Humbling of our banks

Robert, the injection of capital tomorrow will not guarantee the banks: only full transparency will do that.

We are not at that point yet, and there is no serious attempt to do it any time soon.

Momentarily, I forget exactly why Sir Fred had the nickname, Fred the Shred. Anyway, it will be such a relief to stop walking around the office, clicking fingers, and singing to that tune which I cannot get out of my mind, Jambalaya:

Good-bye Fred, yer gonna shred, me oh my oh
Yer gotta go pole the pirogue down the bayou

Please, powers that be, confirm tomorrow that you have let him go, let me forget this tune!

So after all the pain and suffering, HBOS finally looks like it's owning up to a huge capital hole. If Robert is indeed right about £10 billion (or more?) being required, what does that say about the actions that the much-maligned 'spivs and speculators' took in selling down HBOS stock before the Lloyds merger was forced through? It's an amazing repeat of the short-selling 'scandal' before the earlier HBOS emergency rights issue of a few months ago. Why has the FSA wasted so much time chasing down phantoms and banning short-selling when it looks as though reasonably sophisticated investors, who refused to follow the herd, were right all along?

If, as Robert predicts, Fred Goodwin of RBS resigns tomorrow it will be a clear admission of his reckless culpability in steering this well respected bank "on to the rocks". During Goodwin's time, greed and profit became the new euphemisms for recognised banking practices as he drove his staff to meet ever more demanding targets.

However, he will leave RBS a very rich man leaving others, principally the taxpayers, to pick up the bill for his failures. I suppose it's too much to expect Goodwin to repay some of the hefty bonuses which he has been paid over the past few years for profits, many of which we now learn were founded on worthless paper.

I seem to recall that he also got his knightwood for services to banking and for contributing to the massive profits of RBS - will he now accept that this was a false honour and give back his "gong"?

So all the sandcastles built on (virtual) sandcastles over the last 15 years or more are coming down. Better now than later and at least the system will survive.

Lets hope that it will be run by people motivated by more than their own personal bonus scenario.

The question is what promises has the Government extracted from these four banks for the taxpayers who are bailing them out.

It would seem inequitable for the Banks to repossess borrowers homes given that those very borrowers are taxpayers who saved the banks from bankruptcy.

Similarly, the banks control the future of many other SME businesses in the UK. What support can they expect, given that their corporation tax is supporting their lenders.

It is time to find out whether we have a symbiotic relationship with the banks, or if we are hosts for parasites.

can anyone explain how Lloyds is in a position to buy HBOS? Or are they going to buy it with taxpayers money? If so why doesn't the government just buy it themselves?

It goes against the grain of many contributions here so far but it seems to me that Brown and Darling, with help presumably from the likes of Paul Myners, have put together a very clever package, compared to the many alternatives discussed on this blog and elsewhere, in tying together help on liquidity and capitalisation. With all the big four having to take the medicine this weekend there may be further falls in the stock market tomorrow but a run on any of these main UK banks now seems remote.

I pray that those negotiating on behalf of the tax-payer this evening are smart enough and tough enough to get as good a deal as is possible in such unhelpful circumstances. And that sufficient confidence results to avoid the worst of crash and depression.

"No chief executive can survive", so there will be more well deserved resignations, san bonus, soon?

I think it's about time the banking system was reined in, and I hope that current moves mean we can finally see the end of the Thatcher/Reagan unregulated greed approach to all our financial futures.

Taking a significant public stake in the banks is an excellent approach - I believe this should be done via voting shares that give us a say in how the banks are run. Bonuses must be reined in; short-selling must be banned indefinitely; and to those who say that we won't get the right people in charge if we don't give them enormous undeserved perks, I say look at their performance: we do not need them - they can go wherever they like as long as it is nowhere near our banking system.

Surely, in every business deal, someone wins and someone loses.
If I buy for £2 and sell the next day for £1, I lose and the person I bought from wins. And vice versa.
Who is losing here, with buying shares in the banks? The shareholders or the Govt?
The main problem is a lack of confidence.
And which group do people have least confidence in? Politicians!
So we who are now losing trust in banks are expected to believe that people we have already lost trust in - ie politicians - have a confidence-building solution.
Ha!
(or should that be Ha! Ha!)
ps
I would quite happily invest in RBS with a 10 per cent preference share and a warrant to buy another ordinary share at a quid in the next decade.
Make the deal good enough and people will buy. You don't need the government.

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Humiliation or pragmatism?

Hans-Jörg Rudloff, the chairman of Barclays Capital, said closing world financial markets for two or three days might provide time needed to work out solutions to the global banking crisis, Bloomberg News reported, citing an interview with the Swiss newspaper Sonntag. In the interview, Rudloff called the current crisis ?probably worse? than the stock market crash of 1929. New York Times

https://www.nytimes.com/2008/10/13/business/13europe.html

Oh dear!

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Forget inter-bank confidence, it's the public's confidence in the banks which is dead - and no amount of government infusion is going to resurrect it.

All that these government bailouts are doing is making taxpayers more and more angry.

Woops last post seems to have been posted twice - sorry!

Sounds fairly sensational...good effort Robert, however can you tell me which nations banks have not been humbled in one way or another ?

Also the fact that the banks are taking up the opportunity offered to them surly justifies the action.

I am sure that your support and lack of self seeking sensationalism is welcomed by all!!!!

The Chines write the word 'crisis' with two characters - 'danger' and 'opportunity'. So what is the danger in this crisis and what is the opportunity?

To my mind, the real danger is not that the present system collapses, serious as that might be, but that it is simply 'fixed'; in other words, put back to a situation of status quo ante, with extra safeguards against reckless lending and so on.

We need a financial and economic system that takes into account the pressing issue of climate change and sees that the relentless economic growth we have had for most of the past 150 years is unsustainable. This is the opportunity - but which mainstream politician anywhere in the world will be bold enough to say it?

Truly you think that a less "humbling" experience will be felt by the estimated two million extra people on the dole by Christmas?

Brown is the only prescient person in the western world at the moment.

More humbling would be to have a clueless leader accompanied by a financial engineer who is in large part responsible for this crisis--having understood the coming train wreck and continued to reap his personal profit from it--as the architects of the foundations of public good for the next few decades.

All hail the economist with preparation, power and diplomatic skills.

So British Banks plc will dictate which buinesses or individuals get loans, under guidance from the new National Economic Council. Yet another brick in Labour's wall of control More dismantling of fee enterprise and individual freedom in the UK.

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"What a sorry end to Britain's longest ever period of unbroken economic growth."
It wasn't 'real' economic growth, though, was it? It was credit-fuelled speculation, politically-driven, and now it is the ordinary taxpayer and future generations who have to foot the bill.

What share of responsibility does America bear for all this? To what extent is the "humbling of our banks" due to the toxic derivatives which they were sold, and which concealed vast sums of bad debt on the American sub-prime mortgage market?

does anyone, apart from Gordon Brown, think his cunning plan will work? of course it won't as it does not address the problem.
All governments must bite the bullet, stop share dealing in banks while they are fully audited and forced to publish their real exposure to toxic debt. Only then can confidence return to the market.

If Sir Fred falls on his sword tomorrow, I take it Andy "grocer-boy" Hornby will closely follow? (and take O'Riordan with you, please - plus the rest of your ex-Asda chums)

Remember Andy/Shane-y continuing to send out fact-free memos to the plebs saying "we are a strong bank, with strong capital, strong brand, blah-de-strong-blah" doesn't really cut it when you're caught with no shorts once the tide has gone out.

Bring back B*nking Benny Higgins!

Why can't we just join the Euro now?

A couple of very salient points to mention regarding the whole situation:

1. The value of Pi, or the Peston Index varies in inverse proportion to the value of the

FTSE 100. Take September 22nd, blog on Gordon Brown, 111 comments on the Blog, to Sunday 12th

October, All Change at RBS, 204 comments, an almost doubling, compared with getting on for 50%

drop in the FTSE, well after Monday maybe.

2. The new GOvernment NAtionalised Derivative Swaps give new meaning to the phrase

"They've got us by the G***ds.

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Let's see what'll happen tomorrow Robert. It's good to see one of the heads 'rolling' so to speak, it's about time more of them did so. You're right though, it's a pretty sorry state of affairs. M-Bell no1, has it right, only transparency will go some way to ending this madness. If you think about it, too many crazy statement have been made about the soundness of many of these banks. God knows what'll happen next when we find out they're after even more money. As I've said before there needs to be a criminal investigation into these rogue bankers. They're responsible for destroying the livelihoods of many many people and they should suffer the same fate as those that have seen, and are now seeing, their jobs go, their houses repossessed, and their future overwhelmed by uncertainty and debt.

Can someone explain? I'm no expert in finance but here's what I'm getting from past blog posts. It seems that the current banking crisis is variously caused by (a) greedy members of the general public with their raging appetite for credit and upwardly mobile living, (b) stripey-shirted bank execs addicted to excessive risk taking and short termism, (c) abject failure of officialdom ie the FSA, BoE, Fed and other central banks to properly undertake their tasks of inspecting and regulating, (d) Governments for not keeping enough control or spending too much money they don't have, (e) short selling, which is a few usually the rich trying to profit at the expense of the masses and don't give a cuss about the companies or employees they sell short, (f) Peston with his catastrophic daily blogs. Any others? Haven't yet seen anyone blame immigration or climate change, but it could happen. If we believe the doom laden sayings then heads should roll. But whose? What is the main factor that has contributed? For my (vanishing) money it's (a) i.e. john q public.

A socialist government owning capitilism?

The country forced into an EU constitution that constitutes a dictatorship?

How nice of the fed to bring the years old sub prime loans to the worlds attention?

Bush allowing ten million immigrants and a large proportion sub prime loans?

The special relationship between Bush Blair Brown and the Bilderbergers?

Well Well looks like we need a global police force to arrest the new elite villians?

I hope that at a suitable time, not only will those chief executives and others responsible for the collapse of these institutions and the possible impoverishment of many current and future pensioners through their lack of appropriate stewardship, be made to account for their actions, but also barred from holding any company directorship for at least 10 years.

Gordon Brown says "confidence by mid week".

I will need to see the accounts (full audited please) before I can be confident again!

You can nationalise the banks but without full disclosure how can confidence return?

Schadenfrade is an unacceptable response to the ignominy of any banker who falls from grace. We must not forget it was the regulators at fault, one hundred percent. They created gaps for shysters to enter the portals of banking.

For any shysters who happen to have got away with it, boys will be boys.

Instead, our regulatory environment should be changed so it will not happen again. We also know that moral suasion is the most important device to get ordinary people to pay tax. Therefore, our regulatory environment must ensure that shysters are tracked down and punished, and seen to be punished, or else moral suasion and tax receipts will diminish. This will reduce the funds we will need to replenish banking losses.

So we simply have to take a leaf out of our American friends, and nail any shysters. Put them in jail. Not the junior ones, who were acting under orders, and who will be seen as scapegoats. People need to see real culprits punished according to the law.

So the Treasury must send in the accountants with their fine toothcombs. Whatever it takes. They will find something. And remember, no schadenfrade, only justice.

Now that, as a taxpayer, I am lending money to the banks, will they continue to charge me 30% APR on my credit card? 666% of BoE base (interesting that it should come to 666). I would hope that in return for the taxpayers investment the Government would insists that these sort of rates are not allowed. The BoE has aminimumlending rate, perhaps it is time for a maximum lending rate.

I repeat my forecast that NuLab will be calling a General Election around September next year. The rallying call will be the glorious leader Brown for leading the UK out of the huge pile of ****.

He will, of course, not mention that it was he who dumped us in it!

The bank negotiators needn't worry. This is the Govt which got a good deal for the taxpayers with .......GP's pay!!

What a fantastic position these banks are in. Its a no lose situation - either they use our money (as customers) to make profits which they keep for themselves or, if they abandon their business model and make losses we (as taxpayers) make up for it. They appear to be insulated from any financial risk whatsoever - because of this I would not be able take seriously any banker trying to give ME business advice. Also good point about repossessions as we now own the banks we should be cut some slack.

"Treasury officials will meet Icelandic authorities later to try to save some of the billions of pounds that councils and charities face losing.
More than 100 councils, as well as police forces, fire services and transport authorities, have deposits running into millions of pounds each in the crisis-hit institutions."

I cannot understand how the cash strapped Local Council, Charities and Hospitals who never stop crying their poverty and shortage of cash had billions of pounds stashed in Iceland? Why the banks at home were considered at least as safer as the banks in Iceland and at other places? Now we know better!

The excuse is being offered that they were getting 'better' return on the money! Had not they known that what sounds too good is not true!!

Advisors who had advised them to be reckless with the taxpayer's money ought to be called to account.

What is the position of an offshore bank account with one of the affected Icelandic Banks for a UK citizen. Is the sum fully protected or only to £50,000 or less.

What really angers me in all of this is that no political party has stood up for the British taxpayer - save, perhaps, for the Taxpayers' Alliance.

It is shocking that, throughout this debacle, the Labour government has been treating taxpayers with contempt (don't forget we've already had a decade of stealth tax under the Big Clunking Fist), whilst the Tories have been standing on the sidelines bleating about, er, bankers' remuneration in the new world order. Is that it Dave?

It is alarming just how exposed we are now. I don't believe all these experts, commentators and politicians popping up here and there and talking about 'sluggish growth', 'mild recession', ' things should pick up next year' blah, blah, blah. Do you believe these pronouncements?

Do they think we're stupid? Thanks to the rank incompetence of our political class, the UK economy now has a big, flashing neon light above it saying 'Stuffed Beyond All Recognition'. It will take politicians, of all persuasions, a very long time to re-establish what little trust there ever was between them and us proletariat.

Apart from total war, this is an unprecedented economic and social disaster for this country and I for one want to see our politicians eat humble pie and get pack to representing ordinary people. Politicians' behaviour in recent years has been utterly shameful (like the bankers) and this is now the straw breaking the camel's back (some straw though eh?).

If politicians don't reconnect with the likes of you and me, and fast, I fear there will be trouble in our society in the coming years.

Goodwin needs to resign with no reward - anything less would be a travesty. But there are other executives that need to go as well also on 'no reward' terms.

These so-called 'bankers' have forgotten what is meant by the term 'savings' - it definitely isn't a stake for banking executives to gamble with.

The executives at other banks need to go as well. Only by this taking place speedily and with complete transparency will anyone believe that it may be possible to entrust banks with our savings in the future.

The financial titan that is Clown sold off our gold for a pittance.

His off balance-sheet PFI wheezes will cost two generations of taxpayers £££ BILLIONS in interest payments.

Hardly a good track record for puling off his next trick!

Maybe the Royal Bank of Scotland will now be renamed the Royal BANK OF ENGLAND ...?

Sorry, i may be being thick here but when the above and others say "we, the taxpayer" are footing the bill what exactly do they mean?

Are we going to be invoiced or is income tax going up?

I remember the same comments bandied round about the Olympics though to my knowledge that bill has still not come through. post office eh, cuh!

The British public at large lapped up the cheap credit, bought 2 or 3 houses, replaced cars, went on holidays to Mexico. Now its collection time and suddenly its all the banks fault. Its not, its everyones. From Clinton to Greenspan, to Brown to the Bankers, the analysts, to you and me. Its no time for a witch hunt. Its time to live properly once more and stop this insane desire for more and more quickly more often.

They are NOT safe from collapse though, are they?

The Bassel 2 Accord means every time the house price drop, so do their assets. Immediately with no lag. Thus we, the taxpayer, are liable for about 1 Trillion pounds of banks liabilities.

Why when credit is tight is the gov't through the FSA forcing banks to hold larger capital ratios, surely this is the opposite of what should happen, higher capital ratios in a boom, reduced capital requirements when heading for a downturn to ease liquidity? This seems extremely oportunistic to me, forcing the banks to increase capital ratios at a time when it is impossible to do so, with Gordon riding in on his white horse to supposedely bail out the banks by buying up a huge proportion of the business at a fire sale price.
What people seem to be loosing sight of is that this is a systemic problem for all banks with the normal liquidity channels in gridlock. The injecion of liquidity by the BOE and the underwriting of interbank loans is a necessary course of action to solve the systemic problems of the current system. The blackmail being used to effectively nationalise a large proportion of the banking system is an absolute disgrace. The end result of this is that Gordon will reap the benefits when the share prices return to some level of normality, and what will he spend this windfall on, the increased burden of a welfare system created by his own economic incompetance. Who loses out? The pension funds and shareholders, it is effectively like another form of taxation for the prudent and those who try to plan and invest for the future. If you don't own a share, investment trust, a private pension or a house you're quids in, if you do you may as well cash it in now and spend it along with the rest of the profligate!
Another thing people in the media seem to selectively ignore is that the crisis is not as a result of a huge number of defaults on UK mortgages, if you look at the figures the numbers are up but by no means justify the lack of confidence in the UK banking system. The root cause of this problem is sentiment and in particular with respect to house price falls and subsequent defaults on mortgages, this would suggest that the main focus of action should be on the housing market. Scrapping stamp duty completely is a bare minimum, we do not have the same problems as the US, there is no where near the same levels of sub-prime lending and the biggest difference is the imbalance of supply and demand for housing in the UK. We do not need to suffer the same fate as the US, we can and should take actions to address the falling housing market, this is the only thing that will return confidence to our banking system.

You young people have not been around long enough to understand that it was the Wilson government in the late 'sixties that started messing around with banking rules. Then we had Thatcher, Lawson, Brown et al adding to the mess of deregulation. Mr. Brown wants to return things to normal so that the banks can restart lending to home owners. Mr. Brown is neither old enough nor well read enough to understand that a mortgage is a twentyfive or thirty year contract, however you dress it up. Commercial banks have no business either originating or buying mortgages - this is part of the problem. A mortgage can never give rise to a truly liquid security. We had perfectly adequate mutual building societies to do the mortgage lending job with funding gathered the hard way via personal savings on the High Street. This is what we need now in the mortgage arena and cannot possibly re-establish. We also need an outright ban on commercial banks financing home purchase on any basis. I am not suggesting that this is the cure since most probably one does not exist. We also need to go back to the pre-Wilson era when banks published their balance sheets after "transfers to hidden reserves" which resulted in solid capitalisation, low published profits, shareholders consisting of Widows' and Orphans' Funds, and bankers in the CEO positions who had spent a working lifetime in learning the banking trade. What we have now is spivs in charge of big ticket salesmen put there by the politicians.

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We may be witnessing the genius of Gordon Brown in quietly and patiently allowing the banking system to steer itself onto the rocks and have to be saved by nationalisation.
"Best when we are Labour."
Real thinkers know that what got us here is the money creation system which is privatised and for private profit, so more wealth goes to fewer people.
97% of "money" needed for the exchange of goods and services is now created by borrowing at interest from the private banking system.
If there was no borrowing, there would be no money!
Madness.
Something has to be done.
Money reform is the only way but we will have to fight for it.
See the video "Money as Debt"

https://uk.youtube.com/watch?v=rC720Cl3N-0

m_bell haven't you learnt anything yet? Tranparency is a thing of the noughties past now. Whilst it was bandied about in every engineering, mathematical, banking and erm everything paradigm the completely ludicrous nature of the demand for transparency is at sea when you approach something hugely complex.

People don't know what the debt is, it's wrapped up in meaningless very clever mathematically proved derivatives that have obvious outcomes in the long term based on previous economic stats. Sure in twenty five years they might be right, most speculation in the markets is proved right over a long enough timescale, but they're totally out now. At the moment there is in no way possible full transparency as these derivatives now hold no value to anyone because of their 'transparently' no brainer value. When you come to transparency the underlying phillosophy has to be very simple to succeed. We will not get even a little transparency until credit debt ratios are negligible, most hedge funds are bankrupt/liquidated, many have lost their homes and CDS's are fully unravelled. Then we'll be back to old fashion retail banking and no doubt the investment banks are de-merged from under their wings. Transparency means nothing because no CEO ever understands the complexity of what they're doing.

Identity Card anyone?

We may be at the bottom of the curve for banks but it'll be a long road back for them and ultimately us.

The mind bogles at the thought of all these Nu Labour whiz kids being decanted out of Local government finance departments to run the new nationalised banks. Will the government (aka G Brown ) be setting the interest rates, no doubt to harmonise with the new tax rates which will be needed to service the enormous debt ( I hope essential ) the government is saddling the taxpayer with. Maybe in the new banks there will be jobs also for all of the workshy this government created over the past ten years. It may also prove a useful tool to find employment for early release or unjailed criminals who already have the qualifications for working in banks ; a degree in dishonesty. No doubt also all the poor bank executives who have had to resign will be forced now to go and live in impoverished retirement in the South of France or the Amalfi coast, how can you but feel sorry for them?

They are NOT safe from collapse though, are they?

The Bassel 2 Accord means every time the house price drop, so do their assets. Immediately with no lag.

Thus we, the taxpayer, are liable for about 1 Trillion pounds of banks liabilities.

The mind really does boggle, seriously Robert I think its time we taxpayers had a better return. No one is coming to our rescue this cold winter, our wages have not gone up, basic fuel and price of goods keep going up. When will someone come and bail us out? This is nothing but sickening. I am very disappointed in all the major banks. Its always been ok to charge us to the hilt but in return the banks can make a healthy profit come the next term.

Beggars belief!

hold a moment didnt lloyds tsb not buy halifax hbos just before this crisis deepened?
if they did then why are both parties trying to obtain taxpayers money?
is this a con or am i in error.
if its a con then why is this government allowing it ?
very odd i think.

We should all be glad that this happening. The alternative - all banks go bancrupt and cease trading is hard to contemplate. Just imagine a prolonged bank holiday with all the ATM's like Iceland's saying 'This service is no longer available' and no business taking cards or cheques. Fortunately the government has stepped in. They had to. Financial meltdown has been temporarily averted but might still happen.

Thank you Robert for keeping us informed. Let me know when I should keep my cash under the mattress.

So only one resignation predicted, what about the rest of the directors across the banking sector. The answer would seem simple - sack them - without any pay off.

Freeze their assets, reposess their houses and ban them from being directors of any other company.

They could then go along to apply for a mortgage without having a job and without having the high percentage of deposit required these days.

Probably non of these suggestions are legal but there should be some penalty for having put people into the situation we now find ourselves in and I don't think that shame would be sufficient.

ITS ALL ABOUT THE FRAUD THAT IS THE FRACTIONAL RESERVE BANKING SYSTEM......Stoopid!

Go google 'money as debt' and research this greatest of frauds.

We need monetary reform now.

One of RBS's NEDs is bigged up as having ..."considerable experience in very large risk management...." (for which he is paid £122,000pa.) All the directors are culpable, not just this one, and they are all guilty of a total abdication of responsibility by relying on rating agencies to justify investing in instruments that they didn't understand. It is essential for the good of the financial system that all of these incompetents should be banned from ever holding a position of responsibility ever again.

He set up the current financial regulatory system in 1998.
He has has run up huge public debt "off-balance sheet" (PFI's etc)
He sold gold when it was at a low
He thought it a jolly jape to give a tax cut to the majority at the expense of the lowest paid (and that we were too thick to spot it)

and now he may end up controlling half the UK banking system.

"Lunatic" and "Asylum" spring to mind.

At least there will then be lots of "non-executive" directorships for those who lose their seats at the next election.

47-starquin10:
"The Bassel 2 Accord means every time the house price drop, so do their assets. Immediately with no lag."

The latest wheeze from the States is a suggestion to allow institutions to place their own value on assets - rather than what the market says they are worth.

What's the betting we soon import this idea? Why not? After all, as a short-term fix, it might make them "safe from collapse".

Accounting board tries to clarify mark-to-market rules

Robert

In the spirit 1 above regarding transparency in for the banks, how about some transparency in your sources for the exclusives over the last few weeks?

Just interested in knowing if you feel your exclusives are 'creating new news' before you actual report 'the news'?

I'm sure a lot of loyal readers would like to see some response in your blog regarding comments from certain papers and media?

defear

54-starquin10:
"Thus we, the taxpayer, are liable for about 1 Trillion pounds of banks liabilities."

I agree that in spite of any smoke and mirrors that may be used (see my last post) the taxpayer will still end up with a huge liability.

isnt it great seeing how these banks are running to the Tax payers when they have screwed up big time with the Capital they generated over the years from Intrest, charges and other forms of cash returns.

only to blow them on expensive comercials to get people to go bank with them
and other investments to promote their image or to make a quick buck.

these are the same banks that come down on people like a load of bricks if there is a slight problem or error.

if they get a chance they would take their customers for every penny they are worth

and now they are struggling and their precios shareholders stock is falling through the floor, they go begging to be bailed out by TAX payer money.

before any of the Tax money goes to them, their shareholders should lose every penny and put that to their balance sheets before begging the tax payers.

maybe in future they wont be so careless.

Goodwin should go with no pay-off, no recompense. He has presided over such reckless financial mis-management, yet *I'm* the one who gets fined if I mess up my finances...

The banks have no choice, they now have to return to a regime of more responsible lending.

And we don't need to guess what that means for house prices:

Before the money supply dried up, the average house price was £220K.
Average earnings were £24K.

That means with a risky 10% deposit, a couple were borrowing 4 times their combined salaries to buy their home.

The banks will now have to go back to 20% deposits and 2.5 times salary mortgages.

That will bring the average house price down to £150K - a drop of just over 30%

Enjoy...

Surely the government could set up a Loans scheme direct with homeowners and businesses similar to a Student Loan.
The banks would get some of their debts paid off indirectly and people would not lose their homes/farms/businesses.
The thought of multiple repossessions instigated by the banks/courts is sickening. This just enables the moneyed to get more moneyed.

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I wonder if I'm missing something...

The banks are being stabilised so that they can lend to each other again. They're being stabilised and recapitalised so they can lend to companies and individuals again. The banks are going to be much more tightly regulated so that we can't get into this disaster again.

But the music has stopped. There are trillions of dollars of debt still out there. Unless banks are going to forego interest, it is going to increase. Banks are still not going to want to lend because the figures are frighteningly high. They want to survive. Regulation will further diminish economic activity - because the laxity and irresponsibility with lending was a very, very large part of the boom.

So, recession is a certainty. The debt increases further. More writedowns as we are more indebted than we've ever been. Less confidence. More writedowns. Debt increases due to interest. And so on...

These actions taken by the government are a bit like a patient with a brain tumour which has led to the legs no longer working. The doctors (government) decide to treat the legs to get them working. What they should be doing is obvious of course...BUT politically unswallowable to financial elites.

Why should the banks survive in present form so they can bankrupt many thousands, probably hundreds of thousands, if not millions of people before this is over? Why not introduce legislation which calls a moratorium on debt and repossessions? (People could just pay back over a longer period.) Or a fixed amount to be paid back say 10% on what you borrowed? That's not a bad profit! This would help people. The debt is the core of this issue but no one tackles that. Why?

"So is this a plan then, Ed? We'll let the commentators and market analysts talk this thing way down, pick off these banks at their lowest ebb. Then we'll control their loan policy, reposession policy, and control interest rates at arms length. Then after a good few years of inflation, and with the Pound devalued beyond belief by the time you're Chancellor, Ed, we'll pump them up and sell them on to fill the Social Security black hole". How does that sound?

Andy Hornby should go next.

He has steered a once great Scottish institution on to the rocks.

This crisis is great so far. Fuel prices are tumbling, mortgage rates are falling. Prices of houses and eveything else will soon follow. The vast majority of people in the UK don't have any savings or investments and they don't believe their pensions will be worth anything anyway.

We are slowly but surely moving towards one or possibly two Super-Banks in the UK. Better that these be in the control of the Tax-payer than that of private companies who have proven through their actions and deeds that they are neither to be respected nor trusted. Senior bankers and their hordes of minions have, through their actions and deeds, been interested only in feathering their own beds.
Why only one person (Sir Fred Goodwin) should feel the need to resign beggars belief. I would have thought that there would have been dozens of senior executives in all the major banks making their way towards the exit door. I am sure that what is left of the banking system can do without their kind of leadership, which has led to the wholesale destruction of an industry.
I hope they feel the pain, and have strong enough shoulders to carry the shame of a nation.
No golden cheerio’s please.

#68
Trouble is virtually ALL the money banks want to borrow is to repay fancy financial instruments (CDS's and other off-balance sheet activities) which have become due or need refinancing. They will have no dosh to lend.

Incidentally, why aren't the banks having an asset fire-sale first before bleating to the taxpayer.

As I have asked before,
WHy or why is Andy Hornby allowed to stay on?
Why is James Crosby, ex of Northern Rock and on the FSA whilst it so failed in its duties, allowed to stay on at the FSA?
please Robert, tell me?

I have a solution to this current crisis - Gordon Brown should ban such sensationalism reporting. Who it is helping?

The powers at be are trying to find a solution, others are seemingly thriving on the misery in an attempt to make a name for themselves. This is costing many people their jobs, savings and pensions. Truly shameful!

good old thatcher deregulated the city of london in 1979...wonderfull its taken 29 years to see what a bad pm she really was....its not brown blair and major that are to blame. the sight of four major banks ,cap in hand ,begging from a labour government...socialism is dead!!! long live socialism.

Under Fractional Reserve Banking there is no such thing as a strong bank. They all by definition inverted pyramids of debt constantly circling the plughole.

They receive 100%, they lend out 97%. They only have 3% in reserve. They *rely* on *less* than 3% of customer's money being taken out. Any more and they collapse like Lehmans. In america the reserve ratio is about 10%, the UK about 3% and the EU, 2%...

There isn't a Fractional Reserve Bank in the world which isn't vulnerable.

The government has to bail out the banks otherwise it couldn't collect any tax from us. You try collecting tax when someone barters a pound of onions and a can of baked beans for a pint of petrol!

Don't expect the bail out to fix the stock market though. Few firms do well without any customers and the British public has realised it doesn't have any money to spend.

I'm still very concerned TBH.

Given the scale of RBS's assets (130%+ of UK GDP ?) do they have CDS liabilities at stake ?


With almost 92% of $400 billion dollars of Lehman debt to be recovered from CDS's, then there is Freddie Mac and Frannie Mae, AIG, Fortis, B & B, Hypo Real Estate and the Iceland banks.

I doubt the CDS system has been built to cope with these kind of losses without other companies going bust.

If they go bust then other companies will have to payout and face the same problems.

Will CDS's be triggered for the four big banks ? Who is the CDO for their CDS's ?

If/when we the public gain a stake in these banks what will be our position as regard liabilities in the CDS game ?

Full accounts and liabilites please before commiting to any securities.

This comment has been referred for further consideration. Explain.

Robert or anyone what about the £650 TRIllION in the futures markets the hedge funds and derivatives markets ??? £250BN is small change to this amount .., what happens when some of these funds fail like LTCM!! have hear nothing in is any Gov going to bale out these sort of funds!!!! I have not read or heard anything about these funds !!##

New thought... 60 million people in the UK.. just give every person £1 million... and create a new way of banking????

Alan

Can anyone tell me if the actions now being taken by our government - which, with hindsight, could transpire to be reckless in the extreme - will be subject to parliamentary scrutiny? Or is that it? 85% of our GDP now at risk to save the banks.

In the space of weeks, the Labour Party commits the British taxpayer to the most astonishing, unprecedented and fantastic levels of cost, debt and risk all outside of the democratic process. If so, aren't the government's actions verging on riotous? If not riotous now, then perhaps when the chickens come home to roost and widespread penury bites?

Never more than now have we needed The Taxpayers' Alliance. ALL political parties have breached the trust of the British people. From here on, political parties deserve no more than to be hammered from every quarter of society until politicians realise that they can no longer treat citizens as cash machines for their pathetic, self-serving political games. They've lost touch and they need to regain it fast.

Interestingly the Coutts (private bank of RBS) website "currently has a problem with its service" and is unusable.

The next crowd to milk this crisis will be the lawyers as those companies with a few bob left in the kitty take on the banks, the FSA and anyone else whom they consider fleeced them of their working capital and profits.

'I want it, now!' - an imature child's reaction. OK but has not the West permitted the development of a naive culture of acquiring choice assets long before the work has been put in to earn the money required to pay for them. So the credit crunch might just be more positive than we think. A cruel and painful adjustment but may be necessary in our culture if we are sanguine enough to acknowledge it. It is no surprise that french institutions are, so I understand, relatively free of crippling debt because the culture of that country apart from its exquisite wines and seriously smelly, tantalising cheeses, regard debt as a rarity in their society. Credit cards are almost on a par with debit cards. My mother was French. Given that she was never really anglicised, I doubt that she could spell the word 'debt'

I had a hard time!!

It does appear that our financiers and the systems they nurtured over so long have now had their day and it will be very sad if the measures being undertaken do not eradicate from our banking operations the elements of greed and recklessness that have shown their sores regularly over the last 30 years at least to the misery of so many.

We need bankers who understand risk and not just bonuses, who understand when a proposal is not viable and can say. No! and is respected for it.

keeping your money under a mattress is no use either...because if everybody did this then money would be worthless anyway. eg germany 1920's. all this is great for us mere mortals who have no savings ,pay rent , have a low pay rubbish job.

Sorry for my third post tonight, but I just realised we are now world leaders in...... rescuing collapsed banks. Is this something we can export, a whole new arm of the (once) booming financial services industry....?

How about close down the markets for a few days as suggested elsewhere AND close down the reporting and 'breaking' of news.

Just take the air out of the mess for a little while, while the potential solutions have time to take hold.

I dont see how 'breaking' more news stories about this is really in the public good - if all the media were that well informed, why not fuel this alleged transparency much sooner. The time for the breathy 'reveal' is over for the time being. Too much is at stake for this endless media chattering to prompt reactions to the headlines.

bw

The fractional reserve should be increased to a minimum acceptable figure asap and then steadily increased thereafter.

When we got our first mortgage the maximum we would have been able to obtain was 3x my salary, in the end we got a house for 2.5x my salary - and even then we struggled when interest rates rose. Percentages available just prior to the credit crunch were suicidal madness.

By the way - whats to become of Crosby and his report eh??? They should quietly dispose of that idea.

Bobby P - find out for us what Crosby thinks of all this - having steered HBOS to this end in large part and for some mysterious reason having been picked as some sort of guru to point teh way for the mortgage markets.

bw

The story of the proposed merger of the Britannia BS and Co-Operative Financial Services introduced me to the The Building Societies (Funding) and Mutual Societies (Transfers) Act, a piece of proposed legislation of which I was previously ignorant. One of the key tenets of this Act is to allow the remaining mutual societies to borrow a larger proportion of their funding from the wholesale markets. You may like to read that again - I had to, so incredulous was I to see it.

Absolute insanity. Have we not recently seen what happens when building societies leverage up and become reliant upon borrowing from the money markets? Have we already forgotten Northern Rock, Alliance & Leicester, HBOS et al? Or has the government just blithely failed to learn any lessons from it and remains happy to hand out more rope for our remaining solvent financial institutions to hang themselves with?

This bill (or at the very least this portion of it) should be dead in the water now. How anyone can even countenance such a thing is beyond belief. We need our mutual societies to be bastions of financial probity and prudence given the way our banks have let us down so utterly.

At Lehman CDS auction last week Barclays bought $1,210m, most of it with bids at the the price set by inside market fixing.

Did the UK taxpayers just subsidize this?

I'm not surprised Barclays are having to raise at least £7bn bearing in mind it is the highest leveraged bank in Europe and one with the lowest Tier 1 capital.

Everybody ready for tomorrow?

I find it amazing to see postings blaming Thatcher for the sins of today really you either
are paranoid or are living in a parallel universe.
The excesses of borrowings etc are down to the peddling of a belief that interest rates would be forever low so it didn't matter what you borrowed.
On the point of more substance if we are to fund the banks some rationalisation is needed it is not sense to have the govt competing with itself.Also if there is so much money invested in these banks guarantee savings to stop transfers affecting the new structures.I am convinced that many do not know how and when funds are moving intra banks .If you don't know what is happening how can you react.I am not convinced that the next headwinds are being anticipated.The bad debts from credit swaps must be excluded from public liability.For gordon beware the currency impacts of your decisions or you may make us Iceland.

I’ve just looked at my P60 and didn’t realise that I was paying for a war in Afghanistan (I don’t live there), the NHS (I am never ill) the Olympics (I don’t like sport) and now I have to prop up the Banking system (I barter for everything using acorns)….etc etc.

I guess when this is over we can all take out our money and keep it in a shoebox, ask our employers to pay us in cash, post it to businesses when we want to buy things over the internet , be patient if there is too much month left at the end of the money and heaven forbid want to buy something we haven’t got enough in our shoebox for - a house, car, holiday, Christmas.

There is no doubt mistakes have been made but the world needs Banks, and right now the Banks need help.

The reward packages the CEO’s gets are eye watering and they will now ‘die by the sword’ following their mistakes yet to put it in perspective, they get paid less than a top premiership footballer earns for playing on average 90 minutes a week!

no 83 give everybody 1 million pounds!!!! then money would be worthless that would make zimbabwe look like a stable economy!!! what are our councils doing investing in iceland banks? this whole scenario is the biggest laugh since norman lamontable increased interest rates to 15 per cent in the erm debacle.

I am confused about the HBOS/ Lloyds TSB deal. I thought HBOS were being rescued by Lloyds TSB. It looks like the Government have beaten them to it. I would think that the Lloyds deal will either melt away or enter very prolonged negotiations.
This also leaves a question on who is running HBOS in the meantime. I have read a report that after the injection of capital tomorrow the Govt will own 75% of HBOS. In normal situations the board of HBOS may consider cost cutting and even the dreaded redundancies. The idea of the Government making redundancies may not be the sort of PR they are looking for.

Rather than the Thatcher/Reagan era, the seeds of the banks' problems can be traced to the Clinton presidency and its social engineering agenda that required the banks to advance money for housing to those on lower incomes. This gave rise to the "sub-prime" mortgages that are at the root of the current chaos.

And another thing that seems to have been forgotten in this crisis is that the banks were only doing what banks have always done: i.e. borrow short and lend long. Since the implementation of the BIS regulations of the early 1980s banks have been required to keep a minimum of 8% of their balance sheet as equity which, implicitly, means that 92% of their lending is funded by borrowing. If lenders decide to withdraw funds the bank fails. It has always been so.