What Volcker thinks

These strategic considerations are all very well - but what most people and businesses in the UK want to know is when the banks are going to lend - albeit responsibly - again, instead of shutting up shop by ignoring low base rates (except for savers) and either removing existing credit facilities or offering loans at such rip-off rates and exhorbitant arrangement fees as to make them difficult or impossible to take out. And our economy won't recover unless and until that happens. The banks must stop ripping us off. Caledonian Comment

Slowly but surely the penny - or is it a gold brick - is dropping.

Why should the taxpayer underpin the banking system to the degree that the taxpayer becomes bankrupt? This is what is happening. It is a scandal that the taxpayer is expected to serve the banks and not the other way round.

I find it quite extraordinary that those who argue that the financial markets should be free markets expect the taxpayer to subsidise their losses. They all had the begging bowl out early last year and now seem to think they have the right to screw us all. This isn't moral hazard anymore it is plain expoitation and blackmail: both of which I hear are deemed criminal acts. Nick-nick, anyone?

The one conclusion from this entire banking crisis is that the taxpayer, as the final guarantor has to be the real boss. Now all we have to do is keep kicking at the bankers until they get the message. If they can't get the message then they will have to be closed down as we can no longer afford to keep them.

I agree with Volcker about the banking tax. We are in effect telling banks that they may continue putting the economy at risk, as long as they pay for it in taxes. Except that it won't work for two reasons:

1) The tax revenue will not go into a fund to cover the next bailout. It will just be spent, leaving us just as badly off next time.
2) The bankers, freed of any worry about sending their bank down the pan with reckless trading, will take even greater risks, with correspondingly greater losses stored up in future.

Further, anything to regulate derivatives trading and render the trade more transparent has to be A Good Thing. As anyone working in a company that trades internationally knows, derivatives are essential instruments to reduce exposure to risk. When they are used speculatively, they are exceptionally dangerous, and can bring even the biggest company to ruin.

Thanks for the blog, interesting reading.

"He defines the Volcker rule in a simple way, which is that banks should use their capital only to serve the interests of their clients, rather than trading to generate speculative profits for their owners."

It seems simple but it is extremely difficult to make the distinction. The most recent famous example is Goldman Sachs, who's hedge was supposedly intended to *reduce* risk whilst in the process of structuring a CDO product, but was interpreted by politicians and media as *speculating* against their own clients.

If they were prohibited from hedging out positions (or "speculating") whilst creating products for their customers, risk would be increased, not reduced.

Good luck with the detail on that one.

And in the meantime Davick sets up a commission to investigate separating investment from retail banking (well done!) to REPORT BACK IN ONE YEAR! And they will implement the suggestions in 2012?! And the world will collapse again twice by that time!

Maybe something better will come over from America for a change.

There is a confusion in Paul Volcker's position. According to his argument a bank should not be allowed to speculate trades on its own account to profit for itself. He sees this as a dangerous activity and pursued with a sovereign wrap which is unjustified. And yet, he would be happy for that bank to speculate trades for its clients for their profit but taking a commission? Why wouldnt the latter have the same systemic dangers?

Isnt the real lesson here that banks grew too large and dangerous and became addicted to the wholesale money markets, buying and selling each other's loan books ( if not to themselves to interconnected funds) to generate cash flow and beating regulation with clever off balance sheet vehicles with regulator acquiescence ( public inquiry here is needed, accounmtability not yet secured). You may need to create clearing houses for these trades to make them safer but you still need to reduce the size of these conglomerates with balance sheets larger than sovereign states. You still have to break these large banks up and re-balance funding models to limit dependency on them borrowing to lend. In turn, this means we will all have to save more ourselves and governments need to reduce their own enormous dependence on credit markets/bond investors.We then get the benefit of a diverse competitive market funded by real capital, not international borrowings.Step change is needed in this country on such things as house ownership, housing supply and debt funding.

The problem is gaining international agreement.In a way, this might deter global ambitions by some banks.That nettele needs to be grasped.If not, there will need to be consequences for those banks/home countries which dont play ball on this.

You cant have a shadow unregulated system which interconnects with the regulated one.

I agree with Volcker's view on the EU becoming a hard central Federal core. Cameron and Clegg look-out!

Supervision not regulation is essential backed by statutory governance requirements that would mean that the deviant actions of bankers could send them to jail. I dont see much of this with Volkers prescription and this is surprising given the more radical statements of Obama.

I dont exepect to see a strong public sector presence with the present government but then Labour were keen to return the erring banks back to the private sector asap. A public sector element would be able to defined the standards on conduct and service and paradoxically provide the real competition so obviously absent from a banking world that can easily pay those obscene bonuses.

I’m not an expert in banking and finance, so these are just the thoughts of an average working Joe:

We need banks. I have a bank account, I need it primarily for two reasons, namely to receive, and make payments. My bank charges me for the privilege and rightly so.

However my bank creates money from nothing, because it has a licence to operate on a fractional reserve basis.

And because it creates money from nothing my savings can never keep up with inflation.
But even that does not vex me to the point of anger.

However this does:
The uncontrolled creation of money as debt from fractional reserve banking, results not only in boom and bust, but makes the ownership of a home virtually impossible for the majority of the younger generation.

My bank, along with many others, is directly responsible for the younger generation being unable to afford a home. And for those that actually can, many are reduced to what can best be described as ‘debt slavery’.

Banks are a wonderful human invention, uncontrolled fractional reserve banking on the other hand is a debilitating plague upon society.

And the fact that it is in corporate as opposed to state control, beggars belief.

The creation of money as debt should be state controlled, because if it isn’t, our society will be forever at the mercy of those who do control it.

7) America's financial sector became far too big relative to the US economy.

But are American's seriously going to change anything about their financial sector to make it more proportionate to the rest of the economy? No, because the US politicial system has neither the will nor the guts to take on the powerful owners of these intstitutions, who will not wish to dismantle the businesses which they have built up over the years. It will be derided as "un-american."

Would what Volcker knows now, in hindsight, have prevented sub-prime and taxpayer bailout? If his proposals ever see the light of day, banks will actively start seeking ways to avoid them the following day, (whilst annual profits growth remains the only, American, game in town.)

These are merely halfway-house proposals on the way back to Glass-Steagall, because Glass-Steagall worked!

Irrespective of what Paul Volker, or any other financial expert says.

I am still of the full and complete belief that:

Until such time as the creation of money as debt is under state control, we will continue in a never ending cycle of boom and bust, with the resulting instability, destitution and misery which naturally follows the same.

> reforms would also make these deals much less profitable for investment banks, by reducing
> their ability to extract rent from the gullible, which is why they're hated by many bankers.

Shrieks from the bankers confirm we are reforming them
well. If they howl, we know we're getting it right.
They havn't been howling as much lately, so we have
much more work to do.

This new government seems intent on ignoring the
secret lobbying by lardy-faced bankers - they've
hired Vince Cable! No amount of banker's jargon
can trick him!

A very useful and valuable interview : should be expanded into a whole BBC programme.
British policy should await the outcome of the new US legislation. Then we should ensure our policy co-ordinates with that. In as many respects as possible.
If we could persuade the EU to adopt the same humility, that would help.

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

The Dave and Nick Show's decision to take a year to decide what to do about the banks and then another year to implement is crazy given the rate at which crises can blow up, can only assume that it amounts to Tories kicking Vince Cable's ideas into the very long grass as a favour to their friends in banking and finance. Have always taken with a large pinch of salt Cameron and Osborne's mouthings about doing something to fix the banks.....leopards and spots don't ye know!

# 5. At 10:12am on 14 May 2010, Chris B wrote:

> It seems simple but it is extremely difficult to make the distinction.

Look, if we can't solve a mingy little thing like a bank problem
(which is just about little scraps of paper-money and computer
records) then how could we solve a serious thing like climate
change?

These guys have to be brought screaming and kicking into the real
world, which isn't interested in _their_ well-being. Don't forget,
we make the wealth with work, and they store our money - it's
not brain-surgery.

I'm slightly intrigued by the current lib-dem-Con approach to finance.

On the one hand both parties (well the market liberals & the Cons) are still pro free market economics of the kind we have just seen. They still intend to unleash free market policies up to the brink of yet again chipping away at more of the 'state' - so they are in once sense acting as though it is business as usual.

However, in the background are these momentous (ideological albeit introduced as pragmatic solutions ) shifts which move the centre of gravity towards the necessity of state regulation and control and continue to promote the end of the period of pure free marketism.

So if the financial sector is moving towards state control and regulation, whilst at the same time the UK government have been formed on a ticket to dismantle yet further state control and to continue to apply free market solutions at a micro level, something is mis-aligned in this over all thinking.

There's a conflict between the way the zeitgeist dictates what must be done, the direction we all must move and the Uk governments apparent desire to reset the dials of the free market ball-park so we can build on and replicate the playing field that was the 1980s and 1990s all over again.

It seems to me that ideological contradiction, which plagued Labour and defines the Lib-Dems will characterize the very heart of the Cameron's term in office. The question will stand - how much millage is their left in progressive conservatism before it starts to become progressive liberalism and ultimately purely left wing.

9. At 10:23am on 14 May 2010, Dempster wrote:

> We need banks. I have a bank account, I need it primarily for
> two reasons, namely to receive, and make payments. My bank charges
> me for the privilege and rightly so.

Yeah - it must cost a penny to change a computer record. Big deal!

> The creation of money as debt should be state controlled, because
> if it isn’t, our society will be forever at the mercy of those who
> do control it.

Too right. I don't understand the delay. We need to clamp these guys
down so they are slaves to our needs. I'd fed up with these
paper-shuffling record-keepers ruling the roost. You can't eat money
(although you can burn it, or turn it into compost).

On the face of it there is no problem with mortgages being securitised - so long as the purchaser of said "securities" can fully understand quite what it is that they've purchased. The root cause of of the crunch was that mortgages were being granted to people who could not service them beyond the short term. This led to house price inflation and yet more and more unsuitable morgages being granted.

These mortgages were then packaged up, sliced and diced and sold around the world in such a way that few really understood their value. That is clearly unsatisfactory and should be banned. But once you securitise the mortgage for the first time and the issuer of that mortgage is insulated from the effects of default, a situation has been created where there will be distant casualties. The reasoning behind the idea to create once again pure retail banks is that their deposits alone will support their lending and loses will be born solely by the owners of said bank. The growth of wholesale lending between 2000-2007 was the cornerstone of our credit splurge and it was fundamentally cheap. But it wasn't reliable and in the event risk adverse because it disappeared even more quickly than it had grown.

Its clear now that reliance on short term wholesale funding is not a good basis for our banks or the economy as a whole. And that "securities" need transparancy of their true value that can really only be guaged by the original lender so perhaps the original lender should guarantee them.

10. At 10:34am on 14 May 2010, spareusthelies wrote:

"These are merely halfway-house proposals on the way back to Glass-Steagall, because Glass-Steagall worked!"

I'm not disputing re-introducing GS - as 'some' regulation is better than 'no' regulation.

However the issue which brought down banks generally was the lack of liquidity. This is certainly what brought down NR - but please note I am not saying lack of liquidity was the cause.

The liquidity crisis came as speculating banks suddenly realised that their CDO products were worthless and the credit tightened rapidly as those markets effectively 'shut down' - pushing up LIBOR, stifling NR etc.

If these banks had been seperate then this would have made no difference, I'm not sure if GS prevents non-retail banks from accessing money markets and thereby causing LIBOR to spike - but if it doesn't then it wouldn't have made any difference.

Unless retail banks are forced to undertake the traditional banking / building soc. model - i.e. funding loans from savings - then I can't see what difference it will make.

I suspect this is why the current coalition is keen to promote this as a 'solution' - all parties love big regulation which actually achieves very little - it makes them look like they're doing something, when in fact they are doing nothing.

Don't take this as a note of free market support - but more the question about the validity of the regulations being drawn up as preventions to a repeat of the crisis.

It is a no brainer that there should be tighter regulation and better supervision of the banks: but I am not convinced that this will solve the problem.

The problem is that our economy is now built on debt and everyone (individuals, governments, companies, banks) are over borrowed. Who lent us this money? Some of it came from external sources of wealth/capital such as China: but for the most part, we did!

The banks lent to the Government; then put the government bonds into their capital base and lent against it to us; then packaged the mortgages into bonds and sold them to each other; and then lent against those to us.

Where did the money come from? From us. Not that we had it, but from our future income which will be taken back in the form of taxation and repayments.

The chance that we might be unable to pay has got the "creditors" in this system chasing around trying to find a creditworthy debtor to pick up the tab; and more recently looking to invest in something safer than debt (vis gold).

This will only resolve itself when the real level of future economic growth become apparent: and that can only be reduced by the continuing efforts to protect the "value" of the original (bad) debts.

Banking always was, and always will be, a risky business.
But because of the sheer size of these giant banks, the risks are now all shouldered by the public.
That's great if your you're a banker, but disastrous for the public.
It's no wonder that bankers aren't keen to be broken up, at the moment they always win, the public will take the serious losses.
For that reason the banks must be "divided" into different parts, to simply enable them to go bankrupt when they get it badly wrong.
Property markets are always the biggest risk, as we have all found out.
Near-zero interest rates are holding the whole thing together at the moment.
Will bankers get into "bonus driven property frenzies" again in the future?....of course they will, and the public need protection.
Will they ignore the "average salary to house-price ratio"?.....of course they will.
Will they dream up crazy, out-of-control property schemes like "sub-prime" or "buy to let".....of course they will.
(These sort of schemes can work.....but only with massive regulation.)
Will they go back to squandering the rest of the worlds' money....of course they will.
Like the rest of us, Vince Cable prefers "casino banking" to be at the banks' risk, not the publics'.

@ 9 well said.

Perhaps a return to the building society model of mortgage lending is the way.Its not perfect but it had controls in place to prevent this runaway lending that the deregulated banks have done.

At the moment there is a huge power struggle going on with the banks, we have to win.
Hopefully in our country a new broom will sweep clean but i dont hold out much hope.

14. At 10:50am on 14 May 2010, writingsonthewall wrote:
This comment has been referred to the moderators. Explain.
--------------------

First they ignore you,
then they laugh at you,
then they fight you,
then you win

NOTE TO BBC moderators
Censorship will only amplify the power of the voices!
So carry on, try to silence them!

We need to move into the 21 centuary.

Fifty years ago, the vast majority of people were paid in cash. Cash was printed/minted by the Government. There were savings and loans (for most people revolving around building societies), but this was independant of day-to-day spending.

Now most day-to-day financial transactions are electronic, not notes and coins. And this is all under the control of banks instead of the Government. We should take the basic functionality of money back under state control.

Nationalise the basic workings of the banking system (the modern equivalent of notes and coins - ie current accounts, direct debits etc). Provide a government guarantee on all money in such current accounts. Even provide interest on such accounts (index-linked?). Savings and loans could remain in the private sector, but money in such accounts would not have a government guarantee.

Crikey, Robert - Very impressive piece! Can we have even more positive and actually informative pieces like this one today about Mr Volcker for example?

It's so refreshing for a financial editor to report outside of the, fund-manager's and trader's floors, full of smoke and mirrors, box of doom and gloom?

Let's face it, this culture of bull and bear - with more 'bullsh*t' and too much beer (whoops) bear, has to stop?

Well done Mr Peston.

# 14. At 10:50am on 14 May 2010, you wrote:

"This comment has been referred to the moderators. Explain."

Once again what I say is being suppressed by another blogger - or more likely a state golem.

BBC - it's not appropriate to simply allow the suppression of what I say because others don't like to hear the truth. Is this the 'new democracy' we're living in now?

I have no E-mail explaining this moderation - why not?

If there is something wrong I can re-write it - but without an explanation how can I know which rules I breached?

"Paul Volcker has an almost mythical status as the last unambiguously successful chairman of the US Federal Reserve"

A rather interesting perception. I remember from my days as an economics student in Cambridge how the International Finance lecture characterized Volcker as the the man who manage to totally choke off the US economy whilst triggering a debt crisis in Latin America of unprecedented scale in a stubborn attempt to crack down on inflation on way too short a time scale.

All this user's posts have been removed.Why?

# 11. At 10:40am on 14 May 2010, Dempster wrote:

> Until such time as the creation of money as debt is under state
> control, we will continue in a never ending cycle of boom and
> bust, with the resulting instability, destitution and misery
> which naturally follows the same.

We need some Thatcherism here - short, sharp, shock treatment
for the bankers, to wake them up.

Did you have a chance to ask him whether he shares the view that all the Germans and Austrians who are buying all the gold they can get their hands on, are right to run from the paper currencies & especially the doomed Euro?

19. At 11:02am on 14 May 2010, meldrewreborn wrote:

"On the face of it there is no problem with mortgages being securitised - so long as the purchaser of said "securities" can fully understand quite what it is that they've purchased."

I think you're missing the point here.

It's not the securitisation (or not) or mortgages that is the issue here.

The bottom of this pile was 'bad lending practices' - mortgages sold to US homeowners which they could never have been expected to pay - the sales were driven by commission hungry salesmen.

The packaging of these mortgages into different tranches was simply an effort to hide this fact.

The reason for the selling of mortgages to unsuitable mortgagees can be found in the established 'diminishing profit', first identified by Adam Smith and further expanded by Marx.

Banks run out of secure homeowners to lend to - but they have to constantly find 'new markets' - or risk shareholder anger.

In this case the new market were trailer park applicants who didn't even understand the step payments they were signing up for.

It's nothing new, in the 80's the recession was caused by an increase in salary times lending limits being stretched - what securitisation allowed is for this process to be repeated - but extended it's life by hiding the truth for longer.

It's almost like banks don't want to learn from their mistakes...

#20 - WOTW

Every now and then I totally agree with you - which always makes me uneasy for some reason...

Its the interconnectedness of everything thats the systemic issue - not necessarily the range of activities of any one instution.

So retail banks need to have their access to the wholesale financial wizadry cut off - the actual ownership structure of those banks is a side issue.

From my understanding Glass-Steagal would have stopped Goldman Sachs getting access to US govt support and not a lot else - while that obviously left a nasty taste it wasn't the biggest issue of the crisis so far.

# 14. At 10:50am on 14 May 2010, you wrote:

"This comment has been referred to the moderators. Explain."


An hour and a half after being referred to the moderators and still no mail to explain why.

What are you doing BBC? - trying to get hold of the cabinet to ask them if this is acceptable?

Dithering coalitions won't make for a speedy response.

#24. At 11:28am on 14 May 2010, plamski wrote:

"NOTE TO BBC moderators
Censorship will only amplify the power of the voices!
So carry on, try to silence them!"

Get a grip. The "voices" are nothing more than a dozen or so people in a permanent state of outrage posting angry messages on an inconsequential internet forum.

#12 - while I don't necessarily agree that Vince has got everything right (see post #33), I think his inclusion in the cabinet is on the whole a 'good thing'

However I worry that its a bit like Tony Blair asking Frank Field to 'think the unthinkable' on welfare reform. A sop to rational thinking that will get kicked into the long grass as soon as it politicaly expedient...

According to the Telegraph, Club Med has a €7 Trillion sovereign debt problem.

That’s an awful lot of Euros.
An awful lot of fractional reserved created money, the weight of which is now crippling an awful lot of countries.

Yet still the emphasis is on keeping the current financial system intact.

I wonder, is €7 Trillion a debt that can actually be serviced by Club Med.

It’s not is it, the ECB is going to have print a lot more Euros, unless they want to witness a wholesale financial collapse.

Mind you that wily old goat Merlin King is going to have to do the same for us.

Here we are in the age of the mobile phone, the internet, and cars that don’t rust, and we still have a hopelessly flawed financial system.

The Germans are withdrawing their Euros and buying gold coins, having finally given up on the hope of finding utopia in monetary union. But still the system must be saved.

Print more money, and print it quick
Lest our mountain of debt makes us sick

Think not of those on a fixed income
Think not of those saving for a rainy day
Just print more money, and let the bankers make hay

27. At 11:40am on 14 May 2010, writingsonthewall wrote:
Is this the 'new democracy' we're living in now?
-------------------

Not new, it's the old one but it's SICK - a healthy democracy allows dissent and the expression of alternate political views.

Well from here, outside the Matrix, this once again looks like rearranging the deck chairs on the titanic. The inherent flaws in the monetary system will not be fixed by any of this. In simple terms this crisis has been caused by them lending us our future wealth on the assumption that economic growth will continue endlessly. When this fails to happen there is a crisis. Up to the crash there was a bubble of growth based on borrowing our future wealth. This bubble, the biggest ever, has popped. The bailout simply delayed things, and the bubble is bursting again. You can tinker away as much as you like, the fundamentals are still the same. The question to ask yourself is this, why do need endless growth? surely once we have all we need we will be satisfied (eg you dont keep eating until you burst), and why do we believe that endless growth is a good thing? (eg is being obesce better than being plump)because surely that will use up all our resources until there is nothing left at all. When you stop and think about it, its crazy. The reason the wheels keeps turning is because its in the best interests of a small proportion of us, ie those running the show.

The problem, as stated by others, stemmed from the housing market and changes in regulation, notably America and the selling of mortgages on the secondary mortgage market which are re-bundled and sold as mortgage-backed securities. If the housing market collapses the securities fall in value and down go the companies that own them
Clinton reinforced the "Community Reinvestment Act" that opened the banks to discrimination suits if they did not lend to minorities in high enough numbers. This meant the banks had to change their criteria on "creditworthiness."
AccuBanc Mortgage was forced "after a discrimination claim" to make loans of $2.1 billion to the sub-prime market. This was part of the push to relax lending standards like 100% mortgages with no down payments. The Republicans also fuelled the market encouraging lax lending standards for all and artificially low interest rates. Plenty of people signed up to be, as we now see, willing victims.
The American Government would also give tax breaks for buying homes over renting.
The Federal Bank also increased the money supply that helped fuel this market. So surprise surprise everyone wants a slice of the action.
Of course greed plays a big part but as someone else said blaming greed is like blaming gravity for plane crashes.
Perhaps we need to return to some sensible lending standards, dare I say higher interest rates, less printing money and have the housing market fall to sensible levels where people dont hock themselves up to the eyeballs for a house.
Perhaps then families wont have to send both parents out to work and they can spend more time bringing up their kids.
Put property back in the national inflation rate figures.
Make sure existing regulations are applied with more coordination between the Bank of England and the FSA.

"He defines the Volcker rule in a simple way, which is that banks should use their capital only to serve the interests of their clients, rather than trading to generate speculative profits for their owners."

From the recent round of bankers bonuses it seems to me that the banks are operating to enrich their employees not the owners (our pension funds)

It seems Gorgeous George is off to a losing start.....

https://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7126023.ece

Who said he would be an unmitigated disaster as a Chancellor? - I reckon he'll be out at the first reshuffle.

Now that Cameron is in the hot seat he needs to give the impression he has an iron chancellor - and not a flaky lightweight who blows in the EU wind...

17. At 10:53am on 14 May 2010, twinkerzzz
'.. how much millage is their left in progressive conservatism before it starts to become progressive liberalism and ultimately purely left wing.'

Hopefully not much.

The systemic risk of progressive collapse is not actually alleviated by banning one part of the banking system from proprietary trading. This is because of the interlinked nature of all of the participants in the global banking industry.

It may be nice and comforting to ban risk taking (and risk taking is deemed to by synonymous with proprietary trading - which actually is not true) if a bank has taken Federal (or in our case bank of England) money.

The facts of the recent crash have shown that the banks that got into difficulties were not those that spanned both areas, but those, because of their presence in either area were unable to access the other area. (i.e. NR could no longer raise money from the casino, or Lehman's or Bear Sterns(?) could not raise money from the public directly) It was their individual financing that proved problematic - and this was due to their fundamentally bad business practices and poor understanding and management of risk as I see it.

None of this will prevent the global systemic risk of 'too big to fail' - the only way to do that is to split the banks into far smaller chunks so that the failure of one can be managed by the others, without progressive collapse of the World's monetary system.

I think there is a real role for Exchange Control whereby inter-currency money flows should primarily related to the flow of trade - and gambling (aka casino banking) is never to be seen as trade.

The problem is however the Irish problem - we know where we would like to be, but we have no idea how to get there from here. Almost any 'steps' towards a better and more stable system will depress the World's economic activity. So we put up with the risk of collapse.

Fairness is a quality that the people will demand in bother their treatment and that of bankers in these increasingly austere times. So as with taxation and ministerial salaries everyone should take a 5 percent wage cut both in the public and the private sector - except the poor. Interest rates need to rise and the Bank of England needs to re-assert its control of credit volumes using rationing by price (under a New Governor!) If this does not happen very quickly we will very rapidly see further collapses as the system is unstable.

Like No 9: Dempster I have no knowledge of banking and finance but have wondered for some time who these faceless people are that are, these credit rating agencies, where do they hang out, does anyone know what they look like, to whom are they responsible, why are they the sole authority on such matters, what gives them the total and undisputed authority to kill off a Country?
I see there is an investigation into them and some of the US Banks, so suddenly the light is now much brighter. So they are American owned, run and regulated and for some strange reason the whole world takes what they have to say seriously and absolute.
Isn't this a very serious and dangerous thing for the rest of us to take as 'red' without there being any counter response? Why does the IMF not have such an organisation. They just seem to be reactionary rather than proactive.

There can be no-one individual or company who can have absolute oversight on all global finance and those that as so presumpteous as to assume they do, will always have a bias to left or right, black or white and more than likely want to look after their own.
How confident can we be that they are 100% unbiased and not just working in the interest of the US?
Now that the US can see their global domination slipping away and the fast emergence of China and other Countries, can we be sure they are not deliberately undermining Countries by writing them down, so that US banks/Government etc can come in sweep up what is left, at knock down prices and thereby prop up their dwindling power? Maybe even the finanacial crisis was dreamed up deliberately, by these credit rating agencies and all these subprime markets which were packaged up and sold around the World to unsuspecting companies, Countries etc were done to create total financial chaos, which the US can be seen to be helping to sort out but in reality, is just done to maintain their global domination?
Why did they not predict Iceland's demise, maybe it wasn't in their interest to down grade them for what ever reason?
Europe needs to get its act together and fast. The US cannot control China but could have total influence over Europe by the back door.
Many people might be Eurosceptic but alone we are powerless, together we are a much stronger force and if we are to survive we might just need one another
Britain has only just paid its final instalment to the US for its debt to them for World War II.

35. At 12:30pm on 14 May 2010, rbs_temp wrote:

"Get a grip. The "voices" are nothing more than a dozen or so people in a permanent state of outrage posting angry messages on an inconsequential internet forum."

Well you're reading it aren't you?

The global banking system is fixable, its only a barter system requiring effective regulation after all.
12) is the scary one, getting eurozone countries to agree on political integration is nigh on mission impossible.
The human race is far too tribal and short sighted to work in unity for the common good, unless forced too.
Especially when you have a mixed bag of EU countries, some with a hard working work ethic and others who fiddle the system doing the least possible all day every day.

35. At 12:30pm on 14 May 2010, rbs_temp wrote: ... a dozen or so people in a permanent state of outrage posting angry messages on an inconsequential internet forum.

Too right, mate! But not completely pointless, I think.

33. At 12:27pm on 14 May 2010, MisterGC wrote:

"Every now and then I totally agree with you - which always makes me uneasy for some reason..."

Don't feel bad - madness hits us all at some point...

"Its the interconnectedness of everything thats the systemic issue - not necessarily the range of activities of any one instution."

That's the second time I have heard the word 'systemic' today - the cabinet has used it to describe their 'banking review' which hopes to identify and remove any systemic issues in the financial system.

So concerned about it they are that they have decided to 'park' it for a year.

Speaking of systemic - has anyone seen this beautiful diagram before - it's "gone viral" and it is a great depiction of the 'systemic' problems the entire system faces.

https://static.seekingalpha.com/uploads/2010/5/3/saupload_debt_web.jpg

Am I confused? - maybe the definition of 'systemic' was changed to mean 'good' at some point. This diagram doesn't exactly fill me with confidence that this matter can be resolved easily with a promise of a giant bailout from co-ersed EU nations....

40. At 1:15pm on 14 May 2010, Dillers

One of the points you touched on is muched missed by the mainstream meja.

In 2001 when the tech bubble burst we should have had an asset devaluation - or a recession. We saw stock market falls but before they went too far, all central banks around the world attempted to defer this pain by lowering interest rates - some were politically motivated (like the Fed) - others were just 'following the crowd'.

Whilst this certainly appeared to resolve the problem, it actually sowed the seeds of our current disaster and most likely amplified it.

In 2001 the 'low rates' to resolve the crisis were about 4% - now we're at less than 1% across the major capitalist nations and yet we're still seeing asset devaluation.

It doesn't take much to see how much worse this recession is than the deferred 2001 collapse, nor does it take much to work out what the consequences of the actions taken by the central banks will be in the future.

You can defer and postpone the contradictions of Capitalism, but you can never defeat them. Actions taken to remove pain today will amplify the pain taken in the future.

One day - the piper has to be paid.

#33 MisterGC. You are in error. Prior to autumn 2008 Goldman Sachs status under existing law prohibited them from receiving Federal support. Consequently their status was immediately changed without enquiry or deliberation to that of a bank holding company, thus allowing them access to Federal funding.

One consequence of this instant status change was that they effectively received payment twice for notional losses incurred due exposure to AIG. AIG being driven into bankruptcy as a partial consequence of Goldmans requests for margin payments.

Oh what a tangled web we weave...

#32 writingsonthewall. There is no question that banks have learned from their mistakes.

In the S&L crisis of the 1980´s over 1,000 executives of financial companies were convicted of fraud and imprisoned, and their companies were effectively closed down.

Banks learned from this experience. They therefore acted to capture the judicial apparatus, thus this time around substantially no executives have gone to gaol and their firms have been bailed out irrecpective of cost and consequence.

Looks like learning to me.

35. At 12:30pm on 14 May 2010, rbs_temp wrote:
Get a grip. The "voices" are nothing more than a dozen .........
----------------

The voices of reason are always in minority!

I reckon the current financial system will collapse unless the Central Banks print money to service sovereign debt.

It’s the only way out as far as I can see. Pressing the austerity button doesn’t seem to hit the spot somehow.

The ECB ridiculed Mr King for doing it, but now they’ll have to do it to, and the Euro’s fall from favour suggests the markets see QE coming.

We’ve had The Maastricht Treaty and The Lisbon Treaty.

What next: How about:
We Can Print As Much Money As We Like Treaty.
Or
The Stuff Financial Prudence Treaty.
Or
The Who Gives A Monkey’s About Inflation Anyway Treaty

Robert,

I was interested in point 12) regarding the Eurozone.

Your comments implied that the Eurozone members would, somehow, show greater integration. This, somehow, would be lead to the U.K. being a outsider.

As it exists at the moment closer integration by the Eurozone countries appears to farther apart than at the beginning of the Euro, 10 years ago. Many of the participating countries are seriously questionning the value of the single-currency. Germany has shown its opposition in recent elections. Other countries are less enamoured about the way the Euro is being managed.

You also implied that a form of 'federalism' is required to centralised the economies of many countries.

This is not going to happen.

For the U.K., it would be better for it to retain its own currency and its own economy for at least the next 10 years before even considering closer integration with, what appears to be, a failing economy.

What all of the EU are going to get is a drive towards economic union under the terms of Maastricht which is now possible under the Lisbon rules.

This includes Great Britain, as a signature to both treaty.

With Spain in the driving seat as holding the revolving Presidency, the impact is likely to be felt in 2 months rather than 2 years.

See the joint statement by José Zapatero and Herman Van Rompuy, available in English on: eu2110.es

Mike - Londoner in Barcelona

By the way, I admire Paul Volcker - less theory more practice.

I believe the next significant steps will be taken at the G20 meeting to control and stabalize the financial institutions on both sides of the Atlantic.

United we stand - divided we fall.

Mike, Barcelona

35. rbs_temp . "The "voices" are nothing more than a dozen or so people in a permanent state of outrage posting angry messages on an inconsequential internet forum."


So why do you bother then? I mean, what's your excuse? Is the life of a banker that empty you feel compelled to post on a forum you believe to be inconsequential to engage with people you clearly loathe?

#37. Dempster wrote:
"According to the Telegraph, Club Med has a €7 Trillion sovereign debt problem."

Heh, did the Telegraph also inform you that Britain has a $9 trillion sovereign debt problem?

Banking is not subject to hard rules like, for instance, engineering or physics or chemistry are.
Banking goes with the flow.
If banking is governed at all it is by the herd instinct.
It works because it works.
The opposite is also true.
And that is where the taxpayer comes in.
Recently when banking has been shown not to work then the taxpayer has had to step in and bail out the banking system.
But that is quite different to putting it right.
There is nothing to put right.

How can you control the herd instinct?

7) One of the reasons the financial sector became big is because manufacturing and industry kept shrinking. Unfortunately people like Mr. Volcker don't understand anything about manufacturing and are not interested in it. Policies in the US were heavily tilted towards financial industries, often at the expense of manufacturing. For a while Wall Street funny money seemed to make up for it but it was never going to be sustainable.
8) Financial "professionals" caught with their pants down, once again! I don't understand why people on Wall Street even bother wearing them anymore.
13) Key point. The financial crisis' root cause is government intervention in an extremely important market in the US. All the talk about securitizing mortgages and failing banks just points out that there are a lot of idiots and fraudsters in the financial industry which is why we should have let them fail (sadly the same can't be said about their lobbyists which is why taxpayers are now supporting those same idiots). But the start of it all was that the US government felt the need to enable people to take on loans for homes they couldn't possibly afford. This is classic socialist intervention policy and hardly the sign for the demise of capitalism as often proclaimed.

https://news.bbc.co.uk/1/hi/health/3579402.stm


In the future I'm hoping society will wise up and put psychopaths away for good, or better still give them corrective brain surgery, instead of playing the usual trick and giving them jobs in finance.

35. At 12:30pm on 14 May 2010, rbs_temp

Really. What about this voice?

https://www.nakedcapitalism.com/2010/05/super-bear-bob-janjuah-sighted-on-bloomberg.html

RBSs Bob JanJuah, not Yves Smith. The most interesting bit towards the end but all worth a listen.

It's all gone quiet on the RBS / Lloyds 'profit' for the taxpayer front.

I wonder why that is?

October 2008 to May 2010 and not even close to break even.

I guess this statement is looking less likely every month that passes...

"Royal Bank of Scotland Group PLC said Thursday it expects that by 2013, the U.K. government will have sold or at least started to sell its shares in the bank at a profit."

https://online.wsj.com/article/SB10001424052748704207504575129381701680058.html

Re #19 "On the face of it there is no problem with mortgages being securitised"

Wrong. So long as you can sell on risk, there is little to stand in the way of taking unwise risk for short term gain. When you have to own the risk you become more careful about the risks you're taking. Do you really think any bank would go offer a "ninja" mortgage if the unsecured risk remained on their books?

The markets cannot have their cake and eat it! On the one hand we are told that we must get in place austerity measures the like of which most people have never seen - or the "Markets will react badly" and the economy will suffer. Now today the markets are crashing on "concerns that the austerity measures being brought in will adversly affect consumer spending and company profits". Well No s**t Sherlock!
I'm coming to the opinion that a quick dose of "turn on the printing presses and some double digit inflation for a couple of months might just teach the "markets" a lesson that the Sovereign in sovereign country means that you can only push so far.....

£5trillion in QE anyone? (and I speak as a fairly fiscally conservative person - but the "markets" are NOT making friends with anyone!)

Regarding "inconsequential internet forum."
Maybe it is and maybe it is not. My speciality is science based and I have been reading up on economics to try and understand the financial situation. I have found many of the views expressed here very stimulating and it is certainly helping me form my opinions and bore the pants off my local M.P.
I do not confine my views to this forum and have been amazed at what my MP does not know. How naive of me!

# 60. At 3:15pm on 14 May 2010, prudeboy wrote:

> But that is quite different to putting it right.
> There is nothing to put right.

I know; the chumps are only adding, updating and
deleting computer records, for goodness sake. What
the hell has got into people's heads?

If they can't do that safely, hire some computer people
who can - no creativity is required to keep the records
straight, and there's no need to pay top-dollar to these
operators. I put my money in, then I take it out
later, with a bit of interest added. How hard can
that be????

#57 MikeE-BCN Maybe you should send your "United we stand - divided we fall" slogan to El Pais, as they seem to be keen on levering the crevices of difference ever wider.

35. At 12:30pm on 14 May 2010, rbs_temp wrote:

> The "voices" are nothing more than a dozen or
> so people in a permanent state of outrage posting
> angry messages on an inconsequential internet forum.

With a few complacent bank employees trying to tell us that
“banks create wealth” by adding, deleting and updating computer records about our own money!

Perhaps we could “create some wealth” by rubbing some sticks together, or by wearing a St. Christopher medal while a black cat crosses our path! What a load of rubbish these people say.

2) He defines the Volcker rule in a simple way, which is that banks should use their capital only to serve the interests of their clients, rather than trading to generate speculative profits for their owners. He believes that if boards of banks are aware that's the spirit of a new law, they will impose significant restrictions on the activities of their executives.

Really? The 'spirit of a new law'. What a laugh!

Is there any evidence for our big business leaders following the spirit of the law?

59. At 3:15pm on 14 May 2010, I am not a number wrote:
'Heh, did the Telegraph also inform you that Britain has a $9 trillion sovereign debt problem?'

No it didn't actually, but then we can print our way out of it can't we. Sterling might not be worth a bean by the time we've finished of course, but still there you go.

The fundamental question is this - Is it right for banks and insurance companies to take peoples cash & pay and then go and gamble with it on the stock market or derivative trading?
Banks that serve ordinary working people should be separate from investment banks. The current system works when the market are going up and consumer spending is high.The profit generated by this speculation gets paid to the shareholders and a much lower interest is paid to the general public.
Now we are in for a period of very low consumption and markets that will produce poor sales and profits for businesses.The banks got caught in there speculative trading activities.They back heeled that loss or debt onto the taxpayers in each respective country.
Some of the proposals in the above article still do not go far enough in my view. Investment Banks are completely different to retail banks! and the two should never meet! Investment Banks should not gamble with other peoples money unless that individual has bought shares in that investment bank.
Ordinary people should not be exposed to the risks of investment banking period, its their homes and its their families which are at risk.Gambling is for speculators not the ordinary public.

67. At 4:05pm on 14 May 2010, Dillers

I agree. Three years reading this and other forums was enough to generate the interest to go back and study at degree level and to tackle books from Hayek to Marx (I feel my learning is still in its infancy, as ever, the more you learn the more you realise there is to learn).

Lots of stimulating input from a range of different viewpoints. This keeps you engaged with the world and helps you explain ideas to and challenge the views of others.

The Volcker Rule is all well and good but the fundamental problem with derivatives remains..As Robert pointed out several times in this blog, the 'investors' (chortle) in derivatives are regarded as cannon fodder by the securities houses, gullible victims who will come back to be ripped off time and time again. The likes of Goldman Sachs and Morgan Stanley just had to be careful not to make it too obvious, which is why there is a lack of transparency around most if not all derivativs transactions.

They hire the best financial (and legal) minds and pay them accordingly to ensure that they can continue to run rings around the regulators,corporate treasurers, fund managers et al. Take todays disclosure that Morgan Stanley's retail arm got in the act of offering seriously dodgy CDO's base on bundles of subprime mortages to 'investors' (snigger) and then had their trading operation bet against them in the same way that Goldman Sachs were alleged to have done. Theres no point in the holders of these worthless instruments complaining that they were sold a pup because in reality they had no idea what they were buying but all they could see was the aaa- rating that Moody's gave these things (thats the 4th highest grade on their scale) and, more importantly, that they were set to pay out at .75% above LIBOR - if they didn't implode. Greed works both ways in these kinds of deals, Caveat Emptor as they say..

55 Eurosider

Being a bit dumb it has only just struck me! The weaknesses in the structure of the EuroZone that were pointed out a decade ago, and that are in the process of becoming horribly true, might actually have been perfectly deliberate. The federalists, sensing that they were unlikely to achieve political union on the basis of "happy-clappy" politics alone, designed a fiendish trap. They knew that a fiscal bust in Southern Europe was inevitable given that they would not be able to devalue to escape. They calculated correctly that the Euro would be a good few years into its life and would have settled down among the main populations before the fiscal overhang really bit hard. When the crunch came, they would "suddenly realise" that the only means of overcoming the inherent problem in the model would be to advocate a a swift centralisation of economic and monetary policy.

People would accept nearly anything to avoid a real full-on economic and monetary crisis and would cede political power to the centre in Brussels. Hey presto...politcal union in all but name is achieved.

Once again there are siren voices suggesting that if this sudden centralisation occurs, Britain will be left on the periphery! As in 1992 I simply say good! It's fair to say that even of the most numptieish of numpties on the numpty wing of the liberal-democrats have been a bit quiet about the benefits of Euro membership for some time now. This may have been electoral expediency but even the most muddled of LibDems might have concluded that the benefits might not be quite what they had fondly come to believe.

The disintegration of the Euro would be a disaster for Britain and the eurosceptics eagerly awaiting its demise don't understand what they are wishing for! Nonetheless, we must hope that the main Euro countries have the strength to know when the current model is beat, and come up with something new...something that probably involves the more troubled members being assisted to leave in an orderly fashion, leaving a stronger core. Let's just hope that they act wisely and don't try to beggar the whole continent defending an indefensible situation.

#55. EuroSider wrote:

"You also implied that a form of 'federalism' is required to centralised the economies of many countries. This is not going to happen."

The problem with you belief system is that it is flying in the face of logic and the facts of life!

Banking will for a global federalism on us or the whole world's economy collapses. We need the currencies of our customers to be stable and there to by minimal changes in exchange rates in this globalised world or we will find that global trader becomes inefficient and we all suffer. Someone has to 'enforce' global banking regulation! That is we have to agree to federalise the regulation process and have to stop countries going it alone or there is in effect no control at all!

#72. Dempster wrote:

"59. At 3:15pm on 14 May 2010, I am not a number wrote:
'Heh, did the Telegraph also inform you that Britain has a $9 trillion sovereign debt problem?'"

9 trillion USD is about 6 trillion GBP - seems a bit high for the problem bonds in the UK sovereign debt as much of our debt is quite long dated. (I will admit that it rather depends on the definition of problem and the time-scale.)

My guess is that there is a near term problem of 1.5 tn in public sector sovereign debt (and a similar amount in near term private sector debt).

I suppose if you think that the current depression will last the rest of this decade (which is a bit pessimistic - isn't it) then the balance of 4.5 trillion may become problematic. I am hoping that we will see the back of it by 2017/2018, but I am an optimist!

The markets are far from a level playing field: heads I win, tails you lose. Look at the Euro: last week its value was dropping because of the deficits and the risk of default; this week, governments are dealing with the issue and the Euro drops because the measures are going to damage the prospects for economic recovery. In other words, speculators have decided to attack the Euro and there is nothing to be done. Unfortunately, sterling, and a lot of other currencies are just at much at risk.

A lot to digest here overall - but fascinating stuff - seems remarkable that his ideas are not heavily coded and disguised as is what we seem to get in the UK

I found this bit most interesting:
'2) He defines the Volcker rule in a simple way, which is that banks should use their capital only to serve the interests of their clients, rather than trading to generate speculative profits for their owners.'

I found this bit also a bit confusing viz a viz owners and clients - where does the notion of a stakeholder fit into all this ... if at all?

And Volker said
The value of the euro was not helped by comments made late on Thursday by Paul Volcker, a special adviser to President Obama.

Speaking in London, he warned of the "potential disintegration" of the euro.

"Clearly, I think we have to say that the euro failed and fell into a trap that was evident at the beginning," said Mr Volcker.

9. At 10:23am on 14 May 2010, Dempster wrote:

"The creation of money as debt should be state controlled, because if it isn’t, our society will be forever at the mercy of those who do control it."

So what you're saying is that you want our society to be forever at the mercy of the state? (Or more specifically, the handful of people who run the state-owned monopoly bank).

I'd prefer it if the creation of money as debt were actually much more distributed, with more competition between lenders. Let the ones who misuse it lose all their capital, as the market will ensure. The state's role can be limited to forcing lenders to publish valid accounts, and liquidating them if they are in danger of insolvency, so that the only losers are the banks' shareholders.

"However my bank creates money from nothing, because it has a licence to operate on a fractional reserve basis.

And because it creates money from nothing my savings can never keep up with inflation."

Fractional reserve lending isn't the problem that many believe it to be. It doesn't create money from nothing - it creates money from promises to repay the debt. It's essentially a promise to sell something valuable that is already owned, or, more often, to create and sell something new that is valuable. It's also underwritten by the bank's shareholders i.e. if the money is not repaid, the shareholders have to repay.

Savings can easily keep up with inflation under FRL. Imagine if a bank pays a depositor 4% for £1,000 deposit. It could then lend, say, £10,000 to a farmer at 6%. If the farmer spent that £10,000 on seeds and on diesel for the tractor, and produced £11,000 worth of wheat, everyone's a winner - the farmer has £400 profit, the bank has £560 profit, and the depositor has £40 profit. The fact that everyone has profited is a reflection of there being more valuable things in the world to buy with that money than there were before.

When I first encountered FRL with the "Money as Debt" film, I was convinced by its argument that it was a way for bankers to rob the rest of the world, and that it led to inflation and inevitable collapse. Now, after a LOT of reflection, I consider FRL to be a remarkably good system, and better than alternatives such as the gold standard. My current thinking is that it is the push for growth which is in danger of producing disaster.

Ask yourself this. If, as we're told, we're much more productive than we used to be, why is it that it's so hard these days for even a well-paid couple to afford a house that could have been afforded by a single earner 30 years ago? I think part of the reason may be that we have a lot of people being paid a lot more than their production justifies. It's aided by the fact that it is government policy to create inflation, which forces people to risk their stored wealth in order for it not to halve in value every 35 years or so: that can be exploited by directors of companies who have access to this cheap capital to pay themselves monster salaries with.

To 81. At 11:50pm on 14 May 2010, striped-pad3


Uncontrolled fractional reserve banking is the cause of young couple being unable to buy a house.

It is the cause of the current credit crisis.

It is the cause of countless repossessions, and destitution and misery for many.

I’ve heard the: ‘well no one forced them to borrow the money’ argument, and it doesn’t wash with me, and here’s my reason:

The more money that gets created, the more house prices rise. It is the uncontrolled growth in debt that fuels the boom, which as we all know is followed by an almighty bust.

I advocate state control of the army and the police force for the seem reason I advocate the state control of the creation of money as debt.

writingsonthewall wrote
It's almost like banks don't want to learn from their mistakes...

That’s the whole point, they don’t need to, as they are always gambling other peoples money (taxpayers ) even if it is notionally their own.
If they get it right they get large profits if they get it wrong they get bailed out

82, Dempster

Bang On!

82. At 09:17am on 15 May 2010, Dempster wrote:

"Uncontrolled fractional reserve banking is the cause of young couple being unable to buy a house.

It is the cause of the current credit crisis."

I agree with your sentiment, but not with the exact detail. It seems to me that the problem is not fractional reserve banking, but with lending to people who can't afford to repay combined with misrepresenting the value of assets on balance sheets (i.e. claiming that loans of 10x income will certainly be repaid). If a building society or credit union, which are not allowed to create money from promissory notes, were to lend their deposits to someone who could not afford to repay, that would also cause a solvency crisis.

"I’ve heard the: ‘well no one forced them to borrow the money’ argument, and it doesn’t wash with me, and here’s my reason:"

I hope you're not misrepresenting my argument. While I do think that people who lie about their income to buy the house they want don't deserve a huge amount of sympathy, there is a problem when this behaviour becomes widespread because inflation goes wild. It is then unfair that people have to decide between mortgaging too many years of their futures, buying a less good house than they ought to be able to afford, or waiting potentially years and years for the prices to correct.

But I don't believe that the solution is to have a monopoly state creator of money. In fact, you only have to look at China to see that it would probably be even worse - according to Bloomberg, the median price of apartments in Beijing is running at 80 (sic) times median income. Credit availability in China is tightly controlled by government, so I simply don't believe that this approach is a solution. Governments are even more reluctant than banks to reduce credit creation, because it makes them very unpopular, and popularity is what most politicians thrive on.

I still say that governments' role should be to prevent excess credit creation by other means, such as forcing proper accounting for the values of loans, and forcing banks to check income when lending, both of which would show up the insolvency of banks much earlier. Proprietary trading should also be out, as with the US's Glass-Steagall, since this allows banks to build up huge liabilities. And ultimately the most important thing is letting banks go bankrupt when they make bad lending decisions. If they know they can get away with bad lending, because the government will throw lots of taxpayers' money at them if they fail, they'll continue to do it because the competitive pressures will force them to.

"I advocate state control of the army and the police force for the seem reason I advocate the state control of the creation of money as debt."

You do realise that we don't have state control of the police (apart from the Met) don't you? I think that's actually important. From the Thames Valley Police web site:

"Police authorities are independent bodies made up of local people who oversee the work of their police force and ensure that it meets the needs of the communities it serves."

I'd much rather see the police accountable to a local body than to central government. And I'd much rather see the power to create money from promissory notes distributed rather than concentrated where it is easier for it to be corrupted.

So, in summary, I agree with a lot of what you're saying - there's clearly something very wrong with the current situation. But I think that putting the immense power of credit creation solely into the hands of a small group of people in the treasury, rather than distributing and depoliticising it, and expecting them to use that power wisely is likely to lead to even more abuse of power and bigger booms and busts.

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

I think we would do much better if we took a "going forward" attitude and not a "blaim culture" attitude.

We got here via debt. State, corporate and personal debt balloned over what Mervin King accidentally called the nice decade (he has subsequently renamed it the stability decade but it became so unstable that it fell over). The UK has the highest total of state, corporate and individual debt in the world.

Debt led to defaults and defaults led to massive bank losses.

Far from the early days of building societies when they gave their first mortgage when, and only when, they had enough money in the kitty. And should that mortgagee default they could reposes, sell the house and recover their money. In the last few years we moved to a position where the mortgager could sell his debt as mortgage securitised bonds and then use the proceeds to make further advances.

By this means a tiny building society with its new bank status could mortgage the world. It could also more easily sell its bad mortgage book than its good mortgage book because the former offered a better return due to the higher interest rates paid by the more risky mortgagee.

By this means house prices grew and grew until the RBS loan book alone was 15 times greater than the Scottish GDP. Our servants, government, who are not generally numerate adored this progression because it allowed them to do what they love best, spend money. The UK financial industry grew and grew and provided our servants with 35% of their tax revenue.

Remortgaging, equity release and low interest rates boosted spending and made a massive contribution to GDP. It was totally unsustainable, house prices cannot rise forever, but hell, it was revenue and it allowed our servants to repeatedly increase stamp duty and freeze IHT such that even more revenue was forthcoming from the housing bubble and even more state spending could flow.

House prices cannot triple every decade forever and 125% mortgages cannot grow to 250% mortgages.

But 125% mortgagees can fail to service their debt and default in large numbers. Bank debt can be replaced by sovereign debt and sovereign debt can also get too large to service.

A debt decade does lead to a credit crunch when a significant proportion of your loans are defaulting and you are loosing money and you are consequently shy of further lending and you have no money to lend.

Before we can "go forward" with smart problem solving we have to first recognise that we didn't suddenly have a global financial crisis. The global financial crisis was the inevitable consequence of a decade of debt that nicely hid the fact that we, and the West in general, was not making it in the global economy.

Our big problem going forward is sovereign debt. Fixing it with yet more sovereign debt has not worked but only doubled the problem. For us, the UK, even with new management, we will double our National debt in four years without massive austerity. It is the same for many others.

We now realise that when if we can only pay for our essentials we will not be buying new cars and computers and the world economy will slow.

Fortune tellers like the IMF have changed their outlook from "keep the stimulus packages going" to "control deficit" within a week. What might they say next week?

Doubling our National Debt does mean that in four years time we will be paying more in debt servicing costs than the cost of the NHS and much more if there is less appetite for our paper and more appetite for Far Eastern paper.

The blaim culture and getting nasty with our previous paymaster is not the way forward. On the contrary, we would like to see the banks making money and increaseing their share price so that we can sell our stakeholding in them at a profit.

I think that there is only one way forward and I have been putting it about for over a year.