Yesterday was not a good day for taxpayer bankers. Collectively we have now lost £40 billion on our holdings in RBS and Lloyds. The original investment cost £65.5 billion, so that means so far we have lost more than 60%.
Perhaps the last government who thought nationalisation was a better idea than controlled administration might like to explain these losses. UKFI who manage the holding for us needs to tell us how it plans to get us out at a profit, and why so far its plan as the controlling shareholder has performed so badly. They should have ordered a break up and sale of constituent businesses of RBS from the beginning, to limit taxpayer risk and get some of our cash back.
Mr Brown of course switched out of gold, going later into bank shares. To date we have lost more than £15 billion from gains forgone on the gold he sold. So the switch costs so far are north of £55 billion.
August 19, 2011
Indeed once the government owns something, such as shares, no one has much personal interest in increasing or maintaining its value are taking sensible disposal actions. So very rarely do such increases in value happen. The government should run and own as little as possible.
August 19, 2011
£55 Billion about £2,000 per household on top of all the other debt built up could we charge any of it back to him or his party or their state sector union funders perhaps?
August 19, 2011
Excellent article by James Dellingpole in the Spectator this week suggest Cameron should seek a new election mandate. Because he cannot operate with Clark, Huhne and Cable all clearly pulling the drowning man under and preventing him doing sensible things.
True it was his fault he lost the last, sitting duck, election due to four main mistakes: His failure to be radical and make the case for a smaller state, his silly green wash, letting the Libdems have equal billing in the tv debates and his breaking of the cast iron guarantee for no good reason.
There is time for him to change still, just, but does he actually want to?
August 19, 2011
Of course not.
zorro
August 20, 2011
lifelogic: “Because he cannot operate with Clark, Huhne and Cable all clearly pulling the drowning man under ..
Dellingpole mistakes a mortal struggle to avoid drowning for a synchronized swimming display.
August 21, 2011
Alas perhaps you are right.
August 19, 2011
Even if today the banks paid us back the full amount we “loaned” them, we still lose.Inflation has ensured that. THAT is what I call looting. Govt does not know what it’s doing.
Btw , how are those “for profit” Irish loans doing?
August 19, 2011
Another Brown success then.
Where are Balls and Millibands policies now.
Oh yes we need to invest (borrow and tax more) to sustain the recovery.
Oh, and we need to cut less.
What can you say other than in a dream world. !
Cut spending, and cut tax in a big way is the ony answer, yes it may be painful but thats what happens when you try to spend more than you earn. Reality strikes home eventually.
As for the Banks, its way above my pay scale, but JR your suggestion at the time of the bailouts seemed the most sensible route I have heard. It a question of damage limitation now, and, do not panic.
August 19, 2011
A little thought. If you have lived on the bread line all your life, then you – and I – know what cutting back and thrift mean. So did Mrs Thatcher.
If you have lived richly all your life, at the top end of the trough with all the perks and so on, then perhaps you are not really familiar with thrift, which means looking after the pennies every time. Every time.
The Civil Servants, the professional lobbyists and the people at the top of the banking tree join the Cabinet Members at the top end of the trough. They are not familiar and some never have been familiar with real thrift. Hence the leakage.
August 19, 2011
Since a second dip in to recession is now highly likely, I suppose the BoE and Government are printing money in readiness to bail the banks out again. I am quite sure they will not consider controlled administration.
I see Jacques Delors is predicting the EU degenerating into a “mere free trade zone” if the European leaders do not stop dithering about Euro bonds.
August 19, 2011
The EU degenerating into a “mere free trade zone” – that sounds fine to me far better for all the members in the long run.
August 19, 2011
Keep the European Leaders dithering!
August 19, 2011
I think the phrase ‘hoisted by their own petard’ is apt here…..
zorro
August 19, 2011
You need to add on top two other items.
1. Cost of borrowing the money for the bail out
2. Expected losses on the guarantees. That’s hidden on page 100-103 of the BoE accounts
Mind you in the scheme of things, its less than a months spending by the government. Peanuts in the scheme of things.
For example, politicians have taken everyone’s investment in their state pension and spent it. That is 2,400 billion so people can make a comparison as to which is worse.
August 19, 2011
Nick: ” .. everyone’s investment in their state pension and spent it. That is 2,400 billion ..”
Why do we let these [thinking of a suitable expletive] anywhere near tax money?
August 19, 2011
Because they use force and the threat of force, just like the rioters, to get their money.
The 2,400 bn is the present value of accrued state pension rights.
However, even this underestimates the level of the government fraud.
For a median wage earner (25K, 2 years ago), what would they have received if their NI had been invested in the FTSE?
Well, you would out backwards, using the index of average earnings what they would have earned over the last 40 years. You take the current proportion of their earnings that goes in NI (all of it), and invest it in the FTSE. At the end you take that fund and buy the most expensive annuity. Joint life, RPI linked, at 65. End result is an income of over 20K a year. The state just gives you 5K.
3/4 of people’s retirement income is being ripped off by politicians.
The other interesting bit, is at what income do people become better off under the state system. ie. At what salary can’t the NI contributions generate more than 5K in income in retirement, RPI, joint life. The answer is around 10K, which is less than minimum wage.
Almost everyone in the UK is a victim of this crime committed by all politicians.
No wonder they want to hide all this mess off the books. That shows mens rea. It’s deliberate and they know it.
August 19, 2011
The particular people who vote Labour tend to be net recipients of taxes.
That’s why ultimately Labour administrations can only implode financially.
There are alternatives – many of them bad.
August 19, 2011
It’s all a rubbish Ponzi scheme of course, but as far as I recall, our “National Insurance” has to cover NHS expenditure as well, or doesn’t it? So I think it’s logical that it turns out to be a bit over funded for just pensions.
Reply NO it does not cover the NHS
August 19, 2011
The NHS is funded from general taxation….http://www.nhs.uk/NHSEngland/thenhs/about/Pages/overview.aspx
It makes you wonder why we pay so much National Insurance!
Bear in mind that in 1911 when National Insurance was introduced, it was supposed to be contributory system of insurance against illness and unemployment…the best laid plans of mice and men….
zorro
August 19, 2011
Au contraire – the Government will only have lost £37 billion if they sell the shares at the price quoted.
As they have no intention of doing so there is no actual loss.
August 19, 2011
Au contraire.
They are paying interest on 37 billion. That is a real loss just there.
Using the logic that its not a loss until you sell it, consider a car. You buy a new car for 20K, on HPI.
After 10 years, will you or will you not have made a loss?
You can’t apply quantum physics to economics in this way. Schrodinger’s cat doesn’t apply to finance. Realised or unrealised, its a loss.
The same logic is invariably used by banks up the proverbial creek. It’s called mark to make believe. Pick a figure you want and deem that your assets are worth that in order to hide the losses.
http://en.wikipedia.org/wiki/Schr%C3%B6dinger's_cat
August 19, 2011
JR: “UKFI who manage the holding for us needs to tell us how it plans to get us out at a profit, ”
Why would UKFI management care what the share price is, or if they make a profit or loss. If they make a loss they have got a job for life. If they make a profit they have a bonus payment which will be just like a job for life but with very long holidays.
August 19, 2011
Here are my predictions.
If share prices rise, they will try and get out. Its a cap on the price. It won’t rise above the price that gives the government some face saving, until the government divests itself of the shares.
They will say its made a profit in that case, but that will be because they ignore the funding, and the bad bank part.
In this case I agree with John Redwood. We should have let them go to the wall. There is a case to be made for letting them go to the wall now. Sell off all the bits, and then wind the rest up as bankrupt.
August 19, 2011
So all the pension fund managers and fund managers need to be sacked as well.
We didn’t hear these comments while the shares price was creeping up!
Whether bailing the banks and keeping the shares were appropriate for a government, taking a long term view is NOW essential. A dramatic drop in shares is not a loss of money in the long run … Unless you know something we don’t and won’t be investing in shares!
… And we didn’t hear any alternatives being voiced in 2008.
Reply – try reading this blog where there was an alternative
August 19, 2011
In the long term, there is always profit , say the Pollyannas.
What they fail to mention that if you bought shares in 1929, you only broke even again in 1953. If you retired in 1929, you probably lost most of your pension for the rest of your life.
This boom/bust cycle is, by all measures, going to be larger.
August 19, 2011
Not sm
In 2008 Mr Brown was in charge and probably had a lot more insight and information than JR who did suggest an alternative.
August 19, 2011
ahem…One would like to think so but I doubt that you have worked in either the Civil Service or government recently. A lot of people espoused similar arguments to what John raised in his blog but the media does not always report them….The internet does though.
zorro
August 19, 2011
As predicted many times on this site the global economy is not doing very well. I’m on holiday watching the FTSE tank again. Down from 6200 to 4900 this month and Europe and the US still look like they haven’t got to grips with their underlying issues. Oh dear.
George Osborne needs to tear up his predictions because he is being fed on optimistic stardust by “yes” men.
August 19, 2011
Is it really lost? I still can’t get a clear answer to questions like this.
The share price is low, but if I am correct, the money is only lost if we sell the shares now. The day to day profitability of ‘our’ banks will likely return soon enough and it seems likely they will return to healthy profits soon, at which time the shares will rise again and our paper losses will be less and perhaps will even return a profit.
Are ‘our’ banks writing off debts left right and centre (such as mortgage PPI claims) whilst they can write it against tax and the taxpayer, giving the illusion of massive losses, but which are effectively tax dodges?
On a similar note, I still cannot get an answer to how much money the ‘credit crunch’ has cost the UK. I understand that we have lost 5% GDP, but this is because prior rises in GDP were funded by borrowing, which is clearly not real national capacity, just borrowed capacity from the future which we are now paying back as we pay down our debt.
John, you have a unique insight into this area. Would you consider doing a detailed blog on just what the country has lost, forever, in terms of money and capacity as a result of the Blair/Brown years and the collapse of the banking industry?
Reply I will aim to do one in the next few days
August 19, 2011
Thanks. I am particularly interested in the question of how much money we have put into the banks and the economy since the crash, as a government, that is irreversibly lost. Could we possibly – however unlikely – make a profit on the bank crisis 10 or even 20 years from now??
August 19, 2011
Maybe somewhere in that morass is a decent business, but I have yet to see any sign of it.
The service to business, association and personal customers is shockingly bad; so bad it is affecting the profitable pursuit of activities.
The staff are under qualified, under trained and over zealous to enforce the FSA’s interpretation of money laundering and data protection regulations. P l e a s e will someone start a bank that can provide banking services?
August 19, 2011
“UKFI who manage the holding for us needs to tell us how it plans to get us out at a profit”
The money to recapitalise the banks is not coming from profits from legitimate business activities . It’s coming from stiffing British Citizens , whether customers of banks or not .
The public is lending banks money at 5% less than inflation isn’t it (ZIRP) yet the banks will still not lend it out on reasonable terms .
How about we just sell our holdings at a loss ?
Surely this would be less damaging than fudging the figures and raping the real economy for longer than neccessary just so the politicians can falsely claim the taxpayer made a profit on the whole exercise ?
August 19, 2011
ADS: “Surely this would be less damaging than fudging the figures and raping the real economy for longer than neccessary just so the politicians can falsely claim the taxpayer made a profit on the whole exercise ?”
Yes, the whole affair is back to front. Banks are supposed to be a benefit to industry and commerce, it is wrong to run industry and commerce for the banks.
Let the old banks go bust, liquidate the wreckage, then set up two or three new banks with the infrastructure of the old ones, but with no debt (and new management). Without debt they would get lending PDQ.
August 19, 2011
Yes time to cut our losses as shareholders – if only.
August 20, 2011
Timing is unfortunate but better to sell now after their recent drop than wait till they are totally valueless .
Obviously a gradual trickle and not a Gordon Brown style sell off .
It has come down to a choice of saving the banks or saving the economy . Time to stop perpetuating the original mistake .
Giving the banks money through ZIRP is like giving foreign aid to Zimbabwe ; very little ends up where it’s supposed to .
August 19, 2011
Mr Redwood, I wonder why was there no Monopolies and Mergers inquiry into the takeover of HBOS by LloydsTSB? I have read that this deal was agreed between Gordon Brown and Victor Blank, Chairman of Lloyds at that time. Lloyd Board members agreed to pay 232p per share for a (financially challenged-ed) company.
Were proper procedures followed with this ‘merger’? Apparently it was approved by an Edinburgh court. It made Lloyds (a partially state owned bank with no dividend payments-ed).
Surely tax payers, who are paying for this catastrophe, are entitled to an independent enquiry into this matter.
Reply: As an opponent of the deal at the time I was not surprised at how expensive it turned out to be. I guess there will be no enquiry as many in the establishment at the timne were keen that Lloyds should take on HBOS.
August 19, 2011
Mr Redwood, thank you for your reply.
The last Labour government is responsible for a reprehensible attitude as to how tax payers are treated, in my opinion.
August 19, 2011
Are proper procedures followed in a shotgun marriage? The bridegroom in this case was innocent though, but the father was guilty of negligence.
August 20, 2011
rose: “but the father was guilty of negligence.”
In such circumstances it isn’t usually the fathers negligence that is being covered up.
But yes, Brown is an incompetent fool.
Currently being paid to represent his constituents in Westminster but patently not doing the job.
Room for Cuts there?
August 19, 2011
This decision had disaster written over it from day one. I still wonder why there has been so little fuss kicked up over it by Lloyds shareholders.
zorro
August 19, 2011
I think the last govt’s only thought on RBS was the same as with Northern Rock: ‘OMG! Look how many votes we stand to lose if this goes belly up!’
If there was any thinking at all beyond that point, I have yet to see evidence of it.
August 19, 2011
John
He made the switch from Gold to Euros, if I remember rightly. That was probably some crackpot appeasement to Labour people like Blair who wanted us in the Euro.
Ok so they probably sold the Euros to support the Pound when the Euro was 1.05, and now they’re loaning those Pounds to Greece or some other basket case.
You can basically make a case for most taxation going the eventual way of a pint of well drawn Brakspear’s.
August 19, 2011
I remember watching an interview with Mr Brown when he said that he had ‘invested’ the gold proceeds into Euros and that they had gone up since that time…..That statement solidified in my eyes Gordon Brown’s understanding of financial affairs.
zorro
August 19, 2011
At least the BoE is making a profit on its QE gilts. I think it should sell them to lock that in – especially while there is a flood of foreign hot money foolish enough to regard them as a safe haven.
August 19, 2011
Some sympathy should be exhibited for the Lloyds shareholders who have lost nearly all the value of their shares as a result of the government forcing Lloyds to take on the Halifax. Shareholders accept that there are risks in buying shares but when their losses are due entirely to direct government action they should be entitled to some compensation.
Reply: Unfortunately the LLoyds management were keen to go along with this ill judged take-over, and the Lloyds shareholders voted in favour. They ignored the advice and warning so people like me who suggested they voted No. I do not see how that justifies compensation from the rest of us taxpayers who did not own Lloyds shares and who did disagree with the move.
August 19, 2011
By all means let us remember the sins of the last government, but there is a business secretary in the present one who has some humble answers to give on this subject.
August 19, 2011
The Spectator today is pretty firm about the way this government is going. Like Tony Blair, it made all the right noises before election. It is also true that they genuinely meant what they said. I personally met Mr Gove and he was, I am sure, genuine. A friend of mine was asked into No 10 to meet the Camerons and he was very impressed indeed with their fresh vitality and determination. It is all there underneath.
So why is it all ging wrong and why are things like this happening?
The Speccie is quite definite: it is the Civil Service and Professional Lobbyists who are getting their own way. Mr Cameron must act fast and act now before the end of the holiday if he is not to waste the backlash from the riots and the shockwaves from the EU.
If not, then he will just go down as a very weak and, yes, useless PM We then have to wait for the new Mrs Thatcher. Remember last time, though, the Labour got in first……..
August 19, 2011
It is much graver this time. If he fails, we could get a communist or national socialist government next, and God only knows what else.
August 19, 2011
I agree with your sentiments fully, John, but would Cameron have done any differently? Surely not. To have allowed the banks to fail, i.e. to have done the right thing, would have taken a statesman prepared to stand up to the IMF, to the ECB, to Obama, and to the international bankers in the interests of the British.
Somehow, I don’t think that Cameron is our man.
While we are on the subject of international finance, Sarkosi and Merkel decided unilaterally the day before yesterday to destroy our international banking centre with a tobin tax. I haven’t heard Cameron or Osborn condemn this yet. Why?
August 19, 2011
Brown kept us out of the Euro.
I wonder if his abysmal tenure was mitigated on balance.
August 19, 2011
As I’ve said before – if the right economic decisions had been made and our nest was well feathered it would only get blown on more welfarism and quangocrats.
The sooner it collapses the better for all of us. We need to face down the barbarianism in our midst at some point and the country being potless will force it to happen before we have to deal with yet another (bigger) generation of them.
A comment to Uaneme5 If I may:
A propos my suggestion – on a previous post – that those with tattoos above collar level should be excluded from benefits,
Uaneme5 said “But this will not cure unemployment and they will resort to crime”
Aside the fact that they already seem to be resorting to crime and accepting that they may resort to more crime … AT SOME POINT WE HAVE GOT TO MAKE A STAND
Sitting back and letting it happen is what has got us in this sorry state. Uanime5 suggests that we just carry on regardless so that Mr Tattoo-face passes the advice on to his illegitimate sons that it’s a good idea to make themselves unemployable and fearsome to boot.
Perhaps it’s a good thing that a government which sponsors such lifestyle choices (against the will of the taxpayer) is running out of money.
August 19, 2011
JR: “Taxpayers have now lost £40 billion on RBS/Lloyds shares”
Not only are we loosing hand over fist on the banking fiascio, it looks like relatives of the Prime minister are milking the Eco subsidies scam too.
The Mail has the story:
http://www.dailymail.co.uk/news/article-2027708/Samantha-Camerons-father-nets-350-000-year-subsidised-wind-farm.html
Now we know why Cameron is so enthusiastic about the Green mania!
August 19, 2011
Mr Gladstone benfited personally from Gladstonian Liberalism. But that was because he believed in it, wholeheartedly, and practised it vigorously. No-one thought it a crime then to put your money where your mouth was. He even sent in the navy to blockade Alexandria, not just to boost some shares he had himself bought on the cheap, but because he thought it the right thing to do for all the shareholders.
August 19, 2011
PS And the shares did indeed rocket. The Gladstones are benefiting to this day.
August 20, 2011
rose: “Mr Gladstone benfited personally from Gladstonian Liberalism.”
Gladstone is dead.
Allegedly in this case someone is helping himself to your hard earned cash twice, once through the subsidy it took to build the damn windmills, then through the ‘Green precept’ you pay whenever you buy electricity.
Glad to see you are so sanguine about it.
This is not business, it is subsidy farming. The distortion of the economy by influential rent seekers.
August 19, 2011
Don’t lets get too bogged down in the single issue of bank shares. It is the big picture that counts, and I cannot recall any time since 1932, the very worst moment of the Great Depression, when things everywhere have looked so uniformly grim. I mention 1932 in order to make the point that that nadir was then followed by an almost uninterrupted bull market from 1932-1938. Happy days!
We might also remember that throughout the slump, ICI went on steadily paying good dividends. The moral is, that we should be looking for the ICIs of today and tomorrow.
August 19, 2011
Do we get dividends from the shares?
Reply: No, the companies are loss making
August 19, 2011
unanime5, I hope that you are being ironic when asking that question….
zorro
August 19, 2011
There was a programme on BBC 2 tonight regarding cars in India. They are building six lane motorways at a cost of £10 billion whilst the Coalition pays for their childrens education so that they can compte all the more with our children when they grow up.
How do these people get into these positions? Do they never think about our people and how they are impovrishing them?
August 20, 2011
In my view the general point is that governments should not be involved in making speculative investments with the taxpayers’ money.
Gold is very speculative. It has a low intrinsic value (by which I mean the value it derives from its uses in industry, jewellery, etc) and the main reason for buying it is the hope that someone else will be willing to pay more for it in the future. In that sense I think the then government was right to sell it. It would have been better of course to get a higher price, but at that time that was the market’s assessment of its value.
Lloyds and RBS were, I think, bought because there was a danger that the ATMs would have to be closed. I imagine the then government thought that the voters would never forgive a government that allowed that to happen. In the sense that Labour only lost the following election by a ‘small’ margin that may well have been the correct political judgement. And you can argue that it is indeed part of the government’s duty to see that the ATMs are not closed.
I don’t think the current government should go on speculating on the banks that it now owns unless it considers there is some national interest involved in continuing to run them. It should just take the market’s current evaluation of their value and get out. Or perhaps give the shares away to the taxpayers so that we can each make our own judgement on whether to go on holding them.
And the government should not buy gold.
August 21, 2011
Mr Redwood,
Super article as usual.
To some of you who don’t quite understand Gold.
Gold is not speculative and it is not really an Investment – Gold is Money. It is not a get rich quick investment. It has been regarded as Money for over 5000 years. That hasn’t and isn’t about to change.
Gold is not usually bought to make huge profits quickly, it is bought because Banks cannot digitally create it and therefore; debase it’s value. Gold is a medium of exchange – well until 1971 at least. Central Banks are still Buying Gold. If Gold is such a useless metal – why are Central Banks – Especially Russia, China, India, Mexico and others – buying Gold. The Bank of England Holds Gold, The Federal Reserve actually holds Gold for Germany as well as other Countries.
The so called “Gold Reaches an All time HIGH” headlines we are seeing at the moment – are for the last ten years, really translates to “FIAT Currencies reach an all time LOW”. Divide Gold into Oil, or the FTSE 100, or the Dow Jones, or Average House Price and you will discover that Gold is in the upward part of it’s Cycle. Just before it Peaks, everyone will want Gold – just like the NASDAQ Shares in 2000, and then Gold will drop – but only as far as its equilibrium value with Fiat Currencies. If we still have Fiat Currencies in 5 years or so.
Gordon Brown selling Gold and a Rock Bottom Price is something that a Village Idiot probably would haved to be coaxed into doing. If the Government did buy Gold now they would have to sell it prior to the Peak Gold Pricce in the Cycle – measured against other commodities. I don’t Believe the UK Government has shown the skills or desire to make the right decisions based on the idiotic and arogant decisions of Gordon Brown. There is no evidence to suggest that George Osborne would be any different. Afterall – it’s not his money. It’s tax payers money – and who cares about that? Not even the electorate. The electorate see Government Money as other peoples money.
August 21, 2011
For contrast, I’d rather like to see concrete figures for how much the alternatives would have cost. For example, would RBS assets have been sufficient to cover the guaranteed portion of each depositor’s balance, or would the government have been on the hook for some of that? What about the 100% guarantee made for a while?
An orderly disposal of the company seemed the best exit strategy for me at the time, as proposed on this site. Yes, it would have meant job losses – but the zombie banks are laying people off by the thousand anyway as they try to balance the books! I’m wondering if even the staff themselves would actually have been better off in the end with a wind-up: with all the mortgages, deposit accounts, cash machines and probably many of the branches going to other banks, a fair number of the staff would still have had jobs in this scenario – but secure jobs with viable companies, instead of going to work every day wondering if they will be in the next thousand layoffs from a broken bank.