Rescuing the economy, not banks

Robert
i would suggest that the recession has already deepened. The Item Club is predicting 3.4m unemployed next year, who knows what the PBR will be.

Bloomberg quotes: "The bank rescue package increases the government’s grip on consumer and corporate banking and expose taxpayers to hundreds of billions in losses"

With due deference and apologies to others who have posted similarly to RP's blogs recently:

Gave a man a fish, and you feed him for a day
Teach a man to fish, and you feed him for a lifetime
Buy his future fishing rights from him, and you give him a year of party and plenty, followed by a life of slavery to you.


We are borrowing now from overseas (all the funny money for financial rescues now must come from somewhere - we have to pay for all our imports).
And we are enslaving our children for their lifetime, solely for today's comfort of an extra few months saved from crash.

Robert, you keep alluding and hinting in your blogs to this fact, but will not spell it out explicitly !
For every £100 worth of loaves of bread we (through the Government) borrow today, our children will have to pay back that value of loaves of bread to our overseas debt owners plus a huge compound interest in the future.

And in 1 billion, there are millions of £100's. And we (through the Government) are borrowing not 1 billion, but hundreds or thousands of billions. Every additional billion is countless of our children's lives enslaved in this country for an added period in the future.

Until you address this point explicitly in your blog, I and others will continue to demand it from you in our comments.

Correct me if i'm wrong but this goverment insurance scares the life out of me! how can they offer insurance on toxic assets e.t.c. when they can't be valued - ouch!!!

But RBS made profits of £10.3 billion in 2007, £8.2 billion in 2006 and £9.2 billion in 2005 where did all these profits go????

Dear Rob,

Now Plan B is up and running, you ask about a new rescue plan if Plan B fails. Well I think there is a Plan C, but actually I think it is called Plan I, M and F.

Xxxx

This insurance scheme - does it mean that investors now have the proposition of a riskless investment? If so, what happened to the good old calculation of risk vs reward? The notion of a riskless investment (especially one based on dodgy underlying "assets") surely cuts through the heart of our capitalist system?

Stop being a mouthpiece for the government Mr Peston

It is clear that the October rescue for the banking sector failed.

Now they are having to revisit it - as they do with most things

You are paid to provide a detailed, independent analysis of the situation not to defend the government line.

What happens if this credit is made available and very few want to use it?

Then again who wants to lend on a dead loss? No bank - no matter how well capitalised - will want to lend money to a chocolate kettle maker.

That is a problem that has not been addressed - the authorities seem to have come to the conclusion that lending and forcing lending will set the economic blender back to purée and everything will be hunky-dory.

I fear that few will want to borrow and those that can lend will be overly cautious in a falling market - no matter who controls the strings - banks, semi nationalised banks of the government.

In 4 weeks time all the banks will be nationalised and then what?

Please can someone explain where all this lost subprime money has gone, and is there any possibility of getting it back?

No mention by Major Brown-Mess or Captain Darling of the impact of this latest "temporary" money-scattering exercise on the budget deficit or total government debt.

Gordon must think it's wonderful. A nationalised banking sector on its way. A vast public sector already in place. More state-funded business bail outs to come. His dream of a socialist state is being handed to him on a plate.

So in SUMMARY its ROB PETER TO PAY

PAUL MIKE LUKE AND JOHN??

THE WHOLE ECONOMY IS BUST.

NU LABOUR HAVE DONE IT AGAIN.

NO BODY IN THEIR RIGHT MIND

SHOULD BUY ANY GOVERNMENT

PAPER.

UNLESS OF COURSE ITS FISCAL

PRUDENCE LAVATORY PAPER.


WHAT AN UTTER FARCE A TOTAL

CHARADE OF DECEIT & ENDLESS

LIES.

Why do you repeat without challenge the mantra that the most pressing problem facing the government ‘is how to increase lending’, usually to small businesses?

The current problems arose because of too much lending, not too little. While we may have swung too far the other way, more lending is certainly not the cure. You obviously missed the former Chief Executive of Barclays, Martin Taylor’s, wise words on the World this Weekend yesterday.

The fact that an instant consensus arose among the political parties and commentators like yourself about getting the banks lending again should be a warning sign in itself and that it will just make things worse.

Just because the BCC, CBI and FSB keep trotting out establishment ‘orthodoxies’, without thinking about whether they’re talking sense or not, does not mean you should too.

Of course, many of their members are in trouble so some nice soft government loan seems tempting – but in reality it just delays the day of reckoning, which is the worse for it when it comes.

The real problem faced by small businesses (and hence the economy) is not a lack of credit (though that is a problem for some), but the burden of fixed costs (costs, such as rent, that do not change with the amount of business the firm is doing).

Companies need to move away from fixed costs to variable costs (costs that go up and down with the volume of business, such a sales commission, raw materials, etc.). That way, companies’ costs will better reflect the trade they are doing and allow them to adapt quickly and flexibly to changing market conditions.

That no one in government can see this, not even the sainted Mandelson, nor for that matter the great Vince Cable or anyone on the Tory benches, just proves how little these people understand about business.

I bet very few, if any, of them can put forward an articulate case why lending should be increased – they’re just trotting out some rubbish spouted out about 3 months ago from some economist or academic who’s never run a business either.

There are two things the government really should be doing if it is genuine about supporting business and helping the economy.

First, business rates (a fixed costs which businesses have to pay before they’ve even sold as much as a single cream cracker) should be replaced with a profits tax (a variable cost, paid only after a profit has been made and which is proportional to how well the business is thriving).

Second, employer’s National Insurance contributions should go. This is a tax on employment, and a further cost which has to be paid before a single cent of business has been conducted. At times of rising unemployment, taxing jobs is sheer lunacy. And, it is a poor reflection on humanity that we’ve got so used to this irrationality that we blithely accept it as the way things are.

Yet again, the government is playing catch-up.

It is so far behind the curve - the trajectory of which started no later than July 2007 - it is absolutely frightening.

Commentators who were on top of the game were predicting this chain of events all through 2008.

Rescuing the economy, not banks ?

should read

Rescuing Browns Political Carer, not banks





Oh btw, wheres my savings gone ?

Sometimes it is better to let them fall than try to prop up a failing system!!!!!

It doesn't matter if the banks have money to lend to households (or have it insured). Nobody in their right mind is going to take out a mortgage at the moment when property prices (the root cause of all the problems) are still ridiculously overpriced and falling rapidly. First-time buyers will not take the leap until prices stop falling for several months - that is some time off yet. When they do, the banks will be happy to lend and ask for smaller deposits. It does not require intervention to happen - the economy will simply not work again until house prices have fallen to their long-term affordability ratios (50% down from peak) and the fools that bought overpriced houses have paid their debt to society (their negative equity).

Before the usual suspects start their rants,
if there is a viable alternative to what HMG is proposing, let us have details of what it is, who pays and for how long, and who suffers. I for one am tired of all the nay sayers who have 100% hindsight but who are unable to say what should be done. We're in a global mess and how we got here is for the historians (and hysterics). Its how we get out that matters. Yes, we will have to pay, but I'd rather keep my job and pay later than lose it now and have nothing to pay anyone with. As for my "children" paying- they'll be in their 40/50/60's when that time comes and will still be better off if dad has a job now so he can look after them now-are you listening, Mr Cameron?

I just watched the PM and Chancellor get a rough ride from the media for their latest bailout plan. I think what annoys most is their refusal to acknowledge any fault on their part for this debacle. Instead we're supposed to be grateful to them for rescuing us from dodgy American lending and the failures of Dutch regulators with yet more of our money (not to mention our children's and grand-children's money). Are we really expected to believe that RBS buying ABN Amro was of no concern to UK regulators?

No wonder they are plummeting in the polls again. Dishonest to the end.

So in other words, the government isn't actually pumping actual money into the banks, it's using some complicated financial trickery involving the packaging up, insuring, and selling on of potentially bad debts.

Oh jolly good. What could possibly go wrong with that?

I still can't see the economy moving an inch until house prices drop further. You can give the banks money 'till the cows come home, but nothing will get the market going until prices drop. I think they will need to drop by 20% before mortgages become available again

Money is available for house purchases if you can qualify with a 10/20% deposit and a 3.5x salary multiplier. The problem is that houses are still above this figure

The banks will hoard this cash as well, this is what they do when times are hard. I don't fancy insuring bad businesses with tax payers money. If they are not viable then they close - those are the rules

Certain businesses need help (JCB for example) but we can't just keep guaranteeing every single business and loan in the entire UK - we don't have the money

Robert, surely in the long-term what our economy needs in order to compete internationally is a moderate level of debt, and a sustainable (and affordable) level of house prices.

Doesn't the scale of these proposals, and the mad focus on propping up the housing market rather than the real economy, put us in a terrible position for the eventual global recovery?

Where is the real wealth the govt wants the banks to lend against? The productive sector in the UK seems to be almost non-existent now that the international demand for financial services has collapsed. Surely this exercise by the govt will at best lead to more pieces of paper being shuffled around by the banks, but will do nothing directly to address the major problem which in the UK is structural rather than a technical failure of the financial system. A run on the pound must be a real possibility now?

I do think RSB announcement is more catastrophic than historic. It does seem to me you can not blame the banks for not lending, with these loses who is a good bet to lend to now? The government seem to want us to borrow our way bank to the false economy that proved unsastainable.

We have to change, the money should be put to building affordable housing for people, cheap rents will free up more of our income to spend on consumer goods and improving our lifestyles. Being tied to unaffordable mortgages has proved a disaster to the people of this country, let set the next generation free.

If they raised interest rates and encouraged saving, and a reduction in debt, the banks would have real money to lend and guess what it would cost the taxpayer nothing.

We may get some deflation along the way, but how bad if prices came down, that could offset lower pay which might actually keep some people in work.

So our children will be repaying this via taxes for years to come.... and one of the most immediate impacts will be that houses cost more!!!!! Genius - they were over-inflated and we are now pumping money in to ensure they remain over-inflated – the story of the economy in general...

Is someone going to tell us HOW MUCH LENDING is the correct amount....... this problem was caused by ridiculous amounts of lending/borrowing so we can't go back to that level...... the current problem is a lack (an overreaction maybe) of lending..... so what is a sensible level and what does that mean for our economy?

The huge investment we are making as tax payers deserves a better explanation than 'its to stimulate lending'

Could someone explain where all this money has gone (who received payment for the sub prime houses?) and can we get it back?

OK - there is a shortage of money in the British Economy.

Banks are to be encouraged to boost this money supply by lending.

When they recover the money they lend + interest then there will be EVEN LESS MONEY in the economy.

So we'll be back to the same problem. - unless the banks lend even more, and more, and more - and we now know where that leads!

It seems to me that the Government will have to take steps to prevent this - the only options are:

1) Nationalise all the banks and use the net profit to keep the money circulating in the economy.

2) Make it compulsory for shareholders in British banks to be british - so that all dividends stay in this country.

3) Tax the bank's profits at 100% and ensure that the money does not leave the UK - this no doubt will result in 1)

4) Quantitative easing i.e. the government becomes responsible for the supply of money in the economy based on the wealth of the country as assets backing it. (The UK standard rather than the Gold Standard)

As a capitalist I naturally abhor government interference in the economy however I believe we have reached a stage where we have the chance to get off the debt treadmill - and this should be seized.

Walking the tight wire, as we’ve never seen it done before.

Gordon’s on the bicycle and Alistair on the unicycle.


Ken Clark below in clown outfit watching and laughing as we the audience watch the circus.


Ho Ho Ho


I do hope we get value for money.

Good thing we have a government that knows what it is doing. It would be a catastrophe if the Conservative party were in power and tried to "balance the books" (again). It is the legacy of their economic philosophy that got us into this mess.

Things are now coming into sharper focus ; the losses of limited companies are now increasingly socialised and the taxpayer bears most of the risk.

Through it's good intentions in saving the (current paradigm version of) economy the government has turned the taxpayer into the equivalent of a Lloyd's name i.e an underwriter to the banks with unlimited liability.

The road to hell...............

It is a little misleading to talk of again bailing out the banks - the government is taking this action to preserve the banking system which is vital to teh operation of the economy.
As a bank shareholder my investments have been decimated - many would say that this is deserved, but I do not feel that I have been bailed out.

It is time for the word retribution to circulate more widely. Those who have feasted off grossly over-valued salaries and unearned bonuses along with remuneration committees should start to pay pack ill-gotten gains.
One hopes Ian Hamilton QC succeeds with his claim in the Small Courts action in Oban. I too was a subscriber to the £12, rights issue and now feel cheated. If he wins many like me will follow suit.
Eventually some form of class action suit will be generated which, sadly, will line the pockets of the legal world hugely.

ELEPHANTS AND STRING

“BANKERS, NO ETHICAL GOVERNANCE OR MASTER PLAN”
The major tactical failure of the worldwide central banking structure, is that NOT ONE of these “so-called expert central bank regulators”, ever demanded of their ” financial engineers” developing new financial instruments (products), that such fiscal products be capable of passing the first rule of “Engineering 101? — the ability to successfully dismantle their construct if it became necessary.

Nor did ANY ONE of these Regulators, ensure that all/any new product constructs, meet the necessary risk management standards to protect public interests. A complete worldwide regulatory breakdown and dereliction in their "duty of care" to world money markets.

What they built to gain excessive profits, spreading greed in their trail in the Bond Insurance markets, sanctioned by inept rating institutions, followed blindly by the Financial Accounting Standards Board (FASB), has been useless and deemed uncontrollable financial cobbling.

No “sane person” would ever set sail for the open seas in any one of the devices they built. Nor should the worlds’ citizens ever again, have to endure the pain these charlatans have created and inflicted upon open money markets.

The US “Wall Street” Bernanke-Paulson-Geithner troika is similarly using devices with the general effect to date, of pulling on a string attached to an elephant. The huge infusions of cash equivalents without strict governmental regulatory control may assist to avoid uncomfortable deflation and provide comfortable living for those at the institutions they have so generously assisted. Unfortunately, as inflation comes back on the scene, none has the knowledge or holds a key to any world banking structural plan, to undo the uncontrolled effects they have created.

Governments and their taxpayers must retake control of the issuance of currency, and fully utilise the expertise of professional ethicists i.e. Such as “The Certified Financial Analysts Institute” (CFA) in oversighting all new regulations for any proposed new future worldwide monetary system in protection of their citizens.

Does anyone else think this bank insurance scheme will be vulnerable to massive fraud?

For example:
Company A sells junk to Bank B.
Bank B insures with the Government.
Company A defaults but keeps the money.
Bank B gets their money back from the Tax Payer.

Company A would probably have to be an off-shore shell, but I'm sure accountants could work out the details.

It seems possible because the banks will be able to insure something at a price lower than that something cost to buy (otherwise there would be no point insuring). You then pay the insurance knowing you will get back the full price you paid for the junk. It is a bit like buying the burnt out shell of a building; insuring it against fire, and then claiming immediately for a new building.

Knowing Brown/Darling, they will not have thought through all the details properly, and consequently, they may have left themselves (us!?) open to massive fraud that will make the carousel VAT fraud or the ERM look like peanuts. (Note: VAT fraud and ERM losses both happened because of flaws in the system.)

Personally, I really hope I'm wrong because if I'm not then this could be what finally bankrupts the UK government rather than saves the economy.

I think we would all feel a lot HAPPIER if the government was putting into place some BASIC lending RULES.

The RULES of lending would give us all something to focus on.

And

Stop any fear that we are going the way of THE US subprime lending FIASCO.


There is no doubt that ROTTEN BORROWERS and ROTTEN LENDERS are the main cause of the global problems in the Banking system.

Along with the regulation or LACK OF REGULATION.


COME ON lets see some simple rules along with all the talk of lend lend lend.


HOW about THAT MR BROWN?

INSURE US FROM THE rotten borrower please.


Maybe this whould be looked at from the bottom up not the top down.

Robert

You wrote:
"the big banks have a sufficient cushion of capital to weather all but the most cataclysmic storms that may lie ahead."

and a few sentences later:

"the giant insurance scheme announced today .... would reduce the likelihood that the banks will need rescuing again in a few months time."

So which is it?

The whole initiative seems to turn on businesses and people wanting to borrow.

The reality of the fickleness of the UK economic substrate having been rammed down everyone's throat, who wants to borrow in this climate? With every chance that they will find themselves unable to cover the debt? Who will underpin them then? I mean the way these banks are being 'underpinned'.

And - What if they don't borrow? A very costly series of measures to do what precisely? Because unless folk start borrowing from them on a gargantuan scale it won't help the particular banks out of the hole they dug for themselves. And let's remember, the toxic debt problem was not a 'home grown' one, they were up to no good far from these shores.





GC

Instead of Lending we should all see Borrowing. Yet only yesterday there were stories about the need to start 'Quantitative Easing' (print more money), as another means to stem the rot know as the UK economy.

Borrower beware – interest rates may be low today but with Quantitative Easing on the way you should expect a significant rise in interest rates in due course (coupled with hyper inflation).

There was a distinct tone of panic in the Government's comments over the weekend, seems like the situation is a lot worse then they, and the bankers, have been letting on. The problem is that by drip-feeding the bailouts we have well and truly passed the point of no return without drawing too much attention to the fact. I doubt the British public would have tolerated this if the total cost of bailouts were declared up front.

Furthermore, where is this money to be spent? The biggest spend for the average person is on their mortgage. Is the mortgage market intended recipient of all this cash or is it industry and commerce? You can bet there are a lot of people out there working 'legitimate' methods to siphon off a good proportion of this cash for their own good. If it is the mortgage market, then just consider what this really says - long live the feckless.

Based on the Government's track record, I for one do not trust that the money will be put to good use, or best effect. The banks should state the true value of toxic debt when the Government says sorry for its part in this financial crsis.

As I have asked previously why do we keep returning to the deficiencies of the banks?

I appreciate they underpin the entire functioning of the economy but I was led to believe that what was done last October was sufficient. We saved the world didn't we?

The truth of the situation is that the original bail-out was bodged. Fair enough, it was cobbled together quickly so I can accept that.

But where was the follow through?

Anyone with any commercial or organisational experience knows that change has to be monitored and reviewed to ensure that it has worked and that there are no unforeseen consequences. Clearly this did not happen.

The same applies to the restructuring of the bank supervisory regulations back in 1997. There was no measurement and review until the current mess landed on our collective plate.

(Although John Humphries in talking to George Osbourne on Today this morning seemed to want to kick the blame back to the Big Bang. This put poor George right off his stroke as he was still in nappies then. Poor old John - never got over Equity Life, did he?)

So we keep coming back to the fundamental issue of competent policy making. I am now of the view that the government is quite unable to manage policy, yet it is in charge of possibly the biggest bust since the South Sea Bubble.

Yes, we do now have to start worrying about rescuing the economy rather than just the banks. The levels of corporate losses and redundancies this early in a recession are frightening.

Stimulating loans to companies is essential, though not I think to all companies. Those (think private equity) that asset stripped their capital and relied on a business model of unsustainable borrowing, should be allowed to go into administration - and then hope the productive parts of the businesses can be sold off and thus continue trading.

As for stimulating loans to individuals, I'm not so sure. Encouraging people to take out mortgages again while house prices are still in freefall? Lending more to those already maxed out on debt? These actions will just make things worse.

Rather than just stimulating lending to individuals, we need to take the alternative course - cutting taxes on those on low to middle incomes, largely financed by heavy tax increases on the rich, thus reversing the imbalances that are at the root of our current system of debt.

Lend?

For mortgages, what deposit, what loan to value, what arrangement fee and what salary multiples? Work out 3x plus 1x the average salary, say of 25,000 a year. Total property value of 125,000 on 80 percent LTV. What FTB couple earns 50k a year?!

Or is it for people to get overdrafts so they can pay their bills?

Come on Robert, what are the details? What exactly are the banks loaning money for?

I suspect it's a perpetuation of a debt fuelled economy.

Is that a good thing? I don't think so!

#1 skynine - just ignore those comments from Ernst and Y Item Club. Remember when oil was due to go upto £200/barrell?The Item "Club" is just an unreal marketing tool for a firm of accountants who are only in it for the publicity and PR profile they can generate.

This is an amazingly optimistic piece by Robo Pesto, or is it realistic? No more conspiracy pieces by rahere, somalipirate, etc., or politico plants such as jericoa please.

Northern Rock have paid off £15.4bn of their £26.9bn loan. Trying to be apolitical, but that sounds like progress. Its taken 12 months to do and everything else will take time.

The banks are indeed bust. The problem is not one of insufficient capital, but of insuperable bad debts. There is no level of capitalisation that will permit of years of profligate lending.

The U.K. Treasury is bust. It went bust the day Darling Gordon guaranteed virtually all deposits in U.K. banks. The press has yet to dig out a figure for that particular contingent liability. (That day might go down in history, when man on the moon has long since been forgotten).

Governments have no money of their own. They have merely the expectation of a constant cashflow from taxes. Unfortunately the British Government has ALREADY committed the lifetime taxes of my great grandchildren none of whom are yet in the tax net.

If not the dark ages, at least the middle ages, beckon for those poor souls.

Another party political broadcast for the Treasury and Prime Minister, Mr Peston?

This so called insurance as you call it based on covering around 90% of writedowns of anything above what the banks THINK OR TELL THE INSURERS their current debt is.

So THEY KNOW WHAT THEIR LIABILITIES are, do they?

Thats the point, isnt it? They dont know, SO HOW THE HELL CAN THIS SCHEME WORK?

Shame HMG will not insure my tax on anything above 23% for the next 10 years!!

If the item club are right and we are going to have 3.4million unemployed plus there will be hose who have lost well paid jobs but taken a less well paid job to keep food on the table. Together with the figures I have seen that average household debt is in excess of £30k it really dosent take a genius to realise that there is likley to be a high level of defaulters rather quickly. Just how much debt is the government about to take on?!

'Worse than expected' - said it before and will say it again.

These are the three words that will define the next 2-3 years (note to RP - you could use this as a title for Crash Gordon's biography).

If all the banks are to sign up to a giant insurance scheme where they pay money to cover their bad loans, how long will it be before they work out that they can simply write off their bad loans for a fraction of the cost?

I know the govt is saying that shares or cash must be paid to cover the costs of insurance scheme, and are hoping for shares, but what if the banks (Barclays) refuse shares and offer only cash?

Could the government realistically turn such an offer down? What would it mean for the banking system as a whole?

It is insurance, in this case taking risk others do not feel is worthwhile in order to draw existing capital into play. Ok until the insurance claims come in. Brown is determined to pump up the lending volume across the board. Essentially Brown is wanting to buck the markets because the markets say no thanks. Last time this happened it was Norman Lamont and a disaster. The key issue is he wants to return to previous high and unsustainable levels of lending. Credit does need to return but this looks OTT. Thank god May 2010 is not too far away. Still far enough in view of the fact that Browns bubble was created in a matter of a few years

Albert Einstien - Insanity: doing the same thing over and over again and expecting different results.

A UK toxic bank is ok for the UK, but global problems require a global solution!

Therefore the next time that you see Mr Brown could you ask him to suggest that a global toxic bank is created when he goes to the next G20 meeting.

I am more than willing to be on any think tank panel as I'm now retired.

Trev Moore

If banks need more money so that they can lend more money the traditional 'Free Market' way is to compete for savers deposits. This is the ONLY way to get from the disastrous position we are in today to a more stable future.

This means that deposit takers will have to offer very much higher interest rates to savers.

These 'insurance' schemes announced today require a premium is paid by someone either the bank itself or the borrower so this has the same effect as charging a higher rate to borrowers and is exactly the same as can be achieved by paying more to savers, no insurance and higher rates to borrowers.

So in a very real sense the insurance premiums are being taken at the direct cost to savers.

This has the perverse effect of depressing the incentive to save - exactly the opposite of the presently required economic action.

I also reiterate the point I made in "Lend, Lend Lend": how do you set a value on the risk premium for the insurance?

There is no market to set the premium so how do you do it? This is critical and should be understood by everyone as this is a direct and unequivocal move of the UK to a Communist style state planning system of economic management - and look where that got the USSR! It is probably a necessary action but the terrible risks need to be understood.

My thanks to Robert Peston for explaining logically the otherwise baffling financial episodes the public endue daily from Government and the suicidal news from the Media.

However, Mr Preston states, "That's why the Bank of England will swap corporate loans and other forms of credit for Treasury bills, which can easily be turned into cash (by the way, this new facility is a part of the preparations for quantitative easing, for printing money when Bank Rate is nearer to zero)."

Surely, printing money is the end of our economy as we know it, isn't it?

The tax payer has already loaned institutions by way of the Government, a colossal amount of money in the hope of sorting this awful mess out.

Now, we have the added worry that if all else fails, we will print money, which must surely mean that there is not much confidence in winning the financial fight.

Will printing money mean that we will eventually go the way of Argentina and Zimbabwe where high inflation means a loaf bread costs a fortune?

Will it mean the UK will then be 'bankrupted' with no-where else to turn and it's citizens with no money anywhere?

I am so upset that my beloved country is in such financial ruin and worry as to what will be the outcome for us all financially.

How can we possibly trust anyone anymore?

Sorry to take issue with Robert, but the banks are broke. The previous bailout failed because it was, in relative terms, a pitiful amount (£50bn) compared to the level of toxic debt, which they are all sitting on. For instance, RBS alone has £2 trillion - yes trillion - of such debts. Indeed, the news yesterday that RBS is writing off (!) a debt of £2.5bn to a Russian Oligarch just bolsters the point.

The situation is exacerbated by the news reported last week that over 80% of their loans are tied up in a deepening quagmire of indeterminate foreign investments - many of which are turning toxic by the day. Thus they cannot say with any conviction what the full extent of their liabilities actually are.

This being the case, Brown's actions are utterly stupid since he is effectively copying the selfsame strategy that got us here in the first place, i.e. of purchasing a whole swathe of credit default swaps. He is gambling that £200bn will cover the entire debts when the likelihood is that this is woefully optimistic and that the position is more like £20 trillion!!! This being the case he will bankrupt the country.

Surely, this Treasury action will prolong the agony until all the toxic crap is either brought out and defaulted from the books, or transferred to a BadBank for similar winding up procedures.

If the banks involved in 'The Plan' resume lending to unfreeze the economy, then - fine.

But if they just sit on the capital as in the past, what then?

It doesn't look promising.

Robert,

Always enjoy reading your blog very informative.

Is there really a problem with a lack of credit? Are the banks simply not lending to people who cannot afford to re-pay the money, thereby stifling supply? I certainly believe this is the case with the mortgage sector.

It is my belief that banks are now only lending mortgages to people who can afford to repay them. This seems perfectly acceptable to me as it was lending irresponsibly that got us into this problem!

To increase the supply of mortgages I believe we need to accept the fact that house prices need to fall. When they fall sufficiently the affordability will return and people will be accepted for a mortgage. This is simple demand and supply and reaching an equilibrium.

To stimulate the supply of mortgages now (by encouraging banks to loan, and relaxing the criteria) is simply creating an artificial demand for mortgages by lending to people who are not really worthy.

Is this not how we got into the problem in the 1st place?

Are we not simply going to clock up more debt for the future and a bigger problem?

I believe natural market forces should be allowed to play out.

Matthew

Robert

I think it is time for the BBC to urn some of its attention to the likely shape of our economy after this is over. How will we spend/save our money. What percentage on housing, leisure, travel, etc. and what will this mean for prices? There is valuable work to be done to describe the relationships that will exist and the BBC as a public service provider is well placed to do it.

How about it?

*11 Alexander Curzon

What a great idea, 'Fiscal Prudence' loo paper printed with government spin phrases and photos of Gordon and Al.

I can even see the advertising slogans...

'Had an unfortunate Brown moment? You need Fiscal Prudence toilet roll! Super thick and ultra absorbent. Just feel the quality...'

This plan can't work because the banks have shown though their own actions they can't be trusted by what they say.

Barclays, possibly the biggest player in the UK in derivitive products has chosen to say all is well,. Yet we are unable to establish what is toxic and what is not.

It like so many have a machismo factor that beggars belief, and its management haven't understood investors and customers deserve more than the management are prepated to give i.e clear transparent information.

To assume the same management will secure the long term when they have put the banks credibility at the top of everyones agenda, is sheer folly.

Any one of Barclays or the other clearing bank senior executives could be replaced and no one coudl do a worse job.

Yet for osme insane reason we believe that its better the devil you know than the one you don't.

That's why Obama is the next President of the USA. Our tired and tested 'Old Guard' are not the safe pairs of hands we need now, simply because they have shown how incompetent they really are and teh only thing they have been good at is screwing up and lining their own pockets .

This plan will never work because there is no obligation on transparency so lies of the past will now be brushed under the carpet.

The best thing we can do is hope they fall on their swords and new fresh honest blood is allowed to do what the old guard can't and that is to be upfront and honest.

Paymasters should expect nothing else and if not forthcoming then then let them go under and pick them up for a song.

It was a bubble. It burst and can't be reinflated, however much of our children's money Brown and Darling spend.

We've had hubris ("No more boom and bust"), and nemesis. What's now needed is catharsis. Let the banks shrink and unsustainable businesses fold. Only then can we build a new economy.

In an earlier blog, Robert wrote the following:

"In theory, if the two banks (RBS/Lloyds/HBOS) didn't have to pay this dividend they could lend £27bn more every year (because under FSA guidelines, if the £1080m of dividends were retained by the banks as equity capital, the banks would be able to lend a multiple of that core Tier 1 capital)."

How many laypeople really understand what this means?

If these banks retain a pound, then apparently it is fine with the Government/FSA for them to lend twenty-seven pounds.

Presumably, this is how RBS, for example, can end up with two trilllion pounds on its balance sheet.

The mind really is repelled by this but fortunately for us, not all banks operate in this dubious way so we do have a choice as to where we place our deposits.

You'd think that the FSA would like to assist depositors in minimising risk by publishing a list of banks that operate a full reserve system but they do not, as far as I know.

However, I know that the Co-Op Bank does and also the Islamic Bank of Britian (Sharia law forbids the 'fractional' reserve banking system which most of our mainstream banks have been using).

PS. My last blog post on this subject was promptly removed due to a complaint.

This idea creates a bit of a problem, surely;

stimulating lending to individuals is going to allow people to borrow money again (hurrah, let's buy a house!). Then, what if that person gets made redundant (we are in the middle of a recession, after all; it happens), and suddenly the loan/mortgage cannot be repaid.

Multiply this by only a few thousand examples and we are back at square one and still paying the whole lot back in higher taxes in the future, nothing has been accomplished... Is this not another example of action for action's sake?

"by the way, this new facility is a part of the preparations for quantitative easing, for printing money when Bank Rate is nearer to zero"

That's the bit that truly scares the living daylights out of me. "Money is debt", as they say.

Surely, this will become the real debt that future generations will be backrupted by .... by printing more and more, increasingly worthless money?

How will we pay back our debts with worthless pieces of paper? Where's the strategy to actually create any REAL wealth.

Building roads and the like will create infrastructure, and thereby, jobs for a time, but it won't generate revenue for anyone. If anything, it'll create more debt liability (maintenance, repairs, etc).

We need to build, make and grow things to sell to others (and ourselves).

As Liam Halligan (see his Telegraph column) has been advocating for some time, there needs to be a paper-chase backed by law to force the banks to reveal the scale of the toxic debt. But Brown-Mess isn't insisting on this, he's merely throwing trillions of future taxpayers' money at an unquantified black hole.

The rationale for this must be obvious......the sheer scale of the losses must be SO bad it would be unthinkable to reveal them.

Gordon Brown = born do wrong, wrong or bond
Alistair Darling = trading liar ails, trading ail liras, last raiding liar
Robert Peston = borne spotter, sober portent, probe rents to, rotten probes, beers not port

Robert, I think you are being disingenuous claiming this latest scheme is not for the benfit of the banks.

Robert, of course the FSA is going to say the banks have plenty of capital and there is nothing to worry about.

It's the same reason the auditors did not qualify the accounts of these banks.

Any hint from the FSA or the banks' auditors that there was something to be concerned about would have caused their immediate demise.

Far more swiftly even than your mutterings in this blog!!

One factor I think that has been overlooked by many is that part of the cause to the ecomonic problems is "consumption saturation". Fuelled by debt, debt unable to be adequately serviced by household income. THroughout the developed world consumers increasingly recognise they have reached a saturation point. This tipping point will see the progressive reduction debt before easing into savings. It is folly to throw more money at lending. The progressive removal of productive capacity reflects a marked shft in the supply curve realigning it to the step changes in the demand curve.

There is now and only ever has been plan A,whatever comes after, it is still plan A. Raise the levels of personal debt by encouraging the electorate to borrow more money & artificially prop up housing prices.Regardless of what the gullible economic press reporters tell anyone,there is no plan B.

A few points to move the debate along (!):

1. "Nationalisation" in the sense of transfer of ownership through shareholding of the banks is not by itself a solution to this problem. If a company is insolvent then its directors are legally required to act in the interests of the company's creditors. Not its shareholders. Make no mistake, the directors of all of the key trading entities in these large UK banking groups are receiving legal advice (specifically "wrongful trading" advice) and will be balancing the risk of being pilloried by Brown, the press et al, against the risk of personal liability and potential imprisonment if they fail to act in the interests of their creditors. Doing what Brown wants, by gearing back up to lend wildly to people who probably can't pay the loans back, for example, is very risky from a personal liability perspective for the directors of these companies that are balance sheet insolvent, which is one of the Insolvency Act 1986 tests of insolvency (aka "ability to pay debts").

Nationalisation of a bank in these circumstances is a bit like transferring the ownership of a house that is on fire. It doesn't matter who owns it. The house is still on fire.

2. The reason for the massive share acquisitions in the banks by HMG was primarily to try to give them the cash oxygen that they needed to continue trading, albeit coupled with a face-saving sense of "ownership" which suggested a level of control for Gordon Brown over the investee bank which has proved to be, in the main, illusory.

However, as we have now had confirmed, this approach has failed once already as a rescue measure. It's a patch at best, not a fix.

3. The fix is to put the fire out properly. In order to put the fire out the banks need to have some sort of stability, during which they can work out (and admit) what they owe, sort out sensible action plans etc. Simply spraying cash into them doesn't achieve this.

4. It appears to me increasingly likely that the "fix" here involves direct legislative intervention to give the banks a moratorium against creditor action, something akin to US Chapter 11 but more tailored to the situation, probably combined with further steps towards partial or total nationalisation.

If HMG don't give the banks this sort of protection, then they will continue to be subject to the creditor pressure which has them frozen in the headlights. The banks aren't honest enough to admit what it is that they're so frightened of - they won't come clean on their balance sheets because admitting the problem would, in the current environment, destroy them. If the banks had legislative protection then it would be much easier for them to come clean and for real solutions to be discussed.

It would also be open to HMG to require the banks to disclose their balance sheets in full - that the initial stage of the statutory moratorium provided to the banks would be a sensible audit (not a full one, that would take decades no doubt, but at least a sensible dig which could continue during the moratorium) against revised accounting standards designed to capture all the CDO liabilities, SIVs, orphan funds, securitised liabilities, JV investments etc that have the banks frozen in fear, combined with, for example, interrogation of key finance personnel on oath (using statutory declarations) as to liabilities.

The quid pro quo for this is that the banks would know that they couldn't be forced into administration and then torn to pieces by their creditors.

5. So, a seismic shock, the banks almost, but not quite, in an insolvency process, but a long-term work out put together combined with the injection of public money into now-stable investee companies with the possibility for long-term gains on the share/debt investment.

6. Needless to say the stabilised banks would end up more or less owned by HMG.

7. Should these stabilised banks then be asked to carry on lending "like it's 2007"?Hell no, the bubble has burst and it's over. Sensible lending to sensibly-run businesses, yes. Insane lending to self-cert no-hopers, no.

A state-funded wholesale debt injection into the economy is only sensible for those nations that saved when times were good. We didn't. Brown spent it all. There's nothing to inject other than promises on future tax revenues. I don't think Brown (or any other prime minister) has the mandate to pledge the future of my children in such an irrevocable direct way unless he has been elected with that policy in his manifesto.

Like most people, I'm aghast at the idea of this enormous cash injection. But if it's the route that's going to be followed, then for goodness' sake let it be accompanied by measures that actually force stability upon the banking market. The ordinary insolvency rules don't work in this situation.

8. Downsides? Sheesh - a lot:
- Uncharted legal waters, with lots of scope for challenge and, for example, horrible knock-on effects for contracts entered into by the banks (although again HMG could legislate that it would be unlawful for any contracts to become automatically terminable as a result of the moratorium, which would work for UK law-governed contracts).
- Sterling slides further against currencies other than the dollar (but then, isn't it going to anyway?)
- The realisation that we really are going to have a long unpleasant time in the UK. Call it recession, call it depression, call it whatever: the party lasted ten years. The banks are in hospital with alcohol poisoning. We've all got to face up to the hangover.

Bur Barclays is saying it will make over £5b pre tax profit in 2008?

RBS will have thrown the kitchen sink in.

Lloyds clearly think they can weather the storm without the £4b of prefs converted to ordinary shares.

The only excuse for failure now will be further incompetence by the Labour government and the BoE, which sadly on past performance is possible given particularly the idiots at the BoE destroying confidence at every opportunity it seems.

If the banks are fully nationalised call in the IMF because it will be the only way we get international support, because at that point UK government guarantees will be worthless.

As a former Labour voter I am sickened by the massive demonstration of incompetence by Labour, not to mention the dubious behaviour of certain of their politicians eg Mandy being "entertained" by Rothschild. They have largely destroyed what was regarded as the world's best banking sector, through their handling of this crisis. If nationalised it will never recover, and our economy will be decimated for many many years.

I am increasingly convinced that Labour either is full of incompetents or worse.

One factor I think that has been overlooked by many is that part of the cause to the economic problems is "consumption saturation". Fuelled by debt, debt unable to be adequately serviced by household income. Throughout the developed world consumers increasingly recognise they have reached a saturation point. This tipping point will see the progressive reduction debt before easing into savings. It is folly to throw more money at lending. The progressive removal of productive capacity reflects a marked shift in the supply curve realigning it to the step changes in the demand curve.

Am I correct in that all the LOST BAD loan MONEY will never ever be paid back?

The insurance on the loans?


We all know the US sub prime was the main cause.

Why does the US government not repay all the defaulted loans back to the foreign banks?

This is just moving losses from one country to another and we have been lumbered with all the US subprime debt defaults.


ZERO sum GAME?

Why go to all this trouble? if the banks won't lend (and that's about the only thing I don't really blame them for), then bypass them. Its much cheaper and less risky. I am sorry Robert, but I think it IS A BAIL OUT - the money the banks got has most likely been spent repaying all those dodgy CDO's and CDS's in the states. RBS is now 70% govt owned - why do Govt need to say LEND Pretty please - they should simply instruct (on sound lending). If the Govt wants unsound lending (to save their electoral skins) then guaranteeing the loans banks make might be a good idea?

Will Barclays be nationalized along with RBS & Lloyds Group?

Barclays have ducked and dived for a year trying to avoid disclosing the amount of toxic garbage in their SIVs, but can this continue much longer?

HSBC are probably OK for now, but HMGs plan to replace the wholesale money can onlyend in failure. Its simply born of a wish-fantasy to return to pre-crunch 'boom', 'feel good factor' politics and would be pathetic were it not so serious.

I'm wondering why the Government doesn't just nationalise RBS, since it owns 70% of it anyway, and RBS owns has a great brand for a nationalised UK Government owned bank. 'National Westminster'..

Seriously if the banks were nationalised, surely that would a) reduce wastful duplication and mean that we could control executive salaries and bonuses, not many Civil Servents get bonuses. And b) allow the FSA to be disbanded, it doesn't seem to have done much anyway. Regulators could be 'outsiders' but working inside the none bank.

Incidentally why has the FSA allowed Short Selling again? There is talk this morning of the Government taking a great gamble, but isn't that what most Share dealing is? May be we should pass law which ensures those who buy shares have to hold them for at least 6 months. That would reduce the chance of people starting a run on a Company, which can bring untold haertache for employees of that company, while some wizkid earns another Porche.

Summer 2008 -

The International Monetary Fund has estimated bank losses of roughly $400bn (now out of date). A number of hedge funds believe the alleged losses may overstate the likely level of defaults. They are buying the spurned securities for as little as eight cents on the dollar.

If projected losses are anywhere near correct, governments alone have the wherewithal to rescue the system. This would mean the de facto nationalisation of the banking systems in the US, Britain and Europe.

Being an employed taxpayer and also having a small business I wanted to throw something completely random into the mix.

Why doesn't the government give us taxpayers £100,000 each with the provision that we pay off any existing debts before spending it.

That way people can pay off mortgages, loans and credit cards - the banks then get their money back quickly and therefore become solvent.

People without debts to pay will start spending this money on cars, houses, holidays etc etc and hopefully in small businesses like mine. Therefore boosting the economy. This could also help first time buyers to get on the market. This group of people might also start saving again and then the banks and building societies benefit again.

With a large injection of cash some people nearing retirement may decide to leave work early and therefore create jobs and apprenticeships for younger people leaving school, college and university. As things like university loans are means tested this will be the end of a culture where graduates come out with debts of up to £24,000.

Is this not an option because it suits a government to keep us in debt and to keep the taxpayers, businesses and savers in our place without any autonomy? Don't they trust us to do the right thing if the decision is put into our hands rather than being told what ours and future generations hard earned cash will be spent on? Would our decisions be anywhere near as bad as the ones the banks have made?

So let me get this right the Taxpayer is now going to insure the banks against any bad debts they incur during this recession.

So the Govt. wants the banks to resume lending to all and sundry as they did until 2007, however this time their risk will be guaranteed by the tax payer, so we avoid anymore banking collapses.

So the only people who will do well out of this are the Banks themselves and the non-securitised individuals and companies who will obtain loans that will probably become 'toxic'. Are these not the people who started the problem in the first place?

This is getting more and more insane by the day. Can we not organise a coup d'etat?

Hmm, has there been a time other than this summer the FSA DIDN'T think the banks were adequately capitalised?

OK so I've already commented, but like most I'm incensed!!!!

So here is round 2:

We are (I use WE as it's our money) trying to stimulate lending - i apreciate there is an amount required buy business.

But to stimulated consumer spending is foolhardy to say the least - retail is a reflection of the economy not the driving force - when the economy does well retail spending is up - when the economy is bad retail is bad... it's the Cart behind the Horse

And I'll ask again.... how much is ENOUGH LENDING and what is our new economy going to look like when lending is sensible...

Robert Peston

Please explain why the city code on takeovers and mergers does not appear to apply to what is happening to the banks.

Is the Government braeking the law?

Oh, good - we are not rescuing the banks again? What are we doing about RBS then, apart from being angry and giving them more capital due to toxic losses?

Should not an economics editor give some consequences rather than Nu Labour spin.

Also who pays and at what price? Middle England - not politicians and not fat cats. I trust no one will lose their kighthoods.

My name is Robert Peston and I give a biased skewed opinion on what this goverment is doing.

I support whatever the Labour party does. One day I hope to be a minister for Gordon.

Is it not time that those bankers responsible for this mess are identified? The government should be saying that they are investigating the causes of the banking crisis and holding those responsibel to account. Otherwise the Government could just be throwing our money away.

Robert,

Can you please explain by what mechanism Gordon Brown can just give away and thereby expose the country to the possibilty of billions worth of future debt without having to get the consent of Parliament.

Whoever you wish to listen to, the amounts invovled are quite frightening; but I don`t see how Gordon Brown can get us all into hock for years to come without at least getting the approval of Parliament first.

Nothing he has done has worked so far, so I don`t suppose the country is holding out too much hope that this will either. Savers are not going to benefit until inflation starts rising again, which seems by all forecasters to be 1 to 2 years down the line.

Firms are still going to continue to lay off people and who in their right mind is going to buy a house or make any other big pruchase when house prices are continuing to fall and their jobs are in jeopardy.

Post 4 the RBS paid it out as dividends to shareholders and bonuses for Fred Goodwin and his mates.

They, and many other banks, announced profits that were in effect illusory as they took the commissions and profits but left nothing to pay for the losses when things went bad.

Posy 11 Alexander I think you will find that Crash is robbing the UK taxpayer to pay sovereign funds in the Middle East and Asia plus a number of very rich foreigners.

I won't write anymore as this all makes me very angry and the mods will no doubt block it.

With so much taxpayers money being allocated by our government to try and help the economy through the worst of the credit crunch our government seems to be behaving in the same reckless way that the bankers did (with other peoples money) when they created the problem in the first place. Only this time it seems as though the bankers greed has been replaced by polititians vanity and our polititians now believe that they have become the new masters of the universe.

It is becoming increasingly worrying to know if all this financial largesse, however well intentioned, will improve matters or prolong the deepening depression that the country is facing.

Google Lombard Street Research and follow the FT Alphaville link.
Take particular note of the Japanese aspects.

As poker players say
“read ‘em and weep”

If the government doesn't trust the people, why doesn't it dissolve them and elect new people? Meanwhile Insolvency Firms are throwing the people out of their homes (not houses, property investments, mortgage backed securities, bonds, products etc).

We are fortunate we MANUFACTURE V little.

The SERVICE ECONOMY is likely to be more RESILIENT than any manufacturing economy.

ONCE we put the BANK losses behind us we should return to stability and NOT have as much pain as MANUFACTURING economies.

GLOBAL problems fooweee.

We have a great buffer and we are an Island has helped us before will help us again.

Only our reliance on Foreign GAS and OIL could be a problem.

This will be the Island the GLOBAL wealthy will fly to, to lie low and stay safe.

It's always been about house prices. They fall and we go into recession. Unfortunately this house price boom was a big one and a global one so the effects of the bust are multiplied. I really hope that government efforts to encourage more bank lending don't stop the fall in house prices, they still have a long way to fall before they reach sensible levels again.

If only Gordon Brown had stuck to his declaration in 1997 that he would not 'let house prices get out of control'. It would have been difficult for him to control house prices all around the whole world but he seems to think he has that kind of ability!

"... if you wish to ring up the Financial Services Authority, the City watchdog, for assurance on this point, I'm sure you'll be told that the big banks have a sufficient cushion of capital to weather all but the most cataclysmic storms that may lie ahead"

Why on earth would I ring up some banking quango to find out what is really going on? Is that what Robert Peston has been doing? Surely we can expect a more penetrating level of journalism than this?

Now, I'm no economist but predicted years ago that the 'brown stuff would hit the circular motion machine'. There was no way the economies or people of the world could continue like they were; living on 'funny' money.

I don't think we have seen end of the turmoil, rather more likely the beginning. It seems like there is one step forward and two steps backwards.

What we have in Brown and Co (but let's not blame him and New labour for all our ills - it's a world problem) is that they are frantically trying to maintain the status quo because that is really all they know and understand plus they need to look like they are doing something. Like all of us they are in totally in unchartered waters with an out of date map!

Like other writers it looks as if they are trying to encourage lending etc which is just what has got us into this mess in the first place.

The most disturbing thing is to me is they seem to be pulling out of the magician's hat magical figures but in all honesty where is this money coming from. If it as they say, the tax payer, then the government must have a huge 'in the black' bank account. It just doesn't seem plausible that this is the case.

What is more likely the case is that they haven't actually got the cash but are pushing figures around on paper just like what caused this mess in the first place. NO actual cash reserves, just a vain hope that we the public won't actually think too hard and just blindly believe them. Methinks they are quite probably up to and beyond their necks in debt to the seemingly cash/asset rich bods from the Middle East , Russia orChina perhaps? The term 'clutching at straws' comes to mind.

As yet, but maybe I have missed something but has any journalist ( RP perhaps he could as they say - 'probe') actually asked where all this money they keep finding comes from? My bet they wouldn't get a straight answer because Brown et al a 's..t' scared of Joe and Jane Public finding out the truth. We need to know.

Go on journalist 'probe' until you get a plausible answer, you owe it to us.

If as I really fear they are just 're -fudging' the books then God ( of all persuasions male or female) help us.

I believe we are in for a total shakeup of the way mankind operates. Hopefully good will come out of it all but it may take a while longer yet.

Soon Brown will have to save the world for the third time, assuming he will claim today has been the second.

Banks and the taxpayer will now take on mortgages with the housing market not recovering before say 2015 and loans to fund inventory while comapnies can not sell stock. What a clever plan.

Hands up all those who want to borrow and spend spend spend - not many I think. My(slightly) poetic summary.....

THE END IS NIGH.

LEND LEND LEND
SPEND SPEND SPEND
BEND BEND BEND
MEND MEND MEND
LEND LEND LEND (AGAIN)

BUT IF NO SPEND SPEND SPEND
DEADEND DEADEND DEADEND

HORREND-US

Yes. This was caused, largely, by a housing bubble.
House prices in Britain are amongst the highest in the world in terms of the proportion of income required to service the debts.
High house prices are regarded as good in the UK.
Endless TV programmes tell you that they are good.
Newspapers tell you that high house prices are good.
Radio presenters on radio 5 might cut you short unless you agree that high house prices are good.
The government are doing all they can to maintain high house prices because they think that they are good.

But they are BAD.

And everyone but the credit junky, brainwashed Brits think otherwise.

RBS is a lame duck - its liabilities are now worth more than its assets.

This insurance scheme won't work because it still doesn't provide the market with transparency that it requires. People still have no idea what nasties RBS and now through this scheme (the government through complicity) are attempting to cover up.

The only way the banking sector will recover is via a full scale cleansing of the bank's balance sheets, and this will only be achieved via nationalisation of RBS.

I've said it before. The key sector now is housebuilding. If government wants to get money moving around the system, it must offer incentives to get houses built, either for sale at realistic prices, or for let through the public sector.

There are thousands of house plots with existing planning consent that could start within a few weeks if finance was available to fund construction and the developers knew that sales were likely to pick up. Offer local councils and housing associations money to pre-purchase developments and if they can't then be sold on, they are leased until values pick up.

The public sector could possibly make money out of such a scheme in due course, but in the meantime, construction sector employment increases and the knock on effects to suppliers, professional services and retail services are obvious.

If the government wants banks to lend, it has to create an environment whereby it creates demand for that credit, and the quickest way to do that is through the housing market.

So, its to be full scale nationalisation of our biggest banks then.

Might as well get on and do it.

# 17 gordont10

"Before the usual suspects start their rants,
if there is a viable alternative to what HMG is proposing, let us have details of what it is, who pays and for how long, and who suffers.."

Nationalise them, incorporate all their Uk assets and liabilities into Northern Rock, trade their overseas assets against their liabilities. Change the (discredited) name of nationalised Northern Rock to the the 'Bank of UK', bring in successful top level staff from a bank that's doing well, eg HSBC (I guess because they are never in the 'bad' news) structure all the terms in favour of the taxpayer and business, lend direct from Bank of England to Bank of UK.

Who pays and who suffers? Can't think of anyone at present, guess some will. No point fixing banks that are past the point of no return, like patching a leaky ship.

GC

'Reckless', 'feckless' - and at its most kind - 'ill judged' - 'cmon Robert, bankers are only human, unfortunately, as we have all seen - not at all Masters of the Universe. If you keep rubbing it in with such abuse, they will only become more and more scared of their own shadows, so concerned about being accused of future carelessness, recklessness, fecklessness etc, etc - that nobody who needs a loan will ever get one again.

Before the latest bank rate cut I could have borrowed from Lloyds TSB at 7.9%. Today I can borrow from Lloyds Banking Group at 7.9% so I think nothing's been achieved by the recent cut. A bit like the VAT cut - what a waste of time, energy and money that was - only good for printers who have printed millions of sheets of paper and some IT people who had to amend systems but did it make a difference to people's buying habits - I don't think so. Where's the evidence Messers Brown/Darling? You've just poured money down the drain.

Who should the banks lend to? People and businesses who can repay the debt presumably, otherwise the spiral continues and we and our children and their children will be in an even bigger mess in the years to come.

Robert, Alistair,George,Vince

Sorry to bring money into the issue but can someone help me with the maths on the RBS bail-out.

My information is that we ( taxpayer) underwrote a 22,853,798,818 RBS ordinary share issue last November at 65.5p per ordinary share and paid £14.9 billion. Those current shares are now worth 26.8p, are they? That, on my calculation, makes them worth £6.12 billion today, a loss on paper of £8.09 billion to the taxpayer since last November ? Can this be correct.

The Treasury are now going to underwrite a new £5 billion ordinary share issue to redeem the preference shares they own at 31.75p fixed price. If my figures are correct, the Treasury is taking another hammering for this of over three quarters of a billion pounds based on today's share price.

With the announcement today of the unaudited £8 billion loss by RBS and question of goodwill 'impairment' charges carried to the RBS balance sheet of up to £20 billion ,taxpayers ( us) have just stood an awful beating on RBS....havent we?

Will there be any questions?