RBS to stay private?

No one is talking about Lloyds TSB then

You're right about the housing bubble effect Robert. And yes things look a little better today for 'our' banks and the global banking system but let's not get too excited about a few days of glee here. There's much to be sorted out yet.

Don't always agree with what you write or how you sometimes present the issues, but 100% agree with your conclusion as to whose really to blame for this mess. Only I would re-qualify what you say and more acurately describe it as a 'credit bubble'.
Massive failure of macroeconomic policy and financial regulation.
As the chief excec at RBS did yesterday and fell on his sword, so should the real architect of this failure, Mr G Brown should do the honorouble thing and tender his own resignation.

I wonder if Alex Salmond has any cash in the coffers. His dream of an independant Scotland isn't going to look too good if he has no Scottish banks left.....

So a month ago we were told that the competition rules would be waived so that Lloyds could rescue HBOS, leaving them with 30%+ of the UK market.

How come this is still being allowed to go ahead - we have just recapitalised HBOS ourselves and it appears we had to do the same with Lloyds TSB? It seems to me the height of cheek that Lloyds then reduces its offer for HBOS by 25% and still gets dominance of the market

Ah.. so not all the banks' fault then? Would this be the housing market that GB is trying to force banks to lend to?

RBS staying private is all well and good, but... When the next Economic Tsunami comes along - and that could be in days or weeks, with CDO's CDS and other derivatives, plus a new wave of exotic equity withdrawal mortgages due for renegotiation they could find themselves back to square one.

So Thanks to the share price rise, external finance will buy up the shares, then dump them immediately take the profit and start a run on RBS.
What hope now for RBS. The government will then need to step in and buy up all the shares and completely nationalise RBS.

The law of unintended consequences rules over a poorly thought out government decision again.

Market reaction just shows you what would have happened if government had guaranteed depositors money in the first place!!
Depositors interests are not being fully recognised by the "great" BBC. In the end they are the most important interest in a bank.
Long live savers and investors.

I've been wondering recently what impact the BoE targeting the RPI as the measure of inflation versus the CPI would have been to the housing bubble?

Would interest rates have been historically higher to act as a damper on rising housing costs?

Now HM Gov't is a venture capitalist. Who'd have thought it? Maybe they should be asknig for additional warrants with their prefs in RBS and a bigger coupon than 12% in arrears.

Warren Buffett did with his $5bn Goldman investment by asking for a 10% discount for cash upfront.

It is interesting then, that the PM and Chancellor are basking in the limelight of the rescue when it seems they have been the stewards in charge as things got out of control. The bubble was predicted a long time ago and no one listened. Additionally this short term market bounce will not stop the upcoming recession hopefully only reducing its depth and longevity.

bear market rally; the shares are unlikely to hold above 65.5p until the end of November.

too many downside risks at the moment to the stock market.

+

logic.

as a shareholder you are faced with 90% losses in one year in RBS. To 'average' down you could participate in this buyback. Your average would still be several times the current shareprice. i.e. well underwater.

The rational thing to do it stop chasing your loss and accept the dilution and wait 10+ years for the shareprice to get back to where you need it to be to break even.

Bradford & Bingley.

Buy the Shares and then the Gov't will nationalize it anyway.

More Plunder for Dr Brown, I mean Dr Beeching, um no Mr Brown!

Sorry just having 50 year flashbacks.

well said offshorebanker haven't heard much about the countries which guaranteed depositors needing bank bailouts.The problem is that the run on banks is by mouse if 5% of deposits moved to Ireland then that is the£40bn the banks needed.Why did they not want to give the guarantees, they clearly couldn't understand the numbers as Icelandic banks proved.The current solution pronts more money can't be ideal.Hats off to the underwriting wheeze is this the hand again of the governor?

Lets hope so as it will save us tax payers from paying for them twice. Once by the government in our name, and for the second time when they sell them back to us like they did with British Gas, Electric and BT

Robert,

Just because a company's ordinary shares are trading above the strike price for a rights issue doesn't make it rational for existing investors to take up the rights.

The investors can sell the nil paid rights they receive, or let them lapse and receive the lapse proceeds. This money compensates them for the difference between the market price and the strike price. Essentially the decision depends on whether existing investors are prepated to stump up more money to avoid their stake in the company being diluted.

Hey, now that is actually a hint of some good news for a change. Hope it happens. I'd like to see Royal Bank Of Scotland re-emerge as a separate entity. Its good to see those grand traditional institutions standing on their own feet. It inspires a bit of much needed reassurance and confidence iin the Banking System.


I suspect the Lloyds/TSB/Cheltenham&Glos/ScottishWidows/Halifax/BirminghamMidshires/UncleTomCobbly conglomerate might need some further sorting out and separation in the fullness of time. Scottish Widows in particular, would be better standing alone, as it doesn't sit so well with all the other companies Lloyds has hoovered up. Scottish Widows seems to be a different type of business.

Shows, doesn't it, that if your 'free markets' are insufficiently regulated and you, er 'interefere' in them, extraordinary chaos follows.

I always thought Brown was looking he wrong way. He likes to come across so clever but compared with the people in the stockmarket, he's the very novice he condemned last week! Those guys know how to make money at every turn don't they?! All GB knows is how to spend it.

The only ones getting rich in this are who?

Meanwhile the UK economy is on its knees and staying there.

Ho Hum, what next guys? China to buy UK PLC?

GC

"which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise."

Robert, wasn't it our great leader, Gordon Brown, who altered the Bank of England's MPC target in 2003-12 to CPI, thereby excluding the cost of housing?

And doesn't Brown appoint about half the "independent" MPC, the same MPC that uniquely over-ruled the Governor in 2005-08 to introduce a rate cut just when the house market was showing signs of cooling which triggered another couple of years of boom?

Instead of boom and bust we've had boom followed by boom followed by boom. Now we've a long run of busts to come.

Well done Robert, another scoop. I sincerely hope the tax payer will be well rewarded for this most generous of bail outs, sorry rescue plan.

What I find funny is the comments that Gordon Brown is responsible for this global economic crisis, so is Gordon to blame for the USA's problems, Iceland's, Germany's, France's, Japan's, Spain's... people are forgetting this is a global issue... In fact he seems to be the only person who has provided a satisfactory and workable solution to this 'Global' problem. We can trace the cause of this problem right back to the development of the 'new' & 'free' banking system created by Mrs Thatcher and her cronie at the time Mr Regan!

#12

They [Brown/Darling] might have been on the watch but the design of the fiscal system was at fault, just like the Titanic with it's faulty water-tight bulkheads and to few life boats, yes the captain allowed the ship to collide with the iceberg but that was (on it's own) didn't cause the death of 1500 odd people. Sorry but the blame has to lie with the designer of the fiscal system, Thatcher.

This has been a systemic failure of the banking system and not just an economy or regulation failure, just because something isn't out-lawed it doesn't mean that bankers should have left common sense and due diligence in the wine bars of Canary Wharf...

As I understand it RBS didn't have the same degree of exposure to toxic mortgages that HBOS has. RBS's problems stem squarely from Fred Goodwin's folly in paying way over the odds for ABN-Amro just as the credit crunch began to bite. That left the balance sheet too stretched to cope when the credit markets dried up. RBS should get through this OK although it will be chastened and humbled.

The mistake was to create new banks, NR et al, which had to compete with existing traditional banks in the high street and then not regulate them. The trad banks held the bulk of the market and were not prepared to let it go easily. The new bank shareholders demanded growth which could only come from increasingly unsound lending. The government enjoyed the incomes and popularity of a 5 year property boom. The opium of the masses. The necessary regulation controls where not put in place. We now are relying on the very parties involved, the banks, the FSA and the government to sort the problem with our money. Now they want to start up the fairgound attraction again and are talking up the housing market, get the opium to the masses again. Why, because there is nothing else, the City shrinking shows the total lack of strategic ecomonic thinking. Why am I underwhelmed.

"I will not let house prices get out of control" - Gordon Brown at the start of his reign as chancellor. Together with "No more boom and bust" its clear who the culprit is.

The Government must be insane if they expect shareholders to invest without something in return and lets face it, they tax us 20% on the Dividend, Capital Gains Tax unless we spread bet (they will close that loophole for sure soon) and then without any real justification, nationalise the business. To make it doubly worse, the opposition is sitting back and letting them get away with it without so much as a whisper of objection. 10 out of 10 to Barclays for trying to go it alone and I really hope they succeed but how many large investors are going to trust the motives of UK Government?

"Soon we'll have the full set of Northern Rock, Bradford & Bingley and HBOS - which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise."

And as NR sells of its good loans and is left with the dross and BandB becomes a basket case with every passing day the possibility of the government of Gordon Brown ending up with a stonking great loss to add to the £3bn that has already been moved to equity in the bank gets bigger every day. No wonder he would like another housing boom,preferably before it all comes out in the open.

Hmm, no catastrophic failures at the FSA then. Strange ..

Shouldn't it be Mervyn King's head on the platter now?

At last! You are reporting the facts in a more balanced way. Why did it take you 24 hours to realise that the government 'bail-out' was open to shareholders to decide. If much of the money can be raised on the market, your jubilant reporting of the humiliation of the banks will look rather stupid, which is what I think it was. I would like your reports better, if they were more factual and less gloating.

Robert,

(or more sensibly anyone from NR on this site), could you confirm if theres any truth in the rumour that every member of Northern Rock staff will be getting 50pc of salary as a performance bonus over the next two years?

50PC?

I am a shareholder in RBS, and I am thinking of buying in to the new capital raising.

What I think is interesting in this is how the government has insisted that RBS needs more and more and more capital. The number kept going up through out last week. You would think they were trying to get it to a number where the private sector would be unable to provide it - maybe that was the game.

Step back and think rationally about this. As Peston says, RBS is a money making machine par excellence. It has been short of capital but this latest injection will mean its Tier One ratio rises to 9%. 9%!! So you would have to believe there's some desperately bad news still to come out of RBS for it to be in trouble.

If the funding crisis starts to abate - and under near worldwide government guarantees it should - then RBS could end up awash with capital. For a business capable of generating £9bn of cash per annum, paying back the pref shares is not that much of an issue.

RBS is oversold, surely, and the share price will recover at some stage (if I knew exactly when then I would already be in the Bahamas). So provided the share price stays in a reasonable place over the next couple of months I don't see why I want the government taking all the upside.

Unless the shares stay stuck way below the rights offer price, I'll be taking up my rights and I hope many others will follow. Otherwise I'm nationalised on the cheap!

I think the cavalry in the form of existing shareholders is unlikely to be attracted. After all, this company which we were assured 'made £10bn' last year and didn't need to raise extra capital, then raised a wholly insufficient £12bn at £2 a share. 6 months later they are worth approximately 67p.

Having burned all 8 fingers and both thumbs to just above the elbows, picking apples down the orchard may be a tad unappealing!

Can someone out there help me with this? I have heard vague mention here and there(and only in mumbled asides) of the idea of the UK being in a worse state to weather this particular economic storm than most other European countries yet no-one that I've heard in the mainstream media talk about it. It makes sense to me that since we have so much debt -personal as well as public- and since our house prices were/are so inflated we are in a bad way to handle this. And yet Gordon Brown seems to have been able to strut his stuff as saviour of the known world without anyone bringing this up? Why?

....wave of global stock-market euphoria..

since when a relief rally in a bear market 'euphoria'?


...how much spare cash is available to our battered pension funds ...

its a global market. buyers are likely to be people with cash? who might they be? think far east.


....for all its hideous booboos, RBS is a fearsome moneymaking machine....

all the banks would have gone to the wall if central banks had not taken their mortgage backed assets for bonds? So banks now playing we are still masters of the universe card is ridiculous.

...near-catastrophic failure of macro-economic management by Bank of England and Treasury ..

and no responsibility on your mates to follow sound business models?


its clear there is an agenda in these blogs. The only people this 'reporting' will fool is the financially illiterate. which are cheap and easy victories?

All these comments about guaranteeing savers' deposits are miles off-beat - the reason people haven't been talking about it is because it's pretty irrelevant. All it served to do in the countries it was implemented in was to prevent a run on the banks.

The government was sensible not to give the guarantee - Ireland's guarantee was worth more than its annual GDP! How were they ever going to pay if it was called on. To guarantee deposits would have been pure irresponsibility in the guise of populism by the government. Nothin like £40bn moved to Irish banks in any case.

In fact, the way to save the banks (and the rest of us) was the move to guarantee interbank lending.

Whilst GB must shoulder the blame for getting us here, the UK government has responded as well as, if not better than, any other national government to this crisis.

Credit where credit's due.

No one in their right mind, and certainly not the banks' shareholders, would wish to have the government anywhere near their businesses if they could possibly avoid it. It's the kiss of death!
Until some real sense has been knocked into the crazy UK housing market, a major destination for bank funds, and a major source of bank profits, has virtually dried up.
Until normal, creditworthy people -- nurses, firemen, teachers, shop assitants, ... -- can afford to put a roof of their own over their heads and also repay their mortgages without getting hopelessly into debt elsewhere, no reputable bank is going to lend a penny for house purchase.
House prices mustn't fall further: they must collapse. Until they do, renting is the only practical alternative, but the UK rental market is too primitive to be a viable long-term solution.
For all those budding economists, market inefficiency lies at the root of the problem. There were two: acute inefficiencies in the housing market, and gross inefficiencies in the market for money. There are plenty of people, thanks to Dan Kahneman and many others, who understand this phenomenon. Alas, not many people are listening, so they continue to live in agony. Ultimately we get what we pay for!

#5 oritteropo

I'm struggling with the Llyoyds / HBOS deal too!

Why should Lloyds now pay less for a significantly more capitalised proposition (recapitalised by you and me) than they had offered when it was wrecked?

Also what are they using to "buy" HBOS? The money the taxpayer has just "given" them?

So are we in effect just "gifting" HBOS to LLoyds, or paying to strengthen HBOS and then giving it away at firesale prices - To a company that needs handouts itself?!

Spot on Robert (again).

HBOS is a complete basket case that will simply destroy shareholder value for Lloyds TSB. What on earth is the justification to Lloyds TSB shareholders for this daft deal now? Get it over with Gordon and place all the former building society failures on the government's books. HMG can then bail out over stretched homebuyers in a co-ordinated manner.

RBS is a very different case. Sir Fred was over keen with the ABN Amro purchase, but this is a great banking business - the cutting edge of commercial banking - and should stay private. The government wouldn't have a clue what to do with such a complex international business, so leave it to the private sector. Hopefully more investors will agree - as the share price suggests.

RBOS owns the Ulster Bank, 20% of the Irish problem, and it is quite a problem. The Irish government has declared deposits in Irish Banks safe for 2 years, ie a RBOS liability on top of the toxic stuff.

The whole thing is a Nantucket sleighride and still in progress.

Too much hot air still coming out from interested parties, still swerving saying what the situation is.

The carpet at number 10 has so much swept under it that you need steps to get onto it.

As for Brown leading the way, looks to me that it has more to do with Warren Buffets move on GS being copied than anything original.

We should always have had a stake in the banks - if they're so strategically important.

Brown is unbelievable he says that RBS and HBOS/Lloyds need to resume lending at 2007 levels. In today's Times the CML said this would be a stupid thing to do. Doesn't look like Brown has learnt anything. The exact cause of this problem is because of un-restrained lending which he is now ordering to resume. It looks like he is throwing away this country's future for his re-election bid based on house price rises for ever. I notice that Mervyn King has not been visible recently, does anybody know waht happened to him?

"But the important point is that, for all its hideous booboos, RBS is a fearsome moneymaking machine."

Wouldnt RBS (along with all the other banks) be bankrupt without central banks intervention over recent weeks?

Also, wasnt it a "moneymaking machine" precisely because it was lending recklessly. Northern Rock was a moneymaking machine until last year!

With 99pc of people realising theres a recession and tightening their belts, house prices falling and lending criteria getting stricter, no bank is going to make the money it did in 2007 again for a while yet.

All that rubbish about house price inflation being caused by a property shortage... hah! Finally everyone sees that house prices are linked to what the mortgage companies are prepared to lend buyers, and mortgage salespeople on commission will lend to people who can't afford it, companies will allow 6x, 7x income, 120% LTV, to gain market share... when will we get some regulation to prevent this happening again?

AS many have said, this is not the end of this crunch (which will lead at least to recession) - its merely the beginning - with that in mind, I'll give these shares an almighty bodyswerve (as the writedowns will increase) if its all the same to you.

'... allow house prices to rise and rise and rise etc'

Why should it surprise us that our socialist government of the past decade or so was happy to see us proletariat getting something for nothing?

Don't forget that Gordon Brown's hallmark during his time in government has been to shower us, the huddled masses, with 'free gifts', treating the central bank's and taxpayers' money as his own. Allowing the housing market to bubble was just another tool in his kitbox for being able to say 'Aren't I the most clever and wonderful politician ever to have graced these shores ....?'

Er, it's now a gone a bit wrong as far as I can see. Remind me again just how much money we now have to find (God knows where from) over the coming decade or two just to get us back to Go.

Gordon Brown has played a leading role in ruining this country; please don't forget that.

Paul42 thinks Alex Salmond's dream of an independant Scotland isn't going to look too good if he has no Scottish banks left.....

If you want to be realistic about this then ask yourself the question as to how it is that despite Scotland having two of the largest and most profitable banks on the planet based in Edinburgh the company birth rate in Scotland is pathetically low and report after report has said the main cause is a lack of risk equity capital.

So in effect the "Scottish" banks are pretty much disconnected from the real needs of the Scottish economy.

Now hang on a minute! Before we get too carried away let's not forget that there were (and still are) strong fundamentals of supply and demand driving house prices. Surprisingly few people here borrowed more than 95% to fund their purchases, while many more were borrowing far less.
This is totally different to the US market where a) building land is easily available; b) shockingly badly built houses were being sold to jobless people at vast profit; c) deferred mortgages of up to 125% were being offered in HUGE quantity.
Here there is still a dramatic shortage of housing, particularly since large-scale building has all but stopped recently.
I strongly believe that as banks start to lend at more normal rates and funding levels again the housing market in the UK will stabilise very quickly.
Yes, the market overheated, but if the banks hadn't caught a cold from their exposure in the US then the UK market would probably just have paused for a while until salaries caught up...

I think we have all, over the last few days -
become a bit more
- 'PESTON-MYSTIC.'

"FOR INSTANCE .!"
I found myself proclaiming yesterday, :

"That no matter how laudable the sentiments of Angela Merkel "
(About Banks future major dealing commodity being TRUST . .)
will it be so easy to achieve, after the years of TOXIC and Cancerous mistrust, due to the foolhardy Game of OLD MAID that the Banks have played .?"
(This was slightly embarrassing, as I was in the checkout queue of NETTO's at the time . .)

Like several of your contributors, I am an RBS shareholder with every intention of fully taking up my offered quota of shares.

I am greatly encouraged by the knowledge that so many RBS shares are currently the possession of major funds, with capital at their disposal. If even a small percentage of these funds support a new - and impressively qualified - management, the governement will rapidly find itself in a minority position as shareholder.

A turnaround of more than seven per cent, from the assumed share take-up of zero, ( and where on earth did THAT come from?) will reduce the government to being a minority shareholder, and will secure the independence of RBS.

The preference shares will be bought back inside eighteen months. Profits alone should secure that, and, if they don't, the sale of non-core assets will fill in any shortfall. Eventually, the government will be able to sell its minority stake, at a profit, and the taxpayer will be a net gainer.

For the long-term investor, buying shares at today's price, and supplementing the stake by taking up rights in November, must be a really attractive option - and, I suspect, progressively more funds and private investors will appreciate that, and buy, pushing the share price higher in the weeks ahead.

Clear out the mess at RBS and there remains, intrinsically, a robust international bank. This will possibly be appreciated by a bidder - and many banks, surely, are closely examining the RBS situation. The first rumour of a bid will further enhance today's depressed share price.

RBS shareholders: hang on in there.

Clearly the LLoyds/HBOS deal has been allowed to proceed by the government due to serious lending requirements that have been attached.
One minute Darling is saying that they will not interfer commercially and the next he is saying that the banks have to commit to the lending levels of 2007. This is social engineering surely? So we have a government that is forcing a commercial bank to lend at levels which were unsustainable? And to who? House buyers? They have fallen for the no bust scam before and now have huge mortgages taken out at interest rates of less than 5%. I just do not see how this is going to work without massive manipulation. Aaahhh so that is it. Let the UK go into recession this forces down prices and therefore inflation which gives credibility to reducing interest rates (no talk of sability now just the need to boost the economy). This makes mortgages more affordable and voila!
Only problem is that it will not happen overnight and so politically not good as labour need a quick fix before the next election. Not sure where this is going to come from as there is not spare money for increases in public spending to keep people employed.

All in all it's pretty gloomy.

typical the rich get richer by the funding of a government that is blinkered to only seeing what they want to see.
banks have been given too much lea way in recent years to squander there resources get into trouble and expect to be bailed out with out repocussion, rbs etc all owe a duty towards the taxpayers of this country and becouse of this governments miss handling of the situation they may well get away with daylight robbery.
well if the crisis worsens and they faulter again i think they should be allowed to sink in to the mess they helped create.

Hmm I'm not convinced that the government is to blame here. The mortgage market consisted of, on the one hand, willing borrowers and, on the other, willing lenders. Sure, the amounts involved were silly but was it really government's role to intervene and say "We know both parties want to enter into this agreement but we're going to stop it because we know best."? Had they done so, it's a fair bet that the likes of this blog would have been full of complaints about the "nanny state" - and probably by much the same people who are now complaining that the government did not intervene.

35. bright-eyedwendym

Because our press is either corporate or state owned. And the state and corporate power want you to go back to sleep again. Their feathers were starting to ruffle for a few minutes back then, they thought you all might wake up.


You didn't think we had a free press did you?

This is looking more and more like a global pump and dump scheme - get the governments to throw a bit of money in, desperation rebuilds the old wobbly house of cards and there is a sell off and down it goes again.

There seems to be the hope that if we can get share prices back to there previous completely untenable levels - now everyone knows about the pyramid selling - that all will be OK.

Are house prices going to shoot up worldwide to support this dream.
No - but massive inflation might help.

28-skynine:

"Soon we'll have the full set of Northern Rock, Bradford & Bingley and HBOS"

So the UK will soon be one huge council estate.

Have you noticed Declan Curry has 100th of the comments on his blog that Robert Peston does. He really is the "face of the credit crunch", isnt he.

Sometimes Declan gets 0!

Whatll happen when its resolved?

Robert,
I do not want Alastiar and Gordon replacing Butch and Sundance as the the most notorious bank robbers of all time.
As a shareholder and will certainly be taking up my rights assuming on my own workings we will probably be offered approximately 1.4 shares for every share we already own. I believe in the upside over the medium term and can not believe that the Pref shares will not be paid off asap allowing for a resumption in divided payments.
Shareholders who wish to maintain their level of interest might like to also consider buying shares should the share price go below the the issue price if it happens again. I was tempted yesterday at 50p but have a few cash flow problems with the Icelandic banks at present.

I'm not sure about the way RP explains the housing 'bubble'. Let me give 2 examples, one in London W6 and the other in Leicester LE2.

A medium sized Victorian terrace house just off the Fulham Palace Road bought in 1957 for £3750. At the time Fulham was a typical 'working class' area. 50 years later the house sells for £575,000 - with plenty of work needed. During the 50 years there have been several surges in value or 'bubbles'. However the average increase per year was £11,425.

In Leicester LE2, a medium sized detached house in a leafy edge of city location bought for £140,000 in 1989 now valued at £375,000. Call it 20 years to take account of the market. The average increase per year is £11,750. Again during that 20 years there have been value 'bubbles'.

Also, I do understand that little is selling at the moment so values are suspect but this is all to illustrate a point.

Which is?

Over the medium and long term I think the market works for housing asset values. Concentrating on the short term gives a distorted view out of which can arise poor policy decisions.

Finally, just a thought.

It may be that Building Societies are the best way to finance housing, they are more rooted in real money.

"if apples - or RBS shares - can be bought from the orchard at 65.5p when the market price is 70p, you'd be a fool not to buy in the orchard"

Well there must be lot of fools in out in the market today then. For a few hours now they've been paying over the odds.

#23 If "Thatchers system" was so flawed why is it Brown and co have basked in the glory of said system for 10 years instead of putting reforms in place so our banks did not get in such a mess?

He accepted the boom and revelled in it now it is time he joins the ranks of the Banks CEO's and falls on his sword.

"which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise."

And yet the Aussie Gov't is still injecting A$10bn (as of today) into the system to prop-up the over-valued Australian property market to keep house prices rising.

Sooner or later that mother-of-all housing bubble is going to bust. When it happens, Kevin Rudd and the RBA will be similarly accountable.

Robert,

Stop wasting our time with these reports. Your reporting, whilst interesting is like re-painting the hallway during an earthquake.

We don't even know if there will be a financial system in the next 10 years - that's for China and the Arabs to decide.

The economic fundamentals of the western economies are based on sand. They simply don't make logical sense.

Surely this is what you need to be reporting on - or are you like everyone else and your eyes start glazing over when you read economic theory?

Typical - the human race dies out because no-one could be bothered to find out if they were being told the truth or not.

You all deserve what's coming to you...

Gordon may have sold the plan to the rest of the world but it was the Irish government who came up with the fundamental idea. Not only did they guarantee deposits but also the bank's commercial paper, going straight to the root of the confidence problem. Condemned as absurd by some, e.g. Will Hutton, and praised as innovative by others.

But how come HM government can buy the banks without the need for additional legislation ? Did they take the necessary powers in the Northern Rock Bill ?

Another question is why did it take so long for the confidence problem to be addressed ? A group of banks could have got together as a 'lending co-operative', given each other the necessary reassurances. Or is this too simple ? Or uncompetitive ? Not much competition between nationalised banks.

35 bright eyed

You are very hopeful if you think that Emperor Brown will come to the balcony and say anything other than he singlehandedly has saved the world. Or that everybody else has been told not to rock the boat. Or that the opposition will want to be the only negative voice in an immediate threat situation and get shouted down by the mob as jeremiahs.

'You can fool some of the people all of the time and those are the ones you should concentrate on'... George W Bush.

The level of debt is higher per head of UK poulation than any other country in the EU, The main income generating sector in the UK is the City, all else has be sacrificed and any voice questioning this policy has been ridiculed for decades and had the City held up as a shining example. Now the City has to shrink there is not a lot to take its place.

If you destroy your technological edge all you have is a cheap labour market and labour is always cheaper elsewhere, usually in a country where social services are not provided, health and safety is not legislated, and taxation is lower, and the graduates are educated in this country.

The main problem is the level of individual and national debt which will dampen down economic activity. Countries without these problems are better placed than the UK, eg France, which the IMF do not reckon is due to enter recession at present and have cheaper wine and cheaper housing. Hmm.

The problems are worse here than elsewhere, the US may be in bad shape but it does not have the tax burden of the UK and historically is more resilient. Additionally the US is more interested in recovery than inflation, whereas the UK is historically more interested in controlling inflation than recovery. Inflation at 5+%, up to 8+% for some groups means UK interest rates will not drop much.

Greenspan in the US reckons that the recovery of the US housing market is essential for the US economy, as the UK is unfortunately in a similar situation the same is probably true here so the siren song is already starting to get the UK housing market going again for short term objectives. The danger is going around the loop again.

The government is schizophrenic - on one hand it wants to put quaker style banking in place and blame the bankers and on the other it wants to maintain 2007 lending and push for a housing market recovery. At the same time it wants to say it stays out of the marketplace. There is no such animal as a free market, and regulation is the responsibility of government. It is this sort of dysfunction that created to this stiuation in the first case. Despite what all the Brownies want to say.

55 maroon3

I think the media is an orifice which passes all understanding.

The devil takes a hand in what is done in haste.

Robert Peston I am still confused about whether there is enough money to cover the "toxic debt" that I assume to be in the form of derivatives including CDS that has yet to kick in.

As this seems to potentially be a much larger amount of money would the governments have to buy it and bluntly, as we go into a recession, would there be the money to cover it?

Its assumed we would make money as with some of the "Scandic model" but I assume that ain't necessarily so.

So we had privatisation.

Now the potentially hugely profitable Banks are being Nationalised, robbing the small shareholders.

Later when profits magically return, we will have privatisation, again.

One way to impose a windfall tax on the entire middleclass and all pensioners.

Mr Brown is a very creative accountant.

Many people have commented that the banks will be forced to lend at 2007 levels by the Government in return for a capital injection - the commentators view being that this is effectively like trying to put a fire out with petrol.

In reality, what I think you will find is that the banks will have money to lend, and will provide that in various forms of fixed rate mortgages, personal loans, and more importantly finance facilities to businesses - the main fact which every one has missed is that the lending criteria will be much tighter. for instance mortage lending will be capped at 3.5 x salary, with the max loan to value being 85%.

As an equity investor in small businesses what I have seen on a too frequent basis recently is that banks (RBS in particular) have been unilaterally reducing company working capital facilities, such as overdrafts and invoice discounting. This has a major knock on effect on companies as they have to curtail trading to stay operating within their bank facilities.

Hopefully with the Buffet inspired banking solution being enacted we should see a return to sensible banking, that would not seem out of place 10 years ago.

Banks that have screwed themselves have very little sympathy from this poster.

So I'm a bit puzzled as to why anybody, as opposed to the Government, would particularly want to 'invest' more money in these entities.

Because even amongst the banks, some are actually very well managed, e.g. HSBC and JPMorganChase and therefore much more deserving candidates for investment purposes than these thinly disguised basket-cases.

62 mkdon

You are wasting your time trying to have rationale about accountability some people just do not want it.

Contrary to the barely decipherable rants of most posters on this page, the problem did not start in the UK and will not stop here.

We did not sell "sub-prime" mortgages here, very few banks lent at 125% LTV ratios, like the americans did, and prior to the last few months there had been very few foreclosures in the UK.

Granted, property has been massively overvalued here for some time, but that is as much to do with the fact that we are chronically overpopulated as it is to do with cheap credit. A property slowdown was always inevitable, but a crash was not - at least until the sub-prime crisis tipped of a credit squeeze across the globe.

Don't let the idiots on this page convince you that the UK housing market is responsible for today's troubles - the US housing market is primarily to blame.

Oh, and by the way, I am thoroughly sick of all the "I told you so" merchants on here. please - 1 poster point me to a pre-August '07 blog where they 'warned' GB of this crisis?

Hi Rob,

I don't know how you can lump the BofE in with the failures at the Treasury and the FSA. I think Mervyn King is doing a stirling job in the face of 'easy money' critics.

In case you didn't know, financial instutions are regulated by the FSA (not the BofE)

It was not the BofE's job to regulate the mortage market. Their soul mandate is to watch inflation, which they were doing as well as possible until they were recently bounced into a rate cut - which was avery bad idea btw.

So Rob the failures in this case are the FSA and the Treasury. Please get your facts straight.

Of course the government must share some of the blame (mainly for its consistently uncritical attitude to free markets and everything private) but there is something a bit desperate in the way that pundits are avoiding putting responsibility where it truly lies - the market system itself. The history of capitalism is one of boom and bust, exuberance and panics. The action of individuals in markets may be rational, but collectively they produce chaos. It's in the nature of the beast. As others have said, no-one forced the banks to lend far too much to risky borrowers, especially in the buy-to-let market. It wasn't governments who invented packaging dodgy debts and selling them on. Yes, they should have stopped it - but imagine the howls of outrage if they had tried to! Not least from the free-market cheerleaders in the media, who are now so ready to point the finger at the authorities.

69 thegangofone

There is plenty of money still in the world, china and the oil rich States of the middle east, Russia is oil rich. It can be borrowed from anywhere at the right price, indirect ownership of the country, nothing new. How much do you want and how much have you to sell sir. That is what Iceland is up to. Could have a Russian airbase here too if things got real bad. What luck.

Robert

All of this just goes to show how little political or government control there is over the financial sector, plus the tremendous lack of understanding by the man on the street, for if the man on the street had the slightest inkling of what is going on, joe public would have been all over government like a bad rash one or two years ago.

The fundamental flaws in the system is that the rules were written by bankers, for bankers and endorsed by governments, (presumably on the advice of full time senior treasury officials, because I doubt few politicians would understand what these rules are, or what they mean.) and these rules have been broken.

I can see no reason why anyone would want to buy RBS shares, other than to make a smash and grab profit. Have a look at what you get for your money if you do buy shares. Shaky capital growth, probable loss, and in all probability, no yield for at least the next 12 months. Compare that to government bonds, stable capital, so no growth, but no loss either, yield 4.5%ish. That strikes me as a safer and more profitable proposition. My point is strengthened further by the overall overnight appreciation of equities. Huge amounts of money is now going into shares where the yield is positivity suspect in many sectors. The reason? short, fast profit. The markets are not stable yet, and it may be some time before they are. Who in their right mind would take on board a bank that has failed and in all probability failed to follow the rules, and wont be paying out a divi?

I reckon RBS will have to go ahead with the government rescue. But those conditions laid down by the chancellor aren't going to cut it. He wants nationalised banks to lend at 2007 rates. He is of course joking. The CML yesterday said in a press release that the treasury condition is aspirational. That means they are not going to do it, aspirational in this context could mean anything, other than its not going to happen now, tomorrow, next week or next month. The chancellor can jump up and down all he likes, he has bought an expensive bank that will not comply with the conditions of sale.

Re #48 Wee-Scamp.

My comment was a bit tongue-in-cheek!

Your point about the disconnect between the 2 Scottish banks and company birth is well made though. I think employment (and the economy) in Scotland is overly dominated by these 2 banks.

I think Scotland (and the whole of the UK for that matter) needs to try to build a more balanced, self-sufficient economy. Not just one based on Finance and Service industries.

""which will be seen by many as confirmation that the near-catastrophic failure of macro-economic management by Bank of England and Treasury over the past few years was to allow house prices to rise and rise and rise and rise and rise.""

Spot on Mr Peston and this is what Brown and the Labour Party must remain accountable for.

Apollo McQueen (No.32).
NR staff bonus is not 50pc of salary. It's 50p.

76 JaneB

I know what you are saying but the brutal fact is there is no proven system other than capitalism and it is undoubtedly a powerful mechanism. If you have capitalism the challenge is to control it through marketplace regulation, there is no other mechanism, otherwise the planet is stripped bare and we all die like bacteria. Bacteria replicate until the reach the boundaries of their environment and die in their suffocated in their own byproduct. The issue is control of the marketplace.

What has or is going to happen to all the 'toxic debt' that the banks and lending institutions have lumbered themselves with ? It's fine, in the short term, to pump (tax payers) money into the system but surely the underlying fact is that there are some horrendous amounts of money that will or may have to be written off, and that the monetary system will have to be re-regulated so that the 'capitalist banking system' can once again work. Probably most of the debt is totally worthless anyway !!!

The main culprit in the UK is good ol Gordon, and anyone who disagrees needs to give their head a shake.

The UK should have experienced a recession/slowdown in 2001ish, at the same time that there were slowdowns in the EU and the USA. What got Gordon out of the hole then was consumer spending - and guess what it was funded by debt.

He did the right thing by making the BoE independant, but limited the BoE to overseeing a tightly defined form of inflation, whilst removing the BoE's banking oversight and giving it to the FSA.

He ramped up government spending, and massively increased the number of state sector employees thereby increasing the % of the electorate that were dependant upon his largese for their livlihood.

To ensure that the rest of the electorate were happy and would continue to vote him in, he lulled us all into thinking he had banished boom and bust, and we could therefore stretch our mortgage to buy the house we wanted - as we wouldn't see a house price crash again.

At the same time he has fleeced us with taxation - both companies and individuals, to the point where any company with overseas operations is looking to relocate overseas to reduce its tax burden.

Therefore, this labour government has now put in place the largest ever public sector debt exposure, which gets massively worse when you factor in state pension liabilities, at the same time as government tax revenues are about to dry up due to recession, companies relocating abroad, and because the man in the street cannot pay any more in tax.

The BBC News Channel is still, of course, bringing up stock market prices every so often but seems to have stopped bringing up banking share prices.

Policy decision?

'But the important point is that, for all its hideous booboos, RBS is a fearsome moneymaking machine.'

....Moneymaking machine for whom?

It would appear that each new day simply presents you with a new blank sheet with which to report the days financial news on without having to be consistent (in any way)with any of your previous blogs or conclusions.

I'd be sacked if I worked on that basis.

PESTON....don't treat us as fools!

Fractional Reserve Banking and the Money Multiplier...

Some of you seem to be wondering where all this money is going to come from...

I'll tell you...

They are going to "borrow it into existence". The government are going to go to... The Bank of England and say "Mate, you couldn't lend me a tenner could you?". And the Bank of England is going to write "10" into the government's bank account at the BOE...

That's it. No, I'm not kidding... That is exactly where money comes from.

Here's the good bit though. That 10 then hits the regular banking system when the government spends it. It runs right into the Money Multiplier...

The (UK) banks take that 10 and loan it out around 30 times. That initial 10 becomes *300* pounds of credit in the economy... Their average "reserve ratio" is about 3% you see. That is, they have to keep 3% as reserve in case you decide to take cash out.

Well, how much are the government pledging? 50 billion?... Multiply it by 30 and you have... 1.5 trillion pounds hitting the economy... That should do *nicely*, you can never have too much money.

Can you?

Oh wait, I forgot to mention... The 1.5 trillion in additional debt this is also going to create.

Have fun.

GHBRich
'we did not sell sub-prime mortgages here'

Where do you get your facts from? Are you a Labour spin doctor in disguise?

The credit problem very much started here, and in every other wester capitalist country. The ONLY way for capitlaism to sustain growth is for the people to get further and further into debt.

I personally had an experience in this country where an IMA who was attached to an estate agent I was buying a house from - ACTIVELY ENCOURAGED ME TO LIE ABOUT THE RENTAL VALUE OF THE PROPERTY IN QUESTION.

Luckily I'm no fool and he got a short sharp shock from the back of my tongue and I went to my own broker who set me up with a BTL which is comfortably making money - even in this market.

Of course it started here - we pay commission to whoever can sell the most mortgages. The only truth in this is that (as with most things) the US did it bigger and better.

If you're looking for people to blame you will need to go back a long way - even as far as Adam Smith - the 'godfather' of economic fiction with his 'invisible hand' that works the market - yeah right.

If you wanted a fore-warning, it was everywhere. Everyone knew this was coming, but no one knew when because the banks don't tell us (or even each other) what they hold in assets.

However to make an exception - here's a couple to keep you going.

1) Capitalism WILL end someday, the economic model is unsustainable and is based on unlimited resources being available. The requirement for exponential growth will eventually lead to a collapse in the system

2) Inflation will go up, starting here and starting now. The bail-out has merely compounded this problem. The country binged on credit and has not had to pay the price yet. Brown's move has simply returned the lost gambling debts to all the casino users and they're just about to roll back in.

3) Interest rates MUST go up - in order to control the rampant inflation this will probably be in about 4 years time so you will want to get a fixed rate in about 2012

4) The Olympics will bankrupt Britain - I know that's not exactly a revelation, but it's going to kill us off.

The credit crunch – not all bad news
Because appearing on the news
Day and night in sound and vision
A man with an important mission
To explain financial gobbledegook
To us mere mortals who mistook
The intentions of bank bosses
Who seem to have made substantial losses
They’ve given out too many loans
For mobiles, cars, kitchens and homes
They’ve taken far too many gambles
Resulting in financial shambles
Robert Peston is the guy
Who can explain to you and I
The mechanics of the debt
And how world governments have let
Bankers pay themselves silly money
Which really isn’t very funny
And we cant really see the joke
And fiscal rules are up in smoke.
But taxpayers will bail them out
“that’s not fair” I hear you shout
“why should we bail out rich bankers
when they’ve behaved like total ankers”
“its for the best” says Gordon Brown
“you know I wont let you down
I will do whatever it takes
(just forget my previous mistakes)
I know I was the one in charge
And was in favour of borrowing large
But I was not the only one
And at the time it was quite fun
Blowing up a housing bubble
How was I to know the trouble
Which lay ahead of all of you
What was I supposed to do?”
Well Gordon you should have asked our Rob
Cos he’s the man who should have your job
He knows how the money works
He’d foresee where trouble lurks
Robert Peston for PM
He should be in number 10.

Has 'G Brown' made real mistakes with governance and fiscal policy? The answer in hindsight is yes.

The answer in 2005 or 2001? No.

Therein lies your answer it's only a valid response of the snapshot of time the oppinion was made. All these people on here with concrete oppinions on who to blame should have been running government or the FSA then we'd all have been saved. The fact is when the US is booming we boom. If we don't then virtually all of these critical blog's would be crying into their slowly growing asset pot's. I don't remember many journalists or blogists moaning about the rush to a huge debt based society when their housing prices went up and their jobs seemed secure.

I remember at the time that NatWest Markets were being broken up, thinking why were so many retail banks selling off their investment arms? NatWest were subsequently criticised for dealing in derivatives that they didn't understand. About that time I read a few articles in the Economist on the fact that our retail banks had sold their investment banking arms, but were now using derivatives for the investment of their retail assets. Basically retail banks were investment banks. Investment banks have a higher bankruptcy rate than the big four retail banks. I didn't understand the importance of this. Though it was a little worrying knowing that my bank was playing with my money on a risk that by 2000 it was clear NatWest didn't understand.

I read plenty of financial pages and apart from in the last year none of this was highlighted. Hey I may have missed a few articles but all you journalists and sofa geniuses clearly missed the problem. So for all you 'geniuses' to know the answer and apportion the blame is just bull. You'd cry if we didn't boom with the US and you'll cry when we bust with the US.

Fact is the US can't spend more than it earns for twelve years without some period of spending less than it earns. That is truer for Britain than anywhere else. From their policy can then change. Why aren' house prices/rent placed back on inflation rates? I couldn't care less the price of digital radio's but rising rent's or house price's hurts my pocket more than anything else. Let alone bank's leaving debt off balance books why is everyone's major cost off of Gordon's gourmet inflation pizza?

Riddle me this, Robert:
1. Shareholders take up rights
2. Shareholders immediately all sell their new shares
3. RBS share price is forced to new lows
4. RBS faces the same problem it faced at the end of last week.

Is this a plausible situation?

74 GHBRich

The press was littered with warnings about the level of debt primarily in housing, and unsustainable earnings to house value ratios. eg amongst others the CEO of Alchemy in 2005 I believe. I was not posting then.

The problem 'started' in the US. However UK housing has been overvalued at an unsustainable level and is the principle vehicle for individual debt in the UK. Most of this overvaluing occurred in the last 5 years. The whole thing would have heeled over in the UK whatever, the US just provided a catalyst and made it drastic.

Housing shortages which contribute to the supply and demand imbalance are the result of UK government policy, nothing to do with another country. The continuing argument that the problem is elsewhere, not in the UK does not help the problem being tackled here so it does not happen again.

The straightforward fact is that overvalued housing is damaging to the economy and the community. A few people benefit from it, the vast majority pay for it. Shock waves due to bubbles or bubble collapse are damaging and usually hit the innocent along with the guilty, and make investors, corporate or individual reluctant to invest.

I can't believe Gordon wants the banks to lend at 2007 levels. Sure this can only mean introducing 100% mortgages for first time buyers again, as how many first time buyers will have a 10% deposit these days? Not many, if any.

He needs to let the housing market fall by at least half rather than wasting taxpayers money trying to falsely prop it up. It will just end in even more tears in a year or 2.

In my part of the country, north-east England, ex-council houses have dropped a bit, but are still priced around £100k. The hardworking families who Gordon repeatedly says he is so concerned about are on incomes around £20-25k a year struggling to pay utility bills and have 100% mortgages that are a massive 5-6 times their incomes, is an absolutely ridiculous situation, especially for a Labour leader to have created.

He also needs cap mortgages at 90% and encourage young people to save for their 10% mortgage deposit by introducing a tax free savings scheme aimed at young, where the government say pays in 1 pound for every 10 saved by the young person. This might help stop this buy now, go bankrupt later culture that has been allowed to flourish in the last 10 years. Also school children should be taught basic money management skills as part of the national curriculum.

He also needs to get rid of student loans and tuition fees, bright teenagers leaving university saddled with £20k+ of debt is hardly the best way be start your working life, it must be awful for them. No wonder the young are spiraling into more and more debt.

If this is what boom is all about, give me bust any day.

Any young people thinking of getting a mortgage, don’t. Just rent as cheap a place as possible and save up your 10% deposit. Houses in 4/5 years time will be far cheaper than they are now. And remember a house is just bricks and mortar designed to keep the rain and cold off you, it’s not a pension or investment, as houses just sits there doing nothing.

Gordon just do all the hard working families a favor and resign.

It is a pity that we cannot sell a few hundred tons of gold to ease the tax payers burden!

I do find it very interesting when I read the comments on these blogs.....the range of opinion being matched by the range of intellectual ability.

Is this the end of capitalism - well I don't think so. Is it the end of cheap debt finance - yes it is.

Capitalism is least worst form of economic management. What is the alternative? Communism? Don't you know what happened to the communist states - they either collapsed or converted into forms of capitalism.

The era of cheap debt is gone, and good riddance. For the past 5 years banks have been taking equity risk with bank debt - i.e. overlending, and it has caught up with them. What we have to be careful is that we don't thow the baby out with the bath water. If lending tightens up too far then a depression similar to the 1930's in the USA, where GDP collapsed by 25%, is on the cards.

If managed well and responsibly debt is not an evil. It allows companies to expand, it allows people to buy houses etc etc. It is a fact of life that debt is here and here to stay.

10:40 AM "After all, if apples - or RBS shares - can be bought from the orchard at 65.5p when the market price is 70p, you'd be a fool not to buy in the orchard"

Over 3 hours later and the fools are still paying 70p in the marketplace. Some proof that RP's comments/advice don't affect markets?

Has anyone looked at the Welfare Reform Bill ?

Much more interesting than Banks !

90 Tatruth

You can ask me what I was thinking in any year but you cannot tell me what I was thinking.

I considered things were becoming unhinged in the housing market at the end of 2002, and madness was here in 2003.

And when people want to say 'we' are all at fault and have pushed this situation forward, please leave me out, I have not been part of the Mad Hatters Tea Party, I have watched it at a distance waiting for the restraint harnesses to be delivered.

...toxic debt" that I assume to be in the form of derivatives including CDS that has yet to kick in....


cds swaps are time limited and so will expire or mature in 2-5 years. so people hope we can hang on till that happens and so that debt will just 'vanish'.

The only one at the moment that has kicked in is the Lehmans one. All this guarantees to back loans to firms etc is to stop main st from going into administration and so kicking in the the other cds.

forget getting sense out of peston. he seems on his own personal power trip?

for a good explanation of cds was discussed at the time on newsnight blogs before others picked it see the james tappan interview on yorba tv. First two segments on 18th sept.

https://www.yorba.tv/archive-2008-09.htm

#88 says that it is a known fact that the Olympics will "bankrupt Britain" and "kill us off"

How can a £9bn sporting event threaten our financial security, when total government spending is over £500bn* per annum?

Even if it turns out to cost several times the estimated fee it is still a drop in the ocean.

The impact of the Olympics is overstated in my opinion.

* see Wikipedia