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If you, like I, amd completely disgusted with the BoE's 'recue plan', and how our hard earned taxes are being used to 'bail out' the banking sector, despite their billions of pounds of profits over the last 5 years, please visit the below to show your voice:-

It seems that nobody in power is willing to do anything about the obscene remuneration schemes in the financial institutions.

Even Mervyn King only gave a mild reprimand, and it's not as though there was any obligation to actually do anything.

No doubt there is a bit of huffing and puffing from individual shareholders at AGMs, but after their moment of embarassment the directors just carry on as before.

You would have thought that the pension funds would kick up more of a stink too.

However, the fact of the matter is that all of those who should be stopping these abuses of position are, one way or another, on the same gravy train themselves.

There is basically a huge collusion going on between those who have their snouts in that trough, and the rest of us.

Gordon Brown doesnt want you to have any money - he wants the government to have it and to spend it for you.

How long before the grapes of wrath are finally harvested?

Broon is getting 40% of their huges bonuses through his tax system - that is why.

The pay some people receive is way out of control however, surely £1 m a year is enough for anyone?

Dear Robert,
Some people are puzzled by Browns comments about off the sheet transactions,
This has been going on for eons, and Mervyn King is right to disassociate the BoE from such transactions. Economic Warfare is alive and kicking, as money men manipulate the money markets forcing drastic changes in monetary control, so as to make profit from misery, hence, hedge funds, and sub prime issues, these were Planned, plotted, and instigated by banks, to play the markets, not only have people lost money, but people have made fortunes, and at the end of the finacial year, the profits of the Big Players will not have changed at all.

To answer the question... it's bad form to bite the hand that feeds you ...n'est pas?

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

Am I missing something here!!!
- What the heck has Accountancy trickery or huge city bonuses got to do with the credit crunch??? (and before you ask, no I don't earn a city bonus and I'm not an accountant).

I was under the impression that this all came from the US ... where some idiots came up with the not-so-bright idea of lending to folks who had no hope of every being able to repay (sucker them in with low rates and not tell them that it was only a teaser rate ... then big shock ... when the real rate kicks in ... they can't re-pay ... )

But who cares ...
- Sales guy gets his bonus for a sale and walks away ...
- US bank packages up this toxic waste as AAA rated debt ... then flogs it on to others such as our UK banks ...

I would argue that our UK banks are not to blaim, they were deceived by a AAA rating that proved to be worthless ...

The result ... all trust is gone, the banks refuse to (quite rightly) lend to each other because a AAA rating no longer means anything ...

This is not bad luck ... nor is this due to city bonuses and tricky accounting ... lets call a spade a spade ... this is fraud and deceit ... our UK banks have been ripped off due to this fraud ...

Have I got this right, or am I missing something here?

It's a great pity to note that our Pension Funds own most of the Shares in UK Banks.

These Shares Values determine the value of any Lump sum paid out to Pensioners to invest in an Annuity.

If they are in an annuity scheme.

So this constant attack on the Banks, is an attack on us Pensioners.

The Fat Cats don't invest in Banks.

Hedge Funds make their money selling dodgy bonds to our Pension Funds via Our Banks. (Our Pension Funds own the Banks at the moment).

The Hedge Funds and Private Equity Merchants are the People to critiscise.

And the Spreadbetting cartels who have been Profiteering on the huge swings in our companies Share Prices.

Will Mr Peston look into these or not?

Mr Brown is hardly in a postion to point the finger! He has presided over the most creative accounting system ever! Also under this New Labour all MPs have done very nicely, with their own off-line earnings, two people living together claiming an allowance for the same thing! and untaxed.
The reason Mr Brown is not in a position to point the finger is that he has not been able to account for very much of our money that he has handed out over his time in office. At least when you go into a bank you know that it is going to cost you something for the service that you seek, and you can say no, that is until right now, when they are borrowing money form us and we are accepting the loans that they can't get rid of amongst themselves. MR Brown has spent years borrowing so is hardly in a position to cast any stones!

Mr Brown is hardly in a position to criticise the banks. He has spent his time being the most creative person around when it comes offline loans! Also MPs of all parties have done well duing his time. They can claim twice for an allowance that is tax free and it's legal! We are in the clutches of a government that have no connection with reality and MPs of all parties are doing very nicely with their tax free expenses. So who can cast the first stone?

in answer to your question about the PM's reticence, how about this:

1) City institutions are regulated by the FSA;

2) The FSA's rules state that firms should "control [their] affairs responsibly and effectively, with adequate risk management systems" (PRIN 3: Management and Control) of which appropriate remuneration is a part;

3) if remuneration is not appropriate, in addition to being a failure by the senior management of a firm, arguably it's another regulatory failure by the FSA

4) the FSA was set up by the Treasury, which at that time was headed by a certain Gordon Brown.

This episode has by no means run its course.

I was delighted by the Governor's comments yesterday as I have been articulating much the same for over a decade. The bonus culture lies at the bottom of the entire mess. Any experienced industrial manager knows `what gets measured gets done'. This can easily mean that standards and professionalism go out the window.

This is what has happened across the entire financial sector and now the downside of risk-taking has become very apparent.

Banking and insurance is about risk management and not risk taking. You would have thought the directors of the financial institutions would have known that.

One would have thought The Treasury would have known that as well.

I think it is time some people either volunteered to change the nature of their employment or were presented with the opportunity to look for greener pastures. This includes our political leaders.

As I said we are only at the start of the process.

Forgot to say, please pass the link onto any that you feel may wish you demonstrate their disgust at the manner in which this government persists in believing that it can tax and spend our money better than we can... And a banking sector that has leached off us all during the good times, and now expects a handout during the bad...

If the petition reaches over 200 names, it will be submitted to Downing Street for review. The higher the number, the higher it will go...

The remuneration issue is in my opinion largely nonsense. The problem has not been that traders have been rewarded for secretly taking excessive risks, it has been that these risks were not understood by anyone, that includes the managers, CFOs, auditors, credit ratings agencies, and also Robert. You cannot on the one side value a CDO on your balance sheet at a certain level, take the profit and pay out the dividends, but then give it a downward risk adjustment for the purposes of remunerating employees. It was valued wrongly, but not by the traders.

Did anybody else laugh at Brown's comments on R4 that this just an American problem that we have inherited.

Just where does he think the difference in the American approach to lending differed from that of the UK when it is clear to all that British banks have for years lent against unsustainable property prices.

The tragedy is that economic growth by definition is not sustainable. At some point the resources of the planet introduce a limit to the consumption of an economy - it is inevitable and simply a question of when.

Taking a step back to what caused the credit crunch, it can be easy to pass to the blame to the US Banks who have been responsible for irrational lending, but more fundamentally it is the inability for consumers to repay or service debt that has led to the crunch.

This is because the economy has not been able to grow at the appropriate rate to maintain the balance to repay the interest on debt.

These retrictions on growth have been introduced by the constraint in the supply of raw materials and energy. A greater proportion of wealth is required to service the basic costs of living such as heat, utilities, and transport. Given the ever increasing price in oil, the reluctance (=inability) of OPEC to increase supply, and the criticality of reserves to cover blips in production, it appears we are now at, or approaching, the 'peak-oil' scenario. The future from now is for global economies that rely on cheap energy to face a forced contraction that will shape the way we lead our lives for geneartions to come.

Money is supplied on the basis of economic growth. With economic contraction the fundamentals that drive the capitalist structure are inherently flawed.

Life style changes will be forced on us all, and the days of easy consumption are over. If we survive the first instabilities, I predict that the global economy is entering a stage of recession that will exist for at least a generation.

I am constantly astonished at the number of Posters who seem to embrace a far left agenda.

Bearing in mind the historical record of Communist regimes around the world.

Generally, their economies fail.

But I am not an expert on communism ! There are clearly many far more knowledgeable posters on that subject on the ³ÉÈËÂÛ̳ bloggs !

Fortunately they will be in the minority.
Unless of course Mr Peston believes that Communism can teach us something ?

Does he have expert knowledge on that subject too ?

It's not just the remuneration and incentives, it's also the recruitment policies and the company cultures that promulgate them.

The banks tend to go hire people lacking in morals and without well-rounded experience, prefering instead to take on young, reckless, greedy people who would have no place in true value-generating businesses.

They don't just need to change the number of zeros on bankers' bonuses, they need to hire different - more responsible - people full-stop.

I agree with #5.

Ex prime-ministers and senior civil servants who when in office make the rules get jobs with the banks when they 'retire'.

Banking regulation, controlled by the Treasury allowed the off-balance accounting - one wonders why?

Regulation was reinforced to prevent undesirable people and organizations from running banks, but it also raised the barrier to entry into banking and considerably contributed to the concentration of ownership af all sectors in the whole financial world. It protected the existing banks and also allowed them to indulge in off-balance sheet accounting.

(One also has to ask why the accounting and auditing profession and the pension funds let this happen - again the contribution no 5 is important.)

Who better to give an explanation for the current financial mess we’re in than Van the Man. About how we got into this situation, the following words seem to apply:

My own people did it to me just cos they could
They sold me out
So beware brother it could happen to you
They sold me out
It’s the oldest story that’s ever been known
They sold me out.

And about the future, I like the following line:

It’s a hard road daddy-o.

Robert,

I can tell you exactly the reason why Gordon Clown hasn't criticised their obscene 'rewards'.......it's because when he gets turfed out of No. 10 in 2009/10 there will be a nice little job waiting for him at........you've guessed it!.......one of the big banks (as some wag on a previous blog mused.....'nudge, nudge, wink, wink.....!')

i.e. he'll do exactly what his old boss did. It's funny; it wasn't that widely reported earlier this year when Tony Bliar took up a part time position at J P Morgan, as a 'special advisor', for a speculated £5M per annum.

Money talks, and those with the ability to create money out of thin air, have absolute power.....and if anyone else on this blog thinks this is not the reason, then they are totally deluded.

Unfortunately, there are only two motivators in this world....fear and greed.....and GB and the rest of the political 'elite' (sic), of all persuasions, don't look very fearful to me. They've all got their noses in the trough. In fact they always appear to be in total contempt of the peasants in this green and pleasant land i.e. the indiginous British (and especially the English) Taxpayer.

TTFN

Surely time to place blame on Government, Banks etc for current mortgage crisis must end.
This country is now a major home ownership country, and people are currently very concerned as to being able to not only borrow for their homes but to afford to live in them.
Banks are changing their products almost twice weekly and this matter seems to be ignored by Bank of England as they are not commenting on the position, and more importantly the FSA, as this must be actions well outside regulation proceedures. How can a prospective borrower be told one day they have a rate then 24 hours later be advised "sorry you were too slow in accepting deal"
We need stability to return as soon as possible or the UK mortgage and property market will freefall into a situaton that will affect all periphiral matters, and some banks and building societies will suffer badly.
The matter seems to be LIBOR and unless this reduces we are doomed.
Why has the situation regarding the LIBOR rate remained as it is anyone?

@ 16

It's a very complicated assertion. You have to include the US-funded Marshall Plan which the eastern bloc was never given. Coupled with that was the sheer scale of destruction in eastern europe.

Can you imagine what western europe would have been like economically without the Marshall Plan and at the same time devasted to the same extent?

The difference between the economies of the east and west post-1945 is very much related to the Plan and also the total lack of damage to American industry - German bombers just couldn't get that far.

Remember also that America was heavily industrialised by war's end, with a massive military machine that required equipping. Work was plentiful, wages were high, standard of living had increased rapidly.

Gordon Brown is in denial. Yes the banks have been foolish in the extreme. They have also made billions in profits over the last decade which has gone into pension funds and direct dividends. They have also paid billions in corporation taxes.

Brown over this period has taxed heavily and wasted billions on various ill thought out schemes.

Had Brown saved some money during the good times Darling would be in a position to lower taxation both direct and indirect (including petrol duty) to give the economy a boost and keep everyone spending.

The next general election can't come too soon.

blue-eyedDaveyboy

In answer to Robert's question at the end of his piece.

The short answer is that Brown doesn't want to upset the financial sector. Any criticism risks worsening the sector's relations with the Government.

The long answer is there has always been a conflict at the heart of Brown's philosophy. Wealth creation provides the where- withal to bring about the social improvements he hankers after. He has to sup with the devil even if the morsals stick in his gullet.

Brown really has no guts, he gave in to Blair and evn though the crown is now his it really doesn't fit properly. It is his style to always blame someone else for his mistakes and he can't get out of the habit even though all arrows point to him and him alone.
So we are left with a lame duck grovelling to prospective future employers as distinct from giving them a good slapping down. The handicap is he can't even do that with authority because he has lumbered the British Public for decades to come with so many PPP obligations "off balance sheet" his words as Robert Peston indicated would reek of the board callig the kettle black and he woudl be a bigger laughing stock than he presently is.
So watch his revret to taking a back seat and use Mr Balls as his mouth piece. It won't and cant't work thsi time because all his moves have become so predictable. As #20 mentioned another year and he will be out merrily ensconced in a bank on a huge totally unearned salary paid as a thankyou for letting grossly overpaid bankers have an easy break.
Brown has managed to make the much maligned Geoge Bush look the smartest player on the block, with no effort.
We are now in the state where desperate men like Brown will do and say desperate things to stay alive.
It was Brown that chose the laissez faire approach to supoerimposed on the FSA with its resultant impotent and incompetant governance; It was Brown who took away from the Bank of England its ability to maintain control and it is Brown who now can not see the wood from the trees as to the real causes of greed he openly invited.
He and this government are a national disgrace and will seek to cling on to power because the number is so cushy.
They have lost the faith of the population and shoudl go now.
There is no need to pity him ( he is beyond that now )just pity the bank or banks he seconds his services to in a year and take your money out from them asap.

Brown is all too ready to use 'Other People's Money' to fund cheaply a socialist spending spree for political reward and may well see the City Banker as a success story when they do exactly the same for financial gain. They have much in common.

Depositors have been 'imprudently' funding the property bubble far too cheaply relative to the risk of losing their money, thanks to Brown and Greenspan money management, and Brown probably regards them as disposable - apart from the fact they vote (hrmm!!) and needs their money.

Perhaps his relationship with Ronald Cohen and cheap funding for PE firms as well as his uncharacteristically non-socialist stance over 'Non-Doms' also shows Brown as a backer of 'lite-regulation' for the City because it has produced the 'Holy Grail' GDP growth.

So he's not going to criticise as he probably aspires to some global banking sinecure in the IMF's successor or similar much as Blair supposedly hankers after the President of Europe role.

The UK's so called 'prudent' economy is built on debt and greed. In fact, any taxpayer that has exhibited a degree of prudence over the last 5 years, by refusing to fuel the housing market has until now been a loser, I know I'm one of them.

The question is, will we continue to be losers or will prudence prevail?

We are up against a banking system that supports the Government’s economy model; as such, the Government cannot afford to let the banks fail or the economy fails, and the Government with it.

Ergo, the Government cannot let the price of houses slide.

So we (the prudent taxpayer) find ourselves paying to keep house prices at these ridiculously inflated prices, we do this by bailing the banks out, and NR come to that.

How can it be right that an organisation (the Government), that relies upon the inflated cost of an artefact (houses), have the power to control the price of that artefact (via Government Bonds), at the expense of the customer (prudent taxpayer)?

It’s time to demand that natural economic forces are allowed to restore equilibrium to this manipulated marketplace.

Yes it's all down to greed!

GB raised taxes and raided pension funds during his time as chancellor so he has a lot to answer for and the greed culture has been in evidence for years.

Having worked in the pension review in the 90's I saw the results of the financial services"industry" sale of "products" at first hand. If you make something complicated enough then lots of people are "blinded by science" and succumb to the pressures to put their money into things they don't understand and where the true risks are not pointed out.

We are now seeing the results of a similar process having occured in the housing market and the sale of mortgages to people who couldn't afford them and/or people deciding or being persuaded that they want more than one property. The clever people employed by the banks managed to pull the wool over the eyes of virtually everyone by their clever packaging of the debt. This all works jolly well when the going is good and directors, staff and management are all benefitting but in the long run it's unsustainable; the board have to start looking a little closer when things aren't going so well. I bet they often don't know any better than the rest of us what's really going on.

The financial services "industry" works by overcomplicating everything thereby persuading people to part with their money earned by real work. They pocket the proceeds and a lot of people have done very nicely out of it.

Why do we keep falling for it?

It's interesting to note that nearly all posters ignore the fact that the Banks are owned in majority by our Pension Funds.

The Profits the Banks make contribute directly to the welfare of millions of British pensioners.

Lump sums paid to buy annuities are based on stock market growth.

ie low growth low lump sum low annuity.

Wake up people !

The majority of British Companies are still indirectly owned by British Pensioners.

Not some mysterious Fat Cats.

For Fat Cats you need to look at off shore Hedge Funds and Private Equity dealers.

Of course, we could all be living in poverty in a Communist state.

Perhaps thats what some of these posters would like ?

I suspect they only have a Middle Class philosophical view of Communism and thusly no experience of Death Camps (Gulags), pogroms, shortages, secret police, etc.

The Real world doesn't come out of textbooks.

It's interesting to note the old mantra:

"Buy shares when the company is friendless"

Hmm!

Maybe its time I bought some Bank Shares,
the only way is up!

Especially, when the spreadbetters realise they've hit the bottom of the market and begin, one cartel after another to close their Short positions.

There are a few very clever people in the city who make wealth and deserve their money. The trouble is the many who are basically a boy’s club of thick, ex-public school toffs who got their jobs based on connections rather than merit. They trade things they don’t understand, following a heard mentality. Until this level of nepotism and mediocrity is lanced, the city will always be inefficient.

I know that I'm no City rocket scientist, just a former value-oriented fund manager in my fifth decade in the City, so much of the current woe is deja vu. However, has anyone yet heard a cogent explanation from any of the directors of big UK banks as to just why they wanted to risk billions of pounds into buying US junk mortgages? Surely there was risk enough to be found in UK property lending? No risk managers saying they were diversifying risk need reply, PLEASE!!!!

Rob,

Had you considered teaming up with John Cassidy who wrote Dot.Con and Francis Wheen who wrote "How Mumbo Jumbo Conquered the World" to write a book exposing the what caused the Credit Expansion, the Property Bubble and the Credit Crunch?

Your blog entries on these matters are almost a cross between Cassidy's eye for details and Wheen's Swiftian rage and make compulsory reading!

Regards

nmarks.

To CrumberNuncher, with regard to the BoE bailout this will have ZERO effect.

Unfortunately no one in the main stream media seemingly has the where with all to say so but the issue is not liquidity, its solvency, the BoE facility will have no effect on this.

Once again we are using the term credit crunch to cover everything from the price of bread to high mortgage rates. Fact is this Credit Crunch has been caused by US banks reckless mortgage lending to people who had no hope of ever paying the money back. When this debt went bad it contaminated the whole banking system and in particular the mortgage market. To suggest its the governments fault or that the bank of England is wrong to intervene is just wrong. If we want the economy to continue moving they have no choice but to. By the way is it me or are banks still falling over themselves to lend money. Not a day goes by without a mailshot offering un-secured loans or credit cards, still at attractive rates. Only the mortgage market seems to be in retreat. This was discussed today on R4s moneybox programme which confirmed what I thought all along. The so called economic collapse is an invention of the media and that leading economic indicators including unemployment, job vacancies and the ftse all point to an economy that is far from ailing. Mr Peston even appeared on the programme to answer the charge that so called economic commentators are frantic to talk the economy down and unwilling to offer a balanced perspective on the situation.

Could it be that Gordon is reluctant to criticise the hand that will feed him when he is out of No.10. A nice little earner as a "consultant advisor" to a banking major would be gratefully received. If it's anything like Blair's deal then he would not want to rock the apple cart, particularly since his retirement from No 10 may be sooner rather than later.
City types may not have very long memories, but any heavy handed reprimands or regulatory effort might not go down too well at the club!

i agree about the pots and kettles, brown is a complete meddler and has eroded Britain's pensions and auctioned off much of Britain's gold reserves. I do not think he can contribute anything constructive when speaking about financial stewardship.

It's rather ironic that our Great Leader makes repeated public calls for the banks to "come clean about their losses" arising from poorly judged asset-backed investments, and yet no effort is too much to avoid the foolish element of the British public having to recognise that they have overpaid considerably for their property "investments".

Even more amusing is the attempt to solve the current credit crunch by lowering interest rates: if there is such reluctance to lend money at current interest rates, why would there be a greater appetite to lend at *LOWER* rates when the returns would be lower??? This was exactly the root of the current problems anyway. I'm no economist, but then I probably possess too much common sense.

Solution: bite the bullet and raise interest rates to encourage more saving, thereby providing the funds to be lent out to borrowers. There will be a sharp property crash (as opposed to the slow-motion one in which we are trapped and look set to be trapped for many years), but it would be better to get it over and done with and start afresh, while at the same time addressing the growing problem of inflation. A biter pill indeed, but one best swallowed quickly rather than endure a slow, protracted illness.

The reason, I suspect, why the Prime Minister (although this probably applies to past as well as future PM's) is not prepared to openly criticise the investment bankers over their unethical business culture and personal reward system is because he fears they might uproot their business and go elsewhere. That is why these unscrupulous people will never accept any constraints being imposed on the way they go about their business.

It is fair to say that successive UK governments have capitulated to the panderings of city to the point where these investment banks are now able to influence government thinking and policies on the way the economy is developed and managed. The current BOE baleout is unfortunately a good example of this.

In some respects the banks have been aided and abetted by the differing monetary and financial policies that the Labour and Conservative governments adopt whenever they are in power. There has been little consensus between these parties on monetary and economic control and how best to manage a more broadly based economy that better suits the wider population. As and when either party is returned to power the banks have been able to take advantage of any policy changes to suit their (the banks) best interests. Those interests are quite often not in the best interests of the wider economy and the UK's long term interests.

Every couple of decades or so we keep on witnessing at least one major banking upheavil along with several smaller ones that are caused by the dilinquent or indisciplined nature of these banks. This I suspect will continue until the Labour and Conservatives can come to a consensus on the way the economy is to be run.

For a long time I have been hoping to see an improvement in the way we are being governed but as I am now a sixty seven year old man it probably won't happen in my life time.

Looking at a lot of these posts - most with very different interpretations - it seems to me that this whole thing is so complicated . Unnecessarily complex - allowing all manner of strange practises and fudges and downright unethical goings on . If the whole system were to be made simpler - so for example the average voter could have a fair idea of what was going on - then the ability to wriggle about ,as practised by those Houdinis now employed/elected would disappear . So what if the investment bankers leave ( see #39) we could be able to regain control of our own economy again.

In response to no 31, Bob has had little to do with the city, otherwise he would be aware that many are from east or south London and could hardly be classed as toffs! As for the citys inefficiency, it produces a significant proportion of our GDP.

Mr Brown should think on, he has created the problem for the Banks himself. If he had not damaged this country and its finances so badly since he came into power then none of the banks would have a problem at all. It worked well when Tony Blair was in power and we all had a fruitful living but now we have nothing sadly. We have no reason to go to work because Gordon Brown will take it all away one way or another. We cannot sell our house because of this god awful mess with the Banks, why? I will tell you why, it is Gordon Brown that has caused everything that has happened and he is sitting back on his fat backside laughing all the way to the Bank.

Mr Brown has milked the good times with increased taxes, pushed up fuel duty under the guise of 'green' taxes but now seems to have little left to help in the not so good times. He's borrowing to pay for his own mistakes and making the taxpayer liable for others.

Mervyn King is left almost holding the baby as he battles with increasing inflation on the one hand and cries for reduced interest rates on the other. At least he seems to be a voice of realism as to where we are heading on the economic road, I especially liked his comments that the banking system should not try and do anything to avoid the current 'correction'. Estate agents need to get used to the idea that the market is not going to return quickly to its boom phase and be thankful we're not going into bust, well not just yet!