A global solution needed

Robert,

It's a market. Undervalued securities will be seen as such and buyers will return. However cataclysmic the BBC is reporting this day's trading to be, there are only so many trades you can do in a day and only so much devaluing can occur before even a sick share looks attractive.

The Russians seem to have got it right. Close the exchanges for a week.

Here are some pictures of the situation, some based on Robert's observations: https://southbeach-examples.blogspot.com

A picture paints a 1000 words.

why even bother lending to the banks, they have had billions pumped into them, a world wide base rate reduction and they just keep it.
All central banks should become lenders, issue cheque books and see how quickly the banks start lending again, because if they didnt they would cease to exist!

Capitulation Monday?

I'm having a Robert Peston moment...

As I said in a previous blog on the 7th October

"A few months ago Messrs Brown and Darling were saying that the economy was well placed to avoid serious impact...

How wrong were they!

Thousands of jobs have been lost already and probably hundreds of thousands of jobs are going to be lost. We keep getting told this is a global problem, isn't it about time someone realised that a global problem can't then be solved by individual countries, this problem needs all the major economies of the world to act together."

Globalisation: when one of us goes down, everyone goes down. Can we please keep this in mind once this is all over and people start prattling on about the advantages of a global economy again?

The G7 leaders can huff and puff but I don't believe there is much they can do.

Darling's plan (remember that?) completely failed to affect either the markets or Libor. Let's not throw more good money after bad by attempting a new plan.

Government's job now is to look after it's citizens. There will be many unemployed and homeless people about very soon and failure to act decisively could bring down the whole fabric of society.

Brown and Bush, with the help of the bankers seemed to have managed to wreck the world's economy, and they will be remembered for having done so.

Robert how come the banks have not taken Gordon Brown up on his rescue plan? Would it be something to do with their greed and not wanting their pay/bonus cut? Surely not. Brown/Darling....."they don't know what they're doing"

Yes, Mr Peston.
"Casino Capitalism" must end.
A new, strict set of rules is required urgently, to cover share trading, bank lending and property speculation.
Ban hedge funds, short selling and spread betting?
Maximum mortgage limits on properties?
Shares must be held for a minimum amount of time, say 1 year?
Short-termers and sharks are destroying the function of the markets.
Bank leveraging limits?
The whole system needs revising, otherwise it's just boom and bust forever.

How about we do what they did in the 30's. Close everything, banks, stock markets, etc, for 2 weeks. All the people who put us in this mess do a full audit of all banks and financial institutions and tell us all at the end what the truth is. In the meantime, everybody else have a two week holiday paid for by governments. Cheaper than the current plans and the weathers not too bad either.

Why not close down the world's stock markets for a period of cooling off?

What worries me here is that all commodities are falling through the floor as well on the back of panic selling. Normally this would be a good thing because it would ease consumer's pain and ease inflation. However, a lot of new production of coal, gold, gas, crude etc. is dependant on achieving recent prices in the market.

This new production is now having credit lines pulled and will probably not come to market in 6 months to a year time. This means that prices will probably go back up to record levels..... unless the demand destruction taking place around the world now stays.

We all need to cut back on our use of electricity, oil and food otherwise the future is going to be even grimmer.

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It's dead. There's nothing to be done.

The more interference , the more hopeless obligations the taxpayers are forced into.

Clearly the system is in trouble when so much money is based on the "credit worthiness" of institutions. These ratings have no meaning anymore, so those transactions are trading (soo to be the taxpayers) cash for moondust.

So:

1 Allow central banks to deal directly with corporations.
2 Incarcerate and liquidate any major investment bank or hedge fund.
3 Form a new ecology of banks that are heavily regulated (like those in France)

Surely the "Minsky Moment" could only occur if no-one came back in to buy an oversold market.

Im sure there's pots of money out there just waiting for the right moment to get back in.

Meanwhile, lets just have one national bank and let the others go to the wall. There are simply too many and it's time for some malthusian population dynamics to bite.

so lets get this straight our government is borrowing to help offset this global downturn.
thats plain nuts once things settle down it will start again and the government will have to borrow to cover the earlier borrowings, when will it end?
the government will have to be stopped before they bankrupt this country just to cover there debts, those in government are placed there under trust to do whats right for our country, they get a massive wage and expencess and live the good life whilst every one else has to suffer.
the way to stop this madness is to globaly suspend share dealing and money markets and each country to resolve there own issues.
sadly the governments will not even try to solve this problem they are enjoying it too much (you can tell by browns laughing and joking) it points the media towards the crisis rather than his failing government

History teaches us that no system of running things lasts forever. The Ancient Egyptians ruled a very powerful empire for a while, and then went into decline. The Romans once ruled most of Europe, and now they struggle even to rule Italy.

The world has been ruled by global capitalism for the last few decades. Actually, I doubt we're seeing anything like the end of it yet, just an adjustment from which we'll recover in a few years time. But one day it will come to an end. I wonder if the start of it would look like this?

I had got this ready for RP's previous posting, and it is still relavant. Senior clergy get bad pres for commenting on economic issues, but sometimes they can be spot on.
The then Bishop of Worcester wrote these words in 1997:

"We are living, it seems, as those who think they hold a credit card with no limit to their credit and no date by which repayment will have to be made. We inhabit our universe increasingly as those who have a mortgage they can add to at will and will never have to discharge."

Peter Selby, 'Grace and Mortgage: The Language of Faith and the Debt of the World' (London: DLT., 1997), 6.

"We were all assured that the trends in the world economy were all ultimately beneficial, provided unnecessary and old-fashioned restrictions could be removed. The world was moving, we were told, in the direction of a free market, of low taxation, of the exportability of capital and knowhow. Is such a world one in which the challenge of 'Who's "us"?' would finally have been answered? Or is it not rather a world in which the power to decide who 'us' is has been handed over to those who have the capacity to succeed in the market, and ultimately to control it? "

Ibid, 24

"For we are surely discovering that the disciplines of regulation were not arbitrary statutory rules imposed by an over-zealous government, but in effect the financial disciplines of living within your means, disciplines inherited from the past but now regarded as unnecessary limitations on growth. As we have seen in this brief examination of the vast explosion of credit and debt and its consequences, limitations on growth were also limitations on disaster. For the piggy bank, that derided symbol of the world we have left behind in the search for 'financial sophistication', imposed the very simple discipline that what was taken out could not exceed what was put in."

Ibid, 54.

It is pity that those views were apparently not read by the then incomimg Chancellor. Perhaps the bishop should be called out of retirement to Head-up the FSA?

We might also immediately suspend mark-to-market accounting of assets. Whatever its long-term merits it is driving the bank sales and doing a lot of damage in the short term

Nobody seems to mention that Iceland was paying up to 14% interest on deposit paper.

Here is a view from Iceland:

"..
The ECB, the Federal Reserve and the BoE refused to start negotiations with Iceland on the grounds that the Icelandic bank system was too large and that swap facility agreements would not suffice to ensure financial stability.

According to the CBI's announcement it was clear that the foreign central banks consulted each other on the matter.

In search of new friends
The CBI's announcement goes a long way to explain what Iceland's prime minister meant when, upon being asked why Iceland had approached the Russians for a loan to boost the currency reserves, he responded that old friends had failed Icelanders and that the time had come to make new friends.

As previously announced the government will enter into negotiations with Russia next week on a EUR 4bn loan to strengthen the currency reserves..."

I think you need to read up on Hayek but a short quote from Mises should do:

"The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved"

We are, unfortunately, at the final collapse stage.

I say! Ought we take advise from a chap who may well end up under investigation from the FSA for market manipulation on behalf of - erm - some people we all know and love? I mean, really?

Investment funds and companies should hold their stake in any company for at least 5 years.
Any stock that falls more than 5% in one day should be suspended.
Bank executives should face financial penalties for losses.
Stability must prevail, the current system is a free-for-all, a casino.
They may as well all go to the bookies every morning, instead of the City.

Any reaction to the Michael Howard sugestion should also include Northern Rock and the HBOS / TSB breaking stories. Don't shoot the messenger will be the claim but somebody has made a lot of money reacting to Robert Peston's reports before they happen!

I think whatever the reasons for the reluctance of the stock markets to move upwards one reason not so far verbalised is one that dare not spk its name. There is plenty of money put into banks in this country -true it hasnt been matched globally but there is no reason for the slide to continue..unless...my view is that traders are reacting like a naughty child to being told off. It doesnt like what the Brit Govt has done and doesnt like the regulation.
The irony of it all is that more is needed -The government needs to take control of the mortgaga market and to intervene to prevent the obscene bonuses. It is no good Brown saying that he hopes the will exercise restraint -these **!!**!* wouldnt know restraint if it hit them square on!

Not one to usually comment,but I think Robert Peston's coverage is becoming increasingly exaggerated and helping to creat panic given BBC privaged position.

To say "Investors are dumping almost any asset that can be sold for cash - and never mind the price." is not true there are the vast majority of investors who are not panicing and the market pressure is being build by relatively few.

Whats the point of lending these banks any money at all? Its reported on the BBC today that Banks are charging customers at Libor + profit margin, this means that they are using tax payers money to repair their balance sheet and pay their debts.

This is wrong, and I am raging about what is (the theft of my money) going on here !!!

Everyone should withdraw ALL their cash from every bank next Monday, then we will see what happens to the Banks!!!

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Dear Mister Peston

You will be relieved to hear that having been aware of the crisis I have taken steps to relieve the situation.

Regards

Uncle

https://talesfromhomeward.blogspot.com/2008/10/dont-panic.html

So is this the start of the Armageddon you said was averted a few days ago, or is it the fuse that is well and truly alight?

This may seem at first reading to be exaggeration but the actions of certain individuals in the City of London are "a crime of betraying one's country" - in today's world more dangerous to the nation than overthrowing the monarch or parliament. Their actions satisfy criteria for being labelled as Treason.

People who say that markets are "usually" right... and trade ...are lying or are fools.

Markets are ALWAYS wrong which is why people buy anything (they think it is undervalued) or sell anything (overvalued).

Markets only exist because prices are entirely inaccurate.

A market is however an ACCURATE REPRESENTATION of what MOST people THINK about the FUTURE at any given time. (this is markedly different from "right")

An example - The market has been entirely incorrect for the last 70 years (habitually overvaluing everything) - and now unwinds by consistently undervaluing everything.

A big problem with our system:

As any ad-man or hedge fund manager will tell you, it's bone easy to distort the market to your own benefit - inject enough optimism (or pessimism) with either injection of cash or information (pr) and the market will gladly follow until you're found out.

An easy ruse - much easier than the street magician who makes you think the ball is under the middle cup and takes your cash.

(An aside: don't let anyone tell you that the market is complicated or difficult - it's as straightforward as cake.)

So if someone again tells you the market is "usually right" they're hoping that you will follow the crowd - and whatever bet they made will pay off.




It would be fair to say however, the market is ALWAYS right about "The Market" (ie when it's going up - it's going up and when it's going down it's going down) but that's not saying much ..Que Sera, Sera

Problem is:
it is a barometer that bears no relation to the real world - so we should pay it no regard. - if it were goods or services that were being exchanged it would be a handy guide.. as it is, it is imaginary money that is being traded - hence as a barometer it is as useless as a thermometer in the cupboard..

..you've got to stick it in the mouth for it to work.

The Market - wrong by design - incorrect by definition.

Sell/buy/hold - it's all the same

Never mind us suffering what in the scheme of things is still minor...ie: losing the house and having to rely on the council for shelter..what about the "3rd" world ?

How will all this affect the aid we are supposed to provide them with ?

How many children will die of disease and starvation because of this avoidable meltdown ?

Can the fat cats be put on trial ?

However you look at it there are productive and non-productive folk in this world.

The bankers of course see themselves as wealth creators.
OK. Let them create as much wealth as they like. Let them run non regulated banks. Give them the chance to run wild with innovative clever ideas about how to create wealth.

But keep them away from the real economy.
Let them have their Fractional Reserve Banking.
The real economy will get on quite happily with 100% Reserve Banking.

How long before they would either try to infect the real economy with their system or they would get proper jobs?

The real economy is having to support the bankers. In good times and bad. How much easier would it be if we could shrug them off?

I would raise two points that are at the top of business analyses. The first is the fundamental point that people with expertise & judgment solve problems not money and, secondly, results are generated by leaders.

For all Robert's informed analysis, I haven't thus far heard any comments on the two "human" aspects.

Right now, the total lack of leadership in the UK financial community is overwhelming as evidenced by the silence and gasps of headless chickens. The actions of Warren Buffett might be wounded right now but not for ever. He did however demonstrate leadership and the ability to take a strategic position.

Secondly, the accumulation of expertise and judgment comes from personal contact, not a computer screen. A "relationship" manager typically has 300 clients.

As Jonathan Guthrie (FT) commented - "bring back the Captain Mainwarings of this world who knew their customers" - it also happens to be a fundamental requirement of the FSA.

Just how many compliance teams imposed that on their bonus-hungry operatives ?

Hard though it is to accept, all of this is part of the natural economic cycle. It's happened before, it's happening now, and it will happen again. The key is to introduce regulation to minimise the negative effects when a recession does hit.

What amuses me through all of this is the total and abject failure of the tripartite FSA, Treasury and Bank of England structure (introduced by this Government to bring 'stability' to financial services and the wider economy) to deal with this situation. The whole point of the regulatory system is to prevent meltdowns like this, and it has failed on the first time it has really been put to the test.

The real question now is 'what is the solution?' More regulation? Probably likely. Severe punishment of the bank executives and traders involved for conduct not befitting company directors? Would be hugely popular, but probably won't happen on the grounds that said directors will be making political party donations (ouch - cynical, aren't I?).

But one thing is certain - the FSA, Treasury and Bank of England should be taken by the scruffs of their necks and shaken very hard - for not recognising these problems before they materialised, which was, in effect what this tripartite system was set up to do.

Robert

You seem to still be focussing on the banking sector. It has gone way beyond that now.

Whatever is done to prop up the banks nationally or internationally as you suggest is not going to stop the slide.

This is all about confidence and market is empty on this- we are in world recession so face up to it!

Am I wrong or are the Gov't loans just creating another feeding frenzy in the pit?

Do what the Russians did. Why not have a week long market bank holiday next week and give traders,brokers and fund managers time to come to their senses and Regulators/Gov'ts to come up with some pretty big regulatory and legislative sticks to knock some sense into the heads of people who are just not playing ball.

"Globalisation: when one of us goes down, everyone goes down. Can we please keep this in mind once this is all over and people start prattling on about the advantages of a global economy again?"

Here here. When globalisation has already caused such enormous damage, I do not believe that the answer is even more globalisation.

I would like more Nationalism, as in Build and Buy British. We have sold off or exported far too much of our economy, relying on financial services as a means to national wealth. the trouble is that this system puts us all at risk of a global downturn that is caused by global banking forces. The Rothschild's have us by the short and curlies.

We need to reign in the banks, scrap ALL imaginary and promissory trading, that means scrap ALL derivative trading, scrap all fractional reserve banking and return to sound money backed by something of intrinsic value.

ALL the CEO's of the top banking institutions that got us into this mess should be imprisoned. For their actions will lead to the deaths (through starvation or suicide) of more people than died on 9/11.

The current banking system is inherently flawed. It MUST be scrapped and replaced with a sound, responsible and HONEST system that legitimately creates wealth based on productivity, NOT shaking money backwards and forwards so fast that people think more money exists than is the case.

The derivatives market represents a debt of 1.2 QUADRILLION dollars globally. There is not 1.2 Quadrillion dollars in existence in all the currency on earth. Much of that derivatives are loans for gambles made at 10% and then passed on at another % and so on and so on. The institutions left holding the debt have on their books (in writing) assets worth trillions, BUT are in reality debts that could never possibly be be repaid as the money does not, and has never existed.

This whole multi-trillion dollar facade is now collapsing and so it should. Even if we go back to a barter system, or a very successful system of trade that lasted for hundred's of years, the tally stick. We MUST eradicate the evil Rothschild fractional reserve system that is enslaving the entire planet, all it's Governments and all it's inhabitants into debt slavery.

If the current banking system is saved, we are ALL going to be enslaved to pay the cost of our own imprisonment.

If it falls, and all fiat currencies fall with it. Then the elite bankers will no-longer have the money to control the Governments and the people will be free.

That freedom will mean we lose so much of what we take for granted in modern civilization, BUT we can build a new future based on compassion, caring, fairness and honesty and responsibility. We could have a genuine democracy, where the people actually have a say, instead of being led by political parties that only compete to show which party can be the banker's most obedient slave. Resources could be more evenly spread allowing greater prosperity for most and a vastly reduced prosperity for a tiny minority of the elite (who should be in prison anyway).

There will be much hardship ahead, but if the global banking parasites are destroyed, then there can be a much better future for all.

Of course when there is no leverage there are no margin calls. Now that gives me an idea...

How does any explain the fact that the $ is down, the quid is down and yet the price of oil is *ALSO* down ?? The only answer I can think of is that there are too many "traders" holding too many oil derivatives that was used to jack up the price of oil when the demand was strong and now that the demand is weak, they are off-loading as fast as their fat little fingers can bang their keyboards !!

Gormless Gordon keeps banging on about wanting cheap oil to help the poor people of this country. The solution is simple and there for all to see !! Just cut the tax on oil !!

Short of him declaring war on Saudi Arabia and Iran, he's not going to get them to increase their oil production !! Indonesia is mired in its own financial crisis and needs every $, quid, Euro, Yen or RMB it can lay its sticky little fingers on !!

Freezing the Icelandic assets is not going to make the OPEC members behave more altruistically towards him !!

Well done, Gordon. When are you going to put a matching hole in your other foot ??

Simple answer, there is no solution - except to get all your cash out of the bank and wait until the waters are calmer. Anyone, no matter how powerful, thinking they can tame this disaster is now clearly deluded as every attempt at stemming the tide has not made a dent.

In the long run shares go up.....up and away like the bare stern of the titanic .

Everyone seems to be hiding from reality.
There is not a solution to be had. There was a massive accounting error - we were never that rich and we've spent all the money we thought we had. There is still some correction to be done.
If we dont let this leverage bubble deflate completely we'll always be on wobbly ground.
Every few years the economy goes tits up because of leverage or some other inflationary bubble and then comes the next economic miracle to suck wealth from the generators to the pretenders in the city until it goes sour again.
To avoid busts we have to avoid booms.
In the last 'boom' the average worker had to work harder and borrow more to stay still. Go figure.

Hey Rob - I hear the Sun needs a business editor. As your reports are increasingly veering towards speculation and sensationalism, why not apply?

It's not all about you, mate.

Only political parties that are enslaved servants of the banking elite would think that it makes sense to borrow half a trillion pounds to cover the borrowing of banks. This all has to be repaid with interest. Otherwise, if this is a sound proposition when banks are collapsing. How come the Government did not borrow to invest in the banking sector in the same way when banks were solvent? Surely that would have been easy money for the taxpayer?

This bail out is merely the government sacrificing the wealth of the nation to their gods in the global banking system.

I will vote for a party that puts the people first and NOT the parasitic global bankers.

This country, publicly and privately, is in massive debt to these banks. Let the banks fail!

To Robert Peston: If you really want to contribute to fixing the system you will publish this. If you don't, you won't, it's that simple.

"The few who understand the system, will either be so interested from it's profits or so dependant on it's favors, that there will be no opposition from that class." -- Rothschild Brothers of London, 1863

Are you one who really understands the system but pretends not to, Robert? I suspect so, because the only other alternative is that you, as well as every other mainstream-media financial "expert", are just totally ignorant, incompetent and arrogant to boot - because you set yourself up as an authority when you are anything but. So, which are you?

There is one solution to the current fully-engineered crisis. Nothing else will work. Sadly no-one is even talking about that single solitary solution - because this whole "crisis" is not about solving the situation but about making it worse. It's the old Hegelian principle all over again; create a problem, provoke a reaction and provide the solution. The problem is the economy, the situation deliberately created by central banks doing what they do best - printing money out of thin air, diluting the already-existing money in a process known as "inflation". Provoking a reaction is what the BBC and people like you do best; you only have to take one look at the headlines to see that. And the solution... How utterly predicatable that you should propose a global solution! But I bet that global solution does not involve the global abolition of fractional reserve banking, does it Robert? No. The global solution will be that we all need to give the Central Banks even MORE power so that they can inflate the shit out of the global economy with absolutely zero accountability.

Yet the whole of the problem is rooted in the fact that our money is all created in debt. Did you actually know that Robert? Do you even know how money is created? I bet you don't. Very simply, it is created out of thin air by those wonderful boys in the privately-owned Bank of England when the government goes to them and asks for a loan - a loan which is, incidentally, never ever refused because it is guaranteed by the taxpayers (mugs that we are!) That's all taxes are; the interest on loans the government takes out in our name from the BoE. Of course, that's not the end of the story. When the BoE creates whatever sum the government originally asks for, it can also create an additional 10 times that amount - and loan THAT out at interest as well. So as you can no doubt see, it actually pays the banks to have the government asking for as much money as possible - and this is why we have wars, why we have banking dynasties funding both sides. They're nearly always the ones who instigate the conflict in the first place, as the historical record shows in stark detail.

If you really do value your reputation as an economic reporter Robert I suggest you Google fractional reserve banking, the Rothschild family and the history of money. This will allow you to understand the monetary system in a way that very vew (VERY few) others do. Think of the name you could make for yourself Robert if you actually informed the public of the only solution that will actually solve anything.

Abolish fractional reserve banking and go back to full-reserve banking based on a rigid gold or silver standard. Abolish the privately-owned central banks (did you even know they were privately owned Robert? If not you need to study some history and stop spouting nonsense!) and redistribute the obscene wealth controlled by the owners of those central banks. And last but by no means least, keep government regulation OUT of the marketplace altogether. The free market will find its own equilibrium; government intervention only has one end - again the historical record is very clear about this.

Keynsian economics will not, have not and CAN not ever work. Read the works of Mises, Hayek, Rothbard and others if you really want to know how to make an economy function as it should so that it benefits society as a whole instead of just the tiny percentage of people who control all the wealth.

"The truth is well known among our principal men now engaged in forming an imperialism of capital to govern the world. While they are doing this the people must be kept in a condition of antagonism. By thus dividing the voters we can get them to expend their energies in fighting over questions of no importance to us, except as teachers to lead the common herd. Thus by discreet actions we can secure all that has been so generously planned and successfully accomplished." - The Bankers’ Magazine, USA, 1892

Where is the government going to borrow all the necessary money from and at what rate. Surely no one will lend them at rates lower than can be obtained commercialy. This has then to be passed on to the banks who need the cash to in turn lend out and will have to charge even higher rates to borrowers.

Although this is spoken of as a global crisis (which in many ways, of course, it is), I'm increasingly wondering if it will end where it began - in the US.

Each downwards lurch in global markets seems to be triggered either by what has happened on Wall St or by what is expected to happen there. Other markets may sometimes appear more volatile, but it's the US which looks structurally weak.

Though I'm generally very pro-American, I can't help wondering if the world community might begin to look for ways to insulate itself from the consequences of the American economic vortex. I hope I'm wrong, but I can't help wondering.

Meanwhile, sovereign wealth investors in China, the Middle East and elsewhere must be watching the falling share prices of quality western assets with disbelief. This could be their chance to buy big and cheap into key parts of the western economy.

9:

Some very good ideas!

It may be simplistic but in these days of technology could not all markets be closed,
wind the virtual clock back to a predetermined date cancel all transactions from that point put in place the necessary legislation to ensure that the crash would not occur and controls of the financal systems that now appear to be vital,whilst finding who was responible for the feeding frezy then open trading again slowly to re-establish a balanced system.

Or no matter what measures politicians put in place the markets will continue their downward spiral since there is no trust in those running the fiancial systems and then economy after economy will fall

#10 How can anybody get paid by the government if the banks are all closed ?? Without money, how can anyone buy food in those 14 days ?? So, unless you know someone with a mattress stuffed with 50 quid notes or you intend to go on a fast, I don't see how you will manage ??

Meanwhile hospitals are closed because they have no staff and the staff can't get to work because they have no money to pay for the transport and people will be dying left, right and centre. This may be a way to solve the overcrowding in Britain but is is a very heartless way to solve a financial crisis !!

Goodness, the moderation queue is so long that the economy will be flourishing again long before this comment is posted, if at all.

The problem is the word 'global'. At times like these, individual countries become sharply protectionist. America will do nothing that doesn't serve its interests. I doubt the emerging economies will do differently. So a solution will be a long time coming.

There're miles to go before the credit issues are finally sorted out and until they are financial institutions aren't going to trust each other. That's how it is. Can't blame them. There was a time when the money market was about banks balancing their books at the end of the day. Now they've been bent to serve the ridiculous purpose of allowing short time borrowing for long term lending. Crazy.

I have a suspicion that we're teetering on the edge of a disaster that's going to befall us anyway.

Forward into the abyss we go...

What is clear is that the more that governments around the world are intervening the worse the situation appears to be. At the heart of the problem, as we are continually be told, is one of confidence, or, more to the point, lack of it.

The first step in recovery from addition is acceptance that you have a problem. Until the addict can acknowledge their direct role and instead continue insisting that they are merely victims suggests that any therapy is futile since it will be based on a shaky foundation.

Unfortunately, the fact that neither our governments nor our financial institutions have demonstrated any humility or any sense of responsibility demonstrates that they cannot be trusted with solutions. They are merely throwng good money after bad.

The only way a solution can be found is through an attempt to analyze and not avoid the causes.

In the short term it may just be better for governments to do nothing because that is less damaging than a range of costly actions that appear to be exacerbating the situation.

How does the UK government raise the funds for a £400bn bail out?

Does it issue long term government bonds?

Why would investors be willing to buy those bonds if they are being issued to cover such high risk debt? Why would raising funds on this scale not have an impact on the cost of borrowing - would investors buying these government bonds not be looking for high rates of return?

Or is the £400bn just the total of potential public liability - much of which may never actually be required if the banks keep trading?

I'm gobsmacked... I've just heard Brown say "we've managed to get the oil price down"...!!

"We" had nothing to do with it... The market in the shape of much reduced demand and higher stocks have pulled the oil price down... Nothing Brown has done has or could impact on the oil price..

The arrogance of the man beggars belief...

We'd still be in the dark ages if we followed this....

"The rich ruleth over the poor, and the borrower is servant to the lender" -- Proverbs 22:7 = Usury

It looks like we will be back in the dark ages now anyway!

Governments should not borrow they should have no requirment.

What is truly amazing is that basic Maths seems to be beyond bankers and politicians.

Iflation target od 2.5% who would get out of bed for 2.5% return human nature requires a minimum of a 10% return.

Get ready for the inflation ride, it's the only way we're likely to get out of this hole. Only when everyone thinks a million £ is a cheap house will the billions being piled into the economy will the debts mean nothing.

One thing is for sure oil gas water food land and property will allways be of value. Bits of paper stamped share options bonds or warrants will be worth only burning in a fireplace.

Sometimes the weekend can't come round soon enough...maybe a week's complete closure of all markets?

No. No. No.We the tax payer do not have to underwrite anything. The system is not broke, so dont try and fix it.

The solution is to close world markets for 7 days of trading. Let people see that the world is not going to end. People will talk to people again and computer algorithems will have time to cool down and stop telling traders to sell because it is mathmatically the out come of a yes/no logic decision process.

Good grief, how simple dose the solution have to be!!! Take a break.

Wykhamist is quite right, the government should declare that the primary use of any rescue fund is the protection of the UK public - eg full guarantees of deposits/bonds/pensions etc.

Using taxpayers money (present and future!) to coax back to the market those who have the created this problem in the first place is potentially a staggering folly.

They are likely to use it to finance exhorbitant commitments to various highly-paid staff. Their justification within the 'rules of engagement' will be that the right encouragement must be given to 'risk takers' to get back into the market!

Government must get the small print dead right before it commits to anything. Remember, the companies they are dealing with are masters in constructing unfathomable investment instruments, whose value was a mystery to most of their CEOs. These people are slippery!

The promise of a cash cow has done precious little to stem the stampede out of the market, be it in stocks, lending or anything else.

The market will trade when it is ready to trade, with or without taxpayers money.

The reason why banks are not prepared to lend people money even with sizable deposits is simply because they know that with a recession/depression many will lose their jobs and so be unable to repay those loans.

Equally, with the impending collapse in property values anyone buying now - even with a hefty deposit - will soon find themselves in negative equity and so again be a bad bet for a bank. No bank is prepared to take such a risk.

The fact, which no one wants to accept is that the property market is massively over-valued and has no alternative but to collapse.

We never had a housing shortage only a shortage of properties to buy because first-time buyers were priced out by B2L owners who were able to get ever more ridiculous loans and so inflated the bubble.

This will soon change because many B2L owners will be unable to sustain their mortgages and lose them, so flooding the market and deflating their value.

The banks will only lend when everything has settled, but that means property values crashing by about 50-70%. Anyone who thinks that everything will pick up again and return to 'normal' is sadly deluding themselves.

This is what happened in Japan where their housing market crashed 80% and nearly two decades later are not even worth half as much.

'The Peston Prescient'

- the overwhelming sense of dread that signals the imminent onset of the 'Minsky Moment'.

Why does no one say sorry.

3 people who caused the current crisis.

Instead of saying sorry, they throw more money at the situation, diverting attention and blaming others.

Alan Greenspan stated that loans should be given to subprime borrowers, using the cheap money he created with low interest rates.

Poulson, in charge of the USA treasury, pleads for money from the USA taxpayer.
But he recently worked for Goldman Sachs, who help create the problem with their fancy financial instruments - and he received vast bonuses for doing so.

Gordon Brown was chancellor when the FSA, which he set up, allowed people to borrow 125% mortgages and many multiples of their earnings to buy
houses. This lead to a major part of the UK banks problems.
He also allowed inflation in houses to rip during the past 10 years, because he was in love with the increased taxes received from it.
At the same time he stated that the UK had very low inflation.

In a panic, people just act stupidly, and they take their cue from stupid people in leadership.

Why are the governments, beginning with my own US government, willing to spend any amount of money, but unwilling to do simple things that don't require cash expenditure, such as:

1. Remove the Capital Gains Tax, period.

2. Significantly ease regulatory restrictions on all, and I mean all, forms of energy exploration and delivery. That means if someone wants to drill for gas, and build a pipeline to deliver it, then Auntie Mabel in Bugtussle, Alabama can't file a suit to keep it from coming within a mile of her chicken coop, and tie the project up for years.

3. Reduce the business tax from 35%(Lord in Heaven 35%!!!) to maybe 10%.

That requires no new cash.

It does require leadership.

Notice how every time the President, the Chair of the Fed, and the Secretary of the Treasury mount the podium, the market drops further?

And folks, I hate to tell you, but BHO's proposals for his Brave New World under the Democrats all are OPPOSITE of the above list.
We haven't really seen pain yet, if this man is elected.

there are a few things here that puzzle me -1. when the government launched its rescue plan one of the secretaies to the treasury was asked where are the government getting the funds from to loan to the banks to put liquidity into the system - the answer - from the markets - so are these banks lending to the gov and then borrowing it back - presumably with some margin
2. if we are a global economy then all of the money around the globe is still there - must be in either banks or investments - this is an artificial situation
3. logic says this selling should have stopped by now - but it continues - are there other factors at work here - are the markets being undermined by indescriminate selling to destabilise the west?

I would hope that even the most committed free-market zealots would now accept that the Friedmanite/Thatcherite experiment has been a total disaster. International capitalism is fundamentally corrupt, and rotten to the core, not surprising when one considers that it is based on greed beyond satisfaction, and above all exploitation of fellow human beings.
I find it hilarious that some of your contributers who appear to align themselves with the mantra, deregulation, deregulation, deregulation - a central tenet of Thatcherism, are now blaming the government for what? not regulating enough. The lunacy of the right is beyond understanding.
A new political and economic structure will hopefully emerge that will erase forever the cancer of fundamentalist ideology that has been responsible for recent events

# 47 DerekVampire

Que? Sorry, you lost me at about the 4,432nd word. And your point is?

The Emperor has no clothes! We can all see that the market's prices are grossly over-inflated where nominal prices are much greater than real-value prices based on the over-all value of production of the workforce.

We've had debt being issued backed by debt-based assets for many decades, where a huge proportion of that debt-based assets are highly likely to default. Why wasn't the true value of those assets properly discounted? I suppose players - including the FSA - were all collectively looking at the horizon hoping somehow that what was currently bad would somehow become good. Fantasizing in other words.

On top of that we have banking institutions open to huge exposure holding on to Credit Default Swaps being held as assets - and much of those are unlikely to be paid out as well, since the insurers themselves are likely to be unable to settle - since their assets are also toxic-debt-backed. I've heard these amounts are in the $trillions.

All this is just the market reacting to these glaring facts - the system is top heavy and it is falling over. To try and save it will cost many trillions. - And it can only be really saved by REAL money based on real work, i.e., taxes. Otherwise, the more the government borrows, the more it contributes to creating value which is purely nominal, and the less and less efficient tax money becomes because of the huge burden of interest payments required before expenditure can be made on real investment.

We have the government pumping billions of nominal value into the system - essentially buying an illusion. We are buying debt that is worthless. With so much more money in the economy without a concomitant increase in real wealth, it can only come out in the wash as a badly devalued currency; i.e., rampant inflation.

Prudeboy:
"As Jonathan Guthrie (FT) commented - "bring back the Captain Mainwarings of this world
who knew their customers" "

This made me smile - my father was an old-school bank manager years ago and my sister and I used to call him Captain Mainwaring at the time! He was made redundant (from RBS) along with a huge number of other branch managers, when RBS realised they had a load of people near retirement age who were on a final salary pension scheme! They replaced the branch managers with sales managers - I think that speaks volumes for why the banks are in their current parlous state!

I am tired of this!

Every day I read something which is either an inflammatory coment getting the average person worried about a safe bank, such as northern rock was, or the complete oppisite, such as the devastation of Asia's stock markets.
We are being lied to and confused at every turn!
The banks which were in danger in England were NOT!
Asian stock markets in turmoil isn't a true reflection of whats going on!
It seems that we are being told on one hand that our banking culture is doomed, and then to make everyone feel slightly better about it we say that everyone is in the same boat!
If this isn't true, then why did todays BBC news headline read that the Nikkie was down and asia's economies in trouble, etc etc. While at the same time the Yen and other asian currencies are at there HIGHEST LEVEL EVER against the pound?
Please explain!
I for one think there is an answer.
The answer is that we are sinking fast, but no-one wants a panic!

People do write some awful junk on this matter. Everybody seems to be in blind panic at the moment blaming everybody and everything. Yes, the end of the world is nigh and everybody is totally corrupt and the only option is to listen to the righteous who have never so much as borrowed a tenner from their mum.

This week was always predictable, I predicted it and many others did. When the market tanked on Monday I heard many commentators suggesting it may be the bottom. I predicted a further 10% fall.

The leaders and commentators in this situation haven't got a clue what is going on because they keep looking to their history books and text books and can't find relevant references because there aren't any so then they just guess. The world changed when markets globalised and electronic trading took over. That means that anything that happens happens everywhere and very very quickly.

Right now, this week, we are in the middle of a global cash call.

1. Financial institutions worldwide are having to shore up their finances and improve their cash position and one of the fastest ways to do that is to dispose of your liquid assets.

2. Investment funds, particularly those that have been insuring the credit markets, are facing large cash calls and are consequently disposing of their liquid assets.

3. Central banks around the world are building up their cash reserves to help protect their banks.

4. Businesses needing to find cash for everything from the wages to capital projects cannot borrow from their usual sources and so look to their next source of unds, asset disposal.

5. Even inidividuals who maybe now need to find a larger deposit for a new house to secure a mortgage may consider selling their investments to raise cash.

6. Investors, whether institutional or private, are rebalancing their portfolios to focus their investments on areas they know and are comfortable often repatriating cash to their home countries in the process.

Add to this global cash call a certain amount of hysteria and in many ways it is surprising that the markets haven't fallen further.

All of the cash that has been moved around has to find a home and any indication that markets have stabilised will see a mild mannered rush to buy shares. I predict a 12% rise in markets by the end of next week.

From the BBC website...

"Top winner
Barclays
492.75 ...251.00.... 103.83% "

This would indeed signify a major recovery of confidence.....if we could rely on the BBC website!!!!!

#42 The trouble is, by the time the waters are calmer, your cash wouldn't be worth very much !! Unless you have a product or a skill to trade with, you will starve !!

CASH itself has *NO* value !! It is the trust or confidence in the bits of paper that gives it the value. When foreigners see no value in your bits of paper, you cannot buy anything from them, be it oil, food or other resources !!

It is easy to pontificate about Brits making things but where are the tools needed to make them with ?? How will you make computers without chip fabrication plants ? How will you make those fabrication plants without the specialist tools that make them ?? Or are you going to buy them with valueless pieces of paper ??

And if you are thinking of smithing those tools, those days are almost gone too. There is hardly any blacksmithing skills left in Britain !!

Yes, there has to be a global solution but in light of climate change there must also be a fundamental rethink of a financial structure that seeks to stimulate infinite growth in a finite system.

I recommend reading 'The Ecology of Money' by Richard Douthwaite. Here are a few lines from the book's final page:

'[In 1994] two economists, FX Browne and JPC Fell, who then worked for the Central Bank of Ireland but later moved to the European Central Bank...suggested that central banks were losing their power to control the money supply. Professor Kevin Dowd of Nottingham University Business School agrees. He points out that banks are already providing a smaller proportion of all loans as a result of 'securitization' - the sale of a bank's loans to non-bank investors who are not subject to reserve requirements. This, and the development of electronic cash, means that more and more money can be placed in circulation on a smaller and smaller reserve base. Dowd writes, "As base money becomes less significant, it will gradually lose its effectiveness as a channel through which the central bank can influence broader money supply."
In other words, our current money system is coming to the end of its useful life. Its radical reform has become necessary as well as desirable. Only a widespread debate on the issues, by a well-informed public, will ensure that when changes are made they are on the right lines.'

This was written in 1999. And the time for that debate is now.

What would Alan Sugar do with the UK Banks?

I would like to hear his views!

I can imagine he would fire the Directors first !

Perhaps the Gov't should create a think tank of the best British entrepreneurs and ask them.........

Circuit Breaker -- close the stock exchange. Most countries have circuit breakers which do this anyway so why hasn't the UK's one worked so far?

It is insane for the taxpayer to throw money at the banks as this will just vanish because the banks have no intrinsic value even after the money is chucked at them.

Another method would be to de-list the banks at least for a while.

It is quite obvious that financial 'institutions' are incapable of fulfilling the listing requirements at present and without the banks perhaps the market would steady.

But above all, set out the ground rules for the new past crash regulation as soon as possible.

45

Now, now he has a career to build.

Books to write, and so forth.

I wonder if Pestonization will make it into the Oxford English Dictionary ?

This isn't about confidence, it isn't about needing 'more of a sign from the government' (good grief, how much more free dosh that £400bn do you need to make you feel a bit more chipper?). It's about people with big positions in the market forcing governments to recapitalise banks by selling shares, which they will then buy back once the likes of the Prime Minister have mortgaged our futures and our childrens futures...

This madness has to end. Call their bluff. Close the markets for a week, and close a few banks!

I thought the FTSE might be at 4300 by Christmas.

Well, it's 3932 right now.

I'm wrong again.

Unless it is oversold.

Those shortsellers like a crisis.

Global solution?

You mean the old "World Government" gambit?

So who rules the world? The IMF? The World Bank?

How about changing the whole system.

Only governments should be able to create money - not private institutions.

Scrap Fractional Reserve Banking.

Einstein said that if you are in a problem, you have to think in a different way to get out of it to the way you thought in getting in to it.

No one is doing that in this fiasco. All that is being done is that billions of whatevers are being thrown into a fire and the fire is getting bigger.

We have seen the end of communism in recent times. We are now seeing the end of capitalism that is based on paper not on real tangible assetts.

The real economy that makes things and provides necessary services and educates and creates is the only economy that works.

What we are seeing now is the destruction of a papers based asset system that makes all money worth no more than monopoly money.

We need a new financial trading system. Scrap the one that is sinking; don't try and save it; it can't be saved!

Nationalise the whole financial services industry now; sack 90 % of directors and senior managers; stop all bonuses etc and re think another system that works.

AvensisTom #28 wrote

"It is high time we listen to the Austrian School for a solution. Liquidate the bad debt .. and get it over with".

The Austrian solution is to do nothing. That is a recipe for disaster. It would destroy the economy.

And having destroyed the economy, how do you expect the economy to recover when savings are wiped out, businesses are bankrupted, business confidence destroyed and millions are unemployed? That disaster would be a far greater threat to our political freedom (remember the 1930s) than the state intervening and taking steps to stabilise the banking system with an equity stake.

Robert,

I am still fuming at G, Prudence Brown forgetting the second golden rule.

This states that you have only one chance to spend money (even the taxpayers).

I believe Prudence believes he can print money 'ad infinitum' someone should remind him of this second rule and what a mess he made of the first.

The first rule for those that might of forgotten states that the man with the gold makes the rules.

Dear Prudence can not now use the first as we all know he 'innovatively and with fresh thinking' sold off the UK's gold reserves at about $300 an ounce (now trading circa $900)!

Why on earth did Prudence believe in his vainglorious attempt at solving the Banking problem with up to £500 billion when clearly no one in government has any accurate idea as to what and how large the problem really is?

I hope my family would sanction me for my and everybodies safety if I spent our money in such a manner.

Is it all to do with appearences and the painlessness of spending other people's money that the government has done this?

What happens if the problem requires £2 Trillion pounds?

The UK government was overborrowed even before Northern Rock and Bradford and Bingley goodness knows how soon it will be before UK debt is downgraded to junk bond status?

The world would not have ended if one or more UK banks went to the wall.

The government could then have cherry picked the best assets at knock down prices for our benefits.

Instead generations are going to saddled with mountains of debt for hasty actions made solely for irrelevant and illusory political advantage.

We already have a global solution - and it works bottom up -- no need for massive international cooperation (which never works - look at the protectionism that has kicked in all over europe...)

Everyone everywhere should only borrow what they can afford to pay back.

Everyone should only entrust their savings to people they trust.

Its simple -- if you don't follow the rules be prepared to take the consequences.

The only need for any oversight is to ensure that those who don't follow these rules (and they are PERFECTLY entitled not to) have no negative impact on those that DO follow them.

https://money.aol.ca/article/iceland-meltdown-2nd-writethru-bgt-reuse-story-id/374362/

https://www.telegraph.co.uk/news/uknews/1584713/Poole-council-spies-on-family-over-school-claim.html

We have more than passed the point of market correction. Sadly the people who make trading decisions do so on the basis of media hype since they have no knowledge of the economic fundementals underlying share value. Hence thay act like lemmings. The average punter in the bookies takes a more scientific approach to placing his bets. If their valuations can jump all over the place like this then they are obviously clueless about the real economy.

On the other hand maybe some of them are very clever. Feed gloom and doom to the media in confidential briefings and later buy cheap! Anyone selling at current levels is being taken for a ride!

Will the market rise again? Of course it will. It may take a few years to get back to the last high but it will be way up on these levels within a year. How many of the gloom and doom people who post on here are waiting to buy cheap?

Can I suggest a worldwide 2-week holiday for the whole of financial sector whilst the dusts settle. It seems people are fanning the flame intentionally or unintentionally. But clearly some people must be catching fish in the cloudy waters of their own making to the detriment of all others.

Minsky moments and Keneysian economies - thank goodness for the Wikipedia or I wouldn't have a clue what you are all on about.
I've learn't a lot about economics from Pestons blog and the related comments in the last week.

I wonder when the 'The Peston Prescient' that palladas has mentioned will gain widespread use.

You should look at yourself Robert.
You and the media , especially the BBC have been partly responsible for this mayhem.
Every evening you and the BBC dispel gloom and fear to millions of people.
Do you deliberately set out to cause panic ?Part or most of the current problem has been created by media hysteria.
Reporting standards of the BBC have fallen over the years and now are at best inaccurate.
You and I both know it is all about conficidence. Why do you and other reporters fan the fires ?

DerekVampire #47 wrote "Abolish fractional reserve banking and go back to full-reserve banking based on a rigid gold or silver standard. Abolish the privately-owned central banks (did you even know they were privately owned Robert? If not you need to study some history and stop spouting nonsense!) and redistribute the obscene wealth controlled by the owners of those central banks".

Sorry, but this is nonsense! There isn't enough gold and silver to go back to full-reserve banking based on a rigid gold or silver standard! Even in the days of the Gold Standard the Bank of England issued bank notes in excess of the gold reserves - I think it was around £13 million.

Limiting the amount of money to the amount of gold and silver bears absolutely no relation to the need of the real economy. How, for example, would you fix the price ratio between gold and silver at a rate that will hold over time?

If fractional banking was abolished, what would be the effect on prices, economic activity and the price of obtaining capital for development? Surely this would have a devastating effect on all aspects of the economy? In societies where a fractional banking system is not in operation (eg parts of the Third World), the charges for credit are userous, and that is a far greater evil.

Finally, I don't know where you, DerekVampire, get the idea that the Bank of England is privately owned! The Bank of England was nationalised by the Govt in 1946 and remains Govt owned.

Is it just me or have others noticed that Robert always gets a story out just before some big event happens. It happend with Northern Rock. It happend with HBoS. It happened with RBS.

I think broadcasters have to be very sure that they are not creating the story they are talking about. In each of these three cases the big tumbles came after Peters broadcasts.

Certainly in the NR case, some would argue that a behind the scenes deal could have been made that would not have resulted in all the job losses and the exposure of the tax payer that we are now faced with. But once the story was out, the skids were under any deal. Panic spread. And people queued to get their money out of what was not an insolvent bank at the time.

This is not a game of getting news out first. This is peoples lives. Be careful what you broadcast.

Is it just me or have others noticed that Robert always gets a story out just before some big event happens. It happend with Northern Rock. It happend with HBoS. It happened with RBS.

I think broadcasters have to be very sure that they are not creating the story they are talking about. In each of these three cases the big tumbles came after Roberts broadcasts.

Certainly in the NR case, some would argue that a behind the scenes deal could have been made that would not have resulted in all the job losses and the exposure of the tax payer that we are now faced with. But once the story was out, the skids were under any deal. Panic spread. And people queued to get their money out of what was not an insolvent bank at the time.

This is not a game of getting news out first. This is peoples lives. Be careful what you broadcast.

keep calm it is just an economic cycle(1 wheel left)

One thing no one seems to talk about is the other exotic derivatives which are still out there. As I understand it the market for Credit Default Swaps is alone worth $65 trillion, and from what I believe these essentially consist of insurance which has been given for a fraction of the possible default which they insure. With Lehman Bros. bonds coming up for auction and some of these CDSes kicking in on Friday, don't you think that the financial world is in for another shock, especially since the possibility of a credit default is much higher in today's scenario.

#47 DerekVampire

I agree with virtually everything in your post (except baiting RP -- what's the point?).

The question is: how can we go about achieving the needed fundamental reform in the monetary system?

First, people have to understand what's wrong with the existing fractional reserve banking system. (Your post to this blog and those of a growing number of other people help -- until 2 weeks ago I knew nothing about the banking system!)

Second, people have to believe there is a viable alternative (which also means agreeing that the world economy cannot expand endlessly, and we must commit to a sustainable way of life).

Third, we need to discuss how to move from the existing economy with its flawed monetary/financial system to a new one.

I have only a rudimentary understanding of how a system of debt-free money would work and how we could get there. Can you and others who are better informed than I am help flesh out answers?

As we criticize the existing system, we need to offer a positive alternative.

Thanks.

#80

I see an atmospheric vision of Mr T. Blair re-incarnated as saviour of the world and Lord of all Banking (dressed in white sheets and crown) being feted and lauded by P. Meddlesome.

Robert/Moderator - can I ask that you vet the contributors who conflate their obsession with "fractional reserve banking" and "Rothschild". Googling the two phrases makes it clear that these postings come from anti-semitic conspiracy theorists who hold views identical to the Tsarist forgery "Protocols of the Elders of Zion".

These deluded people also seem to think that the Bank of England is a privately-owned institution. It has been in public ownership since 1946, and de facto a government institution since at least 1844.

Has anyone seen any of those neo-liberal, self regulating markets are the only way forward types lately?

They've gone awfully quiet.

Is it anything to do with the fact that self-regulating markets don't work and they always need a hand-out from the state when things go up the swans?

At least if the government gives all our money to the banks there'll be nothing left for Maggie's funeral!

Or we could pay for it by selling her son to Equitorial Guinea so he can face trial.

Tee-hee

2 week holiday for financial services workers??

What about a permanent one for the bosses?