More losses

Today the government is sitting on a loss of more than £25 billion on the bank shares, the pound has fallen further, and they announced record breaking levels of public borrowing for the last month’s figures. When will they start to limit the taxpayer risk?

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19 Comments

  1. kevin
    Posted January 21, 2009 at 9:12 pm | Permalink

    when will labour goverment learn there policies are whats causing the problems they tax and spend like money is no object they pump billions and billions into the banking system and what do we have to show for is are the banks working again no there not how much government dept are they building up for future generations to pay it all off how much more tax payers money is going to be wasted they renamed the royal mail only to rename it back again how many billions was wasted on that the value of the pound is badly damaged thanks to the state of the british economy when will people realise its labour governments that have run up huge depts broken our economy and left as in ruins why are labour allowed to keep going on wasting the tax payers money why isnt there a law brought in to stop governments like labour inflicting this type of damage on the british tax payers

  2. Dave
    Posted January 21, 2009 at 9:29 pm | Permalink

    If you are attempting to use a blanket to put out a fire then using a large enough blanket will ensure the fire is put out, and you still have a blanket.

    Using a blanket that is too small will result in fuelling the fire, and burning the blanket. Gingerly insinuating a blanket in the direction of the fire will also fail to put it out, and result in yet more taxpayers blankets burnt.

    So far the governments measures have either been blankets that are too small, or blankets that have not been firmly placed over the fire.

    The correct action to have taken would have been to state that the banks would be fully capitalised, regardless of the cost, and to investigate thoroughly exactly what was required, and do it properly.

    Capitalising the banks with enough money in the first instance would have resulted in the problem being completely resolved. From there excess capital could have been removed, and the capital would not have sunk through the floor in the manner it has done.

    Releasing a second expensive attempt to resolve the tightened credit market without clearly specifying the terms is again going to fail.

    The correct way to limit the risk is not to limit the amount of money used to deal with the problem, but to make sure the amount of money deployed is sufficient.

    Another way to look at this is sending policemen to respond to a riot, send too few policemen and the riot will be incited further and the policemen will be injured, send enough and the riot will be controlled and injuries will be kept to a minimum.

    The Labour governments attempts to limit taxpayer risks have been insufficient and late. Failing in both of these respects the results have been expensive and ineffective.

  3. THE ESSEX BOYS
    Posted January 21, 2009 at 9:37 pm | Permalink

    The PM, thankfully, has been thoroughly out-manouvered on the disgraceful attempt to keep taxpayers in the dark.
    Twitter on, as HH did tonight, about the Conservatives welching on a deal, the fact of the matter is that Labour wanted to strongarm its MPs into enabling a cover-up of possible improper and even illegal conduct. They should hang their heads in shame and the Conservative leadership should be praised for their morals…and their tactical adroitness!

    We, and many others no doubt, signed up to the ‘THEY WORK FOR YOU’ site this week to record our opposition. We came across this via David Davis’ website so congratulationsare due all round.
    Well done JR in joining other principled Conservative MPs – including Douglas Carswell who started today’s PMQs ball rolling with the opening question – in doing the right thing! Let’s hope we now see the full picture with heads rolling in cases where members have acted improperly in taking the mickey out of us taxpayers.

  4. THE ESSEX BOYS
    Posted January 21, 2009 at 9:59 pm | Permalink

    Today’s dire expert warning to abandon sterling centres around 2 unarguable points.
    Firstly, that taxpayers are being put under an unfair and intolerable burden that the government has no right to impose on us.
    Secondly, just what is Britain to sell to the world now financial services have failed so badly (through Labour’s poor tripartate system and slack regulation) and our manufacturing base has been run down?

    We see the near insurmountable difficulty being on that demand side of the equation, irrespective of whether the banks begin lending again or not. Who on earth is seriously considering buying a house, a new car or a major appliance unless absolutely necessary. And which overseas market is ready to take advantage of the devalued pound? No…the imminent 30% hike in import prices is going to far outweigh any export benefits and we are fast reaching the point when Mr Brown can posture no more and may have to go to the country.
    President Obama’s humility just served to highlight hubristic Brown’s lack of stature and his failure to concede even a slight flaw in his performance this past 11 years!

  5. David Eyles
    Posted January 21, 2009 at 10:31 pm | Permalink

    I am now completely punch-drunk with the figures which are so huge that no human mind can truly comprehend the enormity of the problem. It would be handy if you generated an excel spreadsheet with the numbers split into categories such as: actual expenditure, liabiltites and where the taxpayer acts as an insurance against default. If that was put into a little side window and updated daily, we would all know where we stand and how fast we must emigrate.

  6. Johnny Norfolk
    Posted January 21, 2009 at 10:58 pm | Permalink

    I think the way international confidence is falling they will have to start to change what they are doing. Its Healey all over again.

  7. Blank Xavier
    Posted January 21, 2009 at 11:00 pm | Permalink

    I could be wrong, but I get the feeling the behaviour we’re seeing here is the Labour gesalt; the primal left-wing view that the State is there to solve problems, to *do* things. The whole history of Labour is that the world is unfair and that the State is the agent of the resolution of that unfairness.

    So here we have this massive problem, something which threatens the welfare of us all – of *course* a Labour Government acts, and acts within the left-wing worldview – the application of State resources to solve problems.

    Makes me think of a cat or dog which has tried to eat something, only to discover, halfway, that it’s just too big…spit or swallow? the eternal question.

    That is exactly where Labour is now, with regard to banking bailouts. Plunge in and run the risk of catastrophe? or back out, loosing all that’s been spent (and the next election) and seemingly risk catastrophe anyway as the banks topple, one by one?

    Banking liabilities are a positive multiple integer of our GDP. Labour has reacted instinctively and in doing so, has bitten off more than it can chew.

    The problem of course is that it’s your money they are spending.

  8. Jonathan Cook
    Posted January 21, 2009 at 11:18 pm | Permalink

    The government have not demonstrated that they are thinking that far ahead I am afraid.

    Labour’s priorities seem to be these – in order:

    1. Do enough to retain power

    2. Position Labour favourably against the Tories

    3. Protect Gordon – because there is no better Labour candidate

    4. Keep the country afloat

    Their priorities are all wrong and Labour need removal.

  9. chris southern
    Posted January 21, 2009 at 11:35 pm | Permalink

    Unfortunately the current goverment will only stop when either the IMF stops them or they lose an election.
    It wouldn’t surprise me if nationalized banks started to only accept certain “new” forms of ID when new accounts are opened, that’s how low this goverment is stooping with it’s current agenda.

  10. ManicBeancounter
    Posted January 21, 2009 at 11:36 pm | Permalink

    To first limit risk, you must first understand risk. This is something that is missing from many of the policies followed in the last few years, and the rash of policies in the last few months. For instance
    1. The lowering of interest rates in 2000 and again after 9/11 ensured generated a house price boom that was not sustainable. In trying to prevent a small recession, the rising systemmic risk was ignored.
    2. Having a massive, deficit-financed spending increase during a boom will not only increase the size of the boom (and therefore the size of the subsequent downturn) but will reduce the room to increase expenditure to offset a downturn. You therefore introduce the risk that fiscal policy will be ineffective in a crisis.
    3. When a government tries to stimulate the economy, there are optimal times to enact the policies. Reducing VAT at the wrong time (when the economy is on the way down) will just reduce tax revenue, whereas reducing taxation at the bottom a slump may speed the recovery. The risk is of sliding tax revenues and then having to raise taxes (and / or cut public expenditure) just as the economy is recovering in order to avoid bankruptcy).
    4. Cutting interest rates too early will risk not being able to do so when it is effective, or not being able to sell debt.
    5. Having a rash of policy commitments runs the risk of not being able to meet them.
    6. Mr Redwood, you have pointed out the lack of due diligence in taking over RBS or Northern Rock. Due diligence turns uncertainty into quantifiable risks.

    I would suggest that the government has no notion of risk and will not grasp it. Neither will they grasp unintended consequences. Rather they are lost in the belief that if you get across the message correctly, show compassion and appear to do all you can (no matter what) then everything will be all right. To New Labour, it is the public’s perception revealed in the opinion polls that is the realilty that they know. IThe real world of risks and unintended consequences is alien to them.

  11. adam
    Posted January 22, 2009 at 1:03 am | Permalink

    im not sure they understand whats going on.

    I saw you on Jeff Randall. You certainly laid into Labour’s record.

  12. Ian Jones
    Posted January 22, 2009 at 1:07 am | Permalink

    Bah, its ok. The BoE is going to print them some more money to replace it. Not to worry…….

    Can you please let us know if the BoE uses its newly printed money to buy new Govt debt? Mervyn stated in a speech this week that he would do so:

    —–
    Excerpt from speech:

    The conventional approach to such unconventional measures is to buy assets, such as
    government securities or gilts, which are traded in liquid markets to boost the supply of
    money. Provided the additional reserves are not simply hoarded by banks, as happened
    to some extent in Japan earlier in this decade, such asset purchases can increase the
    supply of broad money and credit and the liquidity of private sector portfolios, raising
    spending. The effectiveness of this approach is likely to be enhanced by the clear
    commitment by the MPC to take the measures necessary to meet the inflation target in
    the medium term.

  13. StevenL
    Posted January 22, 2009 at 1:41 am | Permalink

    The way things have come to pass I don’t think we can define the risk we face purely as ‘taxpayer risk’ or even ‘financial risks’ anymore.

    To me, the governments latest bailout said they were going all in. What cards have we got in our hand if we lose this almighty gamble?

    1) Political capital – we are an important member of NATO, the EU, have a UN Security Council seat and are an important US ally.

    2) We’re ‘too big to fail’ – if the banks we’ve taken on would go insolvent left to themselves then allowing them to go into administration, sending the staff home and switching all the computers off whilst the accountants try to work out what to do would probably start a chain reaction taking down other countries, companies and rich individuals.

    3) A peaceful population – let’s face it, we don’t riot like the French and hardly any of us bear arms. If unemployment reaches dizzy new heights it is unlikely that it will result in any demonstrations the police cannot handle. We should avoid having to resort to the army.

    4) Good defence – strong and well equiped military by international standards, peace with our neighbours and a good bond with the USA. If the world breaks down we should manager not to have to fight too dangerous a war.

    5) Strong companies / individuals – many British people have money even if the government don’t and our strongest companies (BP/Vodafone/BHP etc) accrue most of their sales overseas, but will they bail out of a sinking ship?

    Another thing that I can’t help wondering is if when the USA stepped in to bail out AIG in the wake of Lehmans they did so on terms with other nations such as the UK, Germany etc? I can’t imagine that Bush would have bailed out the world economy without expecting reciprocacy.

    I have 3 theories on whagt’s happening now:

    1) It’s like many suspect our foreign policy is, we’re really just doing what the USA tells us to do and the politicans are playing politics.

    2) The government have decided that the consequences of allowing NR/RBS/HBOS and Lloyds to fail are so great they have decided to nationalise them, then devalue sterling to deleverage the banks, reduce the trade deficit, begin quantitive easing by swapping printed money for the banks foreign currency denominated asets, increase the money supply through bank lending, kick-start inflation, thus kick-starting consumer spending and arrest negative growth.

    3) No-one knows what they are doing and I’m both over-reacting to the latest bailout and turning into one of the conspiracy nuts for entertaining the thought there is some semblence of a plan.

    • mikestallard
      Posted January 22, 2009 at 5:15 pm | Permalink

      Yes!

  14. TomTom
    Posted January 22, 2009 at 6:33 am | Permalink

    Why were bank shares not suspended ? Why did short-selling resume ?

    I can only assume the FSA and Treasury have an agenda to wipe out bank shareholders.

    It is bizarre to tell us this is a 100 Year Flood and not to take dramatic action by suspending bank shares on grounds of national security. There is a clause in the Banking Act passed for this bailout which – until February 2009 – permits the Government to reorganise, re-name, de-list Banks. It is in the Lloyds Prospectus but no newspaper picked up on this clause. It seems the Government intends to action this clause

    Labour is nationalising banks without compensation and this shows how stupid and arrogant Lloyds directors were to deliver a relatively healthy bank to the State and sideline shareholders. It makes long term savings too risky nowadays so the yield curve will be very steep upwards as everyone deposits short

  15. duncan robertson
    Posted January 22, 2009 at 6:38 am | Permalink

    if you don’t take your loss, soon or later you take the mother of all losses

    your first loss is your best loss

    if you lose more than 10% cut it, no matter what

    it takes much experience to accept this

  16. duncan robertson
    Posted January 22, 2009 at 6:41 am | Permalink

    Accepting losses is the single most important investment device to insure safety of capital. It is also the action that most people know the least about, and are least likely to execute. The most important single thing I learned is that accepting losses promptly is the first key to success. It’s a great mistake to think that what goes down must come back-up

  17. mikestallard
    Posted January 22, 2009 at 5:27 pm | Permalink

    Aren’t the comments above something to enjoy and learn from! I do not see so much sense anywhere else, actually. So, thank you!

    Here is the Labour point of view (culled from the Spectator Coffee House blog and Labour List between Fraser Nelson and Derek Draper):
    Fraser Nelson spelled out the entire list of the country’s liabilities. He did this fairly and thoroughly, although he did not put a price on it, you can see that they amount to a lot of money. The liabilities will be familiar to readers of this blog.
    Derek Draper’s reply is interesting.
    He suggests that this is simply party politics. He is convinced that the debt in GB is actually smaller proportionally than that of the USA. It is, therefore nothing to worry about.
    The banks, he considers, are money spinners, not liabilities. They are there to provide money, not take it away. Already, Northern Rock is pouring out money. The government is on to a winner here.
    (He doesn’t say this, but more banks nationalised would, presumably, mean more money pouring into the State’s coffers. He also does not say this, but presumably the amount pouring out of the banks is so huge that the price of shares and other details are simply too small to be considered.)
    In other words, all this talk of crisis is simply Tory lies and exaggeration. The world crisis will very soon pass and things will go back to being how they always was.

  18. Jason
    Posted January 25, 2009 at 3:23 am | Permalink

    Why is it not possible to just stand behind depositors (the real money) – the leverage amount just needs to be worked through…ie shareholders and bondholders experience default…they deserve it as they took the risk and failed to guide management accordingly. Viable loans / mortgages need to be transferred to a new institution – the rest closed and asset transfers take place etc. Under the current process, the govt is risking a sovereign default – and for what purpose? If RBS bondholders take a hit, it is less bad than gilt holders facing a collapse, govt facing long term funding problems, potential imported inflation issues due to sterling etc. The correct people have to take the legitimate hits, not the incorrect people taking illegitimate hits – as is currently the case. Make no mistake radical change will happen – but the country needs to be able to see it through to the other end. Dramatic austerity policies will eventually be imposed on us a-la-IMF if we fail to implement prudent, coherent policy. Who do the govt think they are kidding….certainly not the markets…This govt has done and continues to do, more harm to the country than any terrorist group ever did. We have a bunch of reckless misguided muppets – who have demonstrated what amounts to criminal negligence – at the helm, the seas are becoming much rougher, the passengers can see the icebergs, yet the Captain says full speed ahead, and no one is there to stop him. There needs to be a debate followed by a no-confidence vote, which almost certainly will fail, but may will put him on notice.

  • 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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