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The sad thing about this whole affair is how long it has taken the Government, Treasury, BoE, FSA to realise how serious the credit crisis is. This started in August 2007 and it is only now that we are starting to see some serious action being taken. Let's be clear though, if we are to avoid recession (and I'm not one of those people trying to talk the UK into a recession) this is just the start. This is only one of a collection of measures required to make the changes that are necessary. These measures need to be designed in conjunction with the banks, but, orchestrated by the authorities or it won't happen. Why because the banks are driven by profit motives, not, correcting the economy (even though it is in their ultimate interests). Do the authorities know this? Is the time now right to also admit that they got Northern Rock wrong? NR needed funding (of the type we are now seeing) not Bulldozer tactics!!

The public stance of all these banks and other financial institutions is that everything is fine. When questioned they point to their balance sheets as 'proof'. But they won't lend to each other and go to the Bank of England for bail-outs. So, how do we square this circle?

Its the 'off balance sheet' debacle that 'lies' at the heart of this situation. The pretence that their SIVs are seperate entities is a pathetic fiction that anyone with an ounce of common-sense can see through.

Until this situation is resolved (and the investment bankers are still in denial), nothing will change and the system will remain in crisis.

I agree entirely with comment one and it is about time the Bank of England admits its mistake and owns up to its failures over Northern Rock and how it misjudged the situation.

With regard to the 50 billion being lent I very much doubt that this money will be passed on to borrowers IMO banks this money will be used by banks to meet their obligations as their wholesale funding matures and has to be repaid.

No: 1 makes some great points and whislt at this stage we can see the NR situation could have been handled differeltly, perhaps if ''everyone knew'' how this was going to turn out it would have been.

If no-one is buying these mortgage backed bonds and it is left to the BoE, then it could well be the BoE will have to support the mortgage market by £150bn - £200 bn to finance what would normally have been placed.

I dont accept the ''tax payer'' is in for a financial thump as Robert Peston sometimes eludes to - I think thats theoretical rather than anything substantial.

Its all hands to the pump - or ''the tax payer'' will end up having to bail out a hec of a lot more than just the mortgage industry!

The is no point in recrimination. However, contrary to the BoE's stated unwillingness ( If I insert a web reference to the BOE's statement here it will be deleted by the moderator) to put a regulatory stop to the exploitation of the people through the use of their monopoly position it is unacceptable for the banks to be allowed to carry on in the way they did that caused the problem.

We must impose regulatory control on the huge and totally unwarranted monopoly corporate and personal profits of the institutions and their senior staff. This must be the sine-qua-non of any provision of public money. Anything less is an outrage against the people. In fact the Banks must insist upon the provision of the control.

The fools who have created the credit crunch must be prevented from re-creating it in a few years time. The markets have proved themselves to be incapable of providing restraint - so regulation must.

The problem stems from the (necessary) barriers to entry to setting up a bank, which themselves were created by regulation in the past - for good reasons. Banks operate a cartel and must therefore be regulated otherwise they will regularly destroy, or disrupt, the World's economy.

Banks (should) serve the people by providing a safe means of managing money. The balance has been pushed far to far in favour of the the Banks and against the people and their businesses.

I think a lot of people are missing the point here. This has very wide implications across the whole economy and will damage every person in the country through wages, pensions, savings and investments.

The banks themselves say 50BN will only last "a matter of weeks". Now, what you need to consider is what is actually happening here and the seriousness of that statement. That 50BN is going to be pumped into the economy as 'liquidity' or as it is more commonly known, cash. That is inflationary. To be then told by the banks that this will be nowhere near enough and that we are looking at 200BN minimum over the next few months beggars belief.

To put 200BN into perspective, that is more than 6 times the annual defence budget at a time when we are fighting 2 wars. To pump that much tax-payers money - and it is tax-payers money, the BoE is underwritten by HMG and vice-versa - is positively suicidal.

This is going to have a massive inflationary impact and when you consider that 200BN won't even be the end of it it's staggering. Just to remind of the impacts of inflation, unless people's spending power increases in tandem with inflation, demand and consumption falls and the economy falters.

If people don't think a minmum of 200BN in a matter of months isn't a probelm, then they won't have a problem with HMG spending that amount extra on public servces because just as public services is a black-hole the banks will probably never be able to pay back all what they owe in full, adjusted for inflation and with interest. In short, there is going to be a loss and that loss is going to be borne by you, by me and by everyone around us (except the bankers on their bonuses and the political vermin on their gold-plated pensions and parachutes of course)

To cap it all we, the people who are going to finance this, are going to be denied the right to know which banks have borrowed how much. In addition, most of these banks are multi-national and despite the bail-out (that's what it is - a bail-out) will have no loyalty to this country at the end of it.

As Winston Churchill eloquently put it "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

I thin Red Lenin (#6) is right. All of us are going pay for this bail out (there is no other way to describe it) through inflation, and the reduced value of our savings pensions funds.

Once this mess is finally resolved, and I think it is likely to take years not months, we must ensure it never happens again

As with all these things, to find out who the real villains are just follow the money.

The tax-payers are likely to find themselves vastly worse off by this time next year, and some may even be struggling to survive when they come to retire.

On the other hand, look at the situation of the heads of the financial institutions. They have paid themselves 7 or 8 figure salaries and, in spite of depreciating share options, have easily enough personal wealth to ride out any depression.

Look also at the MPs and senior public servants, with their absurd expenses and index-linked final salary pension schemes. I expect they will do very nicely too.

How long will it take before the man on the street realises he has been well and truly shafted, and takes appropriate action.

When is a recession not a recession ????

As a 50 year old i have never seen such a crisis in this country, what the true defination of recession is i dont know but !!! this is going to be far far worse than anything i have seen, before .We always had an industrial base to pull us through....alas we dont have that anymore.

We wont be sending aid to the 3rd world for much longer , they will be sending it here.

@9. - A recession is when your neighbor loses his job. A depression is when you lose your job.

There is in fact no hard definition however the standard definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. This is the preferred definition of politicians so that means that it's open to manipulation, distortion and downright lies.

Economics purists prefer to add other things in, not least of which is inflation. For example, if your economy is growing at 2% a year but your inflation rate is 4% a year or you actually growing or shrinking?

The purists also adjust for things such as unemployment/employment rates, market and consumer confidence etc. Most 'purists' believe we have entered a recessionary phase and that the banking bail-out is in fact an effort to prevent or at least lessen a full blown depression around 2011/12.

But it boils down to who you actually believe is telling the truth - politicians, bankers, or economists.

All in all it can not be doubted that something is very much wrong with the current banking system in the U.K and the U.S.
To require such massive assistance by the richest of organisations within our World indicates somebody (in fact quite a few somebodies) have made misjudgements of monumental proportions.
Were this any other branch of commerce beholden to these banks, there would be executive board culls left right and centre.
The tallest and boldest would be cut down in their stride, or respectfully requested to fall on their swords.
That this is not happening indicates clearly that Governments must act to protect the people and the companies that are the customers, life-blood as you will of these banks.
Immediately there must be massive cuts in financial remuneration .. and I mean massive. Bonuses should be earnt over the long term and be payed only on the tangible benefits of an executives contribution to the improvements in the financial organisation.
Risk should be cut immediately. The capital requirements of banks must be set at a realistic and inflexible level cast in litigation stone. Mess with your funding level at your peril, the punishment for breaching it willfully is prison.
These are the sorts of measures required to bring accountability for risk back into banking such that banks can once again be seen as bastions of the boring, the prudent, and the fiscally wise. Shattered reputations can not be mended. You broke it once, your reputation is shot, and so should the illustrious leaders who it appears have been remunerated far in excess of their abilities to lead successfully.

This is just the latest in a long line of 'bolting the stable door' measures well after the horse has truly bolted. In fact, I would go so far as to say that in the time it has taken our political and economic masters to appreciate the seriousness of our situation, the horse has sired many foals and all are running wild out of control.

The fact is no amount of money from the BoE will do anything to resolve this mess. For over a decade, we have lived a life on a phantom boom of which everyone is culpable. We have collective debts to the tune of 3 trillion, money which never existed in practice only in credit and assets. Thus £50b from the BoE is in relative terms peanuts. Indeed, if they were to throw in the amount of money required inflation would rocket to Zimbabwean levels!

Life styles have been sustained solely by credit with salaries falling in real terms in comparison with the cost of living. Now that the inevitable credit tap has been turned off and the piper wants paying the effects of this position are becoming all too apparent.

We are heading for the crash of all crashes and there is nothing anybody can do about it. It will be as bad as the 1930s, if not worse. The problem is that we only came out of the great depression through the 2nd World War. What on earth will save us this time?

The ³ÉÈËÂÛ̳ tells us in Robert Peston's blog that " This is taxpayers' £100 million ..." But is it?

What's on offer is a swap of paper assets: the Bank offers Bonds worth 70% of the values of mortgage loans - secured on domestic property worth twice the value of the Bonds - and Banks are liable for any defaults.

So none of our tax monies changes hands at all. Of course if those domestic dwellings have no market value, mine won't have either and we'll all be bust. But that, as the FT has pointed out, is not even a possibility.

Is this £100 million allegation true or simply "sensationalised spin" by the ³ÉÈËÂÛ̳?

13. At 11:42 am on 28 Apr 2008, leftilkley wrote: ..................So none of our tax monies changes hands at all..................

Really? So you fully believe that it's ONLY going to be 100BN AND more importantly the banks can service the debt AND the compound interest WITHOUT increasing costs to the customers AND passing this 'money' on to the customer through better interest rates.

Personally, I believe in fairies.

1. If we used my Certificate program (to clear banks that have no sub prime exposure)...then banks like HBOS who have no sub prime exposure won't be dragged through the mud. Rather the natural inclination of investors/depositors/inter-banks would put their money in the safety of certified banks (no write down surprises - leading to panic - which nobody wants, including everyone affected by the economy.

2. In fact all the governments may need to do is guarantee/insure the equity say 30% equity (to 70% debt), of banks and/or mortgagees. THis allows investors to have transferrable financing (of 70% debt) while down payment backed by government guarantee/insurance of 30% equity.

seems very confusing,i presume the bank of england know more than me and are doing the right thing, as they qualified experts and i just joe public

I'm really struggling to understand this ....
- So how come when NR borrow £25 Billion from the BOW backed by various solid securities and pay excessive rates for it ... its deemed insolvent and nationalized ...
- Yet when al the other banks do the same and borrow similar sums ... its business as usual.

Does this imply that the UK gvnt have stolen my NR shares for no good reason at all ... or does this imply the HBOS, RBS etc ... will shortly be nationalized ...

They can't have it both ways ... either return my stolen NR shares or Nationalizr the others as well.

So UK taxpayer funds £50-100bn to provide treasury bills in exchange for dodgy mortgage debts because market forces have led us down a financial black hole. Just wave to all the fat cats clinging on to the edge as the rest of us spiral down together... throwing good money after bad is the right expression to use, I think.


Let the Titanic represent the financial system, the iceberg represent sub-prime market, titanic survivors = those who owe the banks money, and rescue ship equals the £50b provided by the BOE.
Many survivors after a few hours do you think? Depends on how quick the ships get here, and how many rescue craft they can send out...
The phrase

I cannot agree with Red Lenin's view that the BoE exchanging Bank Bonds for Mortgage backed assets is inflationary. It looks more like a swapsy's than anything else. To my mind, the BoE probably regret having to rescue banks they would regard as having irresponsible lending policies, but they do not have any choice if they are to avoid a national financial meltdown.

The Banks are certainly not "flooding" the UK economy with new money - on the contrary, banks are not lending on. They are mostly sat in their offices, biting their fingernails, pointing at the shiny new bonds and doing their level best to look as little like Northern Rock as possible, by holding share issues, selling off profitable bits to raise cash and lending in a more responsible way - at last.

I do not work in finance, I am an engineer. I know forces, equilibrium and damping. What I observe is a much needed step correction taking place, so please humour me and read on.

My fortunes are inextricably linked to the wellbeing of banks and lending institutions. These rather shortsighted people pay lip service to national / global financial stability and my personal wellbeing. They are more motivated by making profits for their shareholders in a fiercely competitive market, because that is what their shareholders (people like you and I) ask them to do.

I am strapped to these special and gifted individuals, only because I have a mortgage and a credit card:- That mortgage (and my house) are part of the asset base of a bank. If my bank's assets are viewed by other banks as "solid", my bank is likely to be viewed by other banks as a safe bet. My bank will then be able to raise cheap loans and capital that they can lend on at higher rates to people like me, so I can start the next Microsoft, or invent a jet engine that runs on water.

If the BoE's intervention can keep the UK credit markets airbourne, then these markets will find a new level after some serious turbulence. Better constructed banks (those with reliable assets) will suffer less in the turbulence. If the intervention does not work, the banks will grab what they can from their assets, killing the economy.. before rushing off to invest in China - which with its 1.6 billion population will suddenly and inexplicably find itself unable to export anything in exchange for food.

World wars start, when governments pretend that they can exist in isolation. Our financial institutions are now so large, that they have the power of governments. The trouble here, is that whilst those institutions are democratic, not all of the us get to vote, and some folk (the larger shareholders) have more votes than others.

Ok I am writting this a joe public. I am no expert on the world of finance or indeed mortgages. I am however a current Northern Rock mortgage holder and my mortgage runs out of fixed term in 9 weeks. NR have poiltely told us to 'go away'. I am now struggling to re-mortgage anywhere as I have only been in the house 2 years and owe more than 90%. Because of all this I may soon be homeless with a 16 month old daughter, as the repayments have risen dramatically.

I know this is not as political as some opinions above but this is hard facts! Something needs to be done and soon before people are left on the street and without the thing they work the hardest for. A roof over their head!

NewGreenMetal wrote above:-

"If the BoE's intervention can keep the UK credit markets airbourne, then these markets will find a new level after some serious turbulence."

I fear this comment is true but the new level may just be more turbulent than the current one.

We have yet to see the impact of the OFT bank charges decision on the Banks - this could wipe out the majority of the £50bn a one fell swoop.

In addition, several posters on well known money saving websites and consumer magazines have foretold of another major ovecharging issue within the sub-prime banking sector - mortgages and secured loans - that could at least equal the bank charges debacle.


This would, if true, mean that the taxpayer is unwittingly funding potential over-declaration of profits in this sector, which is certainly not what was intended.

#17

You've hit the nail on the head.


If Northern Rock is a bust bank because it had to borrow from the BOE then it makes absolute sence that any bank borrowing money from the BOE is in the same boat.

@ 19 NewGreenMetal

A very good analysis but fundmentally flawed on two points.

Yes it's true that this is only literally 'swapsies' however there is interest due and that is cash. As the banks do more 'swapsies' they have to make more interest payments to the BoE. To pay that interest, they have to earn money in the markets through loans at higher interest, credit cards at higher interest, mortgages at higher interest, even bank charges. That means that the virtual 'money' that the BoE 'lends' them has to become real money lent to us otherwise the banks' income doesn't increase enough to service the interest payments.

Secondly, this isn't just a UK problem and in fact compared to the USA's problems is fairly small. Should the USA go under then in this age of global corporatism we are going with it.

Most of the above comments seem to be about trying to see where it's all going to end.

I think it's a bit like a very long game of Monopoly we're all in and we all know that as soon as someone starts to win in Monopoly it's impossible for anyone else to really compete. The game ends in defeat for all the players except one, unless this person starts to give away some of his wealth to the other players and that rarely happens! Well whenever I play the game and it gets to this stage and I'm losing, I walk away; I don't want to play anymore! Call me a poor loser!!!

Perhaps the answer to the current situation where the end result of capitalism seems to be playing itself out, is for us all to stop playing ie stop consuming except what is absolutely necessary and as far as possible become more and more self-sufficient. Growth will then go backwards and that should put paid to some of the fat cats.

It's easy for me to say this as my family are now grown up and I've paid off my mortgage which puts me in a much better position than many. However I'm by no means rich and live very modestly. I'm actively trying to get rid of "stuff" and have downsized once with another on the cards. I find it positively obscene that people have more than they can possibly need when so many people are really struggling.

Capitalism only works when everyone is consuming more and more. Our planet and the poorer countries of the world are suffering as a result of the greed of the west soon to be overtaken by China and India who are busy acquiring all our bad spending habits. Somehow we have to change the ridiculous mind set we all have and backtrack a bit.

Whatever happens please don't let's allow them to "create" another war to keep capitalism going. That's the last thing humanity or the rest of the biosphere needs.

By the way, am I the only female who contributes to this site?

This is a total shambles. I still haven't seen anyone explain how the taxpayer is exposed, and what that means in layman's terms. If it is £100 billion now, why not £200 billion? When does it stop. Wouldn't it be cheaper to just pay off all our mortgages for us?!

#19 said.....

"My bank will then be able to raise cheap loans and capital that they can lend on at higher rates to people like me, so I can start the next Microsoft, or invent a jet engine that runs on water."

Reminds of the comment recently on Radio 4.

Some wag said that if Bill Gates had been a Brit then by now he'd have the largest IT company in ...... Reading...

And I'm afraid that sums up the real usefulness of the UK banks... Makes me laugh that it wasn't that long ago that the Director General of the CBI was complaining quite rightly that we weren't creating anything like enough companies... He said something along the lines that the number of new companies we'd created in the past 25 years was pathetic...

Now the CBI is screaming that the banks need saving..... They obviously haven't quite yet managed to put two and two together and realised that actually the low number of new companies might just be connected in part at least, to the attitude and intellectual capability of the banks.

Does anyone not get the same nervous feeling that so called Alt - A is (in spite of commenators assertions to the contrary) about as unsafe as subprime ? "Low doc or no doc" mortgages - no moral hazard there then ! "A grade above sub prime" (to Quote Robert). Not exactly confidence inspiring.

UBS writedowns might support this feeling.
See this link in FT



It would be great to hear Robert's thoughts on the reality of Alt A

HBOS were the only bank I could find offering 5x stated income self-cert UK 95% mortgages when northern rock started to fail. That doesn't seem a strong position to me. Especially when the hundreds of thousands of renting east europeans are able to work in the rest of europe next year.

Isn't it time the police started to investigate the widespread mortgage fraud practice of over-stating income and the complicit banks and brokers who failed to inform the National Criminal Intelligence Service of suspect mortgage applications. And are we to believe that the banks will reset the hundreds of thousands of these mortgages at the same high income multiples and/or without proof of income.

I short what I'm getting at is this. It may be that journalists, economists, bankers and senior civil servants are paid well so they had no need to overstate income to get a family home. But everyone else from security guards and police officers to teachers and housing officers were not as income rich. for example I'm a duty solicitor and my wife a skilled machinist. We had a strong joint income and deposit. But a 3 bed semi in the suburbs of london has been well beyond our 100k deposit and a 3.5 joint income multiple for years. The same is true of 2 bed flats in nasty east london on a 10% deposit and 3.5 multiple of my own income.

So beware the opinions of the well heeled and interested parties on the prospects for the SE housing market, our banks and our consumer economy.

Again, it is important to remember that the Banks along with all the other Companies, are mostly owned by our Pension Funds.

For our Pension Funds to pay Pensions they must receive Dividends from Companies (ie Banks).

The Banks pay (or were paying) Billions in taxes between them, on the Profits that pay our Pensions.

The Banks Depositors are mostly British Savers, like you and me, who expect interest on our Money in return for someone else using it.

The People with Mortgages are (mostly) British residents living with their Families in the UK. They rely on the service provided by the Banks in order to have a Home.

Fortunately, annual house price growth to March was 3.6%.

I heard another survey saying it was done -0.93%

Hopefully, we won't see big falls in House prices.

If we do Housebuilding will reduce. Building workers will be laid off and those left will be paid less. Then a recession might well get into full swing.

The Rented sector continues to grow dramatically as big commercial landlords are happy to snap up Houses to rent out LONG TERM. Not for alleged short term gains.

Hopefully Common Sense will prevail before people talk themselves Silly !

It's curious how some news items say Buy to Let is in trouble when in fact its still Booming ?

Most Buy To Let deals were done as Tracker mortgages, so not subject to refinance shock.

But the majority of Rented Housing is owned by big corporate Landlords, who are in it for the long term.

Only a tiny part is Private Individuals directly.

to #25 ..."just pay off all our mortgages for us" = "moral hazard" (What ever that actually means!)

I guess we all know intuitively what constitutes a "moral hazard" - (wiki) "is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk".

If a borrower knew he/she was never going to repay a debt there is no constraint on risk taking. Hence "just pay off all our mortgages for us" is a non starter, but in truth, in the end, I guess that borrowers who took on insane loans, or 'liar loans' will get away with it and those sensible upstanding characters who only borrow sensibly (if at all), or indeed save(!!!) will suffer some of the "loss".

One main way we suffer the "loss" is through those imprudent over-borrowers cutting back and not spending (money they have not got) and by so doing slow the economy for everybody.

However it it totally unethical and immoral for the fools who got us into this situation by their insane management and regulation of our banks to get away with it free from any form of retribution.

We, as a society, must devise a suitable form of 'punishment', that hurts them and not ourselves - the problem is that all of this talk of making sure it will never happen again has the opposite effect - it mainly harms us - it is a bit like shooting ourselves in the foot.

Excuse me, but what is wrong with saving a deposit ?

I saved for seven years before getting my own place.

I'm not well heeled, in fact I'm on less than the National average Salary.

Just have to not have a New Car every year, expensive luxury holidays, all the latest gadgets etc, etc.

If you live within your means a lot more is possible.

Just to correct my post in 32.

I've never bought a New car, I've always had second hand ones (which have been fine).

For those who don't believe me about the Corporate Landlords, ask your self how many Housing Association Properties there are in your neighbourhood ?

Housing Associations have been investing in property now for many years, expanding their long term holdings, with a client base that is dependable and underwritten by the Government.

If someone loses their job, they can get help with their Rent.

This protects the Landlords (private or public) to some extent.

Cazy2000 I would very strongly advise you do the following.

Firstly go to your local Citizen's advice Bureau to see what support if anything you can get and they will give you free independent advice.

If you have a current or savings account with another high street organisation I would speak to them next. It seems obvious but if you have a sound history with a financial organisation they are more likely to help you than someone who has just walked off the street.

Failing that get independent financial advice from a registered mortgage broker. A list can be found on the attached website



I would also check out the information on mortages on the FSA website (see the link below).

No. 24 janchild: yes, I agree that the best approach is to stop over-consuming and become more self sufficient. This would also work for the economy as a whole.

I disagree that this over-consumption is a characteristic of capitalism. Instead, it is a characteristic of asset bubbles. These are like cancerous growths on a free-market system. The trick seems to be able to have the benefits of capitalism without the periodic asset bubble that causes mayhem. They have not got it right yet because there are many unintended consequences in applying financial economic theory.

Some people blame the politicians. They encourage the creation of scams (consumer-spending-led bubbles) to create short term economic growth. Others blame the regulators, who connive cynically in the creation of the scams, simply by not bothering to do their jobs properly. Most people blame the fat cats, who pay themselves hundreds of millions out of the proceeds of their successful scams. All the blame is justified. But the solutions all lie elsewhere.

No-one blames themselves. Yet only your solution will work. The greedy can only con the gullible while the gullible remain so. Perhaps there is a gambling gene which causes us to be conned out of everything for which we have worked.

It cannot be repeated often enough. Firstly, the share market is a casino. The only people making money out of it are those betting with money belonging to other people. We must not give our money to people to play with. No-one can predict the future. It has never been different. There have always been shamans. They look at charts, do a dance, and make profound comments. Then they solemnly take our money. The financial shamans today wear suits and are very clever.

Secondly, we must live in residential property and not gamble with it.

Thirdly, we must do productive work or else we will lose our jobs once the bubble bursts.

But if we backtrack from capitalism itself, everyone will be back to fighting everyone else again, and foraging for food.

When banks swap mortgages for treasury bills this week it certainly isn't going to free up any money for mortgage lenders to reduce rates.

The most important aspects for banks at the moment is to repair the profit margin they make on lending to mortgage holders.
For the past few years banks have been chasing new custom with reduced interest rate offers which have led to lower profit margins.
Profits levels had until now had been retained by allowing borrowers to borrow above 90% of the loan to value at increasing high multiples of income to offset the lower mortgage lending margins. This comes at a greater risk to the banks though which is why they have pulled back on such products while raising rates so they aren't exposed anymore to such risky lending, but continue to make a profitable rate of return on mortgage lending.

If HBOS is having to write down £3 billion in 'Alt-A assets (the grade above subprime) and prime assets' it also raises questions of how exposed other banks are to such losses as well. Banks aren't going to lend to each other in great volume until banks reveal all losses they can expect from falling asset values.

No. 13 - the thing that is changing hands is 'risk'. The ability to shift risk is the most sought after function in finance.

The banks paid themselves handsome bonuses out of the returns they got from taking on the elevated risk of their excessive and reckless lending.

Now they have been invited by Alistair Darling to palm that risk off on to the beleagured British public. Result!

Dear Sirs,

I would love to contribute my opinion which I believe would answer most of your questions.

Unfortunately to explain these informations I need to post about 10,000 words.

As such I ask permission to blog it...

Let me know so I don't step on any toes.

I also think my ideas will save us from a recession if recession if we do head in that direction.

I am deeply suspicious of monopolies in all its multiferous forms from Government itself right through to 'public' services such as the NHS, police, 'general' education and so on to 'private' businesses such as
(the big four) banks, BAA, Water companies and so on; just to name a few.

Monopolies usually work to the detrement of the consumers.

Here we have banks, within which some individuals have been creaming off lots of money and now that the game is (temporarily) up, the consumer is being hit to pay for the excesses of these people.

That is patently unfair and may have devasting impact on some individuals such as the lady poster CAZ2000 above.

English people are very slow to get annoyed but blatant unfairness usually does the trick.

I believe in that the micro-actions of millions of people can make a difference here, people really are better than banks so why not check this out via 'social lending' on the web.

The very best thing about it is that it cuts out the middleman - the conventional banks.

I bet Mervyn King 100 quid he doesnt get his 50 billion back.

In all honesty my knowledge of these financial affairs is somewhat shaky, but if the problem here is with a lack of trust between banks (which must be analogous with lack of honesty), that they can have "off balance sheet" investments at a time like this is plain ludicrous and frankly absurd and wrong! In effect they can have secrets from one another! The IMF asked all banks to come clean within 100 days-this does not go way far enough! They will not come clean at all because they have preferred to be dishonest all along! There should be an external audit commision set-up to go in a perform a thorough, no-holes barred audit of all British banks and publish the results, warts and all! It might be ugly, it might be nasty, but at least it will be the truth. Only when all parties have admitted the full extent of the problem can we begin to repair the damage done. At present British banking is like a horror film where you never see the monster-and we all know that imagination does a better job then special effects, although in this case I suspect the imaginations of financiers are not far off the mark-they know how many dodgy deals they have made themselves personally, multiplying that by the number of financiers they reckon on big losses-sadly I suspect the same!

For me the saddest thing about the credit crunch is the fact that this was forseen more than a decade ago when the trading of doggy CDO's and such like first started and people raised concerns about it then.

In spite of this the people charged with running these investment banks chose to ignore those concerns and carried on trading and lending to each other in this manner, regardless of any repercussions that might occur in the future.

The reason why they choose to carry on trading and dealing in this manner was of course quite simple. It conjured up increased profits and that was good for the banks and its shareholders. More importantly it was good for the people running the banks because they were recieving untold riches in the form of bounus payments.

So in spite of the fact that they knew (or should have known) that this would ultimately end up with the financial markets in a mess, they couldn't stop doing it because their greed for money, got the better of them. They (the people running the banks) and the city watchdogs should have realised that the longer this went on then the greater the mess and subsequent fallout in the money markets would be. None the less they all decide to carry on in the hope that they could continue to make their fortunes before being found out. It is probably true to say that if the sub prime mortgage problem had not arisen then these people would still be maintaing the charade.

The worry is will we be able to stop this happening again or are these banks and some of the morally corrupt people who run them now to powerful to be properly controlled.

Lets all not forget about the Credit Default Swap (CDS) situation folks!



Post #42 has 'hit the nail on the head' about the lack of trust between the banks and the horror movie analogy with the unseen monster. Or for monster read 'the elephant sitting in the corner' that everybody is conveniently ignoring. Apologies for all the clichés.

I'm not so sure though that an external audit commission would be the answer. At the speed the BoE (King Canute) and HMG (Ditherer Brown) work at we wouldn't likely get any audit results until well after, say......the next general election. And that's even with Gordo 'waking up every morning thinking about the current economic situation'. Then of course, if the conclusion were to come from the NAO....we all know it would be a completely 'objective and unbiased report' (sic). Go on call me a cynic!

We need action now and we need it fast! ...but I'm not qualified to state what that action should be. No trust in the government and no trust in the banks. The establishment have really screwed it up this time.

As Paxo stated on Newsnight last week....'Brown should be making the weather.....not being blown around by it!'

TTFN

Mervyn King is playing a huge poker game but is handicapped by political commentary.
He shoudl make it clear that banks will get zip unless they declare in public what collateral damage they are sitting on in they their off balance sheet liabilities.
The score is clear tell us everyting or get nothing.
It really is that simple.
With regards to the directors of the banks the Great British Public has an absolute right to know teh following:
1) What they were doing to control their respective banks liabilities,
2) Who deemed them fit and proper,
3) Who participated in specific bonus payments based on sub prime lending,
4) Were they members of any masonic lodges and
5) All documentation deemed confidential must be made public.
With £50 - 100 billion of taxpayers money at stake in no way can the banks get off lightly.
They want public money they must be subject to full unadulterated public scrutiny.

The FSA believes in morally following the premiss that anyone is innocent until proven guilty.
It has a regulatory rule book that is mind blowingly over the top yet when it comes to fining and/or diciplining directors it somehow fails abysmally. Believeing the 'light touch' is the better way.
The problem is that large firms see such an approach as as joke and abuse the system playing use of the ingenious english language to avoid prosecution.
The FSA hates to lose so it goes after easy cases it can then crow about. Large cases involve large financial institutions who have bundles of money for legal fees to defend their indefensible positions and so seek to call the FSA's bluff, winning every time.
This time matters are so simple it does not need a rocket scientist to establish that there has been serious errors commited by the bank directors who ultimately sign off information to the FSA.
Comments have been registered on eth blog wondering if anyhthing can be done about the power wielded by the banks?
The answer is of course it can be and in buckets.
If Directors are ultimately responsible for the results of the banks then they are ultimately culpable for the errors.
Bonus payments should be paid back and random independent scrutiny taken of all communications between them and their staff.
Whether they are members of any Masonic Lodges must be known and registred in eth Public domain to ensure there is no conflict of interest ao that defending an iindefensible position of a 'brother' is obliterated.
Banks woudl have no qualms about ruining a busines or private individual if they owed them money, so the ball is now finally on the other side and in no way can these bank directors get away with one penny whilst their respective banks show multi billion dollar losses.
The system would not collapse if they went belly up as there would always be someone in the wings ready to pick up the pieces.
One thing is for sure there ar thousands of many overseas banks who wouls love a chance at working with the UK market and make a damn site better go at it than the bunch we havce here now.
Robert Peston is accused and berrated of continuously picking up on the bad elements of the financial world we live in.
He doesn't even let on to 10% of what really goes on.
The man is a public service champion and we all need to wake up to what is actually happening.
Money is something we all find distatesful and that has availed so many teh opportunity to abuse our naivity and good will.
That time is now over and we must get real, the banking system here is in toal dissaray, working on spin to hide the mess they have self created in the name of greed.
The party is over but banks still talk in rhetorical terms and then pull another plug.
The Regulator has failed totally, even though it has more regulations than any other country to work with.
Banks have assets they can realise but don't want to sell them to get their books right so they run to the Bank of England begging for help.
The bank, who holds all the cards must not give in to their demands without screwing them to protect its and our loans to them.
Their overcharging and raking in billions was not theirs by rights and so the very notion of them seeking to make up the 'loss' is an obscenity to rational thinking.
Just imagine hoi they would screw a member of the public or a business if they hit hard times?
Well they need to sell off unnecessary parts of theoir businesses and cut the salary bills they will make and save billions and the taxpayer will be protected.
I am all for profits through hard work but have no time for snake oil salesmen and that is what we have now.
Banks need a clear out so that the next generation in charge realises that salaries and bonuses are not their by rights but through hard and genuine effort, and not gained through expoiting the market.
How long can it be now before the Office of Trading sets upon the banks where every other enquiry appears to have failed?
Keep up the good work Robert, you are not a brave man for telling the truth just an honest one, and the sooner the financial world cottons thaty honesty is the best policy the easier we can al rest in our beds.

Will Robert Peston investigate the groups of Spread betters selling down the Shares of companies in the News for a quick Buck ?

After all, it's our Pensions that are undermined by their cavalier conduct.

Most PLC shares are owned by Pension Funds.

So if your Pension doesn't pay out as much as you hoped you only have yourselves to blame..........

As far as i am concerned Kings comment are typical of a man who is out of his depth, the banks are regulated by the FSA and they set the rules of the game and then the banks play, to blame high salary's and rewards is ludicrous, that is capitalism!
King should be kicked out he knew what was going on or did he either way is a reason for him to be fired, he has messed up from the start of this crisis first Northern Rock which could have been saved from the Fabien Socialist approach of public ownership by a rights issue underwritten by HM Government thus saving the bank and giving the goverment an upside to sell the stock later on! Next to little to late in fact when the Fed was reacting he sat on the fence saying it was not the BOE job to intervene and then hey presto he works out the the worlds leading financial centre may have a little problem strange that! Now lets move on to the 50 Billion he has made available well we will see what it does but my guess is it will do nothing to the lending policy's and all that will happen is libor rates will come down what needs to happen is for Brown to threaten the Banks with a windfall tax if they do not start to pass on rate reductions and do not start to do there job which is to lend if there is no lending there will be a crash.

This system was given to us by our ancistors from years ago. From trading with food, things were better shared. With the good invention of money that can bye you some gold. The men in charge built up their wealth and took charge of many of mans laws. Unlike food, gold does not rot, now man can collect the lot. Run our Earth and have it all, live it up to corrupt the poor. The big fat cat forgot one rule, but they didn't want to bring in this simply rule. Our world is sadden, broken today, simply because it's driven on greed. The wealth gap needs to be shorter with three classes of wealth, the world news would get better. The jelousy would fade, the fear would go down and we would see all children in play again. In this system, money has no laws apart from tax, which is mostly wasted on the so could clever ones. No rules on greed will make billions in need, so let's control them, spend more money on bigger prisons. Why do humans police themselves? Why is there so much corruption. It's because we need to protect our gold. Get rid of greed, then the will be no need, our huge machine that's full of rot, grown in time to a future that will rot. Our time bomb passed to us from time, our ancestors did not no their generation of children would live this hell, thats growing in power everyday. Greed, rich, middle, poor, needy is our 5 classes of people that will take Our beautiful place which I call Heaven, in to a hell created from this fake heaven of greed. Now stop all this fighting, learn to grow up. It's animals that should only fight. Guns are like mirrors that darken our world. The mighty leaders playing chess, sending us all into a madness of fear. They need to unite and see a new light, where this world could be better if shared. Working together, using media to teach us all emotional intelligence to a better fate. We are all here in one moment in time still learning and it could be half time. Can we please feed the whole world? it will make it stronger and all people from all walks of life, will see the better light.