Mervyn King says banking must be reinvented

What ho! Let's reinvent the wheel!

Mervyn King is something of a "has been". Basically he is sitting out his time, doing nothing yet being paid a massive salary. So I doubt anybody is listening to him any more. Maybe he could start to regain some respect if he realised inflation is something of a long term disaster and that it is his job to try and sort that. Instead he just makes daft speeches and fails to actually do anything. Long past time for hm to go and somebody else who is prepared to do the job take over.

Morning Robert,
There are some interesting thoughts here by the marvelous Mervyn King, soon to be knighted apparently. He must be careful though to distinguish between those banks that were badly managed, such as RBS against those that weren't such as HSBC and Standard Chartered. I'll be interested to hear the results of the banking commission, but certainly there is food for thought here.
On another front, forgive me for slightly trolling here but this is good news. The ONS has just stated that the GDP growth for Q3 2010 is 0.8%, this is at the upper end of analysts forecasts and is great news. It is lower that Q2 but that was expected. The recovery is here to stay and there is no revolution as I always predicted. I'm always right on this.
Thanks,
Nigel

Not before time. The irony is that the crisis happened on Mervyn King's watch, did none of this occur to him then?. Genius in hindsight. Has anyone asked Alan Greenspan what he thinks? Hope not.

Robert,
Thanks for working so hard. Please don't overdo it. But you are right to Blog on this. Bet some posters give you stick for another banking Blog.

FRB, along with Fiat Currencies and Bankers Pay & Bonuses, is being made something of a scapegoat for this whole crisis. For sure, they are all connected and all did play a part.

But the nub of the lending problem which led to the credit crunch and, skipping a recessionary blip, on to the banking crisis was not any of these but several other clearly definable factors - the desire for people to improve their lives, criminal fraud, the desire to find new revenue streams, the difficulty in valuing fast trades, the near impossibility of valuing and auditing new forms of 'paper', the peculiarities of localised economies in the USA and, yes, good old fashioned greed. There were other economic and fiscal factors at work - particularly in the UK - but they can be put on one side in this context.

So, would a 1970's style of Bank of England regulator have coped in 2007/2009 as well as it did in 1972/73? I don't know.

What we do know is that regulation 'fell between two (or more correctly three) stools' and these stools had not evolved any authority to meet the demands of the latest forms of trade. And the people sitting on those stools had either not the capacity or the wit to spot or deal with the problem. Or the opportunity (rather unlikely) or the courage to speak up.

None of that is the fault of the banking system. Mervyn must address his own house and now, that of the FSA. He also has the authority to speak to the Treasury and they were surely almost as culpable as any of the regulators and the banks. And to the two major acountancy bodies. Reform must start there. Not in banking.

But the fix for banking is simple. It is nothing to do with commercial banking, 'casino' banking, investment banking, retail banking, trading banking, mortgage lending or the separation of these activities or, indeed, the reinvention of banking.

Nothing should be traded until we can be certain that it can be valued and an audited view expressed on its value.

It's good to see Mervin's fan is out in force today.

At least there's one landlord benefitting from the actions of our Government. Maybe their over-valued and over-extended BTL properties will make money soon!

...and then again, maybe not...

https://www.telegraph.co.uk/finance/personalfinance/8085640/House-prices-to-fall-as-mortgage-lending-drops-by-more-than-a-quarter.html

What a shame - there will be a lot of egg on a lot of faces.

P.s. - with the new housing policy and capping of HB - does anyone realise that all the poor will move to the suburbs in London? - Suburbs like.....I don't know....Hendon?

This is brave by Mervyn - rejecting the system which nurtured him and gave him life.

The financial sector's success has always distorted the British economy and depressed manufacturing. (1) Trade in real goods has never been free anyway: remember Mrs T's policy of importing coal from represssed communist Poland? (2) Attractive returns from the financial sector have, since the 1920s, inhibited British investment in domestic manufacturing, thus damaging long term competitiveness.

If Britain does abolish Fractional Reserve banking, then we will have to impose exchange controls against countries who don't. Otherwise foreign financial institutions will be able to destabilise the British ecomomy with manufactured money.

This is an enormous U tern by the governor of the BOE: It is perhaps atonement for the damage Montagu Norman did in 1925 in pushing Churchill back to the pre-war gold standard! This entrenched the supremacy of bankers as masters and not servants of the real economy.

We need two suitable cartoons like these, echoing the free trade/protection volte-face between Peel and Balfour:

https://www.facebook.com/album.php?aid=45408&id=100000501614735&l=1a6090654b

The first involving Papa Montagu and Master Winston, and the second involving Papa Mervyn and Master George!

It's worth noting that some not only blame Norman for Churchill's budget of 1925 and the resulting debacle; they also blame him for urging the easy money policy on the fed which led to the pre-1929 boom and subsequent Great Crash.

> Of all the many ways of organising banking, the worst is the one we have today.

Old cloth ears has got my message! Well done, Merv - better late than never, my Welsh compatriot. Now let's all get stuck in to these banking dopes. They haven't got the sense they were born with.

.8% is a lot better than .4% but still not very impressive and it seems from all of the negative stats of the last few weeks that the downward trend will continue, but time will soon tell.

So on banking reform is Mervyn backing Vince against George in this debate. He appears to be suggesting separating the casino from the bog standard low risk deposit based banking service. However much of the last few years has to be unwound - appointment of chef de casinos to run virtually all of the banking industry and allowing Lloyds to incorporate Halifax into a banking mammoth that will be too big to fail. How long do people think these radical proposals will get near implementation. At least there are signs of out of the box thinking.

The government should exploit the position current public ownership of two of the biggest banks and introduce a supervision regime rather than a post hoc regulation environment.

> Mr King says we need to look at highly radical reforms of the
> banking industry - each of which will probably strike terror
> into the hearts of those who run our biggest banks.

Who gives a hoot about the state of their hearts - they don't have any!

The idea of funding bank loans from mutual funds, presumably with the banks arranging the loans, seems to have its own problems - the banks would have every incentive to lend at every opportunity, because they would take commission but no risk. The growth of securitisation, enabling banks to move loans off their balance sheet, was one of the main factors driving excessive sub-prime lending (and it was the management failure to actually move the risk off their balance sheet that sunk Lehman Brothers). King's solution would embed the first problem into the system - while banks would not be under threat, the mutual funds would be subject to the risk instead. This is possibly workable, but needs to be thought through.

My view is that it all boils down to ensuring that the decision-makers have an interest in doing the right thing. If Dick Fuld had been personally on the hook for Lehman's losses (and the same with other banks), there would have been no credit crunch. Moreover, this would give much more scope for innovation than a more heavily regulatory approach.

Reading RP on MK I feel like Mr Stevens in 'Remains of the Day' where he's asked about his views on the Gold Standard (this being on the eve of outbreak of WW2)and he is compelled to reply, 'I'm sorry Sir, I cannot be of assistance to you on any of these matters..'

The reality is I am not Mr Stevens but head of a formerly prosperous organisation now being economically shredded by forces well outside my modest sphere of influence. I wonder if the same could be true of MK?

GC

If as the Governor says:-

the "alchemy" of fractional reserve banking is only sustainable for as long as the lenders to banks believe that their money is safe, and that cannot be guaranteed at all times.

Then fractional reserve banking is basically fraudulent, and banks should be prosecuted under the trade description act. Including deposits weighted according to risk in the calculation of reserves, assumes that withdrawals of these deposits are independent events and will never all happen at about the same time. In other words it assumes that "bank runs" never happen.

It is not acceptable that our financial system should depend on credit generated in this way. Fractional reserve banking could be phased out, if by increasing the money supply, the need for this credit to drive the system were eliminated. Instead of the government receiving only a share of the interest on the broad money generated by the private banks, as tax, it would receive all of it as profits made by the nationally owned BoE.

I love it.
Bankers speaking intelligently.
Wait a minute, is that not a paradox?

For 20 years following Thatcher's big bang in the City (aided and abetted by 'light touch regulation') we have had a boom in financial services in London that made many people very rich but also generated huge tax revenues.

But those days have come to an end. Investment bankers who were once considered masters of the universe are now yesterday's men and women. They will of course survive but never again be as important as they were once upon a time.

In my view the interesting questions are as follows:

1. What are the new industries that will step in to provide this countries tax revenues?

2. Can the City hold on to it pre-eminent place in financial services or will other centres inevitably erode that position?

Has Uk economic growth slowed down, or is it faster than expected? The Beeb is confusing me about this. On teletext earlier it had 'slowed', now they changed it to 'grew faster than expected'. Clearly this has been altered to influence perceptions.

I reckon back in recession in six months.

Mervyn King is indeed very good at hindsight, but was devoid of foresight, and probaly still is in my opinion.

8. At 10:16am on 26 Oct 2010, Jacques Cartier wrote:


"Well done, Merv - better late than never, my Welsh compatriot. "

Welsh?? He comes from Wolverhampton.

"First, he says the national accounting conventions wrongly attribute to banks all the benefits of providing finance, rather than sharing those gains with the recipients of that finance."

Hello Hello.
Could it be even Merv is putting forward pro MMT argumnents here?
There is a massive asset hidden in all private banks balance sheets and that asset is cumulative Govt spending and that asset belongs to the people.

Mervyn has crossed the Rubicon!

https://en.wikipedia.org/wiki/Crossing_the_Rubicon_%28disambiguation%29

@ 15. At 10:46am on 26 Oct 2010, Cassandra wrote:

> Can the City hold on to it pre-eminent place in financial
> services or will other centres inevitably erode that position?

London's finished. The Internet started it, and the credit crunch ended it.

> What are the new industries that will step in to provide this
> countries tax revenues?

Here's a clue. Look around you right now (wherever you are).

Now, almost everything you saw is the result of science and engineering isn't it? Unless you are in a barn. In fact, even if you are in a barn, you'll see plenty of science and engineering!

So now you know. Progress will out, my friend.

Thanks for the update Robert. However I feel that you have missed a crucial point in the speech. According to notayesmanseconomics Mervyn said the following.
"One criticism of Basel III with which I have no truck is the length of the transition period. Banks have up to 2019 to adjust fully to the new requirements."
He concludes that this means that Mervyn wants reform but not until his own tenure has safely passed. So we have some name checking of reform but the reform itself is kicked safely (for Mervyn not us) into the future...
https://notayesmanseconomics.wordpress.com

Bank chiefs quick to complain in the face of radical reform of the industry that we can't afford to lose them and we had better think twice else they will leave.

As we have seen time and again over a century of financial globalisation, the system imposes massive costs not only on tax payers but on the rest of the economy. It is not that there is a risk of these sorts of crisis, in the present system they are the inevitable.

We can't afford NOT to impose radical reform the financial sector. It's time governments stood up to the heads of international capital. It seems odd that governments which go to war to avoid appearing weak to military aggressors suddenly lose their back-bone when it comes to the international financial elite who threaten our economy.

If we are in this together, let the banks prove it. They must accept reform just like working people have accepted changes to their pensions and terms and conditions at work, and they must pay their fair share, even as citizens lose access to vital public services and cash in their wallets.

This guy is amazing forthright now that the ponzi scheme has been found out. Where was he one may ask while all this was going on ????


So am i right in thinking he now thinks as i do that allowing banks to give out mortgages was a bad idea and only the building society model should be used ??? The long term solution to making the banks more risk aware of course is to remove the tax payer guarantee and the sooner a date in the future is set for it the better.

Will people, including bankers, politicians, executives act responsibly is they know they can and will be held personally responsible proportional to total renumerations and gains from the past 10 years.

From mediocre academic to mediocre governor…at least you have to give him credit for consistency!

Is Mervyn King a politician pretending to be a central banker? I look forward to reading John from Hendon's comments.

There can only be one answer to the organisation of banking and that is to separate retail banks from the casinos. This is not a cause for debate, it is an imperative.

Of course leading bankers will oppose this view but that is just vested interests protecting their own. In my opinion they have foregone any right to be heard due to what they have forced upon the rest of us.

That said we are now becoming more distant from the events of 2008 and are thus more able to look at the context. There seems to have been an absurd belief amongst the great and good that they had discovered the Holy Grail of financial management so that the good times will last forever. This applies both to the bankers and the government of the day.

Now the as a consequence of this superstitious attitude the public who were deliberately excluded from the party are now being presented with the bill. This is quite unjust.

So in this atmosphere of cuts, a shrivelling economy and injunctions for us all to put our shoulders to the wheel and so on, there needs to be a time for justice to be seen to be done. It seems to me that members of the banking profession and the ruling political party of the time need to be indicted for crimes against the country.

The money might have gone but we should pursue the people who lost it. It is not a case of who do they think they are but more a case of what we think they are. I want my country back and I want it to work.

5. At 10:04am on 26 Oct 2010, Up2snuff wrote:

> the desire for people to improve their lives,

If you want to improve your life, do something useful. Shuffling money doesn't cut it, sorry.

> criminal fraud, the desire to find new revenue streams,

If you want new revenue streams, do something useful. Shuffling money doesn't cut it anymore, sorry.

> the difficulty in valuing fast trades, the near impossibility of
> valuing and auditing new forms of 'paper', the peculiarities of
> localised economies in the USA ...

If you want fast trades, work in MacDonalds. Shuffling money doesn't cut it, sorry.

> yes, good old fashioned greed.

It took you a long time, but you got there in the end.

> None of that is the fault of the banking system.

It's the bankers' fault, then.

> Nothing should be traded until we can be certain that it can be valued and an
> audited view expressed on its value.

Nonsense. The only way to value a thing is to sell it.

At last.
One of the most senior bankers in the country finally mentioning the unmentionable.

"the "alchemy" of fractional reserve banking is only sustainable for as long as the lenders to banks believe that their money is safe, and that cannot be guaranteed at all times."

The cat is well and truly out of the bag now. And the pinstriped trousers of bankers all over the City are turning brown with dismay.

Someday soon the public will want to know where all their money is.

And they won't be happy when they find out they've been swindled.


The games up fellas!
Best get on that next plane to Switzerland.

@ 25. At 11:15am on 26 Oct 2010, darksurfer wrote:

> you have to give him credit for consistency!

You're quite consistent too - consistently wrong!

@ 19. At 10:54am on 26 Oct 2010, DebtJuggler wrote:

> Mervyn has crossed the Rubicon!

Indeed - he's switched sides. This is a big victory over bankers, so we have to make the most of it. Once the bigwigs flip, it makes it easy to pick-off the tiddly little bankers, twiddling with their PCs and still in denial.

So get stuck in!

25. At 11:15am on 26 Oct 2010, darksurfer wrote:
From mediocre academic to mediocre governor…at least you have to give him credit for consistency!

-------------------------------------------------------------------------

The problem with these academics is that they are largely from the same mould. Helicopter Ben was a popular academic before he become chairman of the fed, but the problem is they are too enshrined in economic theory and adhere to it religiously. What would be a breath of fresh air, would be for these academics fulfilling public roles to come out and declare the flaws in the system for what they are.

Fractional Reserve Banking and Fiat Currencies have to go.

I can't remember the case details correctly, but a man in successfully staved of being foreclosed on by JP Morgan in the 60's because he proved that JP Morgan created money out of thin air and that activity was in itself illegal.

24. At 11:13am on 26 Oct 2010, puzzling wrote:
Will people, including bankers, politicians, executives act responsibly is they know they can and will be held personally responsible proportional to total renumerations and gains from the past 10 years.

-------------------------------------------------------------------------

By proportional, I hope you mean everything and then some!

11. At 10:40am on 26 Oct 2010, Westmorlandia wrote:
....more scope for innovation than a more heavily regulatory approach.
-------------------------------------------------

Innovation. This has become one of those words oft repeated in vague political and business interviews where meaning is intended but no substance given.

The word seems to have lost all real meaningfulness except as a synonym to the emperors new clothes, or pulling wool over the listeners eyes.

The prevention of unacceptable risk taking can be achieved quite simply by firm control of the bonus culture. That's the disease, the risk element is just the symptom.
Perhaps Mervyn has been reading this blog - most of what he says should be attributed to contributers here. (I exclude WOTW from that comment as he puts a spin on any facts he quotes even in the unlikely event that they are correct.)

31. At 11:34am on 26 Oct 2010, RiskAnalyst wrote:
The problem with these academics is that they are largely from the same mould.
-----------------------------------------

Has it been proven yet that there is something very wrong with the economics department at Harvard? They all seem to have spent time there, as did RP's colleague the BBC economics editor.

28. At 11:19am on 26 Oct 2010, warwick wrote:

> the pinstriped trousers of bankers all over the City
> are turning brown with dismay.

I laughed out loud at that! But it's not just "dismay" that is staining their pinstriped trousers brown!

Look, that bunch of losers have to go now. They never had a clue in the first place.

David Cameron and George Osborne were on message with their CSR, Mervyn is on message with financial system reform, who's doing unemployment ?


This is from the G20 Mutual Assessment Process Toronto 06/2010


'1. Credible fiscal consolidation over the medium term, underpinned by high-quality measures of sufficient magnitude, should be a top priority in advanced deficit economies given sovereign debt market stress and other fiscal risks. Substantial budgetary effort would be required to restore fiscal soundness and to rebuild market confidence. In this regard, credible and coherent fiscal plans should be clearly communicated as soon as possible.

2. To reduce regulatory uncertainty, advanced economies should also accelerate financial repair and reform. Long-awaited progress here is essential to rebuild a well-functioning financial system to provide credit and support growth, while safeguarding financial stability.

3. Product and labor market reforms are important in advanced surplus economies, particularly in countries hardest hit by the crisis, to repair possibly lower supply potential and reduce persistently high unemployment. Reforms should be friendly to demand, as well as supply.'

--------------

It appears that sovereign governments are no longer to have the power to set their own economies but will have to assess (and report on) the wider impact.
Sanctions for countries embarking on policy decisions that are deemed prejudicial to the overall goals of the IMF have not yet been discussed but will no doubt be on the agenda in the future.

The IMF is a bank, sovereign nations are in the process of handing over control of their financial systems to the bank manager, can anybody see the (huge) unintended consequences of this policy ?

3. At 09:36am on 26 Oct 2010, Sam_From_Hendon wrote:

> the marvelous Mervyn King, soon to be knighted

Yeah, marvelous, eh? First, he benighted the country through his laxity. And now he'll be knighted himself! What goes around comes around, eh?

The bankers were allowed to game the system because politicians were either incapable or unwilling to stop their antics.

Now, at long last, the first green shoots of financial sanity are emerging.

Bring it on!!!

"Second, and more importantly, the explosive growth in apparent "value" added or created by banks in the years before the 2008 bust stemmed in the main from taxpayer subsidised, anti-social risk taking: in an unsustainable way, banks lent far more than was healthy relative to their capital resources, because they knew that the state would pick up the bill when it all went wrong."

No, they knew that deposits up to a certain value were covered, but that was it. The state stepping in only occurred in 2008 following Northern Rock, HBOS, RBS etc and, if I were cynical, it is a coincidence that all these are in the Labour heartlands.

Just as in a regular casino, those who gamble with money should be prepared to lose as well as win. The present system is akin to me borrowing money from all my neighbours, gambling it away in a casino, keeping any winnings I make, but not having to pay it back if I lose. No wonder they like the present system.

I am a massive fan of Mervyn King, and feel he is the right man for the job, but I can't help thinking that he is in danger of getting splinters in his behind.

To avert further disasters and to stem anymore government bail outs, he needs to show his hand sooner rather than later. Surely the way forward is to have a 25%-30% equity pot, and treat private banking as a seperate entity.

"20. At 10:56am on 26 Oct 2010, Jacques Cartier wrote:

Now, almost everything you saw is the result of science and engineering isn't it? Unless you are in a barn. In fact, even if you are in a barn, you'll see plenty of science and engineering!"

Spot on!

Unfortunately, the products of science and engineering are unwittingly used to house, feed, clothe, transport and even entertain the 'Masters of the Universe'

:-(

Mr King does indeed talk about various forms of banking reorganisation, but the detail of his speech that has been overlooked is that he also thinks that any kind of reform should be put off for many years...so it seems to be a case of something and nothing from our Merv.

So Merv dares to make a reference to the pyramid scheme known as fractional reserve banking. The problem has been known about since the 1930s depression, or even longer, and yet no-one has been able to put the banks back in their place. Even now there is no suggestion that it will be removed. Only through monetary reform and the removal of FRB can a permanent solution be achieved, and the so called business cycle be removed. I find it astonishing that a process which is basically legalised fraud, and which is responsible for every boom and bust, continues to exist in a modern world.

Check this one out:

https://bbc.kongjiang.org/www.bbc.co.uk/news/world-europe-11624615

WOTW, your revolution is not going to plan thus far.

I'm amazed you haven't brought it up yourself being such an objective blogger....

https://bbc.kongjiang.org/www.bbc.co.uk/news/business-11624742
"Chancellor George Osborne called both reports "a vote of confidence in the new government's economic policies"."
.................
So despite the figure being worse than last time, its time to celebrate? I'm sure George will have to eat his words next year, and the current props holding the economy up will disappear along with 1000s of jobs.

re #27
Precisely. Do you know what you are buying? Have you paid the right amount? What have you bought once you have it in your possession. That's where (part of) the problem came from. Now we are trying to clear up the mess and prevent it happening again.

Get with the programme, mon Quebecer ami mate, instead of chucking rocks from the sidelines! If you are so oooo oooh bright, what are your solutions for the banking industry?

@31. At 11:34am on 26 Oct 2010, RiskAnalyst wrote:
"Fractional Reserve Banking... [has] to go."
Indeed. But post-FRB, how is the money in a banking company to be distributed? Say for argument's sake a local branch has enough "physical" money to cover its local depositors, but they all decide to take their money out. No problem so far, but if someone out of town who banks with the same bank decides to take some money out, then the local branch will not have enough. So, do post-FRB branches each need to carry the entire sum of deposits of all those who have deposited, or does it simply need to fulfill its obligation to the local "catchment area" of local depositors, and others will just have to head to their own local bank for the money? Or is it entirely not relevant given that the majority of "money" is simply represented as some numbers in a database?

8. At 10:16am on 26 Oct 2010, Jacques Cartier wrote:
> Of all the many ways of organising banking, the worst is the one we have today.

Old cloth ears has got my message! Well done, Merv - better late than never, my Welsh compatriot. Now let's all get stuck in to these banking dopes. They haven't got the sense they were born with.
------------------------------------------------------------------------
Aah! Is the Quebecois a fake? Hiding under the Neue Braunschweigs for cover?

I think we should be told ...

Hey! Let's be careful out there today.

9. At 10:20am on 26 Oct 2010, watriler wrote:

".8% is a lot better than .4% but still not very impressive and it seems from all of the negative stats of the last few weeks that the downward trend will continue, but time will soon tell."

This is just the first estimate - there's plenty of scope of revisions later....

Not sure I agree with one of your points that you make towards the end you your blog. I rather think that the banks took these risks through pure bad management rather than on the basis of 'the tax payer will bail us out'. This is where actions needs to be taken I suggest

If we don't re-invent the wheel 2008 is going to happen again. As a student of economics in the 70's why banks were able to keep Eligible Reserve Assets at around only 8% of liabilities was always a mystery to me so its nice to have it confirmed by the most senior banker that it was all rollocks. Or more precisely it is not suited to the current enivronment where capital and news flow faster than in the times when the model was conceived. Maybe becuase fewer people listen to Mervyn King he thinks its easier to get away with speaking the truth, but until we change the banks will always be able to hold us to ransom.

Great piece from Robert and finally some common sense from Merv. At last the spotlight is back on the bankers, the real culprits of this mess. Poor things, here they were paying themselves handsome bonuses for fictitious deals and staying quiet and now all this attention is back again...!

Splitting casinos from banks is the way forward. Is anybody starting a petition? This "revolution" I will definitely join!

No Mortgages means more people wasting their money giving it to BTL 'leveraged' landlords.
Something so essential should not be left to the banks who cahrge about 2.5x already overinflated house prices over the life of a mortgage.
This is scandalous and a complete drain on the landless peasants of this country who have just bailed out the banks.
Time to cap house prices along the line of council tax bands i'm afraid.
This will benefit us all by providing a stable basis for people to live - an unquestionable basic requirement surely - as well as a disincentive for banks to over-reach in whatever insanely risky over-complicated 'paper' mechanisms they have been using recently. The details of what they do are complicated, but lets face it, the effects will always be the same. Mega profits for banks and huge financial risks.
The current 'mortgage' method for providing housing in this country is fraught with problems but I see no real debate as to how this should be fixed other than the usual Laissez-Faire nonsense which will go on, and fail, forever. The housing market will remain flat for years and when it starts growing again are we supposed to applaud as the same mess ensues?

@37. At 11:56am on 26 Oct 2010, BobRocket wrote:
"The IMF is a bank, sovereign nations are in the process of handing over control of their financial systems to the bank manager, can anybody see the (huge) unintended consequences of this policy ?"
The only unintended consequence I can think of is that it effectively makes sovereign governments obsolete. Voting becomes pointless and with that any form of democracy or accountability or fairness, if indeed such values still exist today. The effective power goes to whichever people happen to be on the board of the IMF. The only possible powers to a sovereign nation would be lawmaking which, so long as they do not transgress the ultimate goals of the IMF, could still be enacted in the "usual" way. I should imagine that local service provision would still continue however I am assuming that policy may be dictated from elsewhere by unelected, unaccountable, profit-chasing eejits.
It's really not hugely different to the current arrangement in some ways.

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

On the important subject of alternative investment to the financial sector (science and engineering) - can we guarantee that when these fledgling industries do take off that they are barred from being taken over by multinationals who, surely, will whisk them away for the benefit of non-nationals? I don't see the point of investing public money in research and development if in the long run our investments can be hijacked in this way.

47. At 12:39pm on 26 Oct 2010, Averagejoe wrote:

https://bbc.kongjiang.org/www.bbc.co.uk/news/business-11624742
"Chancellor George Osborne called both reports "a vote of confidence in the new government's economic policies"."

...maybe he's so stupid he thinks this GDP is a direct result of his policies (like they're instantaneous).

The point is the trend is downwards - and this is just the first estimate, but hey, let's not ruin Georges 'moment in the sun'.

46. At 12:38pm on 26 Oct 2010, Ian wrote:

"WOTW, your revolution is not going to plan thus far.

I'm amazed you haven't brought it up yourself being such an objective blogger...."

"French students will stage protests on Tuesday to try to bolster opposition to the government's pension reforms amid some signs of cracks in the movement."

Is that it? - seriously? are you having a laugh? you cite 'cracks' as a reason to doubt?

Oh dear, clutching at straws aren't we....

Maybe you like to believe the ministers of France:

"All of France's 200 fuel supply depots were cleared of strikers on Monday, and Energy Minister Jean-Louis Borloo said 80% of petrol stations would be operating normally on Tuesday."

...because they've never been wrong before have they?

...strangely you don't seem to have read the whole article as this bold claim from the FRench minister appears to be contradicted in the next paragraph...

"However, seven French refineries are still closed - all six Total refineries and the Berre l'Etang plant in the south - and buffer stocks of petrol and diesel are almost exhausted. Unless refineries reopen, our correspondent says, France could face an even more serious fuel crisis by the end of the week."

I'd say you're gettiing desperate - desperate to convince yourself (because you're not convincing anyone else) that everything is going to be alright.

I call people like you terminal wallflowers - and when the wind comes you will flutter off into the breeze with a surprised look on your face and never be seen again....

To be fair the bankers have come out of this relatively scott free. Perhaps our new ConDem government could invent some new law that makes the heads of these banks liable for any future losses; I am sure this will sharpen a few minds.

17. At 10:53am on 26 Oct 2010, the_fatcat wrote:

>> 8. At 10:16am on 26 Oct 2010, Jacques Cartier wrote:
>> "Well done, Merv - better late than never, my Welsh compatriot. "

> Welsh?? He comes from Wolverhampton.

I think the Welsh diaspora may have just reached that far!

36. At 11:52am on 26 Oct 2010, Jacques Cartier wrote:

28. At 11:19am on 26 Oct 2010, warwick wrote:

"Look, that bunch of losers have to go now. They never had a clue in the first place."

....and their favourite hiding place is no longer 'profitable'.

https://citywire.co.uk/new-model-adviser/uk-to-recover-billions-in-tax-from-swiss-bank-accounts/a443987

...more importantly - while we're cutting benefits - who has hidden £100 BILLION in Switzerland?

Naughty Naughty - we'll be taking that back for our children thanks.

" because what he calls the "alchemy" of fractional reserve banking is only sustainable for as long as the lenders to banks believe that their money is safe, and that cannot be guaranteed at all times."

I would add also "as long as the banks can find a good supply of willing and able borrowers"

Great that you mention Douglas Carswell's bill, Robert which will have the 2nd reading in the House of Commons soon.
Government to create all it's own money, which would ultimately save £40 billion interest per year. Banks need to be strongly discouraged from lennding too much on property and buy to let, and strongly encouraged to lend for business. The banks have only made huge profits by inflating the housing market and enticing people to take on big debts. Getting the UK off the addiction of debt and ever rising house prices is not going to be easy. Economic growth required every year of at least 5% just to pay the debt interest.
45 Average Joe - Well said.
Why should the bank be able to sub-let my current account without my authorisation ?

34. At 11:43am on 26 Oct 2010, pietr8 wrote:

"Perhaps Mervyn has been reading this blog - most of what he says should be attributed to contributers here. (I exclude WOTW from that comment as he puts a spin on any facts he quotes even in the unlikely event that they are correct.)"

Are we getting a complex? You seem to spend a lot of your time trying to prove me wrong but sadly you always come up short.

That's because it's the truth I speak - and you don't like it. I mean the last time we 'spoke' you were complaining about the tube strikes inconveniencing you (although I don't know how you didn't know about them) - what you really needed was a warning - maybe like the one I made in 2009?

Always spinning see - if I could be bothered I would drag out every comment I have made which was based on logic and turned out to be fact - for example the currency wars, the currency debasement, the failed plan of exporting your way out of recession, the warning of strike action as the people were asked to pay, the uprisings which are going on all over the world right now - but I've got better things to do - I'll just let you all trail through thousands of posts to find 1 specific thing which hasn't happened (yet) and allow your tainted glory of being the 'one who defeated writingsonthewall' - who you have already assigned the label of 'being a lefty'.

25. At 11:15am on 26 Oct 2010, darksurfer wrote:

"From mediocre academic to mediocre governor…at least you have to give him credit for consistency! "

Where's that recovery darksurfer?

48. At 12:41pm on 26 Oct 2010, Up2snuff wrote:

> Get with the programme, mon Quebecer ami mate, instead of chucking
> rocks from the sidelines!

Hey, take it easy out there today.

> If you are so oooo oooh bright, what are your solutions for the
> banking industry?

Make banks too small to give a hoot about, instead of too big to fail. That means a nice, big size tax. That way, they pay for failing, before they fail (!) and it's impossible to pass it on to their customers. Everybody wins expect the bankers, and nobody gives a hoot about them anyway because they are greedy, anti-social nitwits.

52. At 12:46pm on 26 Oct 2010, Robin wrote:

"Not sure I agree with one of your points that you make towards the end you your blog. I rather think that the banks took these risks through pure bad management rather than on the basis of 'the tax payer will bail us out'. This is where actions needs to be taken I suggest"

Really? - so what's the risk and compliance department for?

Risk measurement and Risk management.

Seems you're too quick to excuse the bankers - they knew the risks because they did the same thing in the 80's

What banker don't understand is the reasons they take the risks - and that's because they don't read anything other than GQ or the Financial times.

https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall

Blimey what is Mervyn on? Of course we must have properly regulated, structured banking systems but BoE , FSA,and Treasury were the one that went awol on that one! Methinks Meryn is just terribly cheesed off that all the money he has pumped in via Q1 did nothing but go into repairing bank balance sheets (.see https://www.mindfulmoney.co.uk/1595/economic-impact/no-convincing-case-for-more-quantitative-easing-in-the-uk.html.%29.... - his ears must be burning on that little matter. [ But then if he did not want that he should not have structured it the way he did. The US did a much better job of its QE1, not perfect, but certainly better.]
Basel III is clearly positive, yes we could do more, but like others I am asking, why was not all this figured out or aired before by Mervyn. How come he has only just realised ‘Of all the many ways of organising banking, the worst is the one we have today."?...its ridiculous.What on earth were all these policy makers and regulators doing while we were saddled with such an godawfulmighty banking system? Have been a fan of Mervyn in the (long distant) past but I am finding him increasingly irritating.

54. At 12:47pm on 26 Oct 2010, Ian wrote:

"Splitting casinos from banks is the way forward. Is anybody starting a petition? This "revolution" I will definitely join!"


...and that's why things won't change in your world - the prime minister takes the petition at the door of number 10...turns...and throws it in the bin.
You can split the banks all you want (they did it before) - but if you don't remove the corruption in politics then you won't stop it being removed again through lobbying.

You need a proper revolution - the fear of withdrawl of consent to Govern is all the ruling class fear. Whilst you consent to being a debt slave - they are quite content to field all the peitions, moans and coffee mornings you can put together!

61. At 1:00pm on 26 Oct 2010, IceWithaSlice wrote:

"To be fair the bankers have come out of this relatively scott free. Perhaps our new ConDem government could invent some new law that makes the heads of these banks liable for any future losses; I am sure this will sharpen a few minds."

Do you mean the milionaire in the cabinet who owe their wealth to the banks? - common sense man, come on, you can do better than that.

62. At 1:01pm on 26 Oct 2010, Jacques Cartier wrote:

17. At 10:53am on 26 Oct 2010, the_fatcat wrote:

"> Welsh?? He comes from Wolverhampton.

I think the Welsh diaspora may have just reached that far!"

I'm not sure he was born there - I think he just went to school there.

1) A couple of people have asked on this blog "where was Mervyn before the credit crunch / why wasn't he doing more to stop the banks then?" Great question and the answer of course is that he was not responsible for banking supervision then. That was of course taken away from the Bank of England by Mr "abolished boom and bust" himself, Gordon Brown, and handed to the FSA. Therefore, I think it is a little unfair to point the finger at him vis a vis supposed inaction pre-crisis.

2) Re: the comment on Fuld at Lehman, one of the interesting aspects of Lehman's demise is that out of all the large investment banks, they had the largest percentage of employee ownership. In the months leading up to its eventual demise, significant numbers of employees continued to buy the stock in the mistaken belief that the company was merely the victim of scurrilous rumours and that the crisis would pass. Fuld himself lost tens of millions of dollars worth of stock in the bankruptcy. This rather debunks the theories often posted here that all bankers are hard wired to act immorally and that renumeration in the form of shares is a magical cure all - the simple fact is that the vast majority of bankers at Lehman and elsewhere didn't see the train wreck coming and were just going about their jobs.

3) To RP's blog, a think a significant point in Mervyn's speech was that he felt that the required reforms would take decades. I tend to agree with this in my simplistic belief that there are no quick fixes to any of this, as much as the 6th form Socialist Workers Party debating society would like to believe otherwise (all that they think is required is just some new tax / laws / rules - have they learnt nothing from the Blair / Brown years?)

4) The one thing Mervyn doesn't explain is who on earth is going to buy all the equity he says the banks need to raise. But I might just pose this to the lefties as a better question would be, who on earth would buy bank equity knowing that every time the country is short of a bit of dough, the Labour Party demands another banking levy / special rate of corporation tax / Tobin tax / bonus tax? Go on answer that one.

Mr King going round telling everyone that the current banking model is no good!

Makes you wonder if we’re about to get hit with more bank bailouts in the near future.

Sorry Mr King, I’m with average Joe, the system is stacked against us, its intention is to keep financiers in wealth at the expense of everyone else. And to that end, it does in fact work very well.

I suspect Mr King, that you’re proposals are unlikely to get approval, and I’m still a supporter of those at:
https://www.positivemoney.org.uk/

60. writingsonthewall

Oh dear, who is jumping to any conclusions, WOTW? Suggest you re-read my entry (words like "is not going to plan" do not necessarily mean the "revolution" is doomed) and your defensive tirade following it.

The thrust of the comment was on objectivity. Something that is close to your heart. Allegedly.

I guess the art of sarcasm is truly lost on you...

I'll be more explicit next time, WOTW.

50. At 12:45pm on 26 Oct 2010, Up2snuff wrote:

> Aah! Is the Quebecois a fake? Hiding under the Neue Braunschweigs
> for cover? I think we should be told ...

It's quite possible to be German speaking Quebecer who does University at night, lives in Wales and goes to another University in England all day. And that's only half the story - there's thousands of us up here!

Look here, Up2snuff, those bankers have to submit to us. We are in control now, and they need to take a back seat and shut up. They made a complete mess of things when they had the chance, and there's absolutely no chance of letting those dopes take control again. End of story.

63. At 1:04pm on 26 Oct 2010, writingsonthewall wrote:

> who has hidden £100 BILLION in Switzerland?

It's ironic that the German for "sweat" is schwitzen, because that's exactly what the little Swissies are doing now. Now that we have the big hitters on our side, we can break those vaults right open.

The poor Swissies have very little to fall back on, since the trade in cuckoo-clocks dried up - but at least they'll have plenty of hard cheese for a fondu!

Talking of fractional reserve banking, have the banks worked the same 'alchemy' in the mortgage securitisation business by having the same mortgage allotted to several mortgage backed securities ala Pimco lawsuit against Bank of America. Everyone knows that if everyone were to take their money out of the bank at the same time the system would collapse but they still keep it there. Its all a confidence game or 'trick'

Why are the BBC and the rest of the mainstream media in the UK ignoring the news from the states regarding the systemic fraud in the mortgage markets.

The real reason for the credit crunch and following economic crisis boils down to fraud at every level in the US banking system and the US Government does nothing.

Foreclosure Gate is massive news, as big as Lehmans if not bigger, and this time the house of cards can come tumbling down long before Mervyn can come up with a plan.

Shame on the media for burying this.

Mervyn King looks a lot like David Starkey.

We shouldn't care what the bankers think. We have a government that needs to set rules. Rules that protect us, the people. Rules that the banks can accept, or they CAN go elswhere. If they go elsewhere in order to be stupid again thats fine, the taxpayers of wherever-that-is can do the bailouts.

Dodgey, reckless banks are not an asset to the country, exchequer or the economy. Let them go.

We can and should take unilateral action that is right for the UK. If the world doesn't follow suite then they will suffer.

#79

Re mortgage fraud in the US (aka 'Foreclosuregate')

How Did the Banks Get Away With Pledging Mortgages to Multiple Buyers?
https://www.zerohedge.com/article/how-did-banks-get-away-pledging-mortgages-multiple-buyers


'Bottom line: the elite bankers and the anti-regulators have been so unwilling to find the truth that no one knows how bad these frauds became. Finding the facts is essential and can and should be done by reviewing samples of the loans pledged or sold to Fannie and Freddie and the Fed'





...and this one
https://www.zerohedge.com/article/bill-black-foreclosuregate-calls-immediate-termination-bernanke-geithner-and-holder

71. At 1:20pm on 26 Oct 2010, writingsonthewall wrote:
61. At 1:00pm on 26 Oct 2010, IceWithaSlice wrote:

"To be fair the bankers have come out of this relatively scott free. Perhaps our new ConDem government could invent some new law that makes the heads of these banks liable for any future losses; I am sure this will sharpen a few minds."

Do you mean the milionaire in the cabinet who owe their wealth to the banks? - common sense man, come on, you can do better than that.

- To be honest it was a tongue in cheek comment, but having read it again why shouldn't we make these people accountable for screwing things up?

70. writingsonthewall

My, my WOTW, you are showing yourself today. You must be so pre-occupied with that revolution of yours you are easy to dis-prove even on the subjects you supposed to be good on.

"You can split the banks all you want (they did it before)" - I presume you mean it led to nowhere? Is it why then that only on the ocassions where banks and casinos were combined in the last century (sorry, is 100 years enough for you or do I need to bring up Dark Ages?) we had deep depressions? We had recessions in between, of course - that's the business cycle - but this and 1930s are of different magnitude. So yes, splitting the two is the necessary pre-requisite for any further banking reform.

You also underestimate the surviving skills of politicians. They may pander to special interests but usually go with the wind - petition would be just a convenient excuse to enforce the split on their paymasters from the world of Finance.

I have proven to you already ("What a carrier-on" thread that you conveniently ignore) that, generally, people are not altruistic and much minded of others. All your glorious revolution will achieve will be to replace one form of "oppression" for another, typically much worse. Go read up on history of revolutions before you respond to this.

73. At 1:23pm on 26 Oct 2010, a_sensible_comment wrote:

2) Re: the comment on Fuld at Lehman, one of the interesting aspects of Lehman's demise is that out of all the large investment banks, they had the largest percentage of employee ownership. In the months leading up to its eventual demise, significant numbers of employees continued to buy the stock in the mistaken belief that the company was merely the victim of scurrilous rumours and that the crisis would pass. Fuld himself lost tens of millions of dollars worth of stock in the bankruptcy. This rather debunks the theories often posted here that all bankers are hard wired to act immorally and that renumeration in the form of shares is a magical cure all - the simple fact is that the vast majority of bankers at Lehman and elsewhere didn't see the train wreck coming and were just going about their jobs.

-------------------------------------------------------------------------

I think you are viewing this with slightly rose tinted classes. Go and have a read of Anton Valukas report on the Lehman Brothers Bankruptcy. Fuld was a complete moron, he lead the company into the business activities that blew the company up. The employees who bought the Lehman stock were naive, stupid and speculating. It wasn't because they believed the great LB was invincible, it was because they thought the shares looked 'cheap' and could turn a quick buck.

My current employer offers an employee share scheme and I have stayed well clear. Why? Because I already have enough exposure to the company as an employee and would get stuffed if they went under, I don't want my savings also going down the pan. Risk concentration is given very little recognition these days.

74. At 1:28pm on 26 Oct 2010, Dempster wrote:
Mr King going round telling everyone that the current banking model is no good!

Makes you wonder if we’re about to get hit with more bank bailouts in the near future.
..........
Forgot to mention that Dempster. What was again? The banks need to roll over £800b in debt next year, of which £200b is to the government I believe. Oh and I heard somewhere that the amount they are borrowing every month from the BoE is rising. The FRB pyramid is shaking. My only hope is once it collapses that MR is timed right to fill the void.

"65. At 1:12pm on 26 Oct 2010, writingsonthewall wrote "You seem to spend a lot of your time trying to prove me wrong but sadly you always come up short."
Well here are two facts you got wrong:
"You need to stop getting your facts from Tory HQ" - I do not nor even look at their website
"Stop buy that Daily mail would you" I do not and I resent the insult (with no disrespect intended to those who do.)
"...and how you were 'ignorant of the tube strike' is beyond me" There is a whole world outside London though I know a lot of Londoners don't believe that.

I suppose I should apologise to you for being less than courteous in my last blog.

81. At 1:56pm on 26 Oct 2010, NonLondonView wrote:
We shouldn't care what the bankers think. We have a government that needs to set rules. Rules that protect us, the people. Rules that the banks can accept, or they CAN go elswhere. If they go elsewhere in order to be stupid again thats fine, the taxpayers of wherever-that-is can do the bailouts.

Dodgey, reckless banks are not an asset to the country, exchequer or the economy. Let them go.

We can and should take unilateral action that is right for the UK. If the world doesn't follow suite then they will suffer.

- I couldn't agree more, but if only it were that simple. I fear that the UK (despite Messrs Cameron & Clegg doing the Tango) is still run by the old mates club.

https://bbc.kongjiang.org/www.bbc.co.uk/news/uk-scotland-scotland-business-11626680

Fallacy 1 - Recovery.

Fallacy 2 - Renewable energy.

Is it better to have a three bed semi built on strong foundations or a 8 bedroomed detached built on sand. One may look good but it isn't made to last.

It is time that the so-called 'casino' style banking was exposed to the marketplace for good or for bad. I don't mind them playing with their own money but I do object to bailing them out when they 'inevitably' get it wrong.

Top marks for Mr King, lets hope that there is the honesty and will to stop these shenanigans for good.

#80 25_and_no_hope wrote:

'Mervyn King looks a lot like David Starkey.'

Yes, but only one of them has been shafted so far!

81 NonLondonView:

Totally agree!

The economic future of this country will depend upon the outcome of the struggle between bankers and politicians. Their agendas are utterly incompatible.

Let's see who blinks first.

• 84. At 2:09pm on 26 Oct 2010, Ian wrote:
“We had recessions in between, of course - that's the business cycle“
And can you tell me what causes the business cycle? It’s as if you take it for granted that because it happens regularly its natural, like snow during the winter. In case you don’t know its caused by the fractional reserve banking system; which causes debt and the money supply to grow rapidly in periods of boom at a unsustainable rate on the assumption that future will always be bigger. However, inevitably at some point the assumption fails and then you get defaults on some of the debt. But this reduces the money supply in society and thus in turn there will be insufficient money supply to service the debts which leads to a monetary collapse. Only monetary reform can address this issue and at last the pointless business cycle, which creates so much waste in the economy, be brought to an end. (https://www.positivemoney.org.uk%29
Interestingly it will also reduce or remove inflation helping to show how much our wages have fallen in real terms as part of the process in the endless pursuit of profit.

@ 81. At 1:56pm on 26 Oct 2010, NonLondonView wrote:

> We shouldn't care what the bankers think.

Nobody listens to those idiots anymore, except other idiots. We one or two of them drop by here to make a stink, but they stay away when bank-news is bad. Which is near enough all the time nowadays, as it happens.

Good riddance to bad rubbish.

For all of those who defend Mervyn King for his past ineptitude:

Remember: this man was warned about the consequences of policy and he did nothing. If he had intellectual integrity he should have offered his resignation. Any General asked to do the wrong thing that he knows is wrong would be expected to refuse the order and resign. The 'I was only following orders' defence is always wrong under all circumstances. He cannot escape his direct responsibility for his lack of backbone.

Mervyn King cannot reinvent himself - Judas cannot be reinvented as a Disciple! He is personally to blame. He must go. He lost the war by marching his men in the wrong direction when he knew it was the wrong direction and due to his lack of integrity he caused the bubble and then the crash. What is more he is still destroying any hope of a rapid recovery through the absolutely predictable consequences of his actions - and he knows it!

Good for Robert. Great blog.

Sadly, this extent of reform would require massive support.

A homogeneous elite straddles politics, regulation, business and finance, nationally and internationally; clinging on to their shared culture, greed and cheating ways.

Citizens will be skimmed, productive enterprise undermined, the invisible hand withered.

Our only recourse is to take to the streets.

On CDOs as a funding mechanism

There is still an insanity at the heart of bundling loans into consolidate debt obligations and that stems from the assessment of the risk of default. Get this wrong and the bubble and crash happen all over again.

There seems to be no sensible idea to prevent this from happening again.

I have thought for some time that no Nation can continue to afford to allow its economy and taxpayers revenues to be at such extreme risk as that posed by the financial institutions. We need to shut these people out with a National Bank. It is my view that the recent collapse was the biggest financial scam ever knowingly perpetrated against the taxpayer and because no one was punished they are in the process of attempting it again.
However we still have the trail of lost homes,lost jobs and ruined lives in our face and are still incensed by it. The fear at that time was that mobs would be hunting for Bankers with a rope and I suspect that if such a thing happens again the fear will become reality.

https://www.nytimes.com/2010/10/20/world/europe/20france.html?_r=1
So the French are to announce their cutbacks next spring, I can picture the guillotine being sharpened as I write. Bless them for standing up for themselves.

@ 88. At 2:23pm on 26 Oct 2010, IceWithaSlice wrote:

> I fear that the UK (despite Messrs Cameron & Clegg doing the Tango) is still
> run by the old mates club.

Merv tells us that, of the many ways of organising banking, the worst is the one run by those "old mates".

That's why they have to go. And go now.