Momentous Monday

'RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels'

So same old same old? Here we go again - the housing bubble has to be re-inflated or the economy doesn't work.

Bonkers.

You forgot to mention the resignation of the chairman and chief executive of both HBOS and RBS.

Thats pretty momentous as well.

Mmmm... as many dollars as the banking system needs?

How about the BBC following half a dozen small firms approaching their banks for additional funding in the next few weeks?

Will this bail out also bail out hard pressed households, people who have lost jobs, and those businesses already in administration? Why not?

Can't help thinking that the BoE printing presses are going to be very hard at work inflating the country's way out of this crisis.

Great ! Panic over ..... for a Monday anyway

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

Why is the HBOS sales to LLoyds still going ahead? Now that they have been nationalised why should Lloyds benefit?

The eventual solution will be to print more money.

Robert please keep an eye on the money supply figures because I suspect we shall see a sharp rise.

This basically looks like the government is giving taxpayer money to shareholders. For 20 billion the taxpayer should have got significantly more than 60%. Yet Brown is being lauded as the saviour of the world at the moment, when his measures are simply a transfer of wealth from the ordinary citizen to the wealthy. I understand that these measures were necessary but the taxpayer stakes should have been much larger in the banks for out money.
The commitment to maintain mortgage levels at 2007 figures is rather alarming. Is Brown forcing the banks to make sure the bubble in the housing market persists? The housing market badly needs to correct and not be artificially propped up.
Finally this is being referred to as the British model and Brown's plan - this was referred to as the Swedish model not more than a couple of weeks ago. I am sure however Brown will wash his hands of any responsibility for this plan when it starts unravelling as it may well do once the economy starts taking a turn for the worse.

As far as I can tell it's 'well done Gordon' on the whole. But like others I'm surprised and uneasy about the RBS and TSB/HBOS undertaking to lend at 2007 levels.
Isn't this just digging ourselves deeper into the hole of irresponsible lending?
How are we going to deflate the bubble of patently daft property prices if they do this?
And surely we have to deflate it in a managed way or it will burst.
I'd appreciate an explanation of why this is considered desireable.

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

A probably stupid but definitely serious question: where does the government get the money from? Do they print it? Or if they borrow it, who from?

Will we now some urgently needed action to protect people OTHER than banks and investors/savers? Folk from the so-called 'real economy', or do we get left to sink_or_swim? I see one credit rating company is already forecasting ' large numbers of companies going bust'.

I want to see: Big reduction on interest rates on credit cards, capping of same, write-offs of liabilities, moratorium on repossessions and foreclosures. I want to hear some good news on this.

The PM and Chancellor say there will be a payback for the taxpayer from deals to bail out banks; that's an indirect payback of course! No taxpayer will actually get any money out of whereas the Treasury may/will. That's just not good enough. What I see is banks who've messed up getting help, whereas firms suffering the knock-on effect are expected to cope as if nothing had happened!

My revenues have dropped massively in the last month. I know this to be true of hundreds of other firms I know in the same field. Is that MY fault? Have I been IRRESPONSIBLE? I expect to be told so but I don't think so.

Tell me - How am I supposed to make up the shortfall? And it should be pretty obvious that in the weeks to come the banks who have fallen over in the crisis (and the others who are keeping pretty stumm about everything) are going to be more ruthless and acquisitive about customer liabilities than ever. I had a robust and profitable business before this all started. Take away the 'stable macroeconomics' and frankly, I'm not sure what I'm left with, except a lot of anxiety.

I predict a re-run of the John Major economic crisis now, where firms go down all over the country and the courts are in overtime hammering people over debts.

What protection - FOR US?

Guy Croft

Odds of any any kind of apology yet from the departed?

2) RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels - which is massively more than they are currently lending (this is hugely significant - given that a shortage of credit is to a large extent behind the economy's deceleration into recession levels);

Interesting - as we are expecting a move into recession (certainly much tougher times), and a lot of pain for maybe several years, to lend at the same level as in 2007 seems irresponsible. It is a continuation of the illness ( if this form of addiction is an illness).
Banks say to Big G "yes yes we'll agree to all your conditions, give us the money." This is sales talk. "The answer is yes, what's the question?" I'll worry about the conditions later, ignore some, renege on others - just give me the money.
Very very dangerous. Be careful.

In recent articles I have seen the top city bankers described as "highly intelligent, highly motivated competative individuals".

My I take issue with the "highly" intelligent part of this comment.

People who devote their lives to the persuit of money must, by definition of their chosen career, only be "limited" in their intelligence.

If they were "highly" intelligent, they would be working as a doctor, for example.

To sum up then, we keep the cost of money high, keep the hosing market high and out of reach of 1st time buyers, we keep the bankers in power, we kept high national and personal debt, we keep povety, we keep digging a hole we have no chance of climbing out of. In short we had 1 good chance of overturning the slavery to usery and the governments bowed to the real owners and carried out thier bidding.

What did brown say ''the banks are central to everything we do'' Sounds like slavery to me

It all sounds all well and good...

But the people are not going out spending.
The wheels of industry is slowing down. This action will not kick start world economies.

Also like the Government, the Taxpayer is hard up and has no money either. Can the Taxpayer support their plans.

The problem is that people have borrowed to the hilt and are not spending. The bubble has burst. People are now in a Precautionary Mode and are repaying debt, and if they have any spare money moving it to safer institutions.

More drastic action has to be taken to restore confidence in the economies.

These signs are good for the enviroment, but bad for economies.

4) Barclays is raising £10bn from selling new shares and securities to private-sector investors, abandoning its dividend for the second half of this year, and taking other actions;

Barclays seem to be saying - yes we have a funding problem - we don't like the conditions that Big G is offering. We don't want the stigma of borrowing from Big G, and the sentiment that would arise. Oh, and we don't want Directors' remuneration to be interfered with. Is this right?

As someone who was tricked into buying some HBOS rights issue by a management who must have known the true state of HBOS can I look forward to some compensation for my losses. I will vote against the deal (if I am asked!)

Now the Taboo on nationalisation for new labour has been broken how about the railways and royal mail (yes I know about the latter).

Also how does the government propose to represent the small shareholder in future decisions of the banks. Arguably it was the extraordinary difficulties of popular shareholders involvement and having information that was a major factor in banks getting to their present state.

"The Bank of England and other central banks have announced they are lending as many dollars as are needed by banks"


Surely we are not going to give it all up for Uncle Sam? Was it not the US bankers who dealt the dodgy loans to us in the first place. I thought the object was to get the UK Banks lending to each other again.

about time these little masonic clubs have been broken up

get the guys who run hsbc in to run the lot - now there is a bank

I see in the USA press that Gordon Brown is being praised for moving quickly with the uK banks and giving the lead to the European leaders.

However is it not the great man they are following ....

Private Preferred Offering
Through Berkshire, Buffett is taking $5 billion worth of perpetual preferred stock in Goldman in a private offering. For that, he'll get a 10% dividend and warrants to buy $5 billion of common stock with a strike price of $115 a share. He'll be able to exercise the warrants at any time over five years. Goldman's stock closed Sept. 23 at 125.05, up 3.5%, and it was climbing past 133 a share in after-hours trading after news of the deal broke. The firm's stock last fall was worth about 248 a share

See for more details

https://www.businessweek.com/bwdaily/dnflash/content/sep2008/db20080923_622401.htm?campaign_id=rss_daily

6. The bank of england and other central banks make as much money available as the banks need (phew).

Phew!? Mr Peston i'd be slightly more impressed if you told people the truth. For every unit of money created a unit of debt is also created. All the banks are doing is creating more debt to sustain their bankrupt criminally fraudulent enterprise. Banking, in particular the creation of the US federal reserve was a criminal act. More people are aware of this now. Call a spade a spade. The monetary system IS fraudulent.

I'd expected one more day of big sell offs and share price falls today as bank investors took in the fact that their ownership had been diluted but then for a recovery to begin tomorrow.

Looks like shares are rising significantly this morning anyway and with capital, liquidity and lending issues lloking like they're coming out of the worst in the UK at least here's hoping today sees the start of the recovery.

" RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels "

I thought the purpose of the capital injection was to allow banks to re-organise their business into a more rigorous and less risky regime. But now the government just wants to give banks more money so that they can continue to make the same mistakes that got them into trouble in the first place (i.e. massive lending on over-inflated assets)? Up until now it was looking like the Brown plan wasn't a bad one, but if it is in fact just using taxpayer's money to keep our debt-fuelled economy artificially inflated until the election then we'll be paying for this for years to come.

This comment has been referred for further consideration. Explain.

So we have decided that keeping banks going is so important (despite the fact that half the stuff thy are supporting should probably in no sensible world have ever been allowed to happen) that we will effectively pay whatever it takes to stop them gonig belly up.

So, have all the bad and badly rated debts and liablities been flushed out the system, how can we tell if they have or haven't? The mortgage market still seems to be a mess and this is what started it all off no?

What is the timescale for the unwinding of all the various different financial instruments? This could give an idea of how long volatility could go on for?

What is this 650trillion CDS number that keep getting thrown around, is it going to come round and bite the banks on the ass?

8) Stock markets and money markets are in slightly better shape this morning - which is something of a relief, because if they can't be buoyed by so much taxpayers' money being chucked at the banks, then we would be in rather more serious trouble than I feared

Swallows and Summer. The volatility is possible because of v.v. short term market making. Your blog is great for creating moves in the markets. Unfortunately it is also encouraging the cats to play, taking the focus away from the real fundamentals that have to be corrected.

We in the phase of the crisis when a level of control and calmness is needed, to be followed by two lines - one to maintain a level of sustainable economic activity and the other to deal with the very serious fundamental problems. These require a Leader to emerge and the development of a new Management.
We are only at the beginning of the start. Calm down.

Can you explain why the Governments have not suspended the markets for a few days?

Dear Robert
"What i want to know is, who is exactly to blame for this Crisis, who initiated it, and who made it worse"?
We keep saying the USA, but, " who in the USA, is reponsible, Wall street, but who in wall street, wicih individual is resoonsible or individuals "?
This has to be made public,

It was the mad borrowing fest that got us into the mess. Borrowing is fine, providing the borrower can afford to pay money back. But in 2007 we had buy to let mortgages, 125% mortgages, self certification .................

Typical.

The banking system fails, the RBS boss gets 1/2 million in pensions, Mandelson gets 1 million payoff for leaving the EU and getiing a job he has resigned from twice before.

Gordon Brown has been the steward of the financial system for the last decade and HE has failed ..BIG TIME.

If and when this mess setles down Brown should give the hard pressed pressed taxpayer what they want......an election!

HSBC!

Have you notice how no-one talks about HSBC in all this.

I presume that's because they're OK?

Common Robert write an article about HSBC and explain to us (their customers) why they are different to the other banks.

Exactly whose idea was this fix on the 2007 lending levels? Who on earth thinks this is a good idea?

This is the equivalent of the government buying shares in dot com companies or artificially maintaining the price of tulips. Gordon Brown is turning a burst bubble into a national disaster, alienating our neighbours and plunging our economy deeper into the red.

I can't think of any industry (with the possible exception of farming) that would be propped up so shamelessly as this when serious mistakes have been made. Bankers, shareholders, estate agents, buy-to-letters - on your bikes. The precident was set by the mine closures, there is a perfectly good system of compensation in place, it's called the welfare state.

What a delight Robert Peston's punctuation is!
Oh, and the news about the banks is a relief too.

"1. At 08:51am on 13 Oct 2008, Buddhaman wrote:

So same old same old? Here we go again - the housing bubble has to be re-inflated or the economy doesn't work.

Bonkers."

97% of our money comes from debt. If they stop lending, it all disappears. That's what a recession/depression IS. When the debt sucks up all of the loaned credit.

Don't like it? Campaign for Monetary Reform.

Momentous shomentous. The main purpose of regulation in the financial economy is to be eternally vigilant in preventing vested interests from creating obstacles to free-market competition. Artificial and politically created barriers-to-entry result in oligopolies and monopolies, giving rise to the kind of crisis we see today.

The most stupid trap of the last fifty years was the way in which well-meaning regulators – useful idiots – were conned into thinking freedom means anarchy. Philosophy studies tell us that there can be no freedom without responsibility: so clear rules and sanctions are essential to ensure that playing fields remain level and competitive.

Management studies tell us there can be no responsibility without accountability. This issue has not been properly addressed in corporate governance – where it is known as the agency question – or in national governance, where corruption in the process of wielding power always seems inevitable.

If we find in the next half century that it is not possible to create structures for one party to act in the interests of another without corruption of purpose, then we will have to disband the corporation – the separation of ownership and control – and try something else.

Can't see how you can maintain lending at 2007 levels without being irresponsible. Are we asking the banks to lend at low rates, high multiples of earnings and with no deposits in a falling market? If not how else are they going to maintain the same mortgage lending levels?

I get it, in a few years time Gordon wants the other half of the banks shares...

The rest of it seems fair.

is it safe to come out now?

This comment has been referred for further consideration. Explain.

So lending will have to be at 2007 levels? These were historically high levels of lending and much was innappropriate.

In order to meet these targets will they be more "prudent" than they were in 2007?

I fear the people who will be trying to obtain loans will those in difficulties and trying to borrow to repay other debts. Sound familiar?

Will the banks be brave enough to refuse the loans or will they give them in order to meet the governments "target"?

The lunatics haven't taken over the asylum, the asylum has simply taken over the world.

The Treasury statement says

"maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels".

What does this really mean? For example, by the end of 2007 Lloyds lending to homeowners was based on LTV of 75% and better, but at the beginning of 2007 100% deals were available.

Does it just mean that people who meet a sensible criteria will find that money is available or are the government trying to reinflate the bubble to stop the banks having to make further writedowns or for electoral purposes?

Any chance of getting clarification on what the statement means Robert?

What limits has the Government placed upon risk taking, given that the banks have promised to continue lending at 2007 levels???
And how will all this extra lending be funded? Will the banks issue more bonds then "insure" themselves like before with more complex instruments?
Or will the Government, sorry taxpayer keep the cash flowing to permit the higher level of borrowing?

And I notice that neither Gordon Brown or Alistair Darling stated where the 37 billion is coming from, despite being asked at the conference.

#1
I can't believe that lending on mortgages can be on the same level as 07... as you say re-inflating the bubble would be bonkers.

Nor do I think it can successfully be re-inflated with all the other real economy hits that will be taken.

The real money in the real world just really isn't there.

But the depressing thing is maybe General Brown has enough resources to expend them in one last 'Battle of the Bulge' attempt to delay the inevitable into mid 2009--- and on the back of 'a job well done' try and win an election.

Whether he wins or loses the election we'd have nothing left to fight the even worse deflation---but politicians don't always think like the rest of us.

And now he certainly has levers to pull to create short-term happiness owning somewhere around 50% of the entire banking sector... plenty of scope for creating feel-not-so-bad conditions with lower rates, deferred re-possesions on defaulting Mortgages, and so on and so forth----

I very much hope not, but I do fear so.

Question - So why does HBOS now have to be taken over by LloydsTSB?

Comment - lending will never recover as I'm sure the big banks didn't do so much reckless lending as those smaller banks/ lenders which have now gone out of business - so things wil still be tough and the government wont want to lend knowing loans wont get repaid.

I think it's rather disingenius to suggest that HSBC have also raised capital, albeit from private sources.
I understand they have merely transferred capital from HSBC group to the uk group in order to comply with the new fsa requirements, therefore no "new" money is being raised.

Let's make a clear distinction between the four banks who are making the headlines, and the other banks which seem be be well run and don't need any government hand out.

Dear Robert,
As much as i detest New Labour and every thing they stand for, Brown is Putting Britain First, after Twelve years have we at last rejoined Planet earth,from the outer recesses of the Universe.

Looking to the future, it is almost certain that whichever government is in power over the next few years will be strapped for cash.

If we assume the financial markets stabilise and some value returns to these stricken banks, the time will come when the Government might want to get some of its investment back just to help out with shrinking the national debt without putting up taxes or reducing public sector expenditure. So, the price for buying one of these banks might be very attractive to a company with cash - HSBC perhaps?

I know the opinions of an Irish youngfella are not going to change the world but in my view an era of boom is followed by bust. The fact that the worlds banking industry is in such turmoil must suggest an inherent flaw in the sector. Overlending and short term debt were at insane levels. I don't think it's possible to find a short term solution to the issue, governments are going to have to consider long term goals and try to ride out this era as best they can. How can an industry go from making super normal profits to announcing the fact that they are on the edge of collapse.....greed and being short sighted. What were these banking officials doing, patting each other on the back and ignoring what small business' have been seeing for the past 18 months?

The english banks being bailed out should consider themselves lucky, fair play to the english government though for taking stakes, a lot more sensible than the Irish government.

"RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels"

- Hopefully this doesn't mean a return to 2007 (pre Northern-Rock) reckless lending practices, except this time the tax-payer picks up the bill when it all go's wrong.

I was quite disturbed to hear Alistair Darling say that any government appointees to bank boards would have banking experience rather than civil service experience ... surely more people with banking experience is the last thing we need.

If the only problem in the UK economy was the lack of capital liquidity in the banking sector, then all your points above would be valid. The underlying long term problem has been the level of real disposable net income (after income, sales and local taxes have been paid; fuel, utility and food bills met etc.; interest and capital payments on existing loans and mortgages aacounted for) is very low. I strongly believe that the Credit Crunch was the CATALYST to the current crisis and not the CAUSE.

The BBC TV news have covered this quite well: for example office workers bringing home made sandwiches for lunch etc. Whilst people struggle to make ends meet, increased spending can only come about if everyone takes out more loans on top of their already crippling debt levels, so as to sustain a higher standard of living which otherwise they could not afford. This in my view is madness, and was the precursor to the CAUSE of the current crisis.

Bring an end to self cert mortgages. If I bought a computer on credit £1000, my financial details would undergo a credit check. A self cert mortgage £400K would have been granted simply on the basis of my say so! Mad!

Any loan can only be granted on the basis of ability to pay it back.

Taxes need to come down. Re-introduce the 10 percent tax band backdated to last April asap. VAT and excise taxes on petrol and power need to be more sophisticated. A standard tariff of x percent on the market price is too crude in today's volatile markets. A sliding scale could be introduced so that as the market price rose the tariff percent rate would reduce, effectively giving the Treasury a similar income without penalising taxpayers. G Brown has often stated in the past - its not my fault!. Well, its not the fault of the general populace either so why take it out on them.

In election campaigns in the past acommon refrain is - its the economy stupid! Please remember that the banking sector is one part of the economy albeit a fundamental one. It is though quite possible to have a very strong banking sector whilst the rest of the economy underperforms - the 1980s under Thatcher. Is history repeating itself?

Ok, if the worst is over, time for Brown to fall on his sword too. He is directly responsible for the British economy and has been for the last decade.

Go you shifty conman. Now.

no.1

That's what they have 'promised' just to get some quick cash. In a few months when they are still deleveraging and are short again, that will go out of the window!

The gvt is desperately trying to get the economy to even up before an election, but it's like re-floating the titanic after it's back had broken!!

At best:
Maintaining 2007 levels will only help RBS/HBOS customers who currently hold mortgages. But how will 50% of people pay them when their service/bank sector jobs have disappeared??

The road is only down!

They could not help themselves, they had to bully the banks. Now we will see what comes of it. A small market rally does not at the moment seem a good return on £50 billion.

pension funds will be hit by the loss of the huge divi's banks paid; let's hope they have prepared for that.

Now the Government has a taste for nationalisation I wonder how long the likes of British Airways will survive....

Are you able to clarify what 'Maintain lending at 2007 levels' means.

This could mean that the increase of Loans over repayments remains at 2007 levels, or the total outstanding debt level is maintained at 2007 levels.

I'm presuming that Mortgages at very high LTV levels might be required to sustain Mortgage lending at the levels we saw then, and presumably these loans would be regarded as poor collateral by the BoE.

So what controls has our glorious leader put in place to stop the banks now going straight back to their old ways and dishing out 100% mortgages willy nilly again ? None I suspect. Until a set amount of deposit ( Unborrowed ) is defined by law as essential before a mortgage is issued, the problem will continue. This awful government was incompetent with it's own budgets, how can anyone have any confidence in their running of financial institutions ? I suspect there will be a continuing round of public money required from time to time now to bale out semi nationalised banks which, under the controls of the present system of regulation will be unchecked. The taxpayer will not only foot this bill but will be subject to deposit rates as defined by the chancellor or his poodle, the governor of the bank of England.

point 2 (a) "maintain mortgage lending" is potentially deeply concerning.

If this means profligate lending at 125 percent mortgages and huge over valuations of house prices is to continue/resume the whole deal is insane and must be stopped NOW. If it is not stopped it will reflate the housing bubble and be the cause of a cataclysmic crash for the whole national economy (even if we get through the present difficulties.)

We must ask that journalists seek further clarification urgently.

The only way that this makes sense is if a strict income multiple of no more than 3 to 3.5 times income and a 25 percent minimum deposit is enforced. Anything else is totally insane (I am running out of adjectives to describe how appalling for the whole nation such action would be.) These idiot bankers and regulators who created this present mess seem to think that they can finesses a solution that will not hurt mortgage holders - they are so so wrong!

“RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels”

How can a bank manage its risk if it is forced by a large backer to make large loans in an unpredictable market?

This is typical political interference. The government want the housing market back on a bubble before the next a election and don’t care how much taxpayers money they have to waste to get it.

The government might just as well loan directly to the house-buyers.

The biggest nationalisation in history. Stock market jumps 6%.
I trust that Gordon Brown has phoned up Michael Foot and said, "You were right after all."

Remuneration:
The greed fuelled mess that a significant and well off section of the Financial ‘community’ have put Western democracy in deserves more than a light ‘shares instead of cash bonuses’ rap on the hand.

We want our ‘real’ money back!

My idea: takes everyone in the finance sector who has earned more than one million pounds per year over the last five years, and demand they deposit in the Treasury any gold they have bought over the last year.

Vote?

Robert

How much should we contribute for you to have another holiday?

I think the timescale should be for about a year.

I think it would be in the government's interest to take at least a 60% stake in your holiday fund!!!!

#7

Re money supply.

I was trying to find M0 recently. Is this figure still made public? Anyone know where I can find it (and M1,2,3 etc)?

I would be very interested...

I felt the statement to Simon McCoy by Phillip Hammond shadow secretary this morning got to the kernel of the problem. I have to note another "Ism". Sortterminism verses Longterminism. Our children's and grandchildren's future depend on the governments around the world getting it right. It is therefore the right and the duty of all the media and correspondents to monitor what policies are being pursued in public as well as private sectors. I say this because there have been calls in the recent past for more consideration as to the effect of short term measures by government and not just the private sector which have been dismissed as nonsence. Surley Gordon Brow's borrowings "Off Balance Sheet" in public accounts over the last 11years is now clearly wrong and this form of philosophy "Outlawed". So come on Robert get stuck in and begin to hold all the leaders Private and Public to account.

Happy days!
Either this fails miserably and we go through this pointless merry go round again or we suffer massive inflation. Either way the little man looses and those reponsible benefit.

Why are they trying to rebuild this house of cards?
When will they get it into their thick,overpaid skulls that the last twenty years boom was a serious accounting error - or fraud if you tried it at home.

Why is nobody protesting about this? People, you are being robbed! This has all been planned well in advance to rob the ordinary working people, of not only the UK, but the entire world!
There is now open talk of a New World Order coming about soon. Again all well predicted by the alternative media.

Get informed!

This wasn't done by accident!

OK Robert, so on Friday you wrote, regarding share prices -

'But it's as well to remember that they are the symptom of the disease, not the disease itself.

The underlying illness remains in the financial system'

Now you seem to be using the slightly up figures from the markets this morning as a good sign. This is almost Daily Express journalism! When the FTSE is down, it doesn't matter, but when it's up - hey it's great!

Anyway, I acn only support most of the others - this isn't some massive nationalisation and return to government for the people over the corporates, it's merely a way of bailing out the corporates at the people's expense.

What you are witnessing in the markets is a dead cat bounce.

We have not reached the bottom of the market yet.

It will be interesting to watch the banks trying to lend at 2007 levels when 99% of the people in the country know that we are in recession and know that it is not a good time to borrow.

Belts will be tightened and the majority will not fall further into the debt trap. The public have become much more financially astute over the last few months, your average conversation in your average boozer will tell you that.
People are more frightened than they need to be because of media scaremongering and this will make them more cautious than they need to be. This will lead to a deeper recession and more job losses. It all becomes a self fulfilling prophecy.

The really astute will get themselves into a position so that when the final crunch comes they will be immune to it.
The final crunch will be postponed by G7 actions over the next few days, but ultimately this will lead to complete and utter failure of the financial system some years down the line.

There is a second serious whammy just around the corner.
The market crash plus the vastly reduced dividends will result in massive pension fund deficits.
The Pensions supervisors will then "mark to market" at audit time and as a result companies will be required to make good the deficit.
The sums involved will be of the same order as the current recapitalisation all over again.

Nobody in the Government so far has commented on this aspect.

Who will ask about this?

#10

Neither RBS or HBOS could ever have been considered as Scottish national banks because they've been under the control/influence and ownership of the City and Treasury. This of course explains why they are in the problem they are in now.

The Financial Services Authority (FSA) has said it shares concerns that "inappropriate" pay deals may have led to the crisis in the banking sector.

The City watchdog said in a statement that it was calling on banking firms to apply "sound risk management" to future staff pay deals.

While it said it did not wish to enforce pay levels, it has published its initial thoughts on the subject.

The FSA said it was talking to banks and would publish advice next year.

"We would encourage firms to review compensation policies throughout the firm - not just in trading and investment banking areas," said FSA chief executive Hector Sants.

Talk about Dithering catching.
If Sants can make that last statement now, why cant they publish their advice now

11. At 09:06am on 13 Oct 2008, extractofmalt wrote:
A probably stupid but definitely serious question: where does the government get the money from? Do they print it? Or if they borrow it, who from?
= = = = = = = =

Not a stupid question at all...... there is no "money" to be used in any of this shenanigans.... it's really all just trading IOU's around between banks, and now the government.

These IOU's are backed up by loan repayment contracts (such as mortgages) in the case of inter-bank trading.

Many of these (sub-prime) have now proved to be virtually worthless, and likely subject to mass default.

Now, they will be backed up by Government tax demand contracts (PAYE, to you and me) which we are unable to default on!!

NO REAL MONEY IS INVOLVED ANYMORE.

What guarantees has the Government extracted to ensure sensible lending of taxpayers money?

Remember, this all started with sub prime mortgages.

Will there be conditions of maximum 95% loan to value (perhaps even less being the property market is widely believed to be overvalued).

Has the Government extracted a commitment of prudent income multiples - 2.5 times joint income, or 3 times the main income plus 1 times the secondary?

These are multiples that before the housing bubble would have been the normal maximum.

If no commitment to sensible lending of taxpayers money has been obtained in return for this cash, it suggests that the prime motive is to delay the inevitable crash from the bubble burst, not to steadily deflate the market.

Robert Preston, it is now time for commentators like you to be asking these questions so that the public can see the real truth behind this bank bail out.

The overriding aim has been to bail out Brown from the bust that the cycle needs to correct itself. The problem, at great expense, has simply been delayed.

If the requirement to" maintain mortgage lending at 2007 levels" means lending at today's house price levels it will demonstrate that Brown and his advisors have understood little of the causes of the current problem. The house price asset bubble has by no means fully deflated and reinflating it now will be disastrous for the future. The UK economy must be weened off its dependency on the perpetual motion machine of house prices.

We have probably gotten outta Dodge - well done Gordon, Darling and all our European counterparts. EU Cooperation not EU scepticism has won the day.

From this posting thread you can almost taste the Brown basher’s irritation. They are clearly annoyed that today is a momentous one; as today marks the death of the laissez-faire attitudes of Thatcherism and the Right in The City.

There is a strong case for the banks prosecuting Goodwin and Hornby for neglect of duty and bringing their respective banks down.

As a shareholder I certainly will not want see either leaving with ANY kind of pay off whatsoever.

What I find amazing is that it has taken over one year for us to get to this point and for the EU leaders to actually have a summit on the issue. This shows a collective disregard for what is going on bordering on negligence, especially when you consider Angela Merkel of Germany has been warning about the chaos for the last 18 months. Indeed she is said to have reminded Brown on several occasions, only to be laughed at as she was seen as promoting a non-free market view.

Also if Sir Fred walks away with his pension and any payoff from this mess there should be nothing other than civil unrest.

Do we gather then that only the Eurozone is tackling the wholesale end of the problem, which one learns from Robert's excellent coverage is the nub or near the nub of the problem, whereas the only element of control in the UK is to ramp up mortgage lending? Isn't this actually a failure to shut the stable door?

I hope all this won't stop Sir Fred Goodwin from voting Labour.

The ONLY BIG question is. I property affordable? Given the expected down turn in the economy it is likely to be less affordable but with rates going lower that will be countered.

A home is a requirement as are water and food.

We all need to get perspective of what is or is not value and affordable the banks are guilty of lending at unafordable levels!

The problems we are in are not down to inflated property prices but down to the way the debt on property were handled. (Other than the fraudulent lending in some parts of the US).

Anyone who looked at a banks balance sheets could see that they had savings of only fraction of lending as with northern rock.

We may be on the verge of recovering from a dramatic stall with Pilot Brown and Co Pilot Darling having pulled out all the stops thrown of all the excess weight and put the throttles on full power. Lets just hope the engine and wings can take the forces which will be put on them.

There'll be tears before bedtime my dears, just you wait and see. Promises from the banks that they'll good boys and girls, just as soon as they get their sweetie money. You know it makes sense Rodney, mmmmm... lovely jubbly.

So lending will be maintained at 2007 levels. Why and how, for Gods sake. Mortgage lending went into overdrive on the back of over-priced shacks being bought by lemming-like idiots without sufficient income to service the loan. Homes ceased to be homes but were regarded as a short-term investment. Oh, and the "Bank of Buy to Let" was offering even better terms that the Icelandic Bank of Cod. The more that was lent, the more that was wanted. Then someone noticed the lack of any clothes, not only on the emperor but on his whole damn entourage as well, and the mirage of wealth and prosperity vanished back into the haze. If lending multiples are to be kept at sensible levels, with adequate LTV ratio's then HOW can mortgage lending be maintained at 2007 levels, with a finite stock of property? More panic and mayhem will ensue.

I do not want my tax money used to try perpetuate, or recreate, this insanity. Oh, and by-the way, will the last Banker leaving the scene (assuming that any of them do leave), apart from turning off all the lights, please take Gordy Boy and the eye-brow monster with them.

Oh dear, at least it will soon be time for a libation, maybe things will look better then.

Once again the lack of facts (para.2) from Robert starts a few loose hares running(comments 1 and 9).

When you state - lending will return to 2007 levels - are we to assume the amount of money available, rather than the basis of the irresponsible lending with Loan To Values of 125% etc?

The lack of facts means we have to make assumptions and journalists can make up whatever story suits the "Armaggedon" scenario(apologies for my naivety)

Robert,

On 17th September, you wrote about the proposed Lloyds TSB / HBOS deal:

"However, for the avoidance of doubt, neither side has asked for taxpayers' money - either from the Bank of England or the Treasury - to facilitate this deal."

Brown seemed to preen that he'd helped broker a deal that would avoid government hand outs...

Now HBOS will take GBP11.5Bil and Lloyds GBP 5.5Bil. Things are fast-moving, but that seems a pretty hefty injection. If the investments are designed to make each entity individually stable, Lloyds seems to be getting a state-guaranteed bargain...

The markets are falling back already today.

Anyone want to take a bet they will end the day lower again

Disappointed that the well-run bank, that I've been with for decades, has been dragged down by the merger with HBOS.

Good job I didn't buy shares in HBOS over the last couple of weeks, assuming they would be bought off me at the end of the year at the price originally agreed with Lloyds...

Perhaps, when this crises has finally shaken itself out, we will ultimately have the situation where all lending is provided by the Bank of England. That wouldn't be such a bad idea actually.

The Bank of England could perhaps be trusted to be a responsible lender. With that one organisation doing the lending there would less scope to package up debt and flog it off as securities. Besides its brief to control inflation, it would also control the amount of money that was being lent. The two are interelated, so it would be a good thing to do, strengthing the economy overall I would think.

The role of commercial Banks on the High Street would then become that of an agency/broker for loans and a secure facility on the high street for depositing everyday cash, which is about all they can be trusted to do.

They might get a little bit of commission out of arranging the loan via the Bank of England, but that would be as far as it goes. The Bank of England would decide whether it was a secure proposition and whether to lend or not...

Perhaps we wouldn't then see irresponsible lending fronted by google-eyed characters of a politically-correct persuasion and dodgy-looking blokes in even dodgier looking green suits ? What were the marketing men thinking of with those adverts ?

The fact that the markets have stabilised is a good thing. The price we are all to pay for that is not a good thing.

There will be a political reckoning of which we know nothing at the moment but Mr. Angry is going to become very popular in the days and weeks to come. I fully expect Mr.Brown and his chums to be forced to sit on the naughty step in due course.

As other posters suggest the real economy is now going to get a right slapping on top of the one it has been getting since the cost of fuel and food went up and property values collapsed. I expect unemployment to top 5 million before this is over.

May I revise your quotation, Mr Preston.

`This is a recession, Robert, but not as we have known them.'

An interesting historical and political footnote is the collapse of two Scottish Banks and their bail out by the predominately English taxpayer. Is this the Act of Union being played out all over again? Who are the parcels of rogues in the nation now? Discuss.

I also wonder how Mr. Salmond's vision of a Scottish economy based, like Iceland's, around financial services is doing?

itreallyis42 - doctors are next on my hitlist after bankers. They get paid an outrageous amount and are subject to no competition.

If you are truly altruistic and have brains, work at any highly paid job and give 50% to charity. Or, better still, found a decent political party and take over the country. (I'm guessing that post 9/11 any guy fawkes style comments are off limits!)

Post 19, re Barclays.

I am sure they need some money but are no doubt in no where near as bad a shape as RBS & HBOS and as such can raise the money from current shareholders and new investors.

RBS and HBOS have to take whatever offer they can get as both are in the last chance saloon. Barclays obviously don't have to take Gordons terms so have decided not to.

What they say and what they do are often two entirely different things.

So, I do not think that bank mortgage lending will return to anything like 2007 levels at all.

Because these banks, via the valuers, will take the view that there is still anything between 15% ... 40% to come off average property prices in the UK and will still require a significant deposit.

There is a house price floor but we are not anywhere near it yet, either here in the UK or in the USA.

Nevertheless, it is good to see this concerted action to try and regain some stability so that the bubble unwinds more slowly.

I fail to understand why this is a relief. We are all in a submarine at the bottom of the sea and the air is running out. Somebody has borrowed some air from the tanks that would be used to take us to the surface. We will breathe for a little longer but our chance of rising to the surface has gone. Okay it is not a perfect analogy but you get the idea. I am not relieved, I am resigned.

"2) RBS and Lloyds TSB/HBOS have promised to the government that they'll maintain mortgage lending and small-business lending at 2007 levels ..."

We're still at DEFCON 2, though recent moves are welcome. "This, too, shall pass" as the ancient Sufi saying goes, so hang in there, folk.

There surely must be a return to prudent lending with an enforced minimum fractional reserve requirement, then a gradual increase in that reserve. And we need a concerted move from money as debt to investment in real value.

I wrote to you December 2007 (see below) when you weren't quite as savvy as you are now. The 'Brown' plan seems to be to try and keep lending going - but what we've not heard about are the lending limits and transparency we require from our regulators to set so this doesn't get out of hand again. Brown may have saved the world but he is complicit in the problems being experienced. Ask Angela Merkel.

17. At 01:27 PM on 21 Dec 2007, harry e wrote:
Robert, the link between all these disasters was the prolonged low interest rate environment boosting demand for credit with a limitless supply of it - without the restriction of either a reserve ratio (the ratio of deposits needed to be kept back by the banks to repay depositors) or a properly functioning capital ratio (the ratio of lending that needs to be kept back in the event of default).

How? Off balance sheet funding. It is a little known fact that money is created by private banks when a loan is made. The money supply hugely expanded in this credit bubble has fed house prices to the point where everyone is now saying the Emperor has no clothes.

Easy credit leads always to loose lending. Falling house prices are revealing the true extent of default. But the default now being experienced is unprecedented for the lack of capital reserves to cover it - the banks don't even have enough to put the damn stuff back on their balance sheets never mind write off bad loans!

As capital is destroyed this will be hugely deflationary. Far lower bank rates and increased Government spending will be inflationary. And we seem to be seeing a flight by investors from mortgage bonds into commodities (food, oil) - the next bubble before that too pops with the footsie with it. In the meantime this too will be inflationary.

Not nice to see Tories on here putting party before country.

Not changed at all, have we?

This bonus thing - why do any get a bonus anyway?
In the real world - you are paid for doing a job, if you don't do it well you are sacked!
Do you give your local bobby a bonus if you are not burgled?
Do you give teachers a bonus if your children pass their exams?

Re Lloyds TSB is paying less to buy HBOS than it originally announced, to reflect the disclosure that HBOS's problems are rather worse than it thought just a couple of weeks ago

Given everything that has happened with the bailout, does it really make sense for LloydsTSB to purchase HBOS? Especially as they are looking to pay even less than before?

In the last 4 years British banks have paid out more than £31 billion in bonuses.

Perhaps if we asked them nicely, those bankers would be prepared to give back those bonuses, given that they were obviously not justified in retrospect.

In this way the public tax-payer would no longer have to stump up nearly so much of the £37B required.

Sounds fair to you? It certainly does to me.

Come on Now Robert!

You seem happy that they are injecting all this money into the system to save the banks.

Can you please answer one question? In the past what has happened when the printing presses have opened?

Laws of supply and demand dictate that a large amount of money chasing the same amount of goods (or even less products due to contraction) will lead to hyper-inflation. In fact it could unleash an hyper-inflation tsunami.

By proping up the system, Gordon Brown and his colleagues overseas have done a very stupid thing. Can't you see that?

The bubble in the derivatives market needs to be punctured if the stabilisation efforts are going to work long term. Might a Credit Default Swap amnesty be a solution? If the hundreds of trillions out there in yet-to-be claimed are worth 10 times the world economy, is there a case for legislation that simply absolves everyone from having to pay out? The derivatives market is a form of gambling after all, and all bets in a dodgy horse race can be voided. OK there will be pain for some that lose money after a default, but otherwise there will be a great deal of pain for all for a very long time.

Well the RBOS rights issue looks dead in the water already at 65p. The share price is well below that.

Once your reputation is gone, all else follows. There has already been one rights issue based on a dubious prospecutus and shareholders are telling RBOS where they can put their shares.

I'm not satisfied with the management changes. The whole board must go, including the non-execs.