Why banks are riskier than hedge funds

Lord Myners told it like it is on "Today" He pointed to the King's lack of attire - not a pretty sight. So come back LM all is forgiven!Capital ratios when they eventually become mandatory are not enough. Banks need supervision not regulation and full marks to Myners for giving Basel III 3/10. What is all this stuff about white knighting hedge funds - where do they borrow from?

When Robert says 'banks' does he really mean all banks? Not all took taxpayer money and not all (to my knowledge) are under any dividend constraint. Should we be more specific and say that it is Lloyds, RBS and Northern Rock?

And I would love to know what the real contribution to the annual budget deficit is directly attributable to taxpayer support for the banks. I thought the government provided indemnities (so far no claimed on, and for which the banks are charged a fee) and bought shares in several of the baks on which they stand to make a profit. Are there any robust, reliable numbers in the public domain for the real extent to which the support packages for the banks have resulted in a cost to the taxpayer?

"That probably shocks you, because you probably think that hedge funds are the most outrageous speculators on the planet. Well you're wrong about that."

was this written directly at the bloggs resident troll? it didn't shock me.

I do agree that there needs to be ratio's for robustness in the event of hysteria driven runs but the other side of the coin is that it is vital to the uk economy that banks continue to lend to businesses.

Finally do you have any statistics to say why banks (for all employees) renumerate themselves like hedge fund managers?

Bailing the banks out was a catastrophic mistake. It would have been far better to let them go bust, taking their investors with them, and take the (relatively) short term hit to the economy.

Instead we have given the green light to banks and their investors that they can take what risks they like - we taxpayer mugs will bail them out if their bets go wrong.

As a result we now have record government debt that will impoverish us for decades, and yet the banks are still too weak to lend to small and medium businesses to provide the growth we need to pay the debts off.

We now have the worst of all worlds thanks to bailing the banks out.

> banks should reduce the amount they pay out in dividends
> not just for a few years, but forever; and ...
> ... they should stop remunerating themselves like
> hedge fund managers.

Robert, you're beginning to see the light.

> forcing banks like Barclays and Royal Bank of Scotland
> with large financial trading operations to hold
> disproportionately more capital.

While this is very helpful, I need to see a real "size tax" to hobble these greedy, self-obsessed merchants of indebtedness. Until
then, bankers remain social and business pariahs.

Just an aside to the continuing debate about banks and who paid what and who gets what - regulation or supervision.

I note from this morning's Breakfast Show an alarming little "tax news" that seems to have escaped your investigatory powers. It appears that the Inland Revenue has published a consultation document (consultations end on 23 September) concerning the collection of personal taxes. It appears the Inland Revenue missed collecting an estimated £42bn in taxes last year (2008-09), and to solve the problem they are suggesting that they takeover the payroll function for all employees. Whereby all earnt income is passed directly to the Inland Revenue who would then calculate appropriate taxes before passing the balance to the employee. Thus saving empoloyers the overhead of payroll systems, other than the necessary calculation of gross salary.

For an organisation that has just sent several million letters (presumably at vast cost to the revenue) indicating under and over payment of taxation, that admits it has not collected £42bn that it should have - it seems a high risk solution to ineggiciency to place all salary (and presumably VAT) activities into this unfit for purpose organisation.

When were you going to tell us all about this unheralded change Robert?

#4
Well said. The tax payer could have bailed out the people who had deposited their money and left the shareholders and bondholders to share the pain having enjoyed the gains over all those years. As you say, short term pain, back to ground zero and build good businesses back from the ashes. Instead with have the disgusting spectacle of the BOE lending to the banks @ 0.5%, who in turn lend it to HMG @ 3% and then allocate the profit made to their renumeration/bonus pool rather than build up their reserves. Makes you want to throw up.

Could someone tell me who are the investors in Banks? I was wondering whether they are not to some extent Pension Funds. I know that there are some very rich people as well, but where do all the profits go? Investors are ultimately people (even if it is through 'institutions')

There would be a big problem for those who criticised banks' profits yet relied on bank profitability for their pensions. However if the size of a pension was reduced by excessive bank bonuses that would muddy the water even more.

According to Government statistics:

Year 2007 – 2008
Tax receipts £549bn
Gov’t expenditure = £583bn
Gov’t debt = £527bn (excl financial sector intervention)
Gov’t debt = £614bn (incl financial sector intervention)

Year 2008 – 2009
Tax receipts £534bn
Gov’t expenditure = £621bn
Gov’t debt = £617bn (excl financial sector intervention)
Gov’t debt = £707bn (incl financial sector intervention)

Year 2009 – 20010
Tax receipts £508bn
Gov’t expenditure = £674bn
Gov’t debt = £777bn (excl financial sector intervention)
Gov’t debt = £1004bn (incl financial sector intervention)

National average earnings (wages) are currently increasing at 1.5% per annum.
However in the last financial year Government debt increased by 26% is you exclude financial sector intervention and 42% if you include it. But tax receipts fell 5%.

This is the end product of an uncontrolled debt based monetary system.

If you wish to understand fractional reserve banking a short animated film by Paul Grignon, ‘Money as Debt’ is a good place to start (link below)
https://www.youtube.com/watch?annotation_id=annotation_942534&feature=iv&v=z5vC_8azMFk

The watch the documentary Secrets of OZ (link below)
https://www.youtube.com/watch?v=D22TlYA8F2E

A group wishing to make changes to the system, see link below.
https://www.bankofenglandact.co.uk/act/
https://www.positivemoney.org.uk/2010/09/douglas-carswell-mp-introduces-bill-to-stop-fractional-reserve-banking/

4 nametheguilty

"Bailing the banks out was a catastrophic mistake. It would have been far better to let them go bust, taking their investors with them, and take the (relatively) short term hit to the economy."

If the banks hadn't been bailed out, we would have been back in the stone age (almost). Millions of people would literally have been unable to buy food, get paid, pay bills etc. It would have led to a depression beyond anything seen before.

Letting the banks go bust is what happened in the 30s, with well known results

So, if I consider this blog together with that from Stephanie, I come to the conclusion that the world is a scarier and more uncertain place. I don't like what I am reading, it is sending goosebumps down my arms, but I cannot articulate exactly why.

I am not sure if this is correct.

But let us assume that a big bank does have 10% capital reserve and there is another crisis that wipes out 6% of its capital, perhaps caused by reckless behaviour. What happens then? Is the bank now forced into 'special measures' to recover its capital position? Have they really thought through the implications of a major bank disappearing from the scene, or at the very least, having a much reduced presence?

Presumably many pension funds will have invested in the bank; capital and income now gone/reduced so the blameless general public hit in the pocket and some, the pensioners, will have a reduced income for the rest of their lives. Hardly seems fair if this were caused by a bank behaving recklessly! There will also be knock-on effects in the stock markets as there always are. I can hear the plaintive bleat and excuse, 'ah! the markets fallen, we have to reduce your expectations and the income we provide to pensioners'. When is a financial company going to say, 'we've been successful in our investment strategy and can increase the payments to pensioners and other investors'? At the moment the investment into pensions within the financial industry seem very poor value and old age holds the prospect for many of being a time of poverty [for some its already here].

Us mere mortals seem to be stuck between a rock and a hard place. If we let the banks go to the wall, we all lose. If we support them as taxpayers, we all lose...

Hedge funds borrow vast sums of money from the banking system so whilst Hedge funds may themselves be less risk than banks the risk still gets back to the banks, doesn't it?

So again none of this risk analysis should have been lost of the monetary regulator (the Bank of England/ and Mervyn King) but to quote them they let it slip and this is inexcusable.

#9. Dempster wrote:

"This is the end product of an uncontrolled debt based monetary system."

Fine, but somehow we need to find a way of going forward that does not collapse World Trade, whilst at the same time winding down in an orderly manner the financial gambling that has destroyed the value of money. I don't think that the former failed regulators have on chance in a billion of fixing the system as they knew what was going on for well over a decade and did not see the inevitable danger, despite being told about it time and time again, so what hope have they of fixing the problem?

Mervyn King and his mob of failures must go.

Money needs to facilitate trade in goods and it also must be returned to being a store of value. Presently it is neither and until its role in the global economy is re-established the Great Depression will just deepen and deepen. (That is how I see the evidence today.)

I also question your(#9 Dempster) absolute assertion that we have lived through a period of totally "uncontrolled debt" - wrongly controlled yes and wrongly regulated, but not totally uncontrolled, but I think I understand where you are coming from.

Good post Robert

>6 the government paying all our salaries- that is Russia niet?

#4. nametheguilty wrote:

"We now have the worst of all worlds thanks to bailing the banks out."

Yes, that is one of the main reasons that I have been advocating taking the hit and forcing through debt-deflation by returning interest rates to say 5% PDQ. Get the pain over by carrying out the operation rather than leaving the job undone and the patient slowly dying.

However make no bones about it things will get very bad in the short term - but that is the only way to see the end of the tunnel. Or we cannot run a society with houses costing 12 time income in London and needing to save until you are 52 (if male) or 59 (if female) for a deposit. That way leads to total destruction of the Nation, and the Bank of England didn't see it coming even through they were told and it was inevitable therefore the Governor and all his merry men must go.

Robert

I am surprised that you have not covered off Stuart Gulliver's (HSBC) comments on quitting the UK more thoroughly.

Essentially, This is both a threat and an admission of how banks work these days.

1. The Admission.

If you split up our investment bank from our retail bank we wont be able to leverage off the retail deposits and make lots of money (or lose it as the case may be), as the investment bank is what makes the money but can't stand on its own 2 feet.

2. The Threat

By threatening to leave the UK Mr Gulliver is trying to blackmail this country - why doesnt the Government offer to strip HSBC of its banking licence and nationalise those assets remaining back to midland bank, after all part of the deal to get Midland Bank was that HSBC would be UK based.

Its about time Banks and Bankers realise what a golden goose the UK is and start treating its citizens with respect.

My last point is where is the patriotism shown by these guys, you would never hear an American exec saying they would leave the US. Shame on you HSBC and Mr Gulliver.

@ 10. At 10:50am on 18 Sep 2010, ltfcunited wrote:

> Letting the banks go bust is what happened in
> the 30s, with well known results

Yeah - we got the Waltons! Look, we could have bled then bankers
to the point of death, then stepped in before the actual banks
fell over - it's only a matter of keeping the computers running.

It's all about timing - the bankers must "blink first", give
in, pay up and clear off. Then we can hire a better class of
people to run the computers, without any crashing.

That's the easy part of the problem - the hard part is getting
the bankers out, keeping them out and making them poor.

Don't bother regulating the banks, just regulate the salaries and bonuses through taxes.
If there's no self benefit in taking risks the employees won't take them.
Anyone earning over say £200k has to be on a 5 year contract.
It's complicated when you get into the detail, get out clauses etc., but you take my point.

Its not Banks that rule our lives, its money. The reason Banks have become so important is that they have claimed a monopoly on the holding of that money.
Devise a scheme by which that can be circumvented and the whole power play would be altered.

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

Robert on a slightly different point - it still astounds me how Bank and Government profligacy has led to this age of austerity. To parody Churchill and best summarise the current situation 'never has so much been lost /badly managed by so few to be repaid by so many'.

What led to this mess! Whilst the banks have rightly been taking the flak, in your opinion how culpable is government policy? It would seem to this layman anyway that governmental policy and persuasion, here and abroad, seems to have helped push more and more requirement for both institutions and individuals to take on credit and therefore risk.

Just some examples:

Did FRS 17 - create an environment in which large companies and pension funds developed an appetite for more risk in their portfolio to meet obligations?

Hurricane Katrina - did this create an environment in which politicians applied pressure to see more 'sub-prime' mortgage candidates needs met? The products of which many large investors bought into, maybe in the UK to address in part the FRS 17 rule above

PFI's - and the encouragement they gave to LA's to borrow against tomorrow.

So while governments found willing partners in the banks, to create an unprecedented need for credit / risk, who is ultimately responsible for overseeing the checks and balances between these two parties; which would serve to protect the public from short-term electoral cycle decision making and all that brings and the banks with an eye on turning a profit?

Maybe I'm ill informed but there doesn't seem to be any authority, which has sufficient power to veto a policy on purely economic grounds. People have talked for years about a triple bottom line approach, but this seems in the main to have got stuck as an investment approach as opposed to being used more broadly in policy considerations.

The bigger question is can they actually mend it? As it is clear that Governments need help from themselves and their short-term policies given they are utterly powerless to control global banks / corporations and the money markets, once the chain has got going!

Are the banks really going to cut dividends, bonuses etc? Is Basel III really a cure, or simply another invitation to take on risk to balance the books?

Banks are riskier than hedge funds?

Simples ... Yes they are ... because they hold too much of everyone's money and we are all too dependent on them for virtually eveything, financially, in a technological, money based world.

Hedge Funds ... are not a separate risk to banks anyway ... where do the hedge funds get all of their money from to put at risk ... from the banks of course. Hedge Funds are an extension of the risk posed by the banks and I would argue are not a separate 'overall risk'.

Arguably, the hedge funds are a risk only because they get ridiculously easy access to massive amounts of 'our money' ... via the back door of banks.

If hedge funds had to risk their own money with their largely dirty money ventures ... then there probably would not be any hedge funds at all.

Hedge Fund managers are equally as arrogant as the bankers but generally have the sense not to 'vulture' and 'parasite' too hard until the political conditions are just right ... this is largely over-looked in the discussion on hedge funds.

The prime example of this was 'Black Wednesday' when the politics and economics converged perfectly to give a major hedge fund parasite a 'golden opportunity'.

Hedge Funds are also 'political animals' ... they know when they are likely to get away with it ... and for they rely on ignorance, media, information management and lack of transparency and weak government business constitutions ... to find exactly the right conditions.

The hedge funds can attack the GBP and other currencies and sovereign nation's virtually at any time ... but the key is 'convergence' and having the right conditions.

Hedge funds are the result of there not being adequate financial regulations in place and in financial terms are as important an invention as the discovery of electricity was to science ... except that few outside of a hedge fund benefit from their manipulation of markets based on leverage from having access to massive funds.

The 'question' is, therefore, not a good one as hedge funds are largely the add on dirty side of banks ... although some hedge funds/banks are of course managed better than others and have better principles and standards of operation.

None of this excessive risk element would stand up to full transparency of accounting operations and improved accountancy standards ... which is what the bankers and hedge funds fear most.

#4. nametheguilty wrote:

"Bailing the banks out was a catastrophic mistake. It would have been far better to let them go bust ..."

Is, as has been suggested by Alastair Darling, the banks were hours from turning off the ATMs and shutting the doors, I would have to suggest that bailing out the banks was not a catastrophic mistake, but that failing to - in some shape or form - would have lead to national and probably international catastrophe.

Not everyone who lives in England is a stiff upper lipped Englishman. Had the banks gone under in such a dramatic way and with so little advance warnging to Jo Pulbic, you can be assured there would have been massive civil disorder which would probably have cost the economy even more than bailing the banks out.

I mean were you ready to go to the bank and find your money frozen and inaccessible? Would you or would you not have been extremely miffed if that had happened to you personally, and commercially?

9. At 10:45am on 18 Sep 2010, Dempster wrote:
According to Government statistics:

One crucial stat that you seem to have missed... Government expenditure less Financial Sector intervention. Based on the difference in overall debt when excluding financial sector intervention we can deduce the following??

Gov Fiscal Surplus/Deficit before financial sector intervention.
Year 2007 – 2008 = £53bn Surplus
Tax receipts £549bn
Gov’t expenditure = £583bn (£496 Billion before FS intervention)
Gov’t debt = £527bn (excl financial sector intervention)
Gov’t debt = £614bn (incl financial sector intervention)

Year 2008 – 2009 = £6bn surplus
Tax receipts £534bn
Gov’t expenditure = £621bn (£528bn before FS intervention)
Gov’t debt = £617bn (excl financial sector intervention)
Gov’t debt = £707bn (incl financial sector intervention)

Year 2009 – 20010 = £131bn Surplus
Tax receipts £508bn
Gov’t expenditure = £674bn (£377bn before FS and after QE I presume)
Gov’t debt = £777bn (excl financial sector intervention)
Gov’t debt = £1004bn (incl financial sector intervention)

So if you add up all the surpluses for the past few years then net debt before Financial sector intervention is £337bn which is a poultry 24% of GDP..

Deficit reduction is a scam to implement Tory ideaology

All that constant talk about banks, hedge funds, banks and other assorted parasites is to divert OUR attention from the enjoyment of REAL LIFE.

I see so many people have fallen in the that TRAP. Including thinkers like WOTW (unless he's one of the agents, it's hard to know these days).

The paradox here is the more we fear and critisise THEM, the more powerful and god-like they get.

We have a saying in Bulgaria - we pour more water in their mills, whereas ours run dry!

Instead we should just forget about them and focus way of getting ourselves out of the matrix, living off-grid, sustainable and start the foundations for a proper environment for our children's children.

ROYAL Bank of Scotland is apparently poised to unveil a financial securities joint venture in China.

Who the devil agreed they could do this? As a state owned bank they should be concentrating their efforts on assisting our economy not the competition. Seems to me RBS is out of control again already.

If banks are making money from implicit taxpayer support, the taxpayer does not want "higher reserves" the taxpayer wants a decent rate of return. Had banks invested however many billions the UK has invested they would demand a reasonable return - say 20% equity. This is not limited to the one or two banks that were nationalised but to all banks. The reason being simple: the banks collectively made the rules and collectively benefited from the rules and collectively broke the rules. If they were a trade union their assets would have been sequestrated and their leaders threatened with imprisonment.

Now the banks were in a weak negotiation position. So, 50% of total asstets, investments, bonuses and so on would be more in line with tough negotiation. Remember, this is not some glib proposal that the Government is tough on recession and tough on the causes of recession, it is a realistic proposal that the government act on behalf of the electorate for the benefit of the electorate. Why should the electorate be threatened with loss of economic payouts (NHS, Welfare Benefits, schools and so on) when there is an investment that has been made and should now be realised.

It is what a tough business leader would do. Or, do we have no tough business leaders: just a bunch of sheep chasing each other around for a soundbite.

The truth is that Banking should be fully reserve banking. That is the only way that banks can avoid the Taxpayer making investments in them. As nett investors it the total banking system, the UK Taxpayer is entitled to a dividend. Repeated and large. Arguments about the Welfare State being bloated and unsustainable are just a distraction from the real and very important argument that the taxpayer moved a large amount of money from the general welfare fund to prop up the banks. That was - despite the mendacious wiggling of the ideologically bankrupt "capitalism at any cost" faction - a massive opportunistic investment.

Now the banks are stabilised, it is time for them to begin paying out dividends - all of them, not just Northern Rock - to the taxpayer. Those diuvidends can pay for existing State Provisions without cuts. Yes there are inefficiencies and pots of money that should not be taken from the taxpayer. They are an issue that can be sorted out later. The first problem is not making massive cuts from public expenditure but taking massive dividends from the banks.

Without fully reserved banking, the situation will reoccur. Which will happen each time the Banking Sector gets too far out of alignment with the rest of the economy. Fully reserving banks ensures that they remain attached to the underlying economic realities. If only the central banks are allowed to create credit, then the banks are liberalised to have far fewer of the rules that Basel X.x propose: the banks only obtain credit for investments that they know will give a return. True, this is likely to end the era of huge banks - as most bankers are remarkably bad at making truly perceptive investments - but that would reduce the size of the banks and allow those that should fail to fail.

The jiggery pokery of allowing Banks to decide their own rules but to bail them out when they fail is nonsense. If the taxpayer puts money into an enterprise then there should be a return on investment. This is exactly the same approach as is taken to the unemployed: benefits are there to help people get back into productive tax paying work. Regardless of what the poor bankers might think, a stint of their lives being managed by the local jobcentre on a regular basis might actually be the best form of regulation for them. Then, they can experience how an investment transforms into a return.

That might be unpalatable for some.

RP 'If they lose a ton of money, we've learned that we as taxpayers have to bail them out, with hundreds of billions of pounds of loans and investments.'

'And when they get into that parlous state and are unable to lend as much as is needed by businesses and households, they cause a deep dark recession, which impoverishes us.'
-----------------------------------------------------------------------
Robert, I admire your work rate and am happy to accept the views of many that say you are a superb print journalist. You certainly have a gold plated 'address book'!

But if I was your Editor, I would be reaching for the blue pencil on both those sentences.

RP: 'In that sense banks take far bigger risks with their investors' money than most hedge funds do.'
---------------------------------------------------------------------
More blue pencil!

The term 'bank' covers a wide variety of institutions who operate in all sorts of different fields and in different ways. They may take risks. They may not. Secured lending, for example, is relatively risk free when compared to lending unsecured to two people with very different credit ratings. Generally, individual lending managers, have levels restricting the amounts they can lend. The gearing levels will be set in Head or Regional Offices and they will inform lending managers how much thay have available.

Similarly, the term 'hedge fund' covers an equally wide range of institutions from offering (originally) services to business through to everything now from Sovereign funds through to individual investors. They may take risks. They may be relatively risk free. It will depend on the parameters set by the investors and the ethos of the management.

RP: 'If banks are making money from the implicit taxpayer support, then taxpayers would presumably want that money deployed to build up banks' capital reserves even more, to protect them against the next crisis.'
-----------------------------------------------------------------------
Robert, this item sounded bad when you presented it on air. Some taxpayers, I suspect most taxpayers, want RBS and LloydsHBOS to trade well and trade profitably for some years and then to repay our investment with a handsome return.

I hope you are able to take today and tomorrow off. You need a rest! Have a good weekend.

re #26
RBS is an international bank now. They operate globally. It is possible by further spreading their activities globally that they can reduce their level of risk (you ought to be pleased about that) of earnings downturns and also increase their potential earnings (you ought to be pleased about that) before repaying the UK taxpayer at some point in the future.

4. At 09:28am on 18 Sep 2010, nametheguilty wrote:
Bailing the banks out was a catastrophic mistake. It would have been far better to let them go bust, taking their investors with them, and take the (relatively) short term hit to the economy.
------------------------------------------------------------------------
Was there anyone in 2007, 2008 and 2009 who was certain that letting any of the banks fail would cause a '(relatively) short term hit to the economy' ?

Robert,
You will never convince me that "mom & pop" banks are riskier than hedge funds. But you can convince me (in fact I know) that investment banks are riskier than hedge funds. (They fool more people, but this is changing rapidly.)
There was never, and likely never will be any "mom & pop" bank that needs bailing out.
Why?
They do everyday banking only – make loans, charge interest…(Yawn!)
Investment banks, e.g. Lehman Brothers, Northern Rock, these are the financial institutions that play with derivatives, negative default swaps, i.e. take risks such as allowing loans that should never have been approved (sub-prime mortgages).
This is why I keep saying:
Split regular banks from investment banks. People will choose what is best for them, and these “investors” will go in (I hope) with eyes wide open - at least sufficiently open to read the fine print.
Mom & pop banks need far less capitalization than investment banks for obvious reasons.
It is quite correct for Basel lll to instruct risky, investment banks - like Barclays and Royal Bank of Scotland - to hold disproportionately more capital. This will make investment banks more robust, but more importantly, it allows for far more loss due to speculation; thence forward, these speculating investment banks will be expected to cover their own losses…or go bankrupt (Good-bye).
British regulators say that they may impose even higher capital requirements on the biggest banks - those whose failure would undermine the entire economy. Yes! What’s the problem with that?
You can’t compare mom & pop banks with hedge funds, but you can compare investment banks with hedge funds because both are speculating, risk-taking, gambling financial institutions.
Of the two 1. hedge funds or 2 investment banks, investment banks (right now) are worse and will remain worse until capitalization is complete, but in the long run, hedge funds will be worse.
Why?
The EU has not yet “talked” to them about capitalization requirements. In that sense investment banks can take risks, but they will have to be capitalized sufficiently to do it, and be prepared to eat the loss.
Creditors can no longer be confident that taxpayers will ride to the rescue. Nope, no more bail-outs. If an investment bank blows up - like Barclays and Royal Bank of Scotland - they cover there own loss…or go bankrupt (Good-bye). This is fair because people who chose to bank with an investment bank know the risk they are taking; they invest eyes wide open. In fact, in Canada, you must sign a document that tells the investment bank what level of risk you are prepared to take. The bank must adhere to your risk decision.
I look forward to increased Basel III regulation, which I know will soon be tackling hedge funds, especially derivative exchange. In fact, I think the work in this area is very much complete, but I won't write about that here.

24. At 12:53pm on 18 Sep 2010, Supersage64 wrote:
'One crucial stat that you seem to have missed... Government expenditure less Financial Sector intervention. Based on the difference in overall debt when excluding financial sector intervention we can deduce the following??

I wish we could deduce that, but unfortunately not, because it is hoped that most of the financial sector intervention is a loan, not an expenditure.

@ 2. At 08:39am on 18 Sep 2010, Slessac wrote:

> When Robert says 'banks' does he really mean all banks?
> Not all took taxpayer money and not all (to my knowledge)
> are under any dividend constraint.

Why should we care about any of that? They all sailed too close to the wind, and some tipped over. We have to stop them all from sailing so close to the wind, because a different lot would tip over the next time.

> Should we be more specific and say that it is Lloyds,
> RBS and Northern Rock?

What purpose would that serve? Those ones have already learned the tough lessons. It's the ones that didn't fail that are most dangerous now! Break 'em up, I say! All of them.

I'll give them "too big to fail", all right. They won't be too big to fail after I've finished with them! They'll be "too small to give a hoot about"..

#31

RBS is an international bank now. They operate globally. It is possible by further spreading their activities globally that they can reduce their level of risk (you ought to be pleased about that) of earnings downturns and also increase their potential earnings (you ought to be pleased about that) before repaying the UK taxpayer at some point in the future.

No it doesn't please me at all because I know full well that RBS are far more interested in themselves than they are in helping us - their owners - grow this economy. It's a matter of priorities. They should be investing here and not in ruddy China.

The banks got us into this mess and they can get us out - quite painlessly, as it happens.

A tiny tax on every speculative banking transaction (over £1 trillion - that's TRILLION - changes hands in the City every day) would comfortably pay off the deficit quicker than the cuts.

So why the need for a decade of austerity - because cutting public services and impoverishing millions of people are what the Tories want to do.

@ 37. At 4:04pm on 18 Sep 2010, cultureboy wrote:

> The banks got us into this mess and they can get us
> out - quite painlessly, as it happens. A tiny tax on
> every speculative banking transaction (over £1 trillion -
> that's TRILLION - changes hands in the City every day)
> would comfortably pay off the deficit quicker than the cuts.


Spot on.

The bankers are treating the pubic as a tailor. Bankers wish to forget what they owe for their suits because they have grown tired of wearing them - they simply don’t want to pay their bills. The debt has everything to do with the bankers. As Merv King says, the bankers caused the debts, and they must figure out how to put us back where we were. How they do so is up to them, but it must not impact on the public, who have absolutely no stake nor interest in the matter. The government is stupidly digging for money in the wrong place.

#37

What we desperately need in the UK is considerably more venture capital.

Lets insist the banks put the equivalent of a tiny tax on every speculative banking transaction into a venture fund pot instead. Provided that fund is run by people that understand technology and markets then it should be able to create more new value adding companies which will employ more people, export stuff and so on and so forth.

6. At 10:07am on 18 Sep 2010, honestgeraldinho wrote:
Just an aside to the continuing debate about banks and who paid what and who gets what - regulation or supervision.

It appears that the Inland Revenue has published a consultation document (consultations end on 23 September) concerning the collection of personal taxes. It appears the Inland Revenue missed collecting an estimated £42bn in taxes last year (2008-09), and to solve the problem they are suggesting that they takeover the payroll function for all employees. Whereby all earnt income is passed directly to the Inland Revenue who would then calculate appropriate taxes before passing the balance to the employee. Thus saving empoloyers the overhead of payroll systems, other than the necessary calculation of gross salary.

For an organisation that has just sent several million letters (presumably at vast cost to the revenue) indicating under and over payment of taxation, that admits it has not collected £42bn that it should have - it seems a high risk solution to ineggiciency to place all salary (and presumably VAT) activities into this unfit for purpose organisation.

Oh dear
And will the companies have to pay for this tax work to be outsourced, or will the employees have to pay for it? What will the market rate be for the service? Would there be a competition and monopolies commission into this (well, the tax man would be the sole supplier of this service, wouldn't he) and in a neoliberal market economy, we can't have that, can we? And once it is outsourced, will we have to accept bids from China to provide UK tax services? Or will we allow just Wall St/the City to compete for the business?

Or myabe, just maybe I'm being overly cynical.

Obviously someone thought this was a far better idea than holding businesses and their accountants responsible for failing to adhere to tax law? Why don't we just jail the companies who can't count and won't hire accountants that can count to do the job?

And who, lobbied for this?

38. At 4:35pm on 18 Sep 2010, Jacques Cartier wrote:
@ 37. At 4:04pm on 18 Sep 2010, cultureboy wrote:

Yes, spot on.

But.

I wouldn't let the banker spivs decide how to go about sorting out the mess they created. Clearly they aren't capable of making half-decent decisions. If they were, then there would have been no need for a bail out at all.

But when bankers say to me - as they do - that the new rules are hard but fair, you can be pretty sure that they do not represent a fundamental challenge to their way of life.

That is what is so terrifying.

""One crucial stat that you seem to have missed... Government expenditure less Financial Sector intervention. Based on the difference in overall debt when excluding financial sector intervention we can deduce the following??

Gov Fiscal Surplus/Deficit before financial sector intervention.
Year 2007 – 2008 = £53bn Surplus
Tax receipts £549bn
Gov’t expenditure = £583bn (£496 Billion before FS intervention)
Gov’t debt = £527bn (excl financial sector intervention)
Gov’t debt = £614bn (incl financial sector intervention)

Year 2008 – 2009 = £6bn surplus
Tax receipts £534bn
Gov’t expenditure = £621bn (£528bn before FS intervention)
Gov’t debt = £617bn (excl financial sector intervention)
Gov’t debt = £707bn (incl financial sector intervention)

Year 2009 – 20010 = £131bn Surplus
Tax receipts £508bn
Gov’t expenditure = £674bn (£377bn before FS and after QE I presume)
Gov’t debt = £777bn (excl financial sector intervention)
Gov’t debt = £1004bn (incl financial sector intervention)

So if you add up all the surpluses for the past few years then net debt before Financial sector intervention is £337bn which is a poultry 24% of GDP..""

Based on the stats given, your mathematics is flawed. If you wish to find the govt. deficit excluding help to the banks, simply compare the year on year figures for govt. debt excluding financial sector intervention.

That debt went from £527bn to £617bn to £777bn. It excludes the gradually increasing cost of FS intervention, and suggests a deficit of £90bn betweeen year 1 and year 2 and £160bn between year 2 and year 3.

I'm not quite sure where you got your surpluses from. I think you may have thought that the 'excluding intervention' figures were only excluding intervention *for that year*. I am fairly sure they actually exclude the total intervention (since debt is an accumulated thing, not a year-by-year thing).

What's the verdict on Basel lll?

Any system that requires so many complex rules to mitigate against both contradictions in the original system and the unintended consequences of previous rule-sets is not fit for purpose.

The verdict on Basel III, failed before it even got out the door, I have a crack of IE9 and that hasn't been released yet, the companies affected by Basel III have some very clever people devising pass-thru's as each keynote regulation is announced.

Will Basel III work ? Did Basel II ? Did Basel I ? It's not looking good is it ?

Here's the systemic problem.

How do you value an asset that you hold ?

You can't. It is as simple as that and all these rules and regs cannot make up for that one particular contradiction that is at the heart of the whole financial system.

'Hold on' you say, 'what about mark to market'.

This seems like a logical thing, if I hold an apple and I know that the last apple sold for 20p then surely all apples are worth 20p.

Not quite, eg. I bring some apples to market and I say 'what will someone give me for this apple ?' and someone replies '20p', have I discovered the price of all apples ?
The answer to that is you don't know, supposing that was the only 20p in existence, what price the next apple to come to market ?

The only way to value an asset is to sell it, selling an asset does not give any concrete information regarding the price that may be achieved when the next similar asset comes up for sale in a similar (or different) market.

An asset is an objective tangible thing.( a lump of gold, a herd of pigs, a bunch of bananas, a fistful of contracts)

Value is purely subjective. (what am I prepared to accept in exchange for this tangible thing at this moment in time)

It is akin to nailing jelly to a wall and yet there is a whole global financial system based upon being able to do just that.

Obviously (since there is a system in use) someone thinks that they have cracked it. The Accountants, they account for things, the Auditors, they make sure that everything is in the correct box, surely they know a thing or two.

Oh they know a thing or two alright, there is a document on the Nef website called Five Brothers. it was written in 2001 and is remarkedly precient.

A challenge to the IT people (those with PHDs in different fields are also welcome).
Devise a system of exchange that takes into account the self interest of the parties (think about it, in any exchange the best result for either party is to walk away with both the money and the goods, can you design an exchange where it is in the best interests of one party to give the best deal to the other party ?)
Is it both transparent and scalable ?
(ie. the largest most complex transaction is made from many small unit transactions)

Trying to regulate the current chaotic system is worse than useless, regulation gives a degree of confidence to participants that is misplaced, with no regulation at least the participants might appreciate that is the lawless wild west out there.

#Dempster, have you read 'Creating New Money' by Huber and Robertson (available on the Nef website) ? It is slightly more readable than 'Mystery of Banking'

#Up2snuff, the investment strategy (see earlier posting) appears to trend towards 0, this means that over time any losses will be recouped but any gains will be temporary, I will halt the trade when we are +1 and what with all the bank charges and regulatory taxes we should break even so your money is safe.
I'll let you into a little banking secret, if you look in the back of the shiny passbook that the bank gave you when you opened that account and lent them that £10 you will find your banknote stapled there, the bank never needed the actual note (they gave me a proxy) all they needed to know is that you were going to take that not out of circulation for the duration. (banks create money all the time, it will be destroyed when I pay the loan back).

I don't disagree with the general thrust of the discussion; but surely there is a deeper problem. We all have been taught from the time we were born that we can have it all. We want something – we go and buy it, often using debt. Its all so easy with a credit card. We have also been taught that competition is good in the market place. True it gives us lower prices, but it also means that production goes to the cheapest labour market. We can now buy many consumer goods very cheaply, but we have a growing unemployment and under-employed workforce. So if you are in work, great; but the dear John – your sacking letter – is round the corner for many.

Our general attitude is different from those who lived through the 30s and after into the 50s. Credit, by current standards, hardly existed. You bought something when you had the money. Debt, then, meant trouble. Perhaps we will need to learn [re-learn] the way of life of our grandparents?

So, our way of life may change significantly, the glossy advertising needs to be thrown away. We buy only what we need and can afford. And as a result of not going into debt further, and maybe even paying off existing debt, the GDP falls further and more jobs are lost both here and abroad. The government deficit will rise also from this. Hmmm is this really the way forward, it seems to me to lead to years of stagnation, as in Japan. They are finding it hard to reflate, better that they had avoided the downturn in the first place. Maybe we should too. The government should continue to spend but not borrow. [I now duck].....

Yes the banks in particular need to be fundamentally re-designed. The current 'steadying of the ship' does not cut it in the age of the Internet. We also need to look away from Financial Services and look to another intrinsic set of values on which we can refocus and rebuild.
The extract below is from my piece on my blog:
https://loudalarums.tumblr.com.

I believe it is going to take a big idea that reflects David Cameron’s ‘Big Society’, social imperative in that we need a big commercial idea around which to rebuild and refocus our future.
My reading of the ‘Big Society’ is that we are being encouraged to look inwards and to engage with the core values of a ‘societal duty of care’. In looking inwards, I think we should also look for the elements around which we can rebuild and protect our commercial future. In short, in the 21st century, what are the elements that we can use to make Britain ‘Great’ again?
Here are the 3 areas of my ‘Big Business’ initiative in which we need to seriously invest and reshape, not only our home market, but also to re-create a world-leading export-led economy.

#45 SleepyDormouse

There is a man in the hills above me who mines and refines gold, I produce sheep, he says he will buy my sheep in exchange for his gold, the thing is that his refining process is polluting the river and is killing my sheep, what price do I put on his gold ?

37. At 4:04pm on 18 Sep 2010, cultureboy wrote:

Prof Greg Philo elaborates a similar look at the deficit, the spiv-created deficit.

'Deficit crisis: let's really be in it together'

https://www.guardian.co.uk/commentisfree/2010/aug/15/deficit-crisis-tax-the-rich

Hi Robert
Can you not comment on how (in)effective basel is? Have you suddenly decided you don't need to comment all of a sudden?
Capital ratios are a typical politicians useless solution which reduces the availability of credit for everyone else. In other words hurts those who need banking services. Politicians don't care because they've already got their golden pensions and they are staunchly incompetent.

The banks are more risky than hedge funds (nice title, but irrelevant comparison) because Basel has failed to do anything about counter-party risk, so derivatives trading can carry on in its circular fashion uninterrupted to allow the banks to make hideous fees and lend money aswell.
I don't care how much they leverage up - its not the point, its the swaps/insurances that are traded that are the problem as they all just insure each other while at the same time lending to each other.
If counter-party insurance had to be validated, they could never insure to this leverage level and it would automatically come down.

Together with the blind man Merv King who has never kept inflation at target, and decided that collossal private debt levels did not require action, the financial sector has ensured poverty for us and massive bonuses for them.
How powerless we appear to be to stop this corruption.

47. At 6:04pm on 18 Sep 2010, BobRocket wrote:

#45 SleepyDormouse

There is a man in the hills above me who mines and refines gold, I produce sheep, he says he will buy my sheep in exchange for his gold, the thing is that his refining process is polluting the river and is killing my sheep, what price do I put on his gold ?

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

A very good question. How many are you loosing out of your flock? What is the price of gold both now and in the future when you want to buy something? What's the price of sheep on the open market? [if its less than the usual cost of production you might use it to make a profit!]

Probably you will go out of business, or you will need an injunction to stop the pollution and he goes out of business. If he is your only outlet, you both go out of business. Tough world and I freely admit to having no reasonable answer.

The creation of money as debt, means that each year more debt has to be created to satisfy the interest on previous debt.

The prudent won’t borrow.
The indebted can’t borrow.
So who does that leave.

Those that by virtue of their inexperience and age, don’t understand the risks of borrowing.

Enter the student, the 18 – 21 year old with no experience of debt.

If we (the financial sector) can get them (the younger generation) to be encumbered with a loan, then we can create more money and keep the whole debt creation business going.

Ultimately all it’s becoming is debt slavery for the young.

And if that is the way to hand over a nation to the next generation, I’ll plait sawdust.

BobRocket and #50

A thought ...........
you could take a pragmatic approach, you ask for as much as possible – he offers as little as possible and after haggling whilst drinking beer you compromise. Alternative, if no agreement, you then go outside and knock 7 bells out of each other. I prefer the former, the latter is simply destructive and pointless; its how feuds and wars start

How much money have we given to the banks that we are not going to get back in the form of shares? I have never seen this figure anywhere. Robert, surely you are in a position to tell us and then I would like to see how this compares to all tax receipts that we have had from them over the last 5 years in the form of income tax, national insurance, dividend tax and all the VAT spent by people employed by banks. Please give us these numbers. Not just how much we have agreed to cover in losses which we are doing for the sake of our economy and not as act of goodwill to save rich bankers.

44. At 5:50pm on 18 Sep 2010, BobRocket

A challenge to the IT people (those with PHDs in different fields are also welcome).

Oh, I think given access to enough knowledgeable people to question and listen to their 10p worth, and the time to do it I could.
However, I'd probably be unwelcome in any country once they saw my 'definitions of what is in your own interest and therefore the best deal for you is.... Such a shame you just don't know it, but never mind, we've figured it out for you and we are here to explain.'!

A few multi-millionaires would be horrified at the prospect of living in an ex-council house flat and having to travel to work on the No64 bus! ;~)

#44
A challenge to the IT people (those with PHDs in different fields are also welcome).
Devise a system of exchange that takes into account the self interest of the parties (think about it, in any exchange the best result for either party is to walk away with both the money and the goods, can you design an exchange where it is in the best interests of one party to give the best deal to the other party ?)
Is it both transparent and scalable ?
(ie. the largest most complex transaction is made from many small unit transactions)
--------------------------
As an IT person I cannot see what this has to do with IT. The factors which you describe cannot be assessed objectively or quantified in standard terms or can they? I have probably missed something.

And, what's more, British regulators have told me that they may impose even higher capital requirements on the biggest banks - those whose failure would undermine the entire economy
---------------------------------------------------------------

So we still are beholden to our biggest banks - even though they are gambling with our money and paying bonuses on the proceeds of taxes

All of the past 3 years has showed is that our governments (whoever they are) are mere puppets and absolutely nothing will be done.

However, many in the world are not like the middle class "dross" of the UK & US that are clones from the Stepford Wives and will take up either their votes or arms to stop this nonsense.

The Poll Tax riots were to me an over reaction at the time and now when I should be putting on my slippers I am more likely to eagerly anticipate an action that will awaken the need in all to eradicate the leeches hiding behnd their walls.

There was a time a few years back that I would be chastised for such a comment, but in these times the "educated" disenfranchised are numerous enough to make a difference.

When you have the army " permanent unemployed" and add in the management (on the scrap heap)you have the birth of an army, revolutionary army, and the time has come to knock down those walls, the Chatham house Rule, and take control of a world that will ultimately be gone if we do not.

Mobilise!

48. At 6:39pm on 18 Sep 2010, copperDolomite wrote:
37. At 4:04pm on 18 Sep 2010, cultureboy wrote:
Prof Greg Philo elaborates a similar look at the deficit, the spiv-created deficit.
'Deficit crisis: let's really be in it together'
[Unsuitable/Broken URL removed by Moderator]

I can't see any reason why we shouldn't knock out the national debt immediately via taxation and start again.

Our legacy to our children should be a decent society, sustainable environment and a viable economy. The outgoing generation have cocked up big time, and should put matters right. Now. Immediately.

What possible excuse is there for failing to do so?

Selfishness?

Robert - You ended with - " then taxpayers would presumably want that money deployed to build up banks' capital reserves even more, to protect them against the next crisis."

Surely taxpayers really want a regime that tries to ensure there won't be a "next crisis".
We, the people, want safe cars, safe roads and good drivers- not just rules about wearing seat belts.

I hear politicians interogating by Paxman good; trade unions being interrogated by Paxman [say] but never bankers. It is always the front woman Angela Knight given an easy time - where are the bankers. If they refuse to be interviewed in the studio then NAME THEM over and over again until they finally break ! With Mr Peston such questions are usually done on the bankers own territory and you get gems like ' what do you prefer banking to cricket' [ to Victor Blank]. I understand that after you retire you want to become into the church ? [Myners - Tax Haven king] Mr Peston interviews like an Oxbridge don chatting in the common room with a glass of port. With this sort of tough questioning what trouble have the bankers got.

@51 Dempster. That wouldn't be the reason for making university just an extension of school would it? A degree instead of an apprentice course, I'm at uni now and I'm amazed at the lack of basic general knowledge amongst my brethren.

Exam result inflation is getting beyond a joke, nowadays just turning up seems to suffice for most courses and all are forced to run the gauntlet of the banks before they even get to registration. They set out their stalls offering overdrafts and credit cards to kids whos only income is a student loan.

Predatory - hard to deny.
Made possible by government by increasing targets for uni - Call me a cynic but its hard to not believe they are in collusion with the banks to lead the lambs to the slaughter.

Bankers appointed as ministers, minister leaves cabinet to make way and hey presto, on the bank board.

Call me a cynic...

#56. At 8:23pm on 18 Sep 2010, PetersKitchen: ". . . . . Mobilise!"

Much as I can sympathise with your sentiments, it's not going to happen - is it?

All through the ages, a very small minority has always been able to screw the majority. The main reason for this is that most people are just not ruthless/ unscrupulous/ sociopathic enough to do the nasty stuff needed to do the screwing.

Apologies for going off topic here but i really couldn't care less about the regulations or the intent of banks or government. it is clear to me that they are already bed fellows and that nothing is changing or going to change without the intervention of the people.

I have a less than loose grasp of the laws and statutes that allow this but is it possible somewhere to have a list of banks profits in a ledger (computer) and the corresponding tax entry to HMG in her revenue ledger (computer)?

Also tax paid by the recipients of the bloated paychecks and bonuses.

I'm sure it is all legal and above board and that they have paid all they had to by law. If we can't see this, why not?

I'd like to see those figures, I'd say they won't reflect what I and others think they should be paying, at least then I might be able to work out who to start chucking these rocks at that i've been collecting.

My hot tip, rocks and milk bottles to be more valuable to the people than money any time soon.

@ Peters kitchen

I'll second that.

To 60. At 9:07pm on 18 Sep 2010, szjon

The hopelessly greedy
Endeavouring to ensnare the hopelessly naïve
Into becoming the hopelessly indebted.

Pass this on to your fellow students if you can:

If you wish to understand fractional reserve banking a short animated film by Paul Grignon, ‘Money as Debt’ is a good place to start (link below)
https://www.youtube.com/watch?annotation_id=annotation_942534&feature=iv&v=z5vC_8azMFk

The watch the documentary Secrets of OZ (link below)
https://www.youtube.com/watch?v=D22TlYA8F2E

A group wishing to make changes to the system, see link below.
https://www.bankofenglandact.co.uk/act/
https://www.positivemoney.org.uk/2010/09/douglas-carswell-mp-introduces-bill-to-stop-fractional-reserve-banking/

#61. At 9:11pm on 18 Sep 2010, vegetable_grower wrote:
"#56. At 8:23pm on 18 Sep 2010, PetersKitchen: ". . . . . Mobilise!"

Much as I can sympathise with your sentiments, it's not going to happen - is it?"

I wouldn't be so certain of that. Many commentators say the British do not have revolution in them and that me be so. What will happen is revolution will be forced upon them, it won't be their choice, like a pandemic it will sweep around the world and suck us in.

When the world realises the dollars they're hoarding have become worthless because the US can't stop printing them and banks start collapsing with no possibility of bailout we will have major global decline. It's going to get ugly and people will revolt or starve.

RP: "But when bankers say to me - as they do - that the new rules are hard but fair, you can be pretty sure that they do not represent a fundamental challenge to their way of life."

Next time you are talking to a banker - as you seem to do quite often - see how they score on this checklist:

* Glibness/superficial charm
* Grandiose sense of self-worth
* Pathological lying
* Cunning/manipulative
* Lack of remorse or guilt
* Shallow affect
* Callous/lack of empathy
* Failure to accept responsibility for own actions

It's an extract from the "Hare Psychopathy Checklist".

Absoultely right, and probably more control restraint would not go amiss along with more transparency with their accounting and as suggested, pay awards. After all, it is not difficult to appear successful and achieving, when the accounts are internal, and paternal!

57. At 8:37pm on 18 Sep 2010, PacketRat wrote:
Prof Greg Philo elaborates a similar look at the deficit, the spiv-created deficit.
'Deficit crisis: let's really be in it together'
I can't see any reason why we shouldn't knock out the national debt immediately via taxation and start again.
Our legacy to our children should be a decent society, sustainable environment and a viable economy. The outgoing generation have cocked up big time, and should put matters right. Now. Immediately.

What possible excuse is there for failing to do so?


Exactly!

I'm so disgusted at what is going on. Utterly disgusted.

I don't see any justice.
I don't see any honesty.
I certainly don't see any sense of morality.

I'm so ashamed. We are supposed to be an educated nation. We have education freely available to all children. Unlike so many countries we provide free education up to the age of 18. We have so many universities we almost trip over them, yet we are such a tiny little country.

Instead of a thinking population, we seem to have the opposite, a selfish, unthinking nation of people who seem determined to punish the victims not the culprits when it comes to economics.

We are all rightly horrified when we see documentaries of the eastern Congo DRC where rape is a common crime. And we are rightly perplexed when the men abandon their wives when she has been subjected to such a violent crime (if she survives).

Why we then behave in the same way as those husbands when it comes to rich bankers who have made off with all the loot and are so derogatory to the poor, so quick to remove the livelihood, and destroy their self-respect of so many who did not make off with any loot is beyond me.

https://www.youtube.com/watch?v=sTasPni3tjo

It's such a paradox to me. I see no leadership in this country, no serious attempt to solve the problem. Instead I see ideology and little boys chasing power and the riches that comes from it.

I think it may very well continue until this country is on it's knees before we make any attempt at building a just society. Where are the court cases, where are the investigations? Nowhere.

It may well need the creation of a new political movement and a new political party that doesn't follow the neoliberal faith.

#64. At 9:51pm on 18 Sep 2010, NorthSeaHalibut wrote:

" . . . and people will revolt or starve."

By the time that people are faced with with a choice between revolting or starving they'll be too undernourished to be much use as revolutionaries. Additionally, what would be the point if there's no food to be had?

62. At 9:21pm on 18 Sep 2010, szjon

Try Tax Justice Network, Tax Resarch, at https://www.taxresearch.org.uk/Blog/, or John Christensen

Mark Thomas had a number of interesting guests to a series of shows - some useful people there that you might want to look at for further details of corporate finances to.

#45. At 5:51pm on 18 Sep 2010, SleepyDormouse

“We all have been taught from the time we were born that we can have it all. We want something – we go and buy it, often using debt.”

Very true, although I must admit that I was not born into that type of attitude and am not that old. I would say however that it is true of many. Before this recession hit, I knew many in business (and some not) that had expensive houses along with his and hers Ranger Rovers, replaced every 2-3 years. I did not look at them with envy but more of a ‘good on you if you can do it’ attitude. I used to think (with some scepticism) that I must be doing something wrong. Now the majority have gone to the wall, it was all borrowed, all false.

“We have also been taught that competition is good in the market place. True it gives us lower prices, but it also means that production goes to the cheapest labour market.”

Absolutely correct but at the end of the day it is controlled by the end consumer, you, me and every other human being on the planet. The human race is naturally greedy, all wanting the lowest price with the least fuss. We could turn the system on its head but nothing will change that.

59. At 8:57pm on 18 Sep 2010, apex wrote:

> It is always the front woman Angela Knight given
> an easy time - where are the bankers. If they
> refuse to be interviewed in the studio then NAME
> THEM over and over again until they finally break!

They want to hunker down and hope it passes. If they came out and defended themselves, fair enough. But if they hide, we need to press higher taxes on them until they do squeal. Hit them where it hurts bankers the most - in the pocket.

#67. At 10:01pm on 18 Sep 2010, copperDolomite wrote:"It may well need the creation of a new political movement and a new political party that doesn't follow the neoliberal faith."

That's no more likely to happen than a people's revolution. The people in charge already have a winning formula - with themselves as the perpetual winners. Why on earth would they change it?

I'd support your contention that the hedge funds are not the problem at all (... as long as they don't get too big, a la LTCM some years back - although one might suggest that the US bail-out there should never have happened, it being a deal between the Giant Vampire Squid network to enable the money making machine to carry on churning, and that LTCM should have been allowed to go bust).

If a group of rich individuals want to pool their own money and bet it on the horses, what's wrong with that?

Yes, the fundamental question we face relates to public guarantees being hijacked by bankers for their own enrichment via this 'moral hazard' business.

Well.......how about using the existing £50,000 state guarantee to savers as the lever?

The government could set about right away varying this £50k level - i.e. increasing it - for those institutions that have much safer ratios, and go further the safer the institution became.

This would fairly quickly establish what risk level ordinary savers wished to adopt, and would surely help the growth of lower geared retail only banks with no exposure to the casinos.

67. At 10:01pm on 18 Sep 2010, copperDolomite wrote: ‘It may well need the creation of a new political movement and a new political party that doesn't follow the neoliberal faith’

OK CD:

That’s a very good post, so good in fact I would like to introduce to the ‘Abolish Debt Slavery Movement’ hereinafter referred to as the ADSM.

The business of the ‘ADSM’ is for like minded souls to raise up their voices against the financial tyranny currently being perpetrated upon the younger generation of this country.

The necessary credentials of joining the ADSM are:
Firstly you must be a person, and secondly you must have a pulse.

If you are a person but do not have a pulse, you can in fact be an honorary member, but sadly you will not have voting rights.

Nevertheless, if being a person, but having no pulse you have access to a mains electrical supply and/or a live unearthed device you can still vote, providing that you are in direct contact with same at the point of voting.

I urge you to join this worthy cause and lift the membership total beyond one, which is where it stands at the moment.

#70, Rudski: "The human race is naturally greedy, all wanting the lowest price with the least fuss. We could turn the system on its head but nothing will change that.

Too true, It will continue until the last drop of oil has been burnt, all the natutural resources are in landfill and the last vegetable has been eaten, flushed down the toilet and washed out to sea. Sometime after that, there will still be one high-roller - finishing off his last bottle of champagne and jar of caviar - thinking: "well, it was good while it lasted".

72. At 10:40pm on 18 Sep 2010, vegetable_grower wrote:
That's no more likely to happen than a people's revolution. The people in charge already have a winning formula - with themselves as the perpetual winners. Why on earth would they change it?

I didn't say it would happen.

If the voters want to change our politics there is no one to stop them. I don't remember reading anywhere that the Green Party had to ask some group of people 'who are in charge' if they could please, possible be granted permission to form a political party....

We are a democracy (or so we are told!) and that means the people who are in charge are the voters, not some guy in a suit who has a really bad photoshop suntan, a designer suit and a few rich mates!

73. At 10:41pm on 18 Sep 2010, Noideaatall wrote:

If a group of rich individuals want to pool their own money and bet it on the horses, what's wrong with that?

Fine if it a horse they are gambling on, but if it is currency, then that amounts to a bunch of rich guys over-riding democracy. Remember how there was a lot of talk about markets waiting to see who would move into 10 Downing Street? If the markets don't approve of our choice, they could financially attack the pound and put us in economic straits.

And that is just so wrong. Don't you think?

74. At 10:57pm on 18 Sep 2010, Dempster

OK sign me up!

I'll introduce the book I've got (I'm up to page 200 so far). It's Bury The Chains - The British Struggle To Abolish Slavery.

I've already decided that as soon as I get to the end I'm going straight back to page 1 and re-reading every word of it.

I appreciate that Mr. Peston is supposed to be a guru for whistleblowing the first breakdown, but I'm pretty sure he is still being paid, unlike the unemployed. His "let them eat cake" attitude is appalling, and his winsome "But now we know just how important to all our lives they are." just shows how out of touch he is. Peston IS the banks, sorry, the BBC have got it wrong wrong wrong. The only way I could figure out how to punish either of them and reward myself was to throw my Japanese television into the skip and stop paying the licensing fee once and for all.

The reason that banks got away with, and continue to get away with it all, especially the gambling with their customers' money, is not only about Basel III.

It's also about the fact that politicians and governments have given and continue to give banks the power to treat customers like doo-doos. Hey, we're a bank and that makes us almost like the police or the tax office and we'll just ignore or dismiss your concerns because you're just an account holder.

If government backed up the consumers - rather than the bankers, insurers and other financiers - there would be more balance in the whole system.

But politicians have gained - in a whole range of ways - from allowing banks and such 'big' corporations to lord it over the mere mortals.

I would even go so far as to say the real problem with the whole financial system is that banks are owned by shareholders who want to make a profit and run by bankers who want to make big bonuses.

The only way to change that would be to outlaw the current style of bank that we have (in the main) and only licence co-operatives, mutuals and credit unions.

I suspect having account-holder based accountability would be more effective in keeping a bank in line than Basel III's "instructions".

80. At 01:41am on 19 Sep 2010, Sutara wrote:
I suspect having account-holder based accountability would be more effective in keeping a bank in line than Basel III's "instructions".

You mean like credit unions and like building societies?

#CopperDolomite and #AnotherEngineer

Accountancy and the whole financial system is not based on any kind of science at all really, they have fancy graphs, spreadsheets and forecasts but it is all based on fairytale valuations and what ifs.

It wouldn't matter much if it was just an academic exercise but peoples livelihoods and even lives depend on what some 'expert' can divine from the entrails.

The system in use today is largely based on the Florentine system from the 1400's (with the addition of a myriad of conflicting rules and regulations to try to temper the excesses of self-interest or fix previous rule changes), we are now in the 21st century, surely we must be able to design a transparent trading system that acknowledges the self-interest and channels it into the best deal all round.

The current way of doing things is just going to trash the place for everybody.

We need a Copernicus of finance to turn over a few myths and show us how the system really works and put it on a proper scientific footing.

mmm something tells me that someone did not find the job he (this is a clue) was after in the banks and now is looking for one in a hedge fund...keep up the good work ;-)

Chattel slaves.
Wage slaves.
Debt slaves.

What's next for us?
Will it involve the word slave?

What hope is there for a country where getting on for 50% of the over 18s are encouraged to get into debt. They are told that it will be OK because at some time in the future they will be earning so much. So they leave university owing £10 000 + and think well what is the problem with building up a little more debt and then just a little more? The biggest education effect of university is that debt is OK.

Even the hard workers with useful degrees and real wealth creating jobs believe that large amounts of debt is OK. They should at least be careful about debt, but No! It's OK!

Again, it all boils down to lending practices.

Remove Investment Banking from the High Street banks.

Limit how much money the High Street Banks can 'Invest' in dodgy securitised Mortgages and Loans (especially American ones).

Insists Lenders retain Loans and Mortgages on their own Books, not sold on.

These simple ideas will reduce risk enormously.

Unfortunately the managerial self gratification of American Bankers (thro bonuses) does not allow for common sense approaches.

Just how many times does this have to be repeated ?

80: The Shareholders have been treated as just another Mark, to take for every penny they have got. (See the British Banks).

Before any Bonuses were resumed, the Taxpayers should have been repaid and the Shareholders should have had their equity restored.

Equity which was used to cover the Investment bankers losses, the same people who the following year decided they made aprofit and then paid themselves a Bonus, (effectively out of your Pension Funds and Taxes).

Now, you subsidise their lifestyle through cuts in services, public pensions and benefits.

So here you are at the losing end of a rigged deal.

Have a Nice Day !

I feel that have to do the job of the Labour party/socialists on here because of (the sheer sell out incompetence of the Labour Party) widespread indifference and ignorance about 'hedge funds and their activities and which are:

1) I've said earlier on here, hedge funds are the dirty side extension of the banking sector

2) Many 'Sleaze Museum' MP's and Lords Members are direct participants/investors in Hedge Funds through family trusts etc - hardly any incentive for there to be any kind of an investigation about the tax affairs of themselves and their hedge fund managers

3) Flying in the face of consititutional issues concerning rights and privileges of the individual, businesses, free trade, concerning their effect on the GBP/currency, savings, pensions, tax rates, GDP.

4) Some foreign hedge funds are waiting for the right time to attack e.g. the British pound as per newspaper reports about Chinese families in China etc

5) Hedge funds gamble with our money and savings and pension contributions without asking us and without transparency and proper risk analysis through bankers, pension and other institutions as making up the ratios of monies so that hedge funds can piggy back on the funds and allow the hedge fund managers to cream off massive profits.

6) Hedge funds exacerbate currency and other market movements which creates extra volatility and which affects our currency and exchange rates and our GDP and all of our real currency and in effect, everything we own and buy ... this is a false add on to underlying normal market movements.

7) Hedge funds create profits by being winners ... guess who the losers are?

8) Many of their transactions are off shore and so internationalised that tax treatise of the transactions is effectively impossible ... they are below most radar screens... law, tax, etc and largely concern tax haven bank vaults

9)Hedge funds are an extra tax for the most privileged on everything every £1 that a British person holds ... theya ffect everything that we do ... inflation, interest rates, savings, money supply, tax rates, national deficits etc.

10) Hedge funds are largely unnecessary, unfair, unconstitutional, unregulated, non-transparent and are a major risk to the stability of our entire national and global financial systems.

11) Hedge funds were created by the rich class with connivance of our political class ... for their own benefits and are an anachronism of pure corruption for the ultra privileged to play the money markets as creating wins against millions and billions of ordinary losers.

12) Hedge funds are the lazy corrupt alternative to making money by ordinary enterprise.

13) The hedge funds are part of a corrupt money market racket between the pension funds, banks and money syndicates ... applying massive leverage on our savings and deposits without our full knowledge and explanation and without being taxed properly or in any way properly accountable to issuer of the notes or the underwriter of the currencies .i.e. 'us' ... as the corrupt syndicates are using our money improperly to fill their vaults with gold bullion.

14) Playing with our money and taxing ever pound in our pockets with their wanton hubris, easy access to taxing our own security, stability and feeble controls, regulation and complete lack of real accountability.

Simples ... Wake up and see what has been going on!

86. At 10:40am on 19 Sep 2010, supercalmdown wrote:

> Again, it all boils down to lending practices. Remove Investment Banking from the
> High Street banks. .. Limit .. Insist ... Just how many times does this have to
> be repeated ?

You cold repeat it 'til hell freezes over; the only language bankers understand
is money. We must impoverish them on this iteration, and not wait until the next.
It all boils down to removing the sociopaths, and replacing them with wise
people.

It really is quite dedious to read bloggers suggesting that Barclays and others did not need Government support at the time of the crisis. If the Government had withdrawn the depositor guaranties, Barclays would have collapsed before the sun had set.

#76, copperDolomite:

. . . 72. At 10:40pm on 18 Sep 2010, vegetable_grower wrote:
That's no more likely to happen than a people's revolution. The people in charge already have a winning formula - with themselves as the perpetual winners. Why on earth would they change it?

I didn't say it would happen.

I think we are in agreement on that, then :o)

If the voters want to change our politics there is no one to stop them. I don't remember reading anywhere that the Green Party had to ask some group of people 'who are in charge' if they could please, possible be granted permission to form a political party....

How far have they got? They've essentially been absorbed/hijacked by the mainstream. So much so that there are entire busunesses making money out of "green" issues.

"We are a democracy (or so we are told!) and that means the people who are in charge are the voters, not some guy in a suit who has a really bad photoshop suntan, a designer suit and a few rich mates!"

Do you really, really believe what you wrote there - or is it just wishful thinking? They've already won - can't you see that? If people believe that things could change for the better at some point in the future then they'll carry on letting them get away with it.

Why stop at banks, Robert? Your preoccupation notwithstanding, what about other sectors of industry deemed sufficiently important that their failure would create "too big an impact"? What happens if Tesco fails? M&S? Any one of a number of car companies?

Effectively you would have us time-warp back to the seventies, in thrall to the unions? Or perhaps you feel that the state should be looking to take over the Big Four supermarkets etc? Really?
Or maybe you prefer the idea of a limitation on size; stop any company becoming "too big to fail" by making sure it never becomes too big in the first place? Who decides that limit? How is it determined? What factors need to be taken into account? How do you understand the impact of "failure"?

Or maybe it's just another opportunity to have a pop at the banks?

HUBBERT HUZZAH @ 27

"If the Taxpayer puts money into an Investment then there should be a return on that Investment."

Thats what I thought 2 years ago after the previous Government told us we now own 45% of Lloyds Banking Group and 84% of RBS.

Why have we not received our Share Certificates then?

DEMPSTER@51

My 18 year old Son is embarking on a useless Media and Communications Degree at a Midlands University and is about to get himself into £21,600 worth of Debt over 3 years. I have told him that there are no Media jobs now and there will be even less in 3 years time. But because his elder Sisters went to University( they studied something useful) he feels he has to go as well.
I can understand the Life-enhancing experience of Campus life and being away from Home and wish him well.
I also understand that in the end it does not matter as all young people in his situation will at the end Default.

That will be their only option.

84. At 09:14am on 19 Sep 2010, thomas_paine wrote:
Chattel slaves.
Wage slaves.
Debt slaves.
What's next for us?
Will it involve the word slave?

The children of today are indeed born into a new form of debt bondage.

There is no way around this. Wealth that owes its existence to the debt bondage of the next generation must be forfeited in some way or another.

A minority will have to make do on half a gazillion. That is not a breach of their human rights.

What benefit is it for those that suffer the cruellest forms of debt slavery if we, who have democratic rights, do not fight for the freedoms of our own children?

So, whether it's the sus laws, the posties or the price of bread, it matters not. I'll be out on the streets when the time comes.

Worrying about the level of risk of hedge funds versus banks is fiddling while Rome burns.

TO 94. At 1:19pm on 19 Sep 2010, honestgradgrind wrote:

Money is created as debt bearing interest.
For the interest and capital to be repaid, more money (debt) has to be created).

Given that all debt carries interest, the amount of money and therefore the amount of debt must increase.

As previously posted:
The prudent won’t borrow money.
The hopelessly indebted can’t borrow anymore.
That leaves the young who are entering the system debt free.

The total number of British students at universities and other fee demanding colleges is understood to be in the region of two million. Assuming each receives a £1,000 per annum in help from parents and borrows £7,000 per annum to pay for fees and living costs.

Then the amount of debt created would be £14bn per annum.

If tuition fees are increased from say £3250 to £6250 (£3,000 per annum), the total amount borrowed per annum will rise to £20bn.

This would in turn inject a further £6bn of new money into the economy.
It will of course also saddle the young with ever more debt.

Personally looking at the decline in tax revenues and the increase in government debt, I think we’re now past the point where this problem can be solved by trying to burden the young with more debt.

I think we’re in a compound debt trap and only by printing more money can we get out of it. Which oddly enough takes us from a debt based to a non-debt based monetary system, at least while the presses are running.

Message 95 from PacketRat...

See you on the streets.

People do not realise the evil (and I am not religious) that the private money (credit) supply system is.
Because they don't know about it.
Now, for every £100 created, someone must be £100 in debt.
If there is no debt, there is no money.
We do not discuss this philosophical point, let alone vote on it.
Fiddling with the numbers is no solution.
The private credit system is a cancer on society and needs radical surgery to remove it.

Bring a hard hat and sandwiches, for it will be a long struggle.

34. At 3:29pm on 18 Sep 2010, Dempster wrote:
24. At 12:53pm on 18 Sep 2010, Supersage64 wrote:
'One crucial stat that you seem to have missed... Government expenditure less Financial Sector intervention. Based on the difference in overall debt when excluding financial sector intervention we can deduce the following??

I wish we could deduce that, but unfortunately not, because it is hoped that most of the financial sector intervention is a loan, not an expenditure.
=========================================
Shares were bought in the banks... Capital expenditure is still expenditure. We could call it investment and exclude it from the total expenditure and if we apply this to all Capital expenditure then the picture becomes even more rosier.
------------------------------------------

43. At 5:39pm on 18 Sep 2010, GordonThought wrote:.....
==========================================
THere are various ways on interpreting the numbers and you do have a plausible rebuttal of my analyses which was intended to be a bit of tongue in cheek. The numbers in Year 1 would however remain the same and therefore reflect the surplus as stated. Year two fits in with your argument but Year three is a bit of an anonomaly.. The growth in the FS induced Debt is £137bn which would reflect a deficit of £29bn for 2009/2010 if the bailout is deducted.

Not bad when you consider the reduction in Tax receipts

But lets not get to carried away with the numbers. The Truth does not matter to 40% of the electorate. They vote on the bases of their fears and fantasies. An additional 30% voted for a party who sold them a dummy. It would however seem that 50% of the latter will accept the dummy as the real thing because thats the way it always been done.

Fortunately and unfortunately, we have an electoral system that will allow 40% to form a majority government. Its a toss of the coin which government you get.

Banks are making money from implicit taxpayer support.

Rather than expecting the banks to build up their reserves the taxpayer should be seeking methods by which their liability is reduced.

The taxpayer requires retail banks for the organisation of their money and incomes. The taxpayer will rarely get involved with investment banking: however loosely one defines the term.

So by definition that taxpayer liability should extend to retail banking only.

There is nothing the taxpayer can do to prevent speculation other than the issue of meaningless homilies. However, the taxpayer must be protected from the consequences of speculators going bust and taking the economy with them. The best regulation of the investment banking sector is the appreciation by all the participants that if they get it wrong they get to sit on the Embankment all day, every day, wrapped in newspapers and drinking meths. Take out the taxpayer liability and suddenly they will all become virtuous. I think this process is called moral hazard.

91. At 12:35pm on 19 Sep 2010, vegetable_grower wrote:

Do you really, really believe what you wrote there - or is it just wishful thinking? They've already won - can't you see that? If people believe that things could change for the better at some point in the future then they'll carry on letting them get away with it.

I think we are in a half-way place between America-type non-democracy and democracy.

Sheep vote Tory.
Sheep vote New Labour.
I've no idea who/what is was that voted LibDem but most of us realise they won't do that again!

We don't have an open-bid of votes for money as the US does - yet.
We don't have as severe a lock down of the press as the US does - yet, and if Robert has his way, there won't be. The next election in the US will most likely be openly bought and sold by oil given the Supreme Court decision to allow corporations to allow unlimited payments for candidates campaigns(well done with the 'debate' last year Robert, keep challenging loudly).

We're not totally lost yet! There is nothing stopping you running as an independent. Martin Bell, remember?

If you really believe we've lost, then why are you here?

They haven't won. Not yet.

For years we've had people bleating on about shareholders. That's an attempt to get us to forget about policy and worry about gamblers. If people are daft enough to gamble their life-savings in a bookies I don't care. What I care about is my democracy, your democracy, everybody's democracy. Focusing on shares cuts out the lollipop lady, it tells us to think she isn't as important, don't worry about her. Rubbish! Dishonest, rubbish!

You beat them by closing your bank account. You beat them by not paying for dodgy press. You beat them by ethical shopping and telling the unethical businesses why you won't use them as a supplier. You beat them by watching what they do and telling them it isn't good enough. And you beat them by constantly learning, by paying attention and demanding over and over until you get it, accountability and justice.

If you want to win, have you closed down your bank account yet and gone ethical?

And have you decided who you will vote for next time? On what basis will you do that? Are you monitoring the performance of your MP? Not got anyone worth voting for? You run! Martin Bell did. Why not you? Have you joined a political party? The best way to change party policy is to join the party - you and all your mates and make that party yours, you and all your neighbours! That's how the religious right took over education and then politics. What's to stop you replicate the strategy? Michael Moore in Michigan did it. You can too. You can drag them kicking and screaming to the political position you want or fire them!

Have you got yourself organised on how you are getting to the demos in London that are organised. The scientists will be there on the 9th. You don't even have to be a scientist - just against the cuts to science investmenet!

It's up to you.

Oh my, I've just had a political party activist at my door while I've been writing this - my little part of this world has the benefit of another extra Parliament and we vote in May! Sales Pitch? I don't think so! I have a demand list - that's what employers do isn't it, make demands of employees. It's a long list and getting longer by the day. Someone now has sore ears! I'm not finished - for that kind of salary, I've got a long, long list and as a voter I expect serious value for money!