May the markets provide more

Let us hope that the Stock market will decide to get behind these banks, and offer more of the equity, to relieve the taxpayer.
It is good news that Barclays can go it alone. The shareholders of Lloyds and HBOS still have to make their decisions. In the meantime the aim should be to raise as much capital as possible from the private sector, with all concerned taking decisions and making statements with that in mind.

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18 Comments

  1. Letters From A Tory
    Posted October 13, 2008 at 10:41 am | Permalink

    It's interesting to note that the markets opened up a few hundred points this morning, but the rise has been immediately stunted by Brown and Darling making more superfluous announcements.
    http://lettersfromatory.wordpress.com

  2. Acorn
    Posted October 13, 2008 at 12:11 pm | Permalink

    So, World Leader Gordon has designed the ultimate plan. Well actually he has borrowed it from one of the economics blogs.

    I can't wait to see how he is going to keep all his activity off the government accounts. That is, off balance sheet and off the radar. You will have to work overtime John on the pre-budget report.

    Buy-the-way, will the opposition get access to the Treasury books in December? Something to do with the time left to the next election?

    Have a read of the following article on "Derivatives" and then the following article on US "housing bubble update". Then make a guess at how long the crunch is going to last. I shall be looking for a spread bet at 2012 – 2014.

    Don't forget to get your free monitor screen cleaner further down the page.
    http://www.haasfinancial.com/

  3. Tony Makara
    Posted October 13, 2008 at 12:13 pm | Permalink

    I hope you are right Mr Redwood. My great worry is that with the government now so committed to propping failed lenders the scope for the tax-cuts that business needs just won't be there when we eventually get a Conservative government. These extreme levels of government borrowing have to be funded, a point the mainstream media, particularly the state-sanctioned BBC, seem happy to overlook.

  4. Mark Wadsworth
    Posted October 13, 2008 at 12:14 pm | Permalink

    If you grind the figures, you do wonder what all the fuss is about.

    Total outstanding mortgages in the UK £1,200 billion.

    New lending has almost ground to a halt. So on a cash basis, the banks are collected about £120 billion a year in interest and capital repayments from existing mortgage borrowers.

    Banks may well have to reschedule their debts to 'the money markets' (to extend repayment terms) or be a bit more radical and do debt-for-equity swap for ten or twenty per cent of those bonds/mortgage backed securities/CDOs or whatever fancy name they go by this week. So interest payments out are also a known figure.

    The balance can be used to lend to productive businesses.

  5. Deborah
    Posted October 13, 2008 at 12:15 pm | Permalink

    Such is my confidence in the government I'm contemplating taking funds out of Lloyds and putting it in Barclays.

  6. Donitz
    Posted October 13, 2008 at 2:26 pm | Permalink

    John,

    I attach a post I wrote on this excellent blog over 5 months ago.

    Unfortunately, many of my predictions have been realised.
    I don't have a crystal ball but it was obvious to those who did not choose to bury their heads in the sand at the time.

    ((((Donitz on 08 Apr 2008 at 12:19 pm
    "House prices falling or not falling"

    A recession is on the way.
    Deal with it.

    Property prices for forced sellers will drop 25% from 2007 values and the stock market will fall below 4,000 before the year is out.

    This recession will last 4 years but won’t plummet to the same deaths of 1989 to 1993.

    Confidence is gone and the domestic consumer who makes such a large impact on our GDP will stop spending abruptly.

    No doubt many consumers are currently trying to borrow short term finance to fund previous debt as they will no longer be able to add this to their already huge mortgage.

    Unemployment as a whole will begin to rise significantly next year. Graduate unemployment will start to rise within the next 6 months.

    It’s painful and you won’t be able to move house for some time but for the majority life will go on.)))))

    Now for my next predictions concerning the economy and the stock market over the next 8 months. At the time of writing the stockmarket is rallying due Bank bailout.

    1. Despite government intervention credit/loans to homeowners and business will not be forthcoming on any large scale.
    2. The large banks who receive government aid will be forced to merge with smaller failing banks.
    3. National Debt will spiral to 60% of GDP.
    4.There will be 2m unemployed by next April.
    5. The FTSE 100 will experience a fall of epic proportions to within 40% of its current value.

    Time to get the tin hats and a new government.

  7. Stuart Fairney
    Posted October 13, 2008 at 3:03 pm | Permalink

    It says something about capitalism and democracy that the only people getting a vote in this whole debacle will be the shareholders who are legally entitled to get one and not the taxpayer who is forced at the point of law to obey Brown's fiat and pony up.

    I shall be voting against the bailout. As a shareholder in HBOS I take my chances and if it is the case the HBOS must go bust then so be it. Other banks can buy their assets at pennies on the pound and thereby recapitalise themselves, meanwhile depositors are already protected. Please, no bailout, I do not want taxpayer funds (Bravo Barclays by the way).

    Incidentally, last time I checked, opposition meant opposing government insanity, yet all the major party front benches are in a state of apparent hypnosis. (The last time they all agreed on a major financial matter was joining the ERM, how did that work out again?)

    Mr Cameron may yet snatch defeat from the jaws of victory. Looking glum on SKY news like a latter-day Edward Heath and saying there is no choice but widespread nationalisation is both dead wrong and hardly the policy to energise core support nor make people seek an alternative government if the policy is exactly the same as Brown/Darling.

    Is there anyone left in the Tory party who still believes in laissez-faire Capitalism and actually opposes this road-to-national-bankruptcy bailout? Or are they so struck with the 'Chicken-Little' warnings of doom that they will allow Brown's fox to devour them and all of us?

    • Tim Skinner
      Posted October 13, 2008 at 6:02 pm | Permalink

      Well said Stuart.

      Why indeed should a working family have to take on an extra £50,000 of debt (its share of the £500bn bank support scheme)? It is tax enslavement.

      Why should the whole country's economy be put at risk for the sake of an over-extended banking system?

      Who are the politicians to decide they know better than the market where this £500bn of capital is best invested? And of all the places to put it, a set of failed banks. It promises to prolong the downturn no end.

      Why do our politicians have so little faith in the markets that they must all become socialists?

      What chance is there this scheme will work even on its own terms? And is there a point – before our total ruin – at which the politicians would admit to themselves they should stop playing Canute?

      Let us move get through the difficult times ahead as swiftly as possible, and harness the full power of the market to make the best of what we have. Do not, for goodness sake, work against it.

  8. figurewizard
    Posted October 13, 2008 at 3:07 pm | Permalink

    I hear on todays lunchtime news that Gordon Brown has once again stressed among other things the government will be seeking to support the millions of small businesses of this country. It would make a pleasant change if he sticks to his word this time having just been forced to pour hundreds of billions of our hard earned cash into organisations that have faltered thanks to a combination of abject greed and blind stupidity.

  9. Chris Johnson
    Posted October 13, 2008 at 3:26 pm | Permalink

    A very naive thought. Why should shareholders stump up? Anybody investing in bank shares has already lost their shirt, received no sympathy from politicians, while the rest of the market increasingly resembles a casino.

    Throwing more money at the banking problem without some reassurance that the people running the system will start behaving more like solid custodians of other people's money is wildly optimistic. The taxpayer is in this situation because all in Westminster took their eye off the ball.

    Reply: Shareholders might put more up to rescue their institutions or to strengthen them, so they enjoy the recovery when it comes

    • StevenL
      Posted October 13, 2008 at 4:50 pm | Permalink

      Look on the bright side, casinos are a lot of fun! On the other hand the government have banned small shareholders from hedging their rights-issue shares this time. What's the bet that the short-selling ban remains in place whilst the taxpayer owns share capital? I can't even hedge out the risk GB is taking on my behalf!

    • figurewizard
      Posted October 14, 2008 at 7:52 am | Permalink

      In the cold light of morning the signs for the taxpayer are even worse today. Not only do we now know that the government paid more for RBS on our behalf than it was actually worth but in the middle of one of the biggest one day rises in the FTSE in history our shiny new investment was almost alone in losing yet more value.

  10. Richard Lawson
    Posted October 13, 2008 at 8:13 pm | Permalink

    John, stop worrying about the markets! There is no man-made financial crisis. The markets just go through natural cycles, related to sunspot activity, and there is nothing we can do about it. Brown is wasting squillons of taxpayers' money in an evil Socialist conspiracy to nationalise our banks. Don't be taken in by this market meltdown nonsense, it's all made up by eco-terrorists who want to take over with a Green New Deal. Don't listen to the international financial experts, they have got it all wrong, just like the IPCC have with global warming… I found out about it on this website and now everything is all right. http://www.crikey.com.au/Business/20081001-Keane-

  11. mikestallard
    Posted October 13, 2008 at 9:13 pm | Permalink

    I have just had the pleasure of your 3 u tube speeches. Passionate, correct and sensible.
    Now then.
    Where have these been reported?
    Who has heard them except here on the internet?
    Thanks to the BBC none of this has been thrashed out. Instead, we are left with a rather vague couple of announcers and anchor men and women who, obviously, know as little about all this as I do.
    President Clinton, the FSA, the Bush Administration and Gordon Brown are all people who have a lot to answer for.
    The general impression being given is that the Conservatives are saying nothing because they are just effete toffs from Eton who know nothing much except for PR. Brown, of course, is having a "bounce".
    Crisis makes excellent news, I am sure. But where is the sensible discussion?
    Muzzling people who know what they are talking about makes absolutely no sense and is, as you hint, very dangerous when things are moving so very fast.

  12. Tim Skinner
    Posted October 13, 2008 at 10:05 pm | Permalink

    Michael Shedlock describes the banking rescue quite nicely on his blog (he is writing about the US, but it applies to the UK):

    "The method of recapitalization is best described as robbing Taxpayer Pete to pay Wall Street Paul. In essence, money is taken from the poor (via taxes, printing, and weakening of the dollar) and given to the wealthy so the wealthy supposedly will have enough money to lend back (at interest) to those who have just been robbed."
    http://globaleconomicanalysis.blogspot.com/2008/1

  13. David H Lewis
    Posted October 13, 2008 at 10:53 pm | Permalink

    When the Conservatives take over in 2010 the debt levels will be so high it is hard to imagine what can be achieved over a first term.

    I suggest the first step is to identify the FULL level of national debt owed and put up on a "debt clock" in Leicester Square. Nothing hidden – the horrible truth for all to see!

    Then concentrate on some social changes plus navigating the way out of recession, privatising the banks and reducing the debt levels.

  14. Chris Rowsby
    Posted October 14, 2008 at 4:03 pm | Permalink

    Re David Lewis. What makes you think that the Conservatives

    will be taking over in 2010? Why should people vote for more of

    the same socialism that we have at the moment? I have written

    before,'what is the oppositions policy'?Surely with the massive

    debts that exist we need to be clear about cutting public

    spending.This means quangoes,civil service posts etc must be

    chopped.What about public service pensions? Do politicians

    really expect private sector tax payers to work[ if they can

    find it] until they are 70 or more to finance gold plated

    public sector perks starting at the age of 60?Its long past

    time for David Camerons team to speak out.That is if they

    have anything to say.

    • mikestallard
      Posted October 15, 2008 at 8:30 am | Permalink

      John Redwood, whose blog this is, made an excellent, clear, speech, which, of course, was not reported. There are lots and lots of us on this blog who know that the government needs to cut back fast and seriously. So does the Daily Telegraph Leader. Read this thread alone and see how we have clearly seen how Mr Brown has put the taxpayer in debt for the next decade (£2 trillion yet? Who is actually lending him all this money?)
      None of this is ever discussed on Newsnight, on the News or on Radio 4, unless I missed it.
      The Conservatives are not much reported, but they are all we have got. I do hope the Labour propaganda machine does not manage to spin itself in for another disastrous five years. I really do.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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