We are stuck in slumpflation. It is time for some commonsense amidst all this bank nationalisation madness. We need some hard truths for hard times.
This crisis began because the UK had borrowed far too much. You do not get out of a debt crisis by borrowing more. You get out of it by paying some off and taking your losses.
If you have a set of banks that have too many bad and doubtful debts, you do not get rid of them by transferring them to the taxpayer. If you transfer too many to the taxpayer, you bankrupt the state.
It is said that some banks are too big to go bust. Fine. Shrink them. If they want public assistance, make them sell assets, close down unruly books of trading positions, cut costs, weed out poor business. Lend them enough short term to keep them going, but leave them under pressure to cut costs and bring themselves down to a sensible size. Giving them access to limitless share capital just gives them the money to pay bonuses they do not deserve, to pay too many people too much money, to take unacceptable trading risks and to avoid hard choices which sometime they have to make.
Understand that the UK Parliament now has to supervise a large bank with a medium sized government attached. If they nationalise LLoyds as well as RBS the banks balance sheets will be more than twice the national income and more than five times the annual tax revenue. That’s taking a crazy risk.
The governing class now all tell us the banks took too much risk at the peak – though they as regulators allowed that and even encouraged it at the time. Why then is it now acceptable for the state to take so much risk, accepting the very instruments and loans which went wrong before? Have they learnt nothing? Remember we should not be discussing whether we set up a bad bank, when the state already owns three bad banks with plenty of bad and doubtful debts. How many more bad banks do they want?
Meanwhile even with all the taxpayer money going into the banks we have a deep recession. If at the same time as shrinking the bad banks we already own we have a sensible monetary policy we could turn the recession. Sorting the banks out instead of subsidising them would help restore confidence in the UK.
On current policy sterling is taking the strain, as the currency and international bond markets do now understand that the financial health of our banks is the same thing as the financial health of the state itself. This policy can best be called Slumpflation. Prices will go up thanks to sterling, despite very low levels of demand.
I’m fed up with slumpflation, and the banking and monetary madness which has brought it on us. Please don’t nationalise another bank. Please start to sort out the bad banks, and please run a monetary policy that finds the right balance between too much and too little.
The monetary authorities have been in the shower, tugging the control from cold to hot to cold to hot again. Set it for comfortable and stop fiddling with it. Let’s hope they haven’t broken it with their violent moves.
February 15, 2009
Just why do they not do this.?
Are they so blinded by spin that they cannot see this.
It si the ONLY way forward.
I regret it will not happen with Labour. They are the cause not the solution.
February 15, 2009
“It is said that some banks are too big to go bust.”
When and whom made this decision? No one told us! I had always assumed that when a banking crisis occurred a well oiled machine would leap into action. Depositors would get some of their funds returned, assets sold, share and bond holders wiped out, and the bank closed.
The reality was the regulators couldn’t cope even with Northern Rock! Wouldn’t we have been better off in a world without regulation? At least we would have know the risks.
February 15, 2009
The government’s encouragement of Lloyds to take over HBOS was was a negligent act.
If it did not work then it made a bad situation worse.
If it did work then it created a bank so large it would be against the interests of competition.
Both outcomes were are easily foreseen – even I can see it! So that makes the action negligent.
My guess is that the government thought they saw an easy way for getting the HBOS problem monkey off their back and on to someone else’s. And they did so without properly thinking through the consequences of their action.
Now Lloyds is in trouble there is the opportunity of reducing the problem, as John so eloquently describes, and at the same time forestalling the overly large, anti-competitive conglomerate that might otherwise eventually arise.
February 15, 2009
The progress to the complete ruination of our country will continue until Brown is removed and we have a new government. We must put a stop to this “fiddling while Rome burns” attitude. Things are bad now and will get worse every day this man is allowed to cling to power. We can’t wait; we need an immediate general election.
February 16, 2009
But Turkeys do not vote for Christmas.
So we are stuck with this situation until most Labour MP’s feel they need to lose their job in the Public interest.
No chance with the expenses and pensions they are getting.
February 15, 2009
Once again you’re right but the government won’t see it. I’m sure part of it is that in their heart of hearts ministers who were once committed to Clause 4 socialism don’t see the harm in nationalisation. It’s the fulfilment of a life-long dream, despite the lip-service paid to liberty and the free market. After all, all this government’s other actions seem to be aimed at destroying liberty – why not a bias that way in finances too?
February 15, 2009
Of those banks taking state aid, the government should view them as an administrator vies a broken company.. Saving the core business, but selling every possible asset off, identifiable businesses and bank real estate.
Take as much cost out of the banks as possible, again the shareholders taking the strain of this in the redundancy costs.
This would give the public a feeling that , things are being fixed, that action is being taken.
The impression being given now is that the problem can be solved by going out into the markets and borrowing more and more money to fill the hole and the consequences of this – repaying the loans, the depreciation of sterling are not discussed by the government.
When the bare bones are exposed perhaps the scaled down banks and their rock bottom share prices could raise a secondary market offering so raising money in the market.
The government has approached this problem in a similar manner to welfare and health, just pouring more money into a system protected from reform and without getting proportionately better performance.
February 15, 2009
“The monetary authorities have been in the shower, tugging the control from cold to hot to cold to hot again. Set it for comfortable and stop fiddling with it. Let’s hope they haven’t broken it with their violent moves”
Nice analogy!
Having suffered an evening of despair on Friday we DID read the blogs and watch the comments pages and programs yesterday and today – and it worked!
There is increasing anger from taxpayers and clearly sites like this are having an effect on considered debate as well as basic disaffection. Many commentators are now urging us as shareholders in major banks to do what shareholders do and to pressurise our Westminster represenatives to raise their game and their voices on our behalf. We are going to bombard our MPs as well as the commentators!
Mr Moore is doing us all a big favour and even the News of the World is joining in today. We feel that the wagons are circling the PM and even Custer’s Last Stand may be on the horizon!
Yes folks, join us in shouting from an open window…”WE’RE AS MAD AS HELL AND WE WON’T TAKE IT ANYMORE!”
February 15, 2009
ZaNuLab will NEVER see sense because they have none and are hate filled poisoners (metaphorically speaking) to boot. Mr Redwood, I strongly urge you to put forward a new policy for your party. I want to see all New Labour MP’s (and appropriate policy makers–so as to include Mandelson and the ZaNu ermine brigade) personally and individually punished for what they have done while in Government. All their MPs must have every penny and all assets they have taken from them. They must spend the rest of their lives working for minimum wage only and must retire on a standard O A P only–not a penny more. For the front bench and ex-members of that front bench, that is not enough.
(Further proposed punishments deleted as this is a family site)Of course Mr Cameron may not be too keen on such a policy as it might end up being applied to a future outgoing Tory administration. The way I see it, such fears should help ensure that we never again have a Government as rotten and evil as the present crew.
February 15, 2009
Is it too cynical for me to wonder that if the first bank to ‘fail’ had been a southern bank it would have not been bailed out?
February 15, 2009
Compare & contrast the treatment of the banks with they way they did do exactly as you say with British nuclear. Of course the failure of British nuclear wasn’t through imprudence but because the regulator deliberately made retail electricity costs below production cost & unlike the conventionl generators nuclear had neither financial reserves nor the option of closing production. The government did indeed require that they close down all research facilities & sell off such overseas assets as Westinghouse at fire sale prices. Coinicidentally Westinghouse may well build some new reactors here, when the government allow it, keeping our lights, mostly, on to the profit of its Japanese owners.
The difference is that our nuclear industry produce a vital product whose failure will be far more devastating than any mere Depression whereas bankers deal with sitting behind desks in London & thus have so much more in common with our civil service & political masters.
February 15, 2009
Was it Lord Hailsham who talked of an elective dictatorship? He must be turning in his grave, as this is what we now so clearly live in.
1. Parliamentary scrutiny is an increasing joke, time limited debate and three-line whips make it a pointless farce.
2. With some exceptions, the calibre of MP’s is woeful. Worst of all is the professional politician with no experience of actual business and certainly no clue how to run banks.
3. The truth is obvious for all to see, yet watching PMQ’s for example is like watching “Downfall” where no-one dares tell the leader it’s over and they still cheer (!)
4. Some MP’s are openly corrupt and self-serving.
( Personal adverse Comments on Home Secretary removed)
I honestly think that the suicidal course that we (and the Americans come to that) are on will transform the world and resource rich states and China will dominate us, in the way we once dominated them. This will be a chastening experience and yet I fear the centre-right Cameron government of 2010 will have some awfully hard decisions to make. I don’t know if they will be made?
February 15, 2009
Personal adverse comments be damned, I merely quoted from that which is already widely published, Peter Oborne in the Daily Mail.
I note an uncomfortable silence on the issue from the conservative party…
Reply: Yes, I understand, but I have no wish to be on the wrong end of a libel action when I do all this pro bono. If I can’t prove it I post it.
February 15, 2009
I have been considering this mad idea for some time now. When we vote in a general election, we have a secret ballot. This means that we make our own minds up and that (in theory, but not in practice) nobody knows how we voted. In one leap, voting was freed from corruption and the local powers that be.
I wondered if the House of Commons might adopt the same practice?
At the moment, the PM is a virtual dictator. Many, if not most, MPs are usually absent whenever I look at the Parliament channel. You can tell the results of any vote before the debate.
Actually secret ballot, if you think about it, would eliminate all this.
I think myself that this would revolutionise our system of government.
February 16, 2009
Not a bad idea to break the power of the whips but your idea may cause more problems than it solves. There is an easier way. Have primaries where all candidates for the party nomination face election from all regisitered voters for that party in the borough. In that way they would have to be loyal not to the whips but to the grass roots party.
The Americans use this system and the party system is weak, where as grass roots connections are much stronger. This is a necessary, (but not sufficient) condition of political reform.
As the current elective dictatorship suits the party leaders, don’t expect changes soon.
February 16, 2009
When our MP in Cambridgeshire. Malcolm Moss MP offered his retirement, we did actually have a primary election which went off very well indeed. Six candidates were presented thoughtfully and we voted for the best. By “we” I mean anyone who cared to turn up.
When the election happens, of course, our new MP, whatever party, will have to do exactly what he is told to do and, what with pairing and so on, I look forward to another elected dictatorship, which, I quite agree, will not change soon!
February 15, 2009
John, simple question. Are you selling your sterling?
reply: No, because I have sterling income and liabilities, and accept I will be hit like everyone else from rising import prices.
February 15, 2009
There is a interesting set of graphs on DollarDaze, particularly the crisis time line near the end. It would be nice if I could find the equivalent for the UK BoE.
http://www.dollardaze.org/blog/?post_id=00578
When the dust settles someone is going to have to come up with a much reduced catalogue of financial products and a dictionary to go with it. A set of global standards for financial products that have the stamp of approval from the BIS or similar UN level authority. It will have to have a better global definition for “solvency” as well; cos the Basel thing has not worked too well. Remember, mother nature always arranges for a natural selection event to occur when she thinks there has been too much random development among her species. A sort of stress test.
Just for a bit of fun see:-
http://inboxinsanity.blogspot.com/2009/02/female-driver-compilation-video.html
February 15, 2009
Isn’t it odd that Lloyds bought HBOS only to discover six months down the line – strike a light, stone me, well I never – it was a £10bn liability?
Or is the explanation that Lloyds has chosen to do a kitchen-sink dump at this time so it can declare at some future date, preferably when it’s got the government out of the way, a miraculous recovery of its profits (from the present overstatement of its losses).
Another year or so of pain then it’s back to being a Master of the Universe, an enoblement for services to the financial industry and back to big bonuses, of course.
Suspicion of such gaming by bankers would be deeply cynical.
Almost certainly true, then.
February 15, 2009
[…] A large bank with a medium sized government attached […]
February 15, 2009
There is a new economic theory on the block relating to the way Governments construct and manage economic policy. It is called Das Fliegen-Schwein economics, or “Flying Pig”. In essence it means that governments and states are prone to launch flying pigs as the basis for their policies and actions. They might think that the pigs will remain airborne, but inevitably they all come to ground sooner or later, harder or softer. My thesis is that this theory is so far better than all the other ones.
February 15, 2009
YOU’RE FED UP! How the bloody Hell do you think blokes like me feel? Blokes that have been saying this will happen since Brown taxed pensions in 1997 – revealing that he did not understand the difference between capital and income – and have been saying it year after year after year. And who are now suffering financially because of these idiocies.
It’s all very well you being fed up with it, but you’re in Parliament. You are put there to look after us. You bloody well get on and do something about it.
February 15, 2009
You saying “make them sell assets” makes me think that perhaps it would have made more sense for the taxpayer to have bought some assets from the banks when they had to sell them at distressed prices. At least that way the taxpayer would have got bargains rather than the good assets going at low prices to more prudent foreign banks. But instead we’ve bought the banks’ liabilities.
February 15, 2009
‘If you have a set of banks that have too many bad and doubtful debts, you do not get rid of them by transferring them to the taxpayer. If you transfer too many to the taxpayer, you bankrupt the state.’
This is the point which the goverment seem to be missing. They are putting the banks’ problems on the taxpayer which is definately not fair.
Shrinking the banks seems the best solution instead of pumping more money into them.
February 15, 2009
I never understand why the solution to a problem with a bank that was too big to fail was to merge it with another to create one even more too big to fail. What’s Brown going to do now that one is looking shaky?
February 15, 2009
The labour party that many of the readers on this site so despise were and still are responsible for putting in place and maintaining a regulatory system that let the banks do whatever free market policies they saw fit no matter how risky. To the bank who maintained it was of no business of the state what they did. Oh really? Like the railways? No? Now I understand.
Now I ain’t no academic for sure, but do these blind free market supporters not see the strange situation of a supposedly left wing free market hating government seeing over and approving of a free market frenzy that even to the most uneducated observer suspected could not go on. Labour as in the left are to blame for sure by taking the money from this bent system and not questioning where it came from and the consequences of the inevitable train wreck. The Tories as in the right probably believed it could be christmas every day and thought it would go on forever, like they had at last been proved right. Most still seem to think this. If you take a thread from everyone then eventually you will have enough for a suit is how the bankers fit in. It was and is like a cult, which are really just money and sex scams. Will spaceships be state owned or private? Just wondering.
February 15, 2009
Didn’t Lloyds do that due diligence thing we’ve heard the government criticized for so much lately?
A 10 billion loss. But set against the profit, and the tax bill is reduced or eliminated. Perhaps not such a bad bit of business after all.
Its certainly a fast moving torrent, this river of bad news…
Roll on election day.
February 15, 2009
John, you make perfect sense as to WHAT has gone wrong. But just what does Joe Public, which includes me, DO to stop the rot. Everyone I know agrees that Gordon and Labour are doing the wrong things, including ineffectual control of bank policies. How can a change of government be forced (legally)? Tell me and I’ll do it. Tell most Britons and they will do it. The problem is that the Conservatives are not really helping us out on this one – an outstanding lead over Labour is almost great but a little positive leadership (from the Conservatives) would develop a great and enormous gulf between David and Gordon. The gulf would be unsustainable for Labour.
February 15, 2009
So why is the government acting so crassly?
1. I think that people like John Prescott secretly think that banks belong to the “toffs” and that they are money spinners there for the milking. Up to now, this has worked and money has been spread from London and the South, where the International banks live, to the North where they largely don’t.
2. Crisis? What Crisis? I honestly do not think, reading Labour List, that anyone in the Labour party realises how serious things are and how we really do face national bankruptcy (again).
3. Since nobody in the government seems to have any experience of banking or running a business and only a theoretical experience of economics gained second hand at university, they just don’t know what to do.
4. It is becoming very obvious that Parliament is being sidetracked and that the elected dictator has no clothes on.
I am afraid that the only real hope is to ride it out.
By the way, here in NSW, Australia, I do not see any banks being nationalised. I do not see house prices falling. I do not see high streets full of empty shops. Woolworths, even, is going strong and yes, they have invented out of town Malls.
So much for the “global crisis”.
February 15, 2009
We wonder if JR might summarise any over-arching themes coming from his bloggers as a picture of where the ‘thinking’ electorate stands in this particularly turbulent period.
We detect a theme of frustration at the lack of ‘common sense’ and ‘business experience’ amongst out elected politicians and a hatred of ‘waste’ and ‘greed’ and ‘procrastination/lack of urgency’.
Also what is the quality of our collective imput, what use is it to him and other MPs and what can we do to improve it please?
Despite the glowing words often directed at our host we’re not looking for recompense (!) but tips on how we can do better and more to help rid ourselves of this rotten government that is blighting our lives and causing us all to spend hours on end at our computers!
Reply: Keep up the pressure, keep the blog comments flowing – public opinion does matter, and this is a way of showing it. I need to be able to demonstrate I speak for many.
February 15, 2009
Surly John we are very well past the stage of CRIMINAL proceeding against the entire cabinet.
We are heading for outright, no going back, communism. Where money becomes simply a credits system which will be rationed to help stave of starvation. I calculate that in about 18 months the entire world financial system will completely and utterly collapse. What very small part there is left of the free market system, which is small independent companies, will be criminalized CUBA stile.
This country WILL go bankrupt without doubt. As now will the entire world. All the cards are in the hands of the IMF, which is a COMMUNIST world financial institution,(lots more anti IMFcomments blaming it for many of the worldd’s ills left out)
Do something serious and do it NOW, or forever hold your peace.
February 16, 2009
Just get Ruth Lea to put together the reforms needed to reduce the size of the public sector so that the budget deficit can be wiped out twice as quickly as how ever long Alistair Darling predicts in his April Budget. The Center For Policy Studies , Tax Payers Alliance and Adam Smith Institute could work together under her stewardship with the Institute For Fiscal Studies vetting every proposed saving to make the plans water-tight.
This would reassure confidence in The Square Mile and among the voters that the Tories had a plan to restore economic stability by getting the national finances under control. We need funded solutions to this mess and higher taxes are out of the question as we are driving jobs & prosperity abroad with burdensome taxation already. The Brown created Client State is a drag on growth and the soaring national debt a burden to future generations who will pay a high price for Labor incompetence. The evidence is clear that both need to be curtailed if only to boost economic confidence by avoiding the fear of high taxes that could hit retail sales & retard business investment.
We all know what needs doing on monetary policy and banking regulation as John has so sensibly said many times before – that must be complimented with a tough fiscal policy. My only caveat is that it should involve axing Labor’s potty 1970’s style tax hikes & ending the PSBR twice as quick as Labor plan to for the reasons that I have given.
Killing off the complex 10p tax compensation handout , ending the potty VAT reduction and not giving tax credits to the well off could fund an extra £1,700 rise in the basic personal tax allowance. That would move money from richer consumers who spend enough to gain from VAT & who do not need tax credits towards those who cannot afford higher taxes. Selling off bank shares should fund lower public borrowing. My tax plan would leave many basic rate payers about £196 p/a extra in their pay checks etc ( i.e. they lose £144 of 10p tax compensation but gain £340 from a bigger personal allowance). So we can help the majority of taxpayers now without fueling public borrowing.
Any further tax cuts might have to wait until the PSBR was at least 90% less as a share of GDP than when the Tories take office. That would be a good incentive for a Tory run Treasury to slash spending to fund paying off Browns national debt binge – no tax cuts until the nation is on-course to stop borrowing anymore money.
February 16, 2009
The Takeover Code was suspended to let the Government take 29.9% stake in banks. Lloyds Bank was rock solid and could have been the basis of a new healthy bank buying viable parts of HBOS or B&B or building its market share.
Instead it has been saddled with a corpse and the Government takes it over by stealth….so no bank is safe unless it seeks funds from sovereign wealth funds overseas. The Government forces mergers by telling Lloyds it will only get taxpayer capital for forced FSA recapitalisation if it takes over HBOS. This is a forced merger. If the FSA knew the state of HBOS it looks criminal that they cancelled Lloyds dividends which were holding up the share price and forced a 12% coupon on the bank.
This – unlike RBS or B&B – was a very healthy and profitable bank being destroyed for political expediency to save jobs in Scotland before the Glenrothes election….just as Northern Rock was nationalised before Brown’s aborted October election
February 16, 2009
Perhaps why Barclays refused Our Government support, but chose to go elsewhere ?
February 16, 2009
“Lloyds Bank was rock solid ” – no bank is ‘rock solid’. None of them. They’ve all got caught up in this cheap money lax capital controls masters of the universe nonsense. I grant you some overseas banks have done better – Canadian ones allegedly – but, owing to lax supervision on their capital and solvency no western world bank is what one would call ‘rock solid’.
February 16, 2009
…and forget the FSA, the are and always have been useless. I know I run a business ‘regulated’ by them.
February 16, 2009
I have worked, saved and invested my whole life and am in the very fortunate position to have accumulated around seven figures now. That will be the pot which provides my pension, as I have no other, assuming of course I can get a return on it and can avoid losing it .
The trouble is of course now having saved the money is how to protect it. We used to speak of “the risk free rate of return” being cash but that has gone now. Do I trust equities? Well maybe more than banks but with earnings crashing there is cold comfort to be found in them.
Commodities? errrr. Well that was a bubble too though I do have a little in gold. Trouble is that’s a hedge against inflation and its far from clear we have inflation and its very volatile.
Property? I own my house and I dont want another. Prices are falling anyway.
Alternatives? Well they havent stood up too well in the main either.
Govt bonds? They are probably the best and safest place just now but with government defaults being openly discussed even this now represents a worry and prices are already stretched. I got caught out with a bit stolen by Gordon Brown from my bank in the Isle of Man (used quite legally and nothing to do with dodging UK tax as I am proudly an Englishman but working abroad and not due to pay UK tax). Also can we even trust governments now not to just change the rules? Having experienced Brown using anti terrorism laws to seqester bank assets I think not.
I am also sick and silly of reading that the crisis is “all of our faults” because we lived too high on the hog and partied too hard. I didnt. I have no debt, worked and I saved my money. Now, nearing retirement I am six figures out from my cash and the present situation scares the hell out of me. It wasnt supposed to be like this, where the thrifty are penalised in order to make life easier for those who did borrow way beyond their means to repay it or those that lent it to them.
How the hell could Lloyds take over HBOS without knowing they had all these losses? As “Lola” says above, FSA? What a joke. Box ticking jobsworths the lot of them.
A few years ago job adverts said sales manager wanted £40k a year, Compliance officer wanted £25k a year. Now the compliance guys are all scared of their shadows and make normal commercial business a minefield, but they earn the big bucks not the sales guys who make the company profits. Its mad. Just mad as these people contribute nothing. Just tick those FSA boxes. Sure we need some redress but we all know what is right. Regulation should be run your business well and fairly or expect a very big stick. Then get rid of all the wastes of space, make them do something useful and productive.
I honestly think the best thing is to guarantee depositors savings, as this wasnt any of their faults, but then to just let the banks go bust and start over with new ones. sure that will wipe out the equity holders but buying shares was always a risk. You buy shares in the bank you take the rough with the smooth. You put your money in the bank you really shouldnt have to worry about losing it. It should be sacrosanct.
Mortgage/loan books to be carried over as a debt/asset to the new bank’s balance sheets. Stop banks lending more than they have in deposits too. Yes that will slow growth but we must never again pursue growth at any cost. We are now on the runaway train and who knows where the hell we are headed? Not the bloody government thats for sure. Start slashing the size of government and the civil service and save billions too. UK PLC needs to be making things we can sell or use ourselves. As Ronald Regan said “big government will not solve the problem, big government IS the problem”. Look at the EU and the endless stream of crap they spew out. And we thought we signed up to a common trade market. What a joke. Before this is over there will be blood in the streets, and bureaucrats and politicians hanging from lamposts at this rate.
It’s truly frightening to be in a high risk game when you didnt ever want to play it.
February 16, 2009
You will be replaced by a rich Russian, so don’t worry to much. The country will be safe.