³ÉÈËÂÛ̳

Why didn't they act collectively? well Robert it's a matter of trust. the banks do not trust each other to do what they say they will do. So the government has to step in to make them work together. What a mess.

Short-termism. Pure and simple.

If last week Bradford and Bingley was the UK bank with the highets Tier 1 capital ratio - how come it now has a deficit of 7 bn pounds. Has the Government already managed to destroy over 7bn pounds of assets - or is this figure a nonsense that has been plucked out of thin air?

Am I alone in suspecting that sometimes Peston, Gordon Brown's biographer, is simply an extension of the PM's PR machine?

"All that glisters is not gold;
Often have you heard that told:
Many a man his life hath sold
But my outside to behold:
Gilded tombs do worms enfold.
Had you been as wise as bold,
Young in limbs, in judgement old
Your answer had not been inscroll'd
Fare you well, your suit is cold."
- Shakespeare (The Merchant of Venice)

Can someone explain - why is the FTSE down? Is it to do with the nationalisation?

I know that nationalisation is the opposite of free markets but no-one rushed forward to buy the bank. The other option is to let it fail and wouldn't the lack of confidence generated by such as move be worse?

Would the market be down whatever happened?

Where has the GBP7 billion been conjured up from?

It can't be the shortfall if the B and B mortgage loans were re-stated at the current open market value. In the current market the write-down would be much greater than GBP7 billion.

So it must be an estimate of how much the actual shortfall will be if the B and B loans are allowed to run down to maturity. In which case the GBP7 billion must be conditional on the assumptions made about default rates and future movements in property values.

Unless we are given some idea what these assumptions are, it's hard to give the GBP7 billion figure more standing than one would give any other guesstimate, wherever it has come from.

robert,

what is the ranking of the treasury's loan compared with other senior (incl secured) creditors? does the tsy need to coordinate claims against the fscs with the other creditors?

who now owns the equity in this "nationalised" company? presumably the same old shareholders, although their shares are now completely worthless?

doesn't this entire fscs insurance scheme just increase the risk of system-wide meltdown? is there a cap on the losses at any individual institution that can be claimed under the scheme?

what is the interest rate on the loan? the same as on the gilts issued to finance this loan? i would hardly call it additional "cost", as it is more than outweighed by the extra time given to the mortgage borrowers to work out their debts.

Speaking of better common-sense options, it seems that instead of all this hysterical reaction to 'bad debt' (what exactly is that - fraud?) - the lenders should have made appropriate arrangements for reduced repayments. Of course this assumes lenders know who they've lent to.
Perhaps the financial system should be more flexible and transparent?

Rather depends! Maybe the banks had enough problems of their own already with mortgage foreclosures. Also they may be worried that Government could come under great pressure to take steps to prevent them from kicking defaulters out of their houses.

Whilst I am aware that bank's are not lending to each other, this implies that some banks have plenty of money and others not. Why not have for an emergency period an UPPER AND LOWER liquidity and capital / lending ratio target such that those with insufficient capital base have to go to shareholders or market to get more (as now but much stricter) but hoarders have to take steps to divest themselves of excess capital (eg via loans to homeowners or other banks.

Banks (and other large tottering institutions)should be forced to declare publicly (without spin) an audited and detailed assessment of all their contingent liabilities and assets. This would at a stroke prove whether an institution was solid or not.

Credit rating agencies should have to justify their ratings and warrant them. Auditors should also have to warrant their reports.

Bonuses should be paid 5 years in arrears when the actual results can be assessed. The bonus should be reduced or lost if the contribution is seen to have incurred unwaranted risks.

Directors should be prosecuted for taking unwarranted risks and in extreme cases made bankrupt. Golden parachutes in contracts of employment should be deemed null and void (or repayable) if resignation takes place up to 2 years before a company folds.

When the bankers' imaginary playground casino of the derivatives market begins to implode - any day now, I reckon, won't the world's financial system will be looking to shore up 'losses' of close on $1 Quadrillion ($1000 Trillion) - ten times the GDP of the entire planet?

I would imagine that the failure of the banks to act colectively for their common good is simply down to the fact that they have rather a lot on their respective plates at the present moment.

In that sense, 2011 seems an eternity away.

Hopefully by then, the concept of 'social lending' e.g. Zopa will have gained more traction.

Thus lessening our reliance on these dubious institutions/banks.

You ask why the banks did not club together to bail out B+B.

1. Hindsight is great- isn't it?
2. Banks are secretive
3. If you are bleeding, dont be a blood doner
4. When bulets are flying, keep yer head down
5. Sod you jack i'm all right
6. We are MOTU
7. ...........

In the words of Armstrong - What a wonderful life.

Hi Robert,

As you said in your previous blog "Not all of BandB's loans and assets are available to meet this claim. There are about £25bn available, to repay the £20bn (the rest of BandB's mortgages are pledged to holders of covered bonds and asset-backed securities)."

Isn't this the root of the problem, that banks have been allowed to borrow funds from these sources by giving them a higher place in the pecking order than their own retail depositors. So the more responsible banks are now having to foot the bill for guaranteeing the retail deposits while the BandB's "holders of covered bonds and asset-backed securities" get away with the loot.

Can't the Government legislate that banks cannot offer lenders of wholesale funds a higher claim than retail depositors? I think that might have prevented this whole bubble from occuring in the first place.

So will Mr Pym lose his job then?

After all he did claim it was a sound Bank on the 25th.......

Why didn't the big banks rescue BB? I imagine because if they had done so, it would have accelerated their demise. Once confidence goes, the market makes short term decisions. Though theoretically shares are some kind of estimate of the real value of a company, in particular an estimate of value in the future, in a period of uncertainty this pretty much goes out of the window. There seems to be some kind of critical point where any given amount of borrowings are seen as bad; but that critical point is largely contextual.

Why didn't they do this with Northern Rock last year? This seems like a much better deal than that was (for the taxpayer, at least).

I don´t see any difficulty in answering the question you pose.

Firstly 9 billion is only an estimate - it could get a lot worse. If it does and you own BB either alone or in some form of JV then you are on the hook for the full amount.

If things get worse and your obligation is to a third party entity then there is always the possibility of renegotiating the position. Especially if you tell the Government that their enforcing this obligation will result in your own bankruptcy.

In the event that things get better then you (as a big bank) get the same benefit whether you own BB or pay your share of the costs via the Government. Unless of course there are no losses, but big profits - You try going to your Credit Committee running that argument.

Moving on to the big players:

It´s not obvious that HBOS won´t infect Lloyds - why would they want additional direct exposure to UK mortgages?

Barclays have just hoovered up parts of Lehmans and seen their share price fall further.

HSBC appears to have sidestepped a lot of the problems infecting their competitors, surely they´d rather just pay cash to settle any obligations.

RBS would today have problems meeting its share of a JV to buy a cup of coffee. At least this way they´ve bought themselves some time before they need to put their hands in their pockets.

As for Banco Santander - they´ve just made off with 20 billion of deposits. Why would they be interested in any form of JV?

Also, and you´ve been constantly reporting this, at the moment no bank trusts another enough to lend money through normal market mechanisms. If trust has evaporated to this level then why would any bank want to enter into a JV to own a bankrupt company whose ultimate losses are subject to a number of assumptions - and those assumptions (and hence valuations) will be different in all banks, plus they know that all of their recent assumptions are wrong.

All in all the only surprising thing is that you think acting collectively would be to their common good.

It is becoming increasingly apparent that the financial services industry is primeairilly a giant sausage machine which distributes the prime cuts as bonuses to the shrewd opperators turning the cranks and makes sausages out of what ever happens to be in the skins at the time[it is still 100%] .

These economy frankfarters[sell by date set to infinity and beyond ]are kept off balance sheet and inform the basis of CDS trading which provide insurance cover for the bangerrs

Soonerr or laterr they will end up in pensionerds pots with other liquid assets if they havnt deflated in the meantime

CDS are the banking equivalent of mad cow disease the combined effect being to turn pensionerds[the soylent majority ] green sooner than expected [which explains the proposed donor kebab legislation]

The problem's become fundamental.
The need for retail banking is a universal constant in our society. Why should the citizen trust a bank, though, when the bank's peers, better informed than ever he can be, won't do so? Perhaps another aspect of this restructuring should be to nationalise the entire retail sector, offering free services to all - and helping the taxman's control at the same time, rightly or wrongly.
That leaves the wholesale sector, commodities and derivatives. The old days of "my word is my bond" backed by blacklisting as inapt or unsuitable have gone, because the big beasts, originally in the US but latterly in the UK as well, preferred to try bluffing it out rather than come clean.
If the City can live in a fugue, regulators and all, the real world can't, as it must go on willy-nilly. Perhaps it's time for the real economy to take a hand, led by the Association of Corporate Treasurers or the like, in establishing a set of alternative clearing structures in each market and beginning again, while the banks clear their existing books via the pool of regulators from each country audited full-time by an independant audit firm and/or the National Audit Offices.
Viewed from the outside, the City has become petrified by the thought of becoming yet another back-stabbing victim. In those circumstances, the players form a circle staring at each other while the rest of the world passes them by. It's time to stop this, fire the lot if they won't do their jobs, and start treating the pusilanimous to long prison sentences for fraud if they go astray thereafter.
Boris' argument that we need the City for its contribution to invisibles is weak, because if it won't shift, then its income will die and we'll end up in the same spot anyway, but worse off for another year's operating expenses and bonuses.

Robert,

A bit light on detail I'm afraid. What are the answers to these question.

How is the interest rate being calculated?
What is the actual rate being charged?
Is it a daily rate?
Is it fixed or is it referenced from an official rate, if so, which one?
Why is the repayment of 450m being allowed so far in arrears (a full 12months from today)

As this is public money that we're talking about we should have a right to know.

Re No4

The information you get here is pretty accurate. The guy is given preferential access to information and the unspoken quid pro quo is that it gets reported in a certain way. If it didn´t then the information flow would stop. There´s no conspiracy it´s just that everyone shares the same implicit assumptions as to how the world works. (By the way those assumnptions are wrong and we are all in the process of finding that out).

No6 - The market is down because of "global factors"

Overnight Fortis was essentially nationalised by the BENELUX countries and something odd is going on in Germany with a company called Hypo Real Estate. They may have had to borrow €35 billion. There are a lot of companies like them around but there are not necessarily the same number of chunks of €35 billion around.

In the US it looks like Wachovia may fail and I guess this is not the response to $700 billion of money that the US authorities were hoping for.

No 6.

RBS down substantially due to partnership links with Santander and Fortis the Belgian banking group that was nationalised today. By association I imagine this may also adversely affect Santander, which in turn may jeopardise their bid for B and B.

Also the injection of 700 billion dollars in the US is being questioned. Will it work? and is it enough?

An icelandic bank has also been nationalised which will only add to the general air of uncertainty. I fervently wish that I am having a nightmare and will then wake up...

Perhaps the rating agencies should now be colectively known as the GlitterAAArty on account of the fools gold that they package for the Bankerrs in order to persuade fools that their is gold in them their ills

Bankerrs can also make money selling prospectors their pans and their shorts [shop soiled of course]

Why hasn't the link between Darling's teasing of potential homebuyers that Stamp Duty might be suspended, the collapse of mortgage lending in August and the subsequent collapse of one of our largest lenders been explored?

This is the price we pay for Brown and Darlings spectacular incompetence.

Why didn't they club together?

Well you may have forgotten, Robert, that last year Lloyds offered to take NCRock over if they were given a standby line of £30 billion to ensure they could fund it. Your 'government' refused, and look what happened to NCRock. Surely a possible £30 billion loan to Lloyds would be better than having the taxpayer at risk for the current NCRock, oh, £100 billion? It would certainly have left other UK institutions with the possibility of mounting a similar rescue for our other stricken banks.

The markets are falling because they are pricing in , that the 700bn will still mean a much restricted bubble of future credit so lots more employment , a lot less product sold , so smaller dividends = worth less , so sell your UK shares and buy shares anywhere else but here, america and italy

With a series of bold moves our regulators have put us onto a new path and confirmed that things will not be the same again. No doubt this is because of instructions from the regulators in the USA but it is a good thing that efforts are being co-ordinated.

Clearly, the regulators have signalled that the money to pay for the banking failures will come from the coffers of the banking industry. This will happen by a combination of the bigger banks absorbing the smaller ones, and nationalisation. It is a case of eat or be eaten. At the end of it, some banks may remain as independents.

Thus the banks themselves, which means the shareholders of the banks, will be last in the queue to collect any proceeds.

Under the circumstances this at last is an appropriate free-competition solution, where the state is fulfilling its appropriate role of facilitating the Darwinian process. It will help offset the anarchic and failed processes of the last two decades, which have moved nearly as far away from free competition as a full-on socialist model.

Of course, this will not prevent the recession or depression or whatever is on store for us. But the main objective for some time has been to avoid a Mad Max scenario.

The immediate effect is for shareholders in other banks to consider their options. Some people think, sell for something now rather than for nothing later. Others stay for the ride. This is just the market in action. You pays your money you takes your choice. Right now I see that the RBS share price is testing new lows, as they say.

The regulators have made their moves in full knowledge that banking shares may suffer. Thank goodness for the rest of us they have found a mechanism, a strategy, for the orderly unwinding of an equity-challenged industry.

One of the articles today in ftalphaville gives an excellent rundown of the Swedish and Japanese precedents. It is a short must-read.

This wondering what will happen next brings to mind a little ditty that I found somewhere, sung to one of my favourite tunes, a tale of high aspirations and lost opportunities:

Good-bye Fred, yer gonna shred, me oh my oh
Yer gotta go pole the pirogue down the bayou
Guess yerll be eatin crawfish pie and a filet gumbo
Son of a gun, yer gonna have big fun on the bayou.

#11

Surely a derivative problem calls for a derivative solution ?

Tie Bushs 700 billion to the future price of bananas, then multiply it by ...

Personally I think the governments forcing all banks to value derivatives at 0 from now on would sort out the wheat from the chaff and restore confidence in the system pdq.

I think there is little choice at the monent other than to bail out banks. The resulting impact of a massive High Street failure is a huge gamble to take.

That said I do believe that the Government should legislate to control the banks activities in future.

Reading that Lehman Brothers executives are still after their bonuses from their potential Japenese paymasters doesn't give me alot of confidence that the industry will come out of this crisis any wiser.

Why has Santader been allowed to take over, what I think are the best bits, of Bradford and Bingley?
Where does the Monopolies Commission come into this? Or have such trivialities been abandoned?
I am concerned that a Spanish company should own so many of our banks.
Certainly I think Robert Peston has made financial matters a little easier to understand.
D. Andre

Why didn't they club together?

This is classic prisoner's dilemma: even though the parties can collaborate to reach a more favourable outcome, because they compete viciously with each other normally, they can't trust each other enough to do so, and all end up with the less favourable outcome.

Everyone is talking about fundamental and profound changes to regulation, but has anyone realised the elephant in the room is COMPETITION!

Banks have to compete to get our business (savings mortgages) and the one who gives us our best rates will get the custom. But in order to get the best rates, they have to take greater and greater risks which means if one bank is willing to take the risk, then they all have to follow just in order to compete. So the trend, and noting this competition is global, is that all banks take on more and more risk. It's not the banks' fault: to not do so would be risk ruin through failure to compete. And it is not a country's regulations at fault: to do something unilaterally would be to put an whole nation's banks at a disadvantage to others who don't regulate. The regulations have to be global. And we know how easy that is...climate change anyone?

So is this crisis really a Princess Di/Paparazzi/consumer syndrome, where at first we blame the pap, but in fact it is all of us seeking better rates, riskier assets that drives the banks to offer them to us?

@ 25

You're surely having a laugh aren't you?!

Being insolvent might be a better reason! Credit is tightening and will get much worse so expect more of the same sadly.

Hairy indeed.

Looking at the total picture would it help or hinder to make credit default insurance void? It should never have been allowed and is fraudulent and therefore illegal. The debt we might handle, the payouts....

Wachovia has gone. It´s to be partially acquired by Citi. Any losses over $42 billion (I think) to be picked up by the Feds.

That´s another uncertainty gone - maybe markets will go up now that the position is clearer.

#25

If the Tories had not allowed the banking system to speculate on fantasy money... By the time Brown got into No.11 the problem was to large to correct - until imploded - as the population was just having to much fun getting drunk on all the cheap credit, welcome to the hangover that some have been forecasting since the 1980s.

Not only is the banking system collapsing, but the ³ÉÈËÂÛ̳ blog software is collapsing as well! What does it mean when it says my comment contains invalid xml???

Something strikes me as decidedly fishy here, namely that Abbey has supposedly paid good money for BB's "branch network".

Excuse me?

Does Abbey seriously want more branches? Wouldn't we expect to see branches closed all over the place once the merger is complete? I'd be interested to know how much taxpayers' money has been thrown in Abbey's general direction to get them to go ahead with that deal.

Robert, you must be exhausted!

Ah, it was the ampersand character that your software didn't like. Bit tricky in a blog about B*B.

Sorry, I don't understand your comment "those costs will fall disproportionately on our biggest banks."

You say that "contributions to the Financial Services Compensation Scheme are divvied up on a pro rata basis, measured by share of insured deposits." If the compensation scheme is intended to insure customer deposits, costs will fall proportionately to liabilities which seems wholly appropriate.

Why has Santader been allowed to take over, what I think are, the best bits of Bradford and Bingley?
Where does the Monopolies Commission come into this? Or have such trivialities been abundoned?
I am concerned that a Spanish company should own so many of our banks.
Certainly I think Robert Peston has made financial matters a little easier to understand.
D. Andre

Mr Peston,
says it all about you really - Mr Browns biographer.

What an entry on your CV - the worst Chancellor in living memory and also the worst PM - as for Nationalisation - who cares - we live in a banana republic administered by Clown and Co - reported on by Peston.

4:

You're not alone in thinking that. It looks that way, uncannily so.

6:

There are global factors involved, but one big reason why the market is down is that investors in banks are scared by the cost of this BB scheme.

It sets a scary precedent. If another bank were to follow BB, the same might happen again, doubling this already-huge cost. And each time it happens, there's one less bank to contribute to the pot.

Brown's scheme for BB looked good politically, because it appeared that banks rather than taxpayers would be paying for it.

But it will have unintended consequences by loading extra costs on banks (which really means us, as customers and shareholders).

Typical Brown - good soundbite, lousy policy. Remember Labour MPs cheering his 10pc tax change? It's not GB single-handedly, of course. The idiocy in Whitehall is truly unnerving.

Oh the joys of game theory and prisoners dilemna. As some have pointed out because you don't trust the other banks this is the optimal position if you are a strong bank by not clubbing together.

My understanding is that Bradford and Bingley were effectively shut down on Saturday when the FSA, Treasury and B of E agreed that they were no longer viable.

As such this pushes the problem onto the FSCS (Financial Services Compensation Scheme). Each of the other UK banks and members of the scheme thus become liable for an agreed share of the problem.

If I am a strong bank, I know it is a bit of an oxymoron at the moment, it is in my interest for this to happen as I can limit my losses whilst ensuring the competition get stung for their shares to.

Its all a bit like the board game risk where you take a hit to weaken your opponents by more. For those more attuned to the video game era it is a logical step to go toe to toe with the opponent if they are weaker than you. You might lose but if they also lose by the same percentage and are starting from a much weaker position it will be game over for them long before you get into trouble.

Some of the biggest participants in the UK banking sector (RBS and Santander) will be affected by the Fortis nationalisation as well so they will lose there as well. It will be interesting to see how much they disclose on that.

Expect much more to come out soon.

I expect at least one or maybe two German mutual or landesbanks to have to be rescued very shortly.

Also expect a renegotiation on Lloyds TSB and HBOS in Lloyds favour. Otherwise the rational thing for Lloyds to do would be to walk away.

Oh and this is merely the hors d'oeuvres. Just wait till they have to start disclosing losses on commercial property loans.

One final curveball to add into the mix. Just who picks up the bill when several of the big PFI companies linked to contractors go bust?

Oh the joys of game theory and prisoners dilemna. As some have pointed out because you don't trust the other banks this is the optimal position if you are a strong bank by not clubbing together.

My understanding is that Bradford and Bingley were effectively shut down on Saturday when the FSA, Treasury and B of E agreed that they were no longer viable.

As such this pushes the problem onto the FSCS (Financial Services Compensation Scheme). Each of the other UK banks and members of the scheme thus become liable for an agreed share of the problem.

If I am a strong bank, I know it is a bit of an oxymoron at the moment, it is in my interest for this to happen as I can limit my losses whilst ensuring the competition get stung for their shares to.

Expect much more to come out soon.

I expect at least one or maybe two German mutual or landesbanks to have to be rescued very shortly.

Also expect a renegotiation on Lloyds TSB and HBOS in Lloyds favour. Otherwise the rational thing for Lloyds to do would be to walk away.

Oh and this is merely the hors d'oeuvres. Just wait till they have to start disclosing losses on commercial property loans.

One final point to add into the mix. Just who picks up the bill when several of the big PFI companies linked to contractors go bust?

Oh the joys of game theory and prisoners dilemna. As some have pointed out because you don't trust the other banks this is the optimal position if you are a strong bank by not clubbing together.

My understanding is that Bradford and Bingley were effectively shut down on Saturday when the FSA, Treasury and B of E agreed that they were no longer viable.

As such this pushes the problem onto the FSCS (Financial Services Compensation Scheme). Each of the other UK banks and members of the scheme thus become liable for an agreed share of the problem.

Expect much more to come out soon.

I expect at least one or maybe two German mutual or landesbanks to have to be rescued very shortly.

Also expect a renegotiation on Lloyds TSB and HBOS in Lloyds favour. Otherwise the rational thing for Lloyds to do would be to walk away.

Oh and this is merely the hors d'oeuvres. Just wait till they have to start disclosing losses on commercial property loans.

One final point to add into the mix. Just who picks up the bill when several of the big PFI companies linked to contractors go bust?

I just cannot see the "Banks" Northern Rock and Bradford and Bingley ever being sold "back" to the Private sector.

When the storm subsides (whenever that is) the obligation by people ( us) to make ongoing payments against an outstanding mortage CAN be sold back to the private sector at whatever the best offer is

The two names can be auctioned and if anyone wants one they can buy it---maybe use it to set up a mutual Building or Friendly society and solicit deposits from the public.

Whether used for that purpose or not the auction will tell us what value resides in the names---or 'Brands'...over and above the physical value of assets.

another one bites the dust. just reported... i think i beat robert to the scoop!
Citigroup will acquire the banking operations of the Wachovia Corporation, the Federal Deposit Insurance Corporation said Monday morning, the latest bank to fall victim to the mortgage market.

Bankerrs have been getting together, DNA investigation of their AAA's will confirm it

If only they had hindsight they would have seen inflationary forces coming their way

Why is the FSCS funded soley by a percentage of deposits ?
The complnies that are likely to fail are those where committed assets and liabilities far outstrip Deposits held.

under this system savings dominated banks would end up apying diproporionaltely for the liek of BB and NR. >> Why not halve the levy on deposits and include an equivalent levy on loans, debt obligatoins etc??

Currently the saftey net does not seek fundung from those most liley to fall into it . .

#28 footnote

The ftalphaville article referred to is called Around the world in bail-out parallels and why the US should look to SWFs, and it came out at 11h05. Definitely worth a coffee break for ten or fifteen minutes. Like a handrail to the coming rollercoaster.

What price will you give me on there being just one bank (in Europe) left at the end of this? (and one in the USA)

Look let's face it, at this time there is no market in mortgages. This means that mortgages are worthless. (In that nobody will buy them single or in bundles.) So any bank or institution that shows value for mortgages or derivatives of mortgages is overvaluing the asset in their accounts. And on a 'fair value/market value' basis the bank's accounts should show these assets as worth nothing.)

On this (pessimistic) basis of valuation I cannot find any value in any banks anywhere. So all banks will be nationalised and the liabilities (mortgage repayments) will be paid by mortgagees to the state. So far we have no experience in how aggressive over non-payment/ foreclosure the state will be - but if HMRC is anything to go by, or NR - very.

What all this does to the 'capitalist' model fro running an economy is open top question. Has it collapsed through its own stupidity and greed combined will the lack of regulation dating from the Regan / Thatcher era - time will tell?

How can a single state bank run an (capitalist) economy? I don't think it can.

PS TO MODERATORS:
PLEASE TURN OFF YOUR CHARACTER SET FILTER THAT STOPS US USING GREATER THAN, LESS THAN AND AMPERSAND AS IT PREVENTS US POSTING B AMPERSAND B FOR Bradford and Bingley as was used by Robert Peston in the title of the previous blog.

TO The Moderators

Just tried to post B ampersand B again and it still fails - this is silly. I can guess why you do it (as it allows positing of and character if followed by a number) But it represses expression!

Er...as far as HBOS/LTSB are concerned, I'd have thought that the reason for not acting in a consensus bail out was obvious. There's only so many banks you can rescue in a month...

Its salutory to cast your mind back.

Last summer, I looked at an HMO as a possible investment but soon walked away (the place was a deathtrap despite having an operating license from the local council).

What was more interesting was the conversation I had with the estate agent who was showing me the property.

He told me that just in this small area of the local town, he personally knew of fifty buy-to-let landlords who were not making a dime.

If that is the case here, he said, just imagine what it must be like over the whole country.

Indeed.

Now I wonder how many of those buy-to-let landlords obatined their funds via the Bradford and Bingley?

Come on John_from_Hendon!

If you want to talk in phone text no one will understand you!

The 'ampersand' is an awful abbreviation from the nineteenth century - forget about it!

Different computers have different keyboard mappings. Mac's have the GBP symbol in a different place to the PC.

So, use 'and' and GBP. Problem over

@53

You are not correct to say that mortgages are liabilities for the banks, They are the assets!

You are correct to say that the banks should restate these assets at current market values but incorrect to say that the value is zero.
The bricks and mortar that make up the tangible asset that the mortgage is secured against do still have a market value.
Also the mortgage agreement itself does still have a market value although that value is under pressure due to the uncertainty in whether the morgage payer will default or not.

#53 John_from_Hendon

As you say the mortgage market is currently dead.

I wonder if the only way to isolate the damage might be for the Government to force each bank to split in two. A bad bank containing all the housing related stuff (mortgages, CDOs etc), and a good bank containing all the rest (loans to businesses etc). The deposits and other creditors could be split pro-rata based on the bank's existing accounts.

We might have to end up nationalising all the bad halves of these banks, but at least the good halves would be freed up to continue lending to industry and individuals (for non-housing purposes) and perhaps limit the effects of the recession.

from Ianthechopper..

"Also expect a renegotiation on Lloyds TSB and HBOS in Lloyds favour. Otherwise the rational thing for Lloyds to do would be to walk away."

Yes indeed ! Why isn't more attention being given to this ??? I mentioned this on an earlier post - and this is really a big accident waiting to happen...

Gordon Brown was on the Box this morning again, muttering platitudes about how Lloyds was taking over HBOS ,and they [government] were taking steps over B+B, restore stability as with Northern Rock, blah blah..

But the Lloyds / HBOS deal is NOT going to happen with the current market conditions and this threatens another 'bailout' being required which Gordon + Alistair have just not taken any account of ! This is surely a big story which needs investigation - soon.

53:

As you say, there's certainly no market in mortgages. New mortgages issued in August, announced this morning, were 98 percent down year on year. The mortgage business has either seized up or collapsed, depending how you care to express it. The housing market may do the same.

What you are describing, politically, is not communism. It is another model called 'state trust capitalism'. It is capitalist, but with the state owning all the shares. Some thought that was what the USSR really was. It describes China pretty well. The idea of this happening here is scary.

Which way we go from here depends on an issue that no one seems to be discussing yet - the very different nature of our society from here on.

Very many assumptions have now been blown away. Houses as investment. Mortgages. Trusting banks. Trusting regulators. Pensions. Gradually getting a bit better off each year. All exposed as either history or illusion.

My view is that our economy has been weakening for years, but we have lived an illusion of wealth paid for by debt, and by selling off assets. The main reasons for economic underperformance have been easy credit, excessive bureaucracy and interference, plus short term thinking.

Initially, we are likely to lapse into the national habit of blame-shifting. Look at who has been blamed over the years. Government. Europe. Benefit claimants. Immigrants. Foreigners. And so on. Now, bankers. Anyone but ourselves, in fact.

Instead we should see this as an opportunity to rethink our values. Sound finance, very constrained borrowing, encouragement of saving, greater emphasis on non-material values, importance of manufacturing industry, trying to break away from material greed if we can. Reduce bureaucracy, encourage constructive (rather than speculative) enterprise. This is a wake up call - do we respond, or lapse into the blame culture?

What is going to happen to the assets that they agreed to buy last week from GMAC?

The regulator (FSA) needs to step in and stop fly-by-night third party lenders from entering the market, originating mortgages, selling them on, making millions, shutting up shop and leaving banks and building soceties and utimately the UK taxpayer holding the baby.

A number of these same people will turn around, set up new lenders, get authorised by the FSA and do the same thing again once the market recovers. Mortgage lending regulation needs to be tightened to stop this happening. "Fit and proper" should apply to the management of mortgage lending and people involved, directly and indirectly, in the demise of other mortgage lenders should not be allowed to make money from any market recovery.

This mistake was made in the US where individuals involved in the previous S and L crisis became the same people who made millions from sub-prime lending and will come back again when the new US mortgage market emerges.

There are new UK lenders watiing to lend once the market recovers and I would suspect that the owners were involved in UK sub-prime lending in recent years - some of which contributed to the demise of certain UK lenders.

# 60

I agree re Lloyds/HBOS, it could come apart.

Which is why I've shifted a significant part of my funds out of HBOS despite being an customer since 1983 or thereabouts.

Andy 'the Bulgar' Grove (ex-Intel head honcho) says ... only the paranoid survive ... I'm beginning to believe him!

It seems that until every mortgage, every slightly questionable loan and every potential bad debt is guaranteed by the governments of the US and the UK in particular, and to a lesser extent, other western governments, the markets will continue to sell the shares and bonds of pretty much the entire banking sector.

That being the case, the ability and willingness of banks to lend to each other will become ever more impaired. A complete financial standstill seems a distinct possibility. This week might yet be considerably worse than the previous two.

This has a lot further to go.

RBS shares are now 20 percent down on the day......this can't be blamed on the short sellers now!

It's getting a bit like the Monty Python suicide sketch (you know, the one where people are seen falling outside the office window) ....except this time it's banks falling......

Look there goes another one!

Simple government cheerleading here I'm afraid. It'a terrible deal for us all. Admit the consequences please Mr Peston!

Whilst it will cost the banks, their collective losses will significantly reduce tax revenues. Will they be moving their headquarters overseas before the tax environment gets harsher?

i wish someone would talk more in book-keeping terms. Govt borrows to inject huge amounts into the Interbank market and to prop up Northern Rock etc etc. Where does this money come from ? Central banks do this as well - or is it all the same transaction. Where does the Bank of Englaand get the money from ? What is debited ? The reserves - whatever they are ! Does the UK Govt have an account with the World Bank ? Or with the Bank for International Settlements ? How much is there still available from wherever it comes if we need more ?? I feel a right berk asking this especially as I worked in the City for 2 decades - when not much ever went wrong. My old managers would NEVER and got us in this mess I know that for certain

# 67

Amongst the ongoing carnage, it has tended to slip under the radar a bit that virtually every few days now, another company decides to move its headquarters somewhere else to escape Browns clutches.

Although it is a truism that all Governments usually terminate through economic failure, the striking thing about Labour is the magnitude of that failure.

How do these people sleep at night?

why does it take nearly 2 hours to " moderate " my first ever message ?

Can I say Robert what a brilliant post!

Why didnt they save it and divvy out the spoils and I think the answer is because they have no financial accumen to muster between them all!

They are now on the hook to pay 11bn! In other words for the next 5 years they are wiped out profit wise. Paying their share of that and getting nothing in return is spectacular!

There is a Bradford and Bingley action group forming at

Ummm didn't santander buy the deposits for 600 million euros?

The worry about the estimated 9 billion cost is that it may well turn out to be throwing good money after bad. What if repayments are not met? The world of banking and finance has become a largely virtual affair, but has legislation adapted to this change? Shouldn't we go back to the beginning and set down rules better suited to the new economic model? And if it is so simple to write off financial disasters of such magnitude, why can't we write off 3rd world debt?

Mr. Peston, your coverage of events is so clear I find I am suddenly able to keep up with the issues.