debts are now toxic. The banks can't take the pressure of these defaults so only more QE will save them which the Tories will oppose given the budget deficit. Let me just say previous colleagues have furrowed brows and looked pretty nervous when they heard one BoE committee member voted for a rise this month. You must remember, although there may be more savers than borrowers the aggregate value of debt is vastly higher than investments, you're on a loser old chap. I haven't even started on sovereign debt exposure yet.

I have to say John I agree with every statement you make about the value of our humble pound and associated interest rates and I've no doubt the BoE would agree with you in normal conditions. However, they don't want our humble quid to have a value for too many reasons other than debt protection to bang on about on here, these aren't normal conditions, in fact I doubt normal conditions will ever be resumed.

Look on the bright side though, when rates eventually rise your foreign holidays will be a lot cheaper as the quid rises, just remember to hire security while you're out there.

Part of the debt or even a good part of it is the bad loans that the governments assumed from the banks. I am still not sure why they assumed them but I would think it is time to return that bad paper to the creators. Apparently bankers do not think that they should ever have to suffer for mistakes they have made and in fact that the public should assure obscene profits. Why haven't the governments returned the bad loans or at least required some scheduled repayment from the banks. If any other business developed products that lost value that would be considered a liablity. The public are fools to allow these political handmaidens to cut services to pay off bad loans made by banks while bankers hand out bonuses and show large profits. These are really matters of ethics as much as money and economics.....bad ethics..bad money and bad economics....sounds like a plan....I think I will go to the golf course for a talk with my banker and I am sure there will be atleast one politician in the foursome.

@ 28. At 10:19am on 25 Jun 2010, polly_gone wrote:

>> "We need big cuts in the wages bill, now, to bring
>> them [bankers] within the national average for
>> semi-skilled workers."

> Semi-skilled? You are being over-generous or
> sarcastic or both?


Neither - some bankers can read, write and do arithmetic so
they are semi-skilled. But proper maths is beyond the
majority.

The real brains behind banks are the computer programmers.
I don't mind paying them good wages because we need to
count money and shuffle it around without mistakes.

But the bankers (as you call them) are just dead-wood,
and need to be cut right back.

It's a crazy situation. How can banks be expected to build up significantly more capital and still push increased lending?

They can't. But they'll find ways of fiddling around the latest regulation nonsense. It isn't difficult. So I reckon the regulatory noises as "being seen to be doing something".

"What it demonstrates is that after the banking crisis of 2008, there has been a very sharp drop in dividend payments but a rise in the share of banks' income allocated to salaries and bonuses.

Which is striking, because it indicates that banks' owners have apparently been happy to make significant financial sacrifices while bankers preserved and possibly enhanced their own living standards. Or perhaps those investors just haven't noticed the uneven distribution of financial pain (which would be more worrying)."

The third possibility of course, is that I'm unhappy about it but, as a shareholder, can't do anything to stop it!

The problem is that pretty much all shareholder resolutions in any company are decided based on the weight of votes cast for or against the resolution rather than the number of shareholders for or against.

Unfortunately the majority of shares are held by proxy companies within the financial services game - pension funds, assets managers, the banks themselves - which because they all have a vested interest will not vote against anything that would affect their own remuneration.

If the voting rules were changed to "one man, one vote" (what most people would regard as basic democracy) then the majority of shareholders would find it much easier to put a stop to this excessive bonus culture. It's ridiculous that a couple of million individual shareholders can be out voted by one or two investment fund managers.

Another thing is that the Asset Managers etc aren't even obliged to follow the wishes of the people whose money they are managing - as seen with Cadbury's when the company pension fund voted in favour of the sale even though the pension fund contributors (i.e. the Cadbury employees) were obviously against it. That's happened a lot of times over the years.

To fix this we should introduce legislation to force Assets Managers to actually ask the real ownbers of the assets what their wishes are and make them vote accordingly.

75 - you honestly think that a person with 1 share should have the same influence as another with 1m?

If you know that you have no influence, and that it is a rigged game, why do you hold any shares at all?

@ AgeTheGod

I couldn't agree more. Real owners of the assets have nothing to say and the most crucial decisions are made by few bank managers supported by funds representatives.

69. At 6:09pm on 25 Jun 2010, Forthright Frank wrote:
"It is long overdue that we stop rewarding recklessness and punishing prudence in the UK."

Agreed. That word 'prudence' rings a bell!

"The idiots that got us into this mess have been let off scot-free,"

Well at the moment they have been voted out of office!

"When I say idiots/reckless I'm talking about the greedy arrogant self-serving bankster shysters .... and also the stupid fashion-victim credit-card junkies who have run up huge debts ....."

Oh, sorry, I thought you were talking about NuLiebour!

"Because of the recklessness of these idiots, we are now all going to suffer, in the form of increased taxes and reduced public services. Thanks a lot."

Oh, you are talking about NuLiebour!

"The idiots need to be punished. ........Clearly they are not so clever or else they would not have brought the economy to its knees."

But where is the Hon. Member for Kirkcaldy, aka as Prudence Brown.

76. At 8:25pm on 25 Jun 2010, truths33k3r wrote:
"75 - you honestly think that a person with 1 share should have the same influence as another with 1m?"

Yes I do - there are many companies that are run on the basis of "one man, one vote" - e.g. many Building Societies, The Co-Operative, John Lewis Partnership - and they seem to be doing OK for all their stakeholders i.e. employees, investors and customers.

However that's beside the point because all I was doing was pointing out a flaw in RP's argument that shareholders were either unaware of the bonuses being paid or, even worse, didn't care.

That's not the case - we are aware and do care but are powerless to stop it.

At least I've taken a stake in the game and whilst writing letters to companies I have shares in and trying to change the onesidedness of capitalism might ultimately be pointless it is more constructive than just standing on the side-lines moaning about the "Sir Greedies" and how unfair life / business / everything is.

76. At 8:25pm on 25 Jun 2010, truths33k3r wrote:
"75 - you honestly think that a person with 1 share should have the same influence as another with 1m?"

Following on, I should also point out that "one man, one vote" is the way that any democracy should work - you don’t get more votes in a general election based on how much material possessions you've acquired or how much you contribute to society in general.

Why should "business" - which is after all just another form of collective individuals gathered together for a particular purpose - be any different?

You seem to be arguing that someone with more money than me (irrespective of how they got it) should have more rights and priviledges which just doesn't seem right.

Just something to ponder…

this site became cool today, (if it wasn't already,) look at *31 nautonier for example..

forget the billion pound security G8 or 20 or what ever it is, here people - from all over the world, and from all different outlooks, start to get some really fresh ideas going - inspiring...

So then we could look at a new start - instead of fiat, gold? hmmm (could use you input here Robert) what if gold is not in 'tax havens' but has been bought by the oil producing countries, is that our new beginning??
and so on...

#71. NorthSeaHalibut

A couple of points for you to consider:

You wrote:
"in fact I doubt normal conditions will ever be resumed"

I disagree - we MUST get back to 'normal conditions' and that will require debts to be deflated (see Irving Fisher's analysis of the events of the 1930's Depression.) Follow my rules (or a similar set) and this will happen relatively quickly - but do what we are doing now, and it will just take a couple of decades longer - either way it will happen.

You also wrote:
"John, forget about the pittance paid on your savings for a moment"

It is not my own condition that bothers me; it is the many tens of poor and elderly people I meet every week that are becoming desperate and simply do not understand why their trusted financial institution is robbing them. People who are better able to operate in the financial markets can still get decent returns from careful direct ownership of equities, commercial bonds and government bonds spreading their currency risk between UK, US and European bond, debt and equity markets (to say nothing of trading in the futures and options markets.) But without the capital, confidence, electronic trading accounts and connections the poor are being robbed and it is quite simply wrong that these people are bailing out the profligate and over indebted. It is not right that some can make five or six figure investment incomes from the same market that the poorest get nothing!

The over borrowed, over leveraged, debtors are destroying the near future of the whole economy. Their debts need restricting as do the assets upon which they are secured. This process will hurt - them and it is right that it does as they made the choices that have devastated our whole banking industry.

The small savers will rightly revolt at some point in time and governments and banks should be justifiable terrified of the time when they do say, enough is enough. The regulators need to react before the revolt starts. If they follow my programme (or a similar one) the revolt may be avoided or at least be less devastating - that is my logic behind the plan I have put forward.

Age the God - co-operatives are different because everyone pays the same to join. If you pay for 1m shares you have 1m times more at stake than someone with 1 share. That i why you have more say.

Plc's are owned by their shareholders. They are not public property in the wider sense. The owners should define the rules

This is completely different to a general election where everyone has 1 vote.

More power to your writing elbow, but you know this is futile. It is also undemocratic for you to seek changes to policy over someone who has more shares, as these are voting issues.

You may be better opting out of the system you despise by withdrawing your capital. Mass protest is powerful. We are very powerful but we do not recognise it.

24law - "gold is money and nothing else" JP Morgan.

If he is right, and we went to a gold standard (monetising all current fiat currency and debt), and we have far more "currency" and "debt" than the current gold price would suggest, then gold would go to the moon. If we tried to set a gold standard of £1000 an ounce, the deflation would be of an unimaginable magnitude.

The other implication is that Gordon Brown exchanged HALF of the country's money for paper currency, which he "invested" in something.

I sure hope that this JP Morgan fella didn't know anything about the true nature of money.

83. At 11:10pm on 25 Jun 2010, truths33k3r wrote:
"You may be better opting out of the system you despise by withdrawing your capital."

Unfortunately for some of us that isn't really an option because we have longer term commitments (such as a wife and 3 children) that are a higher priority than "fixing the world" and some of those commitments, such as funding university fees, are going to cost a bundle.

That's a basic dichotomy that we all face - I know the game is rigged but it's nearly impossible to avoid taking part because it's not just me that faces the consequence of that withdrawal.

Having been brought up in abject poverty (and escaped it through being really lucky with my decision making) it's not something that I would foist on my family just so I can make some personal point about capitalism.

So whether I like it or not I'm in the game.

But like most games I do think it possible to change the rules if the rules are unfair or consistently favour one group of people over another - let's face it the rules are changed all the while but usually to make the game even more unfair.

And no I don't see it any differently to general elections or being a member of a society - I invest quite a bit of money in this country (I'm in the top 0.01% of earners) in the form of taxation but I don't ask for any extra voting rights so I can make sure that my money is utilised by my business managers (the government) as I see fit. Instead I happily give equal voting rights to many people who contribute a lot less to the UK.

That to me is democratic.

80. At 10:22pm on 25 Jun 2010, AgeTheGod wrote:
76. At 8:25pm on 25 Jun 2010, truths33k3r wrote:
"75 - you honestly think that a person with 1 share should have the same influence as another with 1m?"

Following on, I should also point out that "one man, one vote" is the way that any democracy should work - you don’t get more votes in a general election based on how much material possessions you've acquired or how much you contribute to society in general.

Why should "business" - which is after all just another form of collective individuals gathered together for a particular purpose - be any different?

Simply because shares are equity. The more shares you own, the more you own the company. Those with a larger chunk of company ownership reckon they're entitled to a larger say in how the outfit is run.

Take an extreme example: you own 1% of a company; another person owns 99%? Do you think you should have the same voting rights as that other person? If so, I've news for you - business don't work that way.

Electing a government is a bit different. Most business isn't a democracy and has never pretended to be. Even when the State owns a bank such as Northern Rock you have no say in how the government and its agents actually run N. Rock. Even if you exercised your vote (in an election) to get a gov out because of the way it runs a business you're still straddled with a new gov and still have no vote in how the business is conducted.

86. At 00:26am on 26 Jun 2010, doctor bob wrote:
"Electing a government is a bit different … Even if you exercised your vote (in an election) to get a gov out because of the way it runs a business you're still straddled with a new gov and still have no vote in how the business is conducted."

Conceptually electing one board of directors is the same as electing any other board of directors and the Government is just a board of directors. When it really gets down to it, a nation is just another form of business i.e. it's a co-operative for the purpose of trading with other nations and hopefully turning a profit.

Back in the pre-democracy (feudal) days when rights and privileges were based on material wealth and power (about 500 years ago in the UK but much more recent elsewhere) the country was run in pretty much the same way that companies are now run.

But that was changed because it was unfair to the majority of shareholders (the citizens) and I can't see why the company shareholding and voting can't be brought up to date as well.

al2975 #51.

"There is a saying from the Americans, that the US Dollar may be the currency of the United States, but it is the World's problem. Who is going to cash the cheque of $11 trillion?"

sure, the "dollar hegemony" is THE underlying problem; but, like a heroin addict, our only real option is to go cold turkey, ie. let the USA go broke (after all, businesses under capitalism do when not viable). while the 'pain' would be considerable, at least we'd get a chance to institute a more suitable system.

Everydayperson #56.

"I am neither a banker, politician or economist, which possibly explains why I don't understand;
(1) Why the people who caused the economic crisis seem uniquely positioned, in fact protected, so as not to suffer from it
(2) Some 2.5 years later no serious attempt has been made via legislation to prevent it from happening again
(3) Why the general population don't seem that bothered"

(1) they control the governments and, therefore, the guns.
(2) see (1).
(3) too busy trying to survive.

copperDolomite #62.

"I mean, honestly, John Lennon, Robbie, all of those guys didn't/don't cost so much to keep from being torn apart by fans do they?"

Lennon wasn't a good example to make your point.

I am incensed together with most taxpayers that the banks are avoiding their debt to the UK taxpayer. It is a great pity that these greedy individual bankers are not living in China. Treaso against the State, because that is what the bankers are guilty of, hsould be rewarded with the ultimate penalty execution. Then perhaps the remainder of the bankers whining on about unfair regulations, restrictions on their "earned" (don't make me laugh) bonuses, may come to realise that they are the most hated individuals in society. They do not generate wealth, they risk others wealth by gambling. The sooner they are reigned in and their antics sorted the better.

Bob Matthews #91.

"..bankers ... may come to realise that they are the most hated individuals in society."

oi, what about estate agents??

#40 Avereagejoe

"However, in environmental terms, we should really be self sufficent as a country, making our own products locally, not importing oil etc. Unfortunately the monetary system which applies a value or price to products does not reflect the environmental consequences of production and importation."

I was talking about balancing trade, not abolishing it, and certainly not the monetary system. The way to make economies reflect environmental consequences is to monetise them. If you do this through tradeable quotas (rather than straight up tax), you also get the benefit of making environmental gains where they cost the least. Trade is hugely beneficial to the world economy, it's just not balanced at the moment.

UPDATE 06:45 Robert wrote:

'Which is striking, because it indicates that banks' owners have apparently been happy to make significant financial sacrifices while bankers preserved and possibly enhanced their own living standards. Or perhaps those investors just haven't noticed the uneven distribution of financial pain (which would be more worrying).'

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

It's rapidly getting to the point where the people will have to vent their anger at the bankers' own homes...as they do in the US.

Class Warfare: Hundreds Protest Outside Bankers' Houses In DC
https://www.huffingtonpost.com/2010/05/16/class-warfare-hundreds-pr_n_578015.html

To JFH

John old friend, you're preaching to the coverted, I agree with your synopsis of the immoral way this crisis is being dealt with, well the banking issues anyway. However this line from your latest blog really answers why you, I or anyone has absolutely no influence over what happens today, tomorrow, next week, month or year. It is out of our control one way or another. I qoute:

"The over borrowed, over leveraged, debtors are destroying the near future of the whole economy."

And there old chap lies the truth, because amongst that band of fools are governments and banks who pull all the strings and pay the ferryman.

Debt is going to be a burden for, well, ever as far as I can see it because all the austerity in the world isn't clearing any debt, so far it isn't even reducing them and as they say we all follow our leaders.

It is clear many people are now worried about the future i.e. reduced pensions and/or working until they drop so are saving like there's no tomorrow. This will help the banks eventually but it'll take decades to counter exposures, if ever, but the contra effect is on retail spending, our only hope of growth other than banks, will be in terminal decline. I will admit to being in the pessimistic camp because I can only see terminal decline for the UK, nothing has convinced me otherwise.

My ex-colleagues in the bank have admitted they're making hay while the sun shines knowing full well that we'll never get the hay back when the deluge comes. People like KevinB may think we'll get the bail out cash back but it has been confirmed by many higher authorities than Kev that it's unlikely. While that money remains in the abyss the rates will be artificially low, inflation modest to high and the quid bouncing up and down near the bottom like a hooker on a.......well you get the picture. There's nowt we can do about it, that's the way they want it, along with hope and a prayer or two.

#95. NorthSeaHalibut wrote:

"To JFH ... I will admit to being in the pessimistic camp because I can only see terminal decline for the UK"

I believe it is the 'duty' of those who can see and can be bothered to campaign for change, and for change now. Both you and I appear to be at one in our analysis of the problem - however where we differ I believe that there can be a solution. I take an optimistic view that we can get back to sanity within a decade. However like digging holes - first we have to stop digging (see the current House Price bubble!) We need to campaign for steps to be taken to prevent further inflationary damage. Today we have had a cap on immigration (that will mainly hit the City and US immigrants!) what we need is a cap on housing loans if we can't yet get an immediate rise in interest rates.

JFH - you are right that debt is the problem and that the asset bubbles are still there.

Where my view differs is that I think that the government should stop meddling and let the market take its course. If we didi not have central interest rate each individual institution (o the explicit understanding that they would not be bailed out) would make their own decision as to how much they would lend and at what rate.

The need for greater capital bases in banks would cause a drop in lending and assets would drop to a level where those currently priced out of housing would be able to buy, without risking their economic future on high lending multiples.

Whatever way we go the great unwinding is only through phase one.

"It may therefore come as something of a surprise that the Bank seems to have come round to their point of view"

Doesn't surprise me - Stockholm Syndrome

The so-called crisis was an engineered event,dreamed up and initiated by the biggest financial corporations,The Federal Reserve,The IMF,The World Bank and the Bank of England.The bail-out was the second part of a classic "double sting" and these new financial endemics are being consolidated by these same financial corporations.This kind of "end-game"has historical precedent before,between,during and after the two world wars,populations economic expectations are periodically reset to ensure that social and economic advances for the majority do not just continue in an upward motion but are regressed to a similar point every few generations,with the subsequent increase in unemployment,wage decreases,loss of rights,decreased quality in education and a general dis-empowerment of the general working population.Politicians are the fixers for business,and the bigger the business,the greater the potential rewards for the politician that has "been of service",all in all,a very gloomy picture for the future,for at least a generation.

57. At 2:33pm on 25 Jun 2010, alzyalzo

Nope - never met WOTW! Hubby hauled me up and down some midge-ridden hills this week. I tell you, those hills are just where I'd make those banker sit, all day and all night, no midgie nets, no skin products from a well-known cosmetic company, and no anti-histamines wearing nice floaty kaftans (just to make sure every inch is available for those pincers)! Tents are not midgie-proof!

Maybe the G20 should be holding their meetings around a picnic table at the foot of Buachaille Etive Mor too. All the billions in security wouldn't make an ounce of difference! That'll teach them to mess up the global economy!