Five-year taxpayer help for banks

Was just listening to a Chris Rea song, 'The Road to Hell', and in additional to frankly godlike blues guitar, he sings:

'And the roads jam up with credit,
and there's nothing you can do,
it's all just bits of paper
flying away from you'

Anyone else noticed seemingly prescient or financially astute lyrics out there?

" Mr.Speaker, It is my duty to inform the House of changes that have been made to the Credit Guarantee Scheme.
My rt. Honourable Friend , the memeber for Deeply-in-the-mire, has extended the terms and considions of this scheme so that it has now been changed beyond all recognition to that which was originally envisaged.
I feel therefore that it is my duty to the House and to the people of this country who I represent to make such changes known through the formal channels of the house"

Does this require comment on my part ? No, I thought not.

Perhaps I am missing something here.
The taxpayer is effectively underwriting the banks so that the banks, via each other, can then "lend" it back to said taxpayers but with an interest charge no doubt added for good measure...
We truly have entered into fantasy finance.
It gets more obscene every day.
The bail outs ultimately will need to stop otherwise we will simply be swallowed by the abyss of debt created!

It does represent a policy shift, but one that seems to be becoming increasingly necessary.

Why have a viable banking system - underpinned by tax money - if it cannot afford to lend to businesses?

So we are definitely subsidising the banks. Can or are they going to screw us over as they normally do? I'm guessing not - what the tax payer giveth, it can take away! We have them over a barrel.

No doubt there will be more wailing and gnashing of teeth at the idea that the government is apparently just saying 'here's your money, no strings attached, now for gods sake start lending it to people'. We have to realise that the banks have the government over a barrell on this, now that it is almost universally recognised that allowing Lehmans to fail was a mistake from the perspective of investor confidence the administrations of every developed nation have no choice but to prop up every financial institution until something approaching normal market conditions return.

Of course, if anyone ever asked to see physical evidence that these huge amounts of bailout money actually exist in the real world that would trigger an even greater panic...

I am not sure that if I was a politician I would want to make too much of a song and dance about admitting that the recession would be lasting 5 years rather than the 3 I had previously thought.

a guarantee scheme that is cheap enough to be usable is surely welcome. As a consequence there shoould be some definite monitoring of the application of these new funds.

The relative silence of the government in making available this new facility is explainable: the wider use of guarantees to free up lending towards SME's is a Tory policy!

In following the Tory policy this government confirms two aspectsabout the Crisis it would rather gloss over: the measures to date have not resolved the Crunch aspect of the crisis and this change of policy indicates that the worst is not yet over and we can expect more bad news to come.

I am not surprised that this was anounced as a wisper. Good grief man, the banks have the fee payable reduced while the taxpayer has its risk increased. This is a tremendous insult to each and every taxpayer. No only are we all in this mess because of uncontroled lending, poor regulation, and fantasy banking rules, we had to bail the banks out of this mees, or should I say the Government, for that is truely what happened, now they slap us in the face with being reckless yet again with large sums of our money.

You just cant make this stuff up.

"Five-year taxpayer help for banks"

WRONG !!!


The banks may be getting help from the Bank of England (an 'Independent' Agency of NuLabour !!) for 5 years - BUT the Taxpayer will be helping/paying for many many years !!

Does this come with stringent controls over executive pay and bonuses - or better still, the requirement for banks to replace top-tier management?

No, thought not.....

The problem is that most companies have relied on cheap borrowing to finance their on going capital needs. They have even used this finance to return money to sharehoders. Classic borrow short and lend long situtaion.

They have not had to raise permenant capital from their shareholders so they have not needed to make shareholding very attractive from an income point of view

Cheap money has now gone and the finance officers have forgotten how to raise cash from shareholders and are aghast at the price they will have to pay.

However if the alternative is to sup with the devil in the shape of the government ,of whatever colour, I suggest the learn to do it quite quickly. Even if it means managements share options are not so attractive as they were.

Believe me the money is there at the right price.

What is actually the function of a bank these days?

They are not much use to savers because they don't seem very safe, and do not pay any interest worth having to depositors.

They are not much use to businesses or house-buyers because they do not have any money to lend.

Seems like what they are most useful for is paying huge salaries to useless managers, underwritten by the tax-payer. These guys could not see the huge bubble developing, and don't even seem to be able to spot a pyramid scam.

I honestly believe the UK will end up defaulting eventually, so all this money thrown at banks will ultimately achieve nothing. As the pound becomes worthless we will all start to use Euros and gold whether the BOE like it or not, because it is the only thing traders will accept.

I wonder how long it will be until MP's and Senior execs ask for their salaries to be paid in euro?

Can I ask a stupid question relating to the financial crisis? When the government talks about borrowing money(now at record levels)-who are they actually borrowing off and how does this work?

What kind of guarantees with the banks give the taxpayer in return?

Will the bank directors accept unconditional personal liability or be put in prison if the money is not repaid? (This is not so stupid sounding because you or I will go to prison for just not paying Council Tax!)

This whole situation seems incredibly dangerous because banks make the lending decisions, but the taxpayer takes the risk. I.e. the banks are not the ones bearing the responsibility of their decisions.

It seems that the other aspect of the problem, besides excessive debt, is a complete lack of accountability and responsibility.

#7

Don't forget that this has all come from a government that in March still thought the economy was going to grow 2.75% this year, so on the scale of previous errors, one might assume that this recession may in fact last for around 500 years.

To Paraphrase #3,

The Bank's Shareholders take financial bets;

If the bets turn out good, theBank's Shareholders milk the profit for themselves,

If the bets turn bad, the Shareholders walk away, and we the taxpayers pay their huge, huge debts !!!

The banks pay a fee for this, but at much less than commercial or actuarial rates.


Ever tried pulling yourself up by your own bootlaces - it is fantasy !!!!
(and the worst kind of theft from the people) !!

Does this signify that the goverment senses it's been rumbled by the public about the sustainability of apparently limitless borrowing?

The dramatic drop in lending to the masses and small businesses proves that we were LEND too much over the years by the retail banks and building societies. They, in turn were, LEND too much too easily by the lenders in the wholesale credit market.

We should all remember, individuals can be enslaved by debts, so are countries and businesses, including banks.

Brilliant how the banks are now dictating terms of how they now lend our money to us. (money of course we dont have)

What is the point of banks now if they cant function as they are supposed.

How did we end up here? Surely this was an open goal missed by the politicians.

We are propping up a giant ponzi scheme because no-one will admit it is a ponzi scheme.

#3 I totally agree.

The banks debts are slowly becoming the nations debts. Soon there will be discussions between countries about which country will be underwriting another country.

At the risk of repeating myself, well I reckon its worth repeating;

When are we going to start hearing some good news. Christmas is supposed to be a time of hope, but there's precious little of that around this year.

Where's the light at the end of the tunnel ?
It only ever seems to be an oncoming train or something that rhymes with "light"...

The Christmas no 1 this year should perhaps be...

So here it is,
Global crisis,
Everybody's being done...
What about our future, Guys ?
We're sorry but there's none...

This is a great spot Robert. But there are several peices of news in the media today which suggest to me that the end game is full nationalisation of our banks.

Will Labour tell the public this is what it is intending to do..with all the consequent costs to us taxpayers for doing so?

So we are giving money to the government to give to banks to lend to us so we can give to the government .........

Anyone notice the word lend in this sentence? Thereby hangs the tale.

Are these guarantees priced for risk?

If not there is every incentive for banks to indulge in the most risky lending. If the borrower pays back they make money. If the borrower doesn't pay back the taxpayer loses. Puts the banks in a no lose situation.

What could possible go wrong?

Might the banks start lending money to anyone who can fill in a form, knowing the taxpayers will take the hit???

to 14

Think of it as increasing your overdraft............by 5000%

At some point they will just start printing more money.

Of course there has been a massive contradiction between the price The Treasury was exacting from the banks and the bank rate set by the MPC.

The government has been guilty of practising a huge trick on the public at large. And we all complain about Madoff?

The implosion of the asset bubble and the dependence of the financial system upon the ordinary taxpayer raises many interesting thoughts.

There is no argument for nationalisation as the government is part of the failure. However what ever became of workers' control?

I work and pay taxes and so now I fund my own employment in more ways than the one I am familiar with. The proprietor and the governing classes have totally failed in their role and so perhaps they should surrender their authority completely.

How about we stop helping the Banks squander money and give the billions to the people so they can spend and get the economy going.

Also how about some of these "Experts" who got themselves into this mess, get their "Just Rewards" and I dont mean Bonuses

These Greedy Bankers were so Awed by the return from the pyramid scheme run by Madoff that they failed to even run the most basic of checks, and yet they are still in employment, utterly ridiculas.

But what do you expect from the Old Tie Brigade

5 years eh? What I love about politicians and economists is their arbitrary predictions which have absolutely no basis in fact.

By the day we are witnessing more and more debt timebombs exploding all over the place as the full extent of the corruption that has been endemic within the city unravels.

Madoff is just the latest to be caught with his trousers down, but we will soon see many others and with it the collapse of the charade of the 'success' of the entire economic system.

In fact, a ponzi scheme probably well sums up the mirage that we have been living under. Didn't anybody ever seek to ask where all the trillions that have supposedly flooded into the world economy - and which we have used to create supposed 'prosperity' have been coming from?

The sad fact is that the world economy is broke and if the Government think that they have 'saved the world' and that things will gradually get back to normal within a specific timescale then they are sadly deluded.

To be fair, the risk of default has probably diminished sharply now - not least because of the government recapitalisations of the weaker banks. This does imply a reduction in the rate.

Indeed, the logic goes further than this - here is why this may actually be a really good move:

https://www.knowingandmaking.com/2008/12/making-perfect-sense.html

It's changing day by day!

There's no real plan, is there?

It's just GB/AD fire fighting!

..... and to think just a year or so ago GB was so proud of the financial services industry!

The whole thing is rotten to the core!

Not so sure I'd let someone that didn't seem to understand what was happening within domestic banking lead us out of a Global Financial Crisis....

#13 i) Banks od have moent to lend if you have a decent deposit. They operate in a competitive market.

ii) Are individual banks reponsible for the nations debt levels. Don't the FSA have a responsibility to moitor and control enforce Government policy on M4 money supply. Banks have already paid for their mistakes with their lives (and almost all shareholders investments). When will the regulators and ultimatley this Government be made to account for their appalling mistakes???

iii) Pyramid scams are hard to spot when the auditors and regulators don't spot them either. Is there a strong case here for suing the auditors (and their professional indemnity insurers) for signing off the audited accounts that supported the pyramid scam. Possibly the regulators too.

iv) Totally agree that the pound will increasingly become worthless as long as this Gordon Brown Government is in power.

As Jilted John sang: Gordon is a .....

Why, oh why, should we pay taxes so that the government can lend to the banks? Surely we could, as retail depositors, lend directly to the banks. Once again, interest rates need to RISE. If demand for credit is outstripping supply, then the price of credit should rise. For the government to keep nagging the banks to lower the price of credit is the economics of the mad-house. And why is it so important that lots of us should be able to borrow? Surely most of us are over-borrowed already, and that has been a goodly part of the problem in the UK. All the government seems to want to do is spin out the necessary correction over a long term.

With the mother of all recessions looming and inevitable printing of money on a worldwide basis we should all be paying down debt as fast as possible in the sure knowledge that in 18 - 24 months we will meet inflation of 12-20% - see Iceland. Global hyperinflation will be difficult to manage without a death spiral into much higher inflation rates but this will be the only way in which the world can rid itself of the debt excesses that have riddled the world economies over the last 7 years.

I share eddixons mirth at Darlings predictions of growth for the UK economy. I would pencil in a contraction in growth of 5% next year and 3-5% in the year after

Abbey tried to charge me money after I closed my account. When I queried it - as it ruined my credit rating - they put me off saying it was covered by the ruling on charges and had to wait until that decision. Now they've sold the debt to a debt collection agency who've started hassling me.

Who would lend anything to a company like that?

" ...a recession, apparently, in many countries..." Fragment from RP on the news last night.

Apparently?!

Surely we're at least agreed on that -

Ths banks cannot start large scale mortage lending again until we have a big drop in house prices - 50% at least taking average price down to 1990 levels. Only then will average house price represent an historically acceptable income multiplier of 3X income. I can see no way the banks will ever lend above this level again hence house prices need a big fall or we need a huge rise in wages - not likely. The sooner house prices drop to average 3X earnings, the sooner mortgage lending will recover.

Does Alistair Darling charge the banks GBP 35 everytime he writes to them or rings them up?

This morning my colleagues and I have been discussing one of your next potential themes for your blog!

The news that the US will be potentially dropping interest rates close to 0% prompts me to write this comment.

We were wondering if Mr.Brown has ever played SimCity...
We just discovered that during our Uni years we took this very expensive business degree by extensively trying to build a city with 7% taxes and then drop them to 0%!

If I remember well, the game would end in a few years! Maybe that's what we are all waiting for: next Year's ellections!

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Why do i get the feeling the banks are holding the government to ransom.They seem to be calling the tune with the guarantees they have been given.

Chancellor Darling doesnt seem to have a clue what he is doing and is just throwing money at these institutions.

Bailing out Northern Rock was a major mistake....but they are compounding it by knee jerk reactions....tax payers are in this for a lifetime not just a few years....and still we see the same people in their jobs.

If we are major share holders in these banks and they wont lend then we can at least have the satisfaction of removing the boards..and if they want recompense they can fight for it through the courts because without the tax payer they would have been bankrupt.

Off topic, butI see the Fed is expected to reduce rates to half a percent, possibly to zero in the future..Surely Japan has had zero interest rates for a decade but it didn't jump start anything there..Can anyone explain to me why zero interest rates doesn't have any effect on an economy? Isn't it literally 'free' money?

Corporations and banks created this mess, they can get together and solve it. But no, they go running to the government like irresponsible adolescents who have overspent on their credit cards crying to be bailed out. And we have to pay again.
I agree with XCAnderson.

The banks should go to whoever is lending the government money - oh wait, the government can always pimp off the taxpayer as a last resort.

I wonder if this is the best thing that has happened to Capitalism, once bitten, won't get fooled again, and all that - well except in the USA of course, where the money has already disappeared up jacks Aston Martin.

So will the Yanks cover the Mad-off, or are we bankrolling the world through every city institution? If so, what guarantees does HMG have that the people they're guaranteeing won't do an Equador? This is ripe for exploitation, money-laundering, and worse.

Any speculation on the lower percentage the banks are now paying for this cover?

If we are the new Taxpayer Wholesale Market I would like to know the profits we are likley to make.

On another subject, it will soon become clear that lower savings rates and sovereign bond risk problems will start cash moving back into blue chip equities.

What say a boom of the Footsie in January based on the top few global companies?
( NOT banks I might add) We may soon be back in a boom stock market with a bust bond/cash lending market as the pound falls and interest rates lower.

This finanical crunch and now economic high street Tsunami has not gone away but is gathering pace into 2009

You should not pay taxes so that the government can lend to the banks.

HMG is taking over the function of the Stock Market. Providing capital to business.

First of all this will fail because it will become political. Secondly it will destroy our largest income earner The City.

Let the City get off it's backside, dust itself down,recognise that it has made a mistake and get back to doing what it does best. Providing finance for business.

Do not allow HMG to steal your clothes

Instead of paying taxes let the population choose what business to invest in with THEIR money. Give it to HMG and it is gone forever

What if there had never been a wholesale funding system. I think we all know what the answer would have been, it would have mean’t we would have had to pay higher interest rates to compete for peoples savings. This implies that credit was priced too cheaply and was too available during the good times. Most savers will tell you that the last few years have not been good for them as a result.

Now we hear that the government is going to take on the role of the wholesale market to ease the transition. What we ought to bear in mind is that there was a very good reason why the wholesale markets broke. The monoline insurers which sat behind the wholesale markets guaranteeing debts completely misjudged the credit risks and basically had to pay so much money that lenders decided they were not a good risk.
The government is NOT going into the wholesale market business it is going into the monoline business of guaranteeing debt. It is making the same mistakes as the monoliners and it will lead our country to the same fate as the monliners.

The good news is the banks know that the government is just trying to prop up the ponzi scheme which has been the UK economy over the last few years and will be very tentative about using this facility.


Taxpayers are the new mono liners.

I can understand why the wholesale money markets panicked and took their ball (cash) away from the banks - but now the world's governments have underwritten the banks I don't understand why they no longer want to play - I can understand why with the newly nationalised ones by why not HSBC and Barclays?

And if they're not lending to the banks and they're not buying shares what are they doing with their money - surely it can't all be under the mattress because they wouldn't be able to climb into bed at night - so where is all this cash?

It's got worse. They always used to say the banks offer you an umbrella when it's sunny, and withdraw it when it's raining. Now they've nicked my umbrella and are using it to fix the hole in their roof. Any news on the Bankers Bonuses yet this year?

Inflation is down again today.

If you don't understand inflation then the following little quiz might help you.

In January you look at a computer - lets call it an XZ52 - which costs 1000 pounds. You come back to the same shop in December and the same computer - yes the XZ52 - now costs 1050 pounds.

Q: What is the yearly inflation on this item ?

a) +10%
b) +5%
c) -1%

The correct answer, according to the Labour government is c. No, thats not a typing error, that is c for carrott. The computer has dropped in price by 1% and so inflation is low.

OK, so you don't believe me, so go to the government statistics website and look up "hedonics". You will find it here...

[Unsuitable/Broken URL removed by Moderator]
So, now you know why inflation is so low - even though everything is going up in price.

Robert - excuse my ignorance but who are the sources that the banks normally borrow from that have stopped lending for so long - thus forcing Governments to make the hundreds of billions available? And if they are not lending to the banks anymore what is happening to that money? If banks can now borrow outside sterling, dollar and euro what currencies will come on stream as borrowings, and from whom?

Like every other piece of government incompetence it was announced in a " whisper ''. This government is never going to tell anything that's true in anything other than a whisper. Brown sings loudly enough however when he tells us how Britain is better placed than everybody else to ride out the recession. Adopt and adapt the policies of the Tories, but don't tell anybody in case they get the credit seems to be the philosophy. Maybe if Brown and his familiar Darling had listened to others a long time ago. the economy would not have been in the mess it's in. Lend money to banks at almost nil interest, "taxable ", then borrow it back at an extortionate rate ; doesn't seem like much of a deal for the taxpayer.

#25

I like the idea of directors' personal guarantees. What's sauce for the goose...

The banks make money by lending money at a higher rate than they borrow at plus their costs. I have seen precious littl evidence that they have attempted to reduce their costs. They could completely abandon bonuses for just doing the job - there are so many unemployed bankers that even good ones are desparate for a job. They should make travel by standard class rail the default wherever practical. Prune company cars. Abandon huge Lonon office blocks for far cheaper ones oop north.

As an aside, I don't buy the Keynsian notion of borrowing and spending out of recession - this is precisely what got evryone in the mess in the first place. The answer is for the Government to ruthlessly cut its bloated costs and workforce. Those made redundant should be utilised after retraining on capital projects such as a truly high speed rail spine north-south rail link (linking say Brighton / London / Birmingham / Manchester / Carlisle / Glasgow / Aberdeen). The country needs to produce new ideas, new green technology, not social service nannyism - that does not create wealth and the country is broke.

#42

Since the government seem to have (un)officially adopted the policy that no Brtitish subject can be allowed to lose a single penny in a bank failure, it's not surprising that the banks have figured out that they are onto a good thing and have their hands outstretched.

Seems to me that the logical thing to do would be to have a government backed national savings bank / post office system that handles all benefits and government payments and pays a low, flat rate of interest and has much higher reserve requirements and tough restrictions on pay and investment strategies.

Any other bank would then be free to do what they wanted, charge what they like etc, but if they stepped outside government guidleines, would not be eligible for any money if things went wrong.

#3 - noblewilliamw

I'm with you - I just don't understand.

I'm working, only to see a proportion of the money I earn taken from me in taxes, which is then loaned to banks by the government (at an interest fee) so that the banks can then in turn loan me my own money back, with an additional fee added, on top of the one they're paying to the government.

Is this not, then, a stealth tax increase by the government as I'm certainly worse off and the government is better off!?

If it isn't, then the government would lend direct to me at a lower rate and the banks could go to the wall!

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Manichean view of the world seems to to be the norm, is it because it makes life easier?
Why people did not complain at the time when banks were paying huge amount of taxes on their benefits?
Maybe these same people criticising the banks now have been very happy to live on borrowed money? On money that they did not have? Everybody seems to think they have a right to a house, a big car and the latest plasma TV. You have the right if you can afford it!
Same with the pension funds always asking for higher return on their investments. Do you really think you get high return with no risk?
Like it or not what created this mess is greed, greed from the same people who are complaining now. Time to look in the mirror!

I didn't even buy anything during the boom years. Not as much as an I-pud. I was waiting for house prices to come down to 3 times income.
Now my savings and earnings are being wolfed down by those who spent like crazy, money that didn't exist.

Hee hee. I am an idiot and my continental approach is going to be punished severely.

So is the whisper preventing "accountability" in either government policy or the banking crisis?

Thought not

Sounds like "following pressure from the banks and the Tories" they are asking the right questions and doing your job for you.

43. citygambler wrote:
"Isn't it literally 'free' money?"

No - because you still have to pay it back.

This is a mickey take.
Its just like the end of a monopoly game when the person with most of the money comes up with stupid deals to keep everyone else in the game just to prolong it.
Trouble is in this game the government have all the money cos they forcably removed it from us via taxation.
the game would have lasted much longer and been a whole lot more fun if we had been left with our own money in the first place.

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

These changes are the foundations for another boom, does anyone on here think I'm wrong ?

14 - One of the major ways they raise the money is by selling fixed-term Gilts on the markets.

It's relatively safe provided the markets believe you can actually make the payment on time. If they are dubious then they won't buy them or will demand higher returns. If they don't buy them then we are knackered.

The other major ways are from us taxation increases but that decreases consumer spending etc, or by turning on the printing presses but that causes inflation.

So usually it's Gilts first and when/if that fails a combination of the other 2 which usually spells disaster.

"Bankers are, predictably, whining that the fee for raising money under the Credit Guarantee Scheme hasn't been cut enough."

But, why do retail savers not receive fees for lending to the banks?

Let's not lose sight of the huge cashback that existing tracker mortgage holders are benefiting from. My £350,000 interest-only mortgage came to the end of its 5yr 3.99% fixed rate in September and I was preparing for a big dent to my disposable income when the new tracker rate kicked in. Indeed, my monthly repayment soared to £1800 - but for one month only. With successive cuts in the base rate, my Abbey tracker now costs me £842 per month at 2.99%.

While this is great news for those who already have tracker deals, I acknowledge that it isn't much help to people looking for a new mortgage now that many of the trackers have been withdrawn. In fact, it will contribute to further stagnation in the property market as people won't want to sell or remortgage if it means they will lose their tracker deal.

At the same time, it is costing much less to fill up my Jag's petrol tank and the cost of a tank of heating oil has come down by over 50%. Add in the many retail bargains currently up for grabs and I currently have more spending power than I have ever had. Nor is it simply a case of "I'm all right, Jack" because there are millions of people on tracker deals.

In fact, I was looking around for something to do with all my spare cash and decided to buy some shares (for the first time in 60 years). The FTSE100 had just dipped below 4000 when I bought my first shares and the uplift since then, combined with a fortuitous selection process by me has seen my portfolio grow by 25% in just two months.

Looking ahead, I think that the stock market must be set for serious growth since it has become virtually the only game in town. Property investment, savings accounts, hedge funds and other havens are a shadow of their former selves so a lot of speculative money must move into equities. Also there will be a great many big stock exchange losers who are buying in again now to recoup some losses.

Sure, businesses are going down and people are losing their jobs. But for the majority who can survive the cull, the outlook is really bright.

Do we now have a new economic paradigm? Instead of the circular flow of money we now have the one way street - tax payers to bankers - bankers to nobody!!

You can accuse GB/AD of firefighting but this is like the blitz - you can only deal with what's in front of you. Plus the hight of the 'raid' will not be seen until sometime in 2009.

I've always thought that this crisis was far more than a standard type of recession. The 5 year projection before recovery could be very optimistic.

In 2009 all bets will be off. Unless we combine far more closely with the EU in an economic defensive posture the 30's will seem like childs play. Isolationship/defensive policies will come to the fore. The US economy will collapse. The fight for survival will truly be on.

Strange to think that the one element of socialist policy that was never implemented - control of the banks will come about under a Labour government that disavowed the principle!

so the "saviour of the world" is now stealing ideas from the "do nothing party"!

if nothing else you have to admire the chutzpa of the prime minister...!

anyway to be serious, if the banks wont do the job they are designed to do even with tax payer support, then what is the point of them? why dont we just borrow the money from ourselves!

Dear Robert

From Sub Prime Mortgage crisis, to

Where the shoe that got thrown at Bush?

Some of our politician need it too! What are carbuncle we are in... Appears both GB and AD have not got a clue what they are doing... They are going to ruin this country...

Is this Brown Mandelson's way of nationalising the banking system without nationalising the banks?

13,

When you say default what do you mean?

1. Government tells everyone ‘geez, I’m sorry we can’t pay up’ or
2. Just PRINT the money? (Which I think is essentially the same thing)

it's enough times we fall right down
right right down
and just before our head can hit the ground
our father always catch us
things may be rough
but our father is always with us
it could be worse

The ancients texts reckoned

Popularly "Money is the root of all evil"

Better translated

"The LOVE of money is a root of all kinds of evil"

e.g.

People sold mortgages they could not afford - by a salesman who was only interested in the money.

Those who ran financial insitutions for large bonuses with little regard to the future of those institutions.

"Managers" of phoney hedgefunds

the list is longer.

Also "Do not keep up with the Joneses"
i.e do not covet.

By the constant keeping up, which leads to ever increasing 'growth', we will eventually bankrupt, not only the country but the planet, and like the microbes on an exhausted petri dish, drown in our own excrement.

Perhaps the time has come for a rethink (repent i.e. repenser) and to head off in another direction.

BBC1, Saturday morning. Well done. I found your answers to the comments made about you gave very good explanation about your reporting philosophy. Keep them coming.

However, Why will it take only 5 years to end?

Most mortgages are 25 years. There are $billion's tied up in 25 year low interest fixed rate mortgages in the US. The US has to keep interest rates low over a very long period or there will be a big gap between the FED's rate, if it goes up (ie lets say 5%) and the lenders fixed rate (ie. lets say 3%). Where does that lost 2% compound interest come from.

The certificates issued by banks in Iceland. They may have 5 year, 7 year, 10 year terms. UK life and pension funds have these in their cash/deposit/fixed interest funds. These certificates are bought and sole similar to shares. Base rat goes up - certificate value goes up. Base rat goes down - certificate value goes down. However, the certificate is only worth it's face value at maturity.

Lets say a fund has 11% in Icelandic banks. Does the fund manager write off the 11% now or at maturity? What happens to the high interest how and when do they add this into the fund? With base rate at 3%. Lets say the fund manager gets a good rate of interest of 2% with a sound banks. The loss of 11% is equal to 5.5 years interest. Putting that another way: writing off 11% = no interest for 5.5 years.

It could be that the real effects of 9/11 are working their way through the world economy. If after 8 years we have reached this point. Why should it take less time to put it right? We are in unchartered territory.

The truth is the country does have enough money, our armed forced are under using old worn out equipment because we can't afford better for them. So we can we defend our country if we have too?

Dear Robert

From Sub Prime Mortgage crisis, to The Credit Crunch, to HegdeFund Mega Fraud, to the greatest crime of all Taking away peoples Pensions, by who ever, Money individuals have paid into a pension pot, for retirement, must be and should be out of reach of Banks and Governments so that they can shore up Fiscal Policies. This money is not theirs.
We have seen Barings Bank, we have seen BCCI, we now see all the above, and now see Fruad on a massive scale, by yet another American Financier, did they not learn after ENRON, we now have WALL Street totally discredited, and seen world wide as the instigators of the crisis in world Banks.
THERE CAN BE NO ESCAPE FOR FRAUDSTERS, be in America Britain or the world.AND in the case of The British Government,----- the antics of Wall Street shuold be pursued through the courts to recover ALL THE FUNDS LOST THROUGH FRAUD AND MADOFF once the Political and finacial fall out has been processesd.
Every penny lost through Fruad should be fought for by the Britsih Financial Services Authority and the Seriuos Fruad Squad, and returned to the Public and private sector where it rightfully belongs.
This is the job of vGovernment and Gordon Brown if he does not do this he has failed as Prime minister
Enough is enough, retribution must be added to the crisis and those responsible held to account especially as the Tax Payer is now bailing the banks out, and the money, is being taken out of Pension funds and the like, it is not Morally right to take away an individuals Pension, at all, AND not one Politician wuold accept this happen to him or her, should the case be so, there would be up roar in the house.
No! the time has come to Hold Governemnt to account to do the right by the people, reign in the Banks and the Finanaciers to make them accountable and thats a job for Government, and the law.

At the begining of this debacle, I the almighty whizbang of the City, did proniunce that the only way to free up the financial markets (B2B & B2C) was for the BoE to replace non-performing Wholesale Markets. The government has, in typical way, got the wrong end of the stick yet again. The Bank of England should be lending at Base Rate to Banks, but only if they then lend on at Base Rate + .5% (New Libor?). I would also set a limit of Bank Commercial Lending to a maximum rate of Base + 1.5%. The only way for banks to differentiate themselves form competitors would then be based on their ability to provide the service that customers want and the help that they want. When will the idiots trying to run this country (or any country) start to think and work with the based concept of government 'the Logical Application of Common Sense'!!!!!

38 - sorry you are wrong. Historical affordability is 4x and we are now at about 4.5 so not far to go to historical average. We wil get there in towards the end of 2009. Check Halifax figures

59#

Granted, we have all played our part. But, we as citizens reasonably expect that our Government, our institutions have some degree of wisdom on subject such as these so that we dont have to and can carry on with our normal, uneventful meaningless journeys from cradle to grave.

It would be admirable to think that from now on, now the scales have been - or are in the process of being - lifted from our eyes that we all can and will be wiser after the event.

But that doesnt appear to be the case where our leadership is concerned, nor with our big institutions who have been revealed as being completely in hock to their shareholders. Nor for our much vaunted regulatory bodies. Fat lot of good the FSA having an 8000 page rule book if no one is going to enforce it. Bit like it being pointless Parliament putting laws on the statute book if there are no police around to enforce it... try the Hunting Act for instance.

They're a lot keener to enforce the "dont protest within 2 miles of Parliament Square" act though, arent they?

Its not just the public and their big houses and their plasma tv's. We have been ignorant, our institutions have been greedy beyond measure and our government have been complicit.

So all the benefits of lending are still with the banks (profits etc ) but we underwrite all the risk ? Iswhat way does that give the banks an incentive to manage risk ?

Its doesn't does it ? So what is stopping this repetition in the future ? Um , not much because there is little or no accountability and until there the so called 'masters of the universe' will continue to believe their own hype - and we'll pay for it - one way or another

Actually Graucho Marx had it right - ' a stockbroker is someone who takes your money and invests it until its all gone ... '

#68 - stainedsteel

You're analysis seems to be based mainly on a premise that things will not really get any worse. Even if you are factoring in a recession, how does your rosy picture look if that recession becomes a depression?

I can't say I'd be feeling all that comfortable with a £350k interest only mortgage given the current outlook for house prices!

There needs to be a separation of credit to individual lenders and business lenders. This can only come from the government.

I agree that it should be hard to get a mortgage right now. Why would anyone lend you money to buy something that will be worth less in a year's time.

If you don't have a mortgage already then you need to rent for a couple of years. The banks have nothing to lose if the mortgage market grinds to a halt but the economy stands firm.

Forget making sure banks lend to homeowners they need to be made to lend to businesses. This is very difficult to do but a strong leadership could manage it effectively, with future guarantees to banks who help businesses maintain cash flow in these terrible times.

A stagnant mortgage market with very little credit and a slow growing business market with access to credit is what we need right now.

Here is a quick view of how I perceived wholesale funding markets to work. Your banks goes to an investment bank like Bear Stearns or Lehman brothers and ask for some wholesale money. These banks give you the money and then parcel up your banks debt into a securitised debt bond which they take insurance out on through the mono line insurer. This allows the rating agency to give the securitised debt a risk rating of AAA which is close to no risk.

The trouble was that those securitised debt models contained sub prime mortgages, which were very risky. This meant that the mono liner lost money to the extent that they were down graded by the rating agencies. This downgrading meant those securitised debt bonds were no longer AAA rated and so were devalued. Since some of these bonds were used as the assets by the investment banks and part of their capital base, the banks needed to raise capital as a result.

Banks began to realise that it they had not lent out so much on such little capital base they would have been in a better position (leverage) so they set out to reduce the amount of exposure they had to certain types of lending. At the same time investors lost faith in all that securitised AAA rated debt since what could happen once could happen again with other debt.

The whole basis of the wholesale market was securitisation and securitisation insurance, which is no longer working. The fundamental problem was that banks misjudged the risk to the monoline insurers during a severe housing downturn and AAA rated debt was not really AAA rated underneath once the insurance was removed.

The solution should be the through the corporate bond market where big business reduce their bank lending and issue bonds instead so that retail deposits can be freed up to lend to you and me and small business. The reason why this is not happening is because HMG is through its actions subsidizing loans to big business ,so it is cheaper to borrow from the bank than to issue bonds. In economic terms this could be viewed as a form of crowding out.

Capitalism given Credibility by the Conservatives under Mrs T is just thoroughly Corrupt.
It was the biggest Con of all times, pretending that it would enable all of us to participate, by being able to buy shares in privatised utilisies, allowing people to buy their own council houses, what a Confidence trick, thought up by Conmen who stood to gain massively on the backs of
ordinary hardworking people, who have lost out time and time again.
They have caused Chaos and a Worldwide Catastrophe.
Capitalism is Carcinogenic, it seemingly spreads quietly without anyone noticing there is a problem until its too late.
These bankers know the art of Cajoling and Coaxing people into thinking they have a foolproof plan! We have seen it all before with the Endowment mortgage fiasco, private pensions all Concocted to bring rewards to the bankers, not those they serve.etc.
These people have no Conscious neither do they Care.
Computers have obviously exacerbated the problem as they work far too quickly and Confuse the average brain, which is unable retain relevant information, they obviously can also be used to Conceal and Confuse.
Corporate, Conglomerate are all products of Capitalism and are impossible to regulate and Control.
I am filled with Credulity and Consternation at the depth and breadth of this Crisis and could have filled the page with words begininning with 'C'
Sadly the one that appears to have been ommitted from my dictionary is COMMONSENSE because it was so obvious to a mere portal like myself, unlike those who considered themselves experts in the field of finance, that the inflationary boom in house prices had to end in tears because salaries were not keeping inline the pace of price rises, students were being weighed down with huge debts and if you don't have new people coming on to the ladder, the whole thing stagnates and goes pop and as housing it would appear to be the lifeblood of our economy, why did no-one pick up on the obvious. Blinded by their own success or weighed down by bulging wallets or speeding off in fast cars to stop and think.
I was so irritate by the head of Barclays, who apparently can now see the way ahead and is predicting further falls in the housing market. How come he is so clever at being able to suddenly see the light when he didn't predict the Chaos in the banking sector, nor did he help restrain the rise in house prices by limiting the amount of borrowing two years ago? This would have slowed the markets down to a realistic and sensible level instead of the Crash we have now.
The banker sector has lost all credibility and it would serve the situation better if they said nothing, took a massive pay cut and worked overtime to sort the mess out they Created in the first place.
I still do not understand why the Serious Crime Unit are not investigating the whole sector, as my guess is we have not seen the last of the Corruption.
Maybe I should just turn the page and go on to integrity, humility, honesty- words that don't seem to be part of the financial sector speake

How many rivers do we have to cross
Before we can talk to the boss
so long poor people were reaching out to you
but you never really seemed to care
so many dying on the front line
so much promises
so much lies
how long will you reap off their labour
and keep them suffer in great in hunger
how can sit their say you care
when so much pain and sorrow is everywhere
chanmpage and cavier time
you don't care
treat jah children like swine
and don't heed jah warning
radical injustice

No that we own a sizeable chunk of RBS, Darling should be clawing back some of huge piles of cash that's been squirreled away in Guernsey and IoM to avoid tax.

It's ridiculous that tax-payers are bailing out people who do everything they can to avoid paying their own taxes - especially now that the tax-payer owns one of the worst culprits for tax-avoidance.

Sorry for the multiple posts but this one is different to my previous post.

As a nuclear engineer I had to design many processes where people would be working with very dangerous materials. When we had designed a system we had to sit down for a week and work out everything that could possibly go wrong. If in those 100s of man hours we saw the remotest possibility of death then we had to redesign the entire system.

I was always amazed that the banking system has such a poor risk management ethos. When I mess up a person might die, at the worst we are looking at Chernoble, when the banking community messes up we are looking a global famine and homelessness on a huge scale and yet we have a enormously better record than the banks on risk management.

The FSA and its US counterpart need a new strategy and new regulations, they need to work out every possible scenario and regulate against it. Yes it is boring and does not allow for creativity but that is what got us into this mess.

This is what the UK should be doing.... See article below.

Singapore's star rises as Switzerland stumbles
Sat Dec 13, 2008 7:23pm EST
By Neil Chatterjee and John O'Donnell

SINGAPORE/ FRANKFURT (Reuters) - As pressure mounts on Switzerland's flagship bank UBS and the country's secrecy code comes under fire from the United States and Germany, Singapore's star as a haven for the super-rich is rising fast.

The sun-drenched Asian city-state, with the highest density of millionaires in the world, is seeing wealth management prosper as the U.S. and Europe grapple with the worst slump in a generation.

Singapore's strict bank secrecy rules seem likely to be spared an assault similar to the one that Berne is defending now, following the charging of UBS's wealth management chief for helping Americans hide money.

With close ties to powerful Asia, Singapore is in a stronger position to resist pressure from the U.S. than rival Switzerland or Alpine retreat Liechtenstein, which recently partially surrendered bank secrecy.

"It's a wealth center," said Martyn Schilte, a manager in charge of selling million dollar supercars in Singapore. "If you look at the type of client we sell to, it's people with a net worth of $50 million-plus."

The city-state has its sights on attracting the world's wealthy to its palm-tree-lined coastline where some apartments come with a private yacht berth. Its plan is working.

As Asia's elite move billions to the country, assets under management soared by a third last year to more than $800 billion.

The amount may be small compared to Switzerland. Singapore had $500 billion in offshore assets under management last year, according to the Boston Consulting Group, compared to four times as much in Switzerland.

But it puts the region on the map for banks hoping to capitalize on a more resilient Asia as the West slows.

As jobs cuts cloud London and New York, banks such as Credit Suisse and Macquarie Group are hiring wealth management staff in Singapore, despite a local recession.

Bank of China is one of the latest to plan a wealth management arm in the Southeast Asian country, hoping to meet millionaires such as those who recently gathered to buy and sell private jets on the sidelines of a Formula One night race.

"Singapore has developed a lot and has all the ingredients to compete internationally," said Deepak Sharma, an executive in charge of Citigroup's global wealth management business outside the United States.

NO SURRENDER

Like tax hideout Monaco, Singapore has a hard line on bank secrecy. It has not agreed to the Organization for Economic Cooperation and Development's (OECD) standards of transparency and exchange of information.

Singapore, which is trying to grow financial services to wean dependence on manufacturing, is on the International Monetary Fund's list of tax havens and targeted by a proposed new U.S. anti-tax-abuse law.

Another country that had similarly shunned the OECD, Liechtenstein, recently agreed to a landmark deal with the U.S., paving the way for the exchange of bank account details with Washington in cases of tax evasion.

The agreement may pressure Switzerland into similar concessions, which could work to Singapore's advantage.

Singapore Prime Minister Lee Hsien Loong said this month such scrutiny in the West could lead to more European money flowing into the country, a hot talking point in the industry.

"It is interesting to notice a growth in the number of European clients booking wealth through Singapore, which unlike Switzerland does not recognize the European tax directive," said Sebastian Dovey of consultancy Scorpio Partnership.

But European cash comes with the risk that Singapore too could be targeted in the crackdown on tax havens. "I expect Singapore to come under pressure, too," Prime Minister Lee said.

The U.S. told Singapore and its banks last year to sever financial links with Myanmar's military junta, widely believed to use the city state as its main offshore banking center.

"Increasingly Singapore is looking out on a limb," said Jeffrey Owens, director of the OECD's Center for Tax Policy Administration.

"It's for the Singapore government to assess how the political climate is changing to protect the reputation of the Singapore brand," he said.

Singapore's central bank said confidentiality laws were no shield for criminal activities and that banks could disclose customer information to assist such investigations.

PANDORA'S BOX

Singapore is in a stronger position to resist the strong arm of Washington.

Singapore, experts in the region point out, is a U.S. military ally and one of the few Asian countries with a deepwater port that could hold a U.S. aircraft carrier.

Brussels too may shy away from a fight as it is unclear how many Europeans park money in Singapore. Bankers played down its significance as a destination for European money and said most comes from Asia and in particular Indonesia.

Singapore's central bank says over half the money managed in the city-state came from outside the Asia-Pacific, although this includes pension funds and hedge funds as well as private banking.

Ultimately, however, it may be politics that makes throwing down the gauntlet to Singapore difficult. To do so, said experts, would be an indirect challenge to China.

"If I were the Singapore government, I would not sign unless it's on equal footing with Hong Kong, the key competitor," said Roman Scott, managing director of consultancy Calamander Capital.

The European Union, said Scott, is not putting pressure on Hong Kong, however, because it is reluctant to confront Beijing.

Furthermore any agreement with Europe could pave the way for demands for the same treatment from countries such as Indonesia, Thailand or Taiwan.

"That is one of the reasons for the resistance as they do not want to open a Pandora's box," said Scott.

"They are scared what might come up. The European customers are minor -- what's more important is that you do not want to open up everything for everybody."

The reason it's five years is because that's the likely maturity of the mortgage pot. Mortgages with an overall life of 25 years have an average life of 12.5 years across the entire portfolio, and of those, many will be repaid early as people move house, whether following jobs or up and down the property ladder, or find better deals elsewhere. Consequently, the depth of cover interest is in the five-year spread, anything beyond that gets covered as and when it comes back into the active period.

What is really sad here is that we have a government with little idea of what is going on or how to deal with the problems, and worse still a political system that is unable to hold the government to account, let alone the banks.
The Opposition, huh, to what and by whom, some democracy.
Governments just take more and more money through taxation and waste it, a very easy option in this country, till of course we are all broke.
If the banks need to recapitalise then they must encourage folk to deposit, it is simple, and worked until the greedy and stupid took control, far better for the taxpayer to deposit directly than the government to do it for them...at a loss.

#59 & #81

I also accept that we as consumer borrowers all have a part to play in this crisis. However, I agree that the Government did nothing to discourage the debt binge. Let's face it, we can't all be expected to be experts on economic issues. When I purchased a property in mid-2006, I did so rather reluctantly. I certainly didn't believe that the value was realistic but the signals from our Government were in favour of investing in property. The media were backing it and so most of my generation were being scared into purchasing, for fear that we'd be missing the boat if we didn't. Yes, I could have done research and worked out for myself that it probably wouldn't last BUT we can't expect everyone to do that can we? Let's be realistic. Gordon Brown encouraged it and he has to take a bulk of the responsibility, along with Blair and the rest of the the Labour administration.

I do personally accept that I have a degree of responsibility. Nobody forced me to borrow money. I'm losing £1000s a month in terms of diminishing equity in my property but that's life.

Anyone who does, however, think the Government can only take limited blame is denying the reality of the society we live in. Okay, some may not rely on the advice given by the Government, but many people understandably do.

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

Have I got this right we’ve borrowed too much and clever people have made lots of lovely money for themselves. Now this has all gone pear shape and the taxpayer is having to bail out the banks so they can lend again.
So the banks are being lent billions of government money so they can lend but isn't the government borrowing this money in the first place.
Sorry but am I missing something!

In reply to #74:

If the government runs out of money it can either just print it, but unfortunately only in sterling, or do what Latin American countries have done in the past and just say that it cannot pay (default).

At a stroke of the pen the Treasury could wipe off most of the government debt by simply declaring gilts to be worthless.

This would make some people extremely angry, but there is nothing they could do about it. Not much point to even invade us and steal our houses.

It could also renege on PFI deals and simply refuse to pay pensions.

It's not true that nobody would ever lend to us again or trade with us - they would just be a bit more cautious.

I am confident that whatever is the least open, sensible and honest policy Gordon Brown will follow the exact opposite.

What I am really saying is that when you're bust you're bust, and no amount of robbing Peter to pay Paul (using taxpayers money to lend to banks to lend to taxpayers etc) makes a blind bit of difference.

When they write the history of the Credit Crunchy this will be seen as the turning point.

I think we're through the worst of it now, and should be pulling back into strong growth by the middle of next year.

Can I ask a stupid question, please?

The governor of the BoE has to explain inflation not meeting targets, yes? And analysts are predicting a possible deflation? Well, as the RPI & the CPI are based on prices consumers pay, how much influence does the VAT rate drop affect these indices?

Just who has "control" of the rate of inflation and how will stimulating credit flow in this way help? If the tax payer is borrowing off themselves effectively, the only place for this money to go if inflation is to remain positive is overseas.

@numerous - kikidread

Can you spare us the endless song lyrics? Please?

It doesn't contribute anything to Robert's blog, except take up space. We're impressed by your knowledge, but really, post somewhere else please.

The alcoholic craves more alcohol.

The debtaholic UK, it would appear, craves more debt.