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the problem I see and one they have said themselves is there has been no agreement for them all to take the same position on banking, meaning if one country goes harder on the banking sector as is needed and you suggest the BoE wants to do then they will just go somewhere where they already have a government in their pockets. Is it really a bad thing if the cost of borrowing goes up ? ,of course what really needs to be sorted out is who has the power to create money.

Robert wrote: Or to put it another way, the new era of so-called austerity is about a good deal more than a squeeze on the public sector: some percentage of the economic growth we enjoyed over the past 20 odd years that was generated by the availability of cheap bank debt, well that's gone.
----------------

Don't worry, Robert, the exponential growth will be restored after WW3. Preparations are under way.

It's the nature of the system, to continue its growth it has to restore a big chunk of the capital every now and then.

In the meantime, all these talks are just smoke and morror.

It has taken them nearly three years to come to the conclusion that a lot of people have been saying on this blog since the crisis started. Unbelivable.

Regarding risky activities, there is still no capital gains tax on derivative products such as CFD and spread bets. How much sense does that make? What is more speculative or socially useless?

Here's a lovely equation for you:
The amount of money in a fiat economy (ours) = government deficit + bank lending + balance of payments.

With a neutral balance of payments and no bank lending, the deficit determines how much money we all have. Wierd, but true.

Today the "markets" are making it hard for us to borrow more deficit, and the banks are calling in their loans, so we're going to feel poorer. For the UK, the only way forwards is to do the minimum deficit reduction possible to keep the markets happy, while trying to achieve a neutral balance of payments. Without this we will just continue to fail.

Germany and China are equally messed up over the long period, as their positive balance of payments means that they are sucking money out of other countries, so increasing their bank lending and deficit. It's just not sustainable.

Its all about balance: lets get our exposure to banks under control, and get them off our backs. At the same time, let's try to sell the world more stuff/ import less so we can balance our books. This is going to be the only way towards financial stability. Chasing GDP growth is so last century!

By insisting that banks stand properly on their own two feet, we are ordaining that their costs rise, that their profits will fall and that their ability to provide cheap credit will be constrained.

So they will find it difficult to describe themselves as a profitable business, is that what you are getting at?

If that is right, then they can do what every other industry has done. Pay off the workers and ship more of themselves to somewhere else. They might want to note the Bangladeshi factory clothing workers have been on strike, demonstrating in the streets etc before they continue decide to send of the work for their lower-paid staff.

It is called market forces.

Such a shame none of us will see them down the dole being told a cut in their £65 a week is what is required and from that you'll have to pay rent (PS the electricity is going up too) and sorry there are no jobs - because they are so rich it won't happen to them, just us lesser mortals.

Or to put it another way, the new era of so-called austerity is about a good deal more than a squeeze on the public sector: some percentage of the economic growth we enjoyed over the past 20 odd years that was generated by the availability of cheap bank debt, well that's gone.

But it was pretend growth, was it not? And we won't be able to afford to pick a war with Iran! That's nice. And for those hoping to hold onto their baning jobs,never mind, Oliver Stone has made a new movie so that should cheer us all up.

"Combined with the introduction of maximum bank leverage ratios, or ceilings on the gross amount banks can lend relative to their capital, this would represent a return to the kind of prudential standards we haven't seen for perhaps 50 years - the more so, if Paul Tucker of the Bank of England gets his way and the risk-weightings attached to different types of loans become subject to continuous review."


This is key I think - the risks in mortgage lending increased dramatically as lending criteria relaxed - self cert, 6x earnings, etc.

With a continuous review of the risk-weightings the costs to the banks could have been increased as they engaged in ever riskier lending, which would have helped stop the madness that ensued.

I agree that there is a complete lack of candour in the public debate about what these capital and liquidity regulations will mean for the future economy. I also think there is a complete lack of candour about explaining the herculean effort that will be required to refinance the banks' wholesale funding over the next 3 years and what this will mean to all of us.

4. At 10:40am on 28 Jun 2010, 3g3z9p wrote:

Regarding risky activities, there is still no capital gains tax on derivative products such as CFD and spread bets. How much sense does that make? What is more speculative or socially useless?

.................................................
Not true. CFD's are liable to tax. Many people do not seem to realise this and leave themselves open to prosecution by HMRC, can be very expensive.
Spread bets are as the name implies a bet, like putting £10 on a horse in the 3.30 and in HMRC's experience has a similar outcome, ie more losers than winners. Not wishing to get into the minefield of tax reclaims on losses HMRC take the view they are happy with taxing the profit of the facilitating company.

As for speculative/socially useless well not necessarily so. Apart from the tax on the companies (socially useful) they are also useful for protecting my bank savings. Shorting the pound against the CAD has done a great job of preserving my wealth whilst the government fritters away the value of the pound. Therefor not speculative at all just a simple insurance policy.

Robert wrote:

"some percentage of the economic growth we enjoyed over the past 20 odd years that was generated by the availability of cheap bank debt, well that's gone. "

The biggest tragedy for the UK was that we were fooled into thinking that house price inflation was growth! We wasted most of our potential growth in credit on house price inflation. This puts the UK in the same league as Japan - absolutely bu****ed when it come to recovering! (And worse still we are still 'hoping' house prices will rise rapidly again - this path leads only to absolute economic ruin!)

Slowly but surely the penny is dropping: the fantasy is over.

Sadly, if you have a job or a way of life in any way connected with the fantasy or in any way dependent upon the fantasy economics then you are in for a rough ride.

The tragedy for the UK is that we have been at the centre of the fantasy and an active participant in the fantasy economics. It is going to hit us harder than most.

All that is happening belongs to the Department of the Very Obvious and, as others have pointed out, why has it taken so long? It will take a while longer for the need to break up the banks to become inevitable but it will happen. The need for larger reserves is a no-brainer from my view.

You say, Robert, quite rightly, that the Age of Austerity will mean a great deal more than just cutting the public sector. Eventually it will change attitudes and culture.

A lot of the stuff sold over the last 20 years or so and imported at great cost to our economic base has been quite unnecessary. The productivity boost brought about by the silicon chip was largely over by the late Nineties. There has been nothing since, other than the War of Terror; a conflict the West has fought wearing a burka the wrong way round.

With any luck we will become grounded in harsh reality with the understanding that without creating value there can be no growth and without sound money and a sound economy there can be no value. Until we reach that point recovery is just another piece of irrelevant verbiage.

"5. At 10:41am on 28 Jun 2010, Crookwood wrote:

With a neutral balance of payments and no bank lending, the deficit determines how much money we all have. Wierd, but true.

Today the "markets" are making it hard for us to borrow more deficit, and the banks are calling in their loans, so we're going to feel poorer."

Exactly.

If banks are going to increase their capital ratios, in order to avoid another crunch, we will go even deeper into recession, unless the available money supply is increased. It is unlikely that the Chinese or Germans will suddenly release their stocks of foreign bonds and currency, by having an import spree or even by buying up more of our capital assets. So the only sensible thing to do is to allow the accumulated public debt to continue to increase for another year or two and maybe do some more "quantitative easing".

The "markets" need not be allowed to determine economic policy. Unlike Greece, which
foolishly gave up the Drachma and its central bank, without gaining access to any alternative mechanism for managing its public debt, the BoE can intervene on behalf of the UK government to set interest rates. If these operations were to cause the sterling exchange rates to go too low, cooperation, with other G20 countries, particularly the US, could easily correct this.

In the last resort the UK government could simply suspend the London currency markets until sanity is restored, and then reopen after an auction.

@1 romeplebian "what really needs to be sorted out is who has the power to create money."

Got it in one! Banks create money out of nothing and charge other people, including governments for it. The banking crisis has removed significant anounts of money from the system, leading to the recession - now maybe a double dip as public and private spending is squeezed.

What needs to be done is an analysis over the western world as to what how much currency is necessary to be in circulation to ensure that an optimal amount of economic activity. Then they should bypass the banks and print it, giving cheap loans/tax-credits to selected businesses and individuals: just like QE, but using it directly for the benefit of the real economy, not the banks. Then, at a later date, if necessary, they can remove money from circulation by taxation.

This would be a Social Credit type strategy:





What also needs to happen is that taxation and legislation be used to discourage speculation, as opposed to genuine investment. One strategy here could be a punitive short term capital gains tax.

Nick, don't you understand that by UK tax payers underwriting the payments on loans the government has used to 'bail out the banks', and trying for banks to keep more capital reserve for making loans (back to the tax payers) that our money is dissapearing in a black hole.

I mean, for us to lend money to these private banks that they then use as the basis of 'capital reserve' to make new loans to their customers' is an outright fraud. We are giving them our money to lend back to us at interest! that is taking the biscuit...

The UK Government needs to take hold of the reigns and stop private banks from creating new 'money' (the multiplier effect - fractional reserve system) as loans on their balance sheets. Only money that pre-exists should be able to be lent by any financial institution, be it a bank, building society, investment company etc.

The Bank of England should be the only institution allowed to create new fiat money in this way, and only when the needs of the economy, not those of the banks' requires it. This way the economy is put first and not the mega-banks.

I encourage everyone to look in to the proposed Bank of England 2010 reform act. just search "bankofenglandact 2010" and you should find it. Read it, and how it will help this country and ask parliament to support it please.

That's completely fair enough that these new rules are being phased in (although you can bet that until they are the banks will be kicking and screaming to try to get them cancelled!), but indeed they should lead to higher costs of capital once they have this implicit government guarantee taken away.

But the question you have failed to move on to, which is in fact the most important and relevant one for the wider economy, is how this will affect the price of the banks products for its customers (i.e. its loans to small businesses, the interest rates it offers private savers etc etc).

You may say that automatically these prices will go up, but not necessarily so.

Not if you introduce some proper competition into the market place, some new entrants, some greater transparency, limits on the ability to use high market shares to influence prices.

I'd like to see:....

- 10 more sizeable banks operating independently of the big four within two years
- market share dominance defined in all financial product sectors as 10%, not the 30 or 35% that it appears to be now. This would lock in a better competitive environment.
- greater transparency - new accounting rules above and beyond what is required for ordinary companies, specifically for those companies involved in money only products (this includes banks, insurance co's, betting companies, so called "investment" banks incl the Squid, building socs etc etc), forcing them to put quasi management accounts into the public domain.

And while we're about it (and there have been some encouraging noises about this from the IMF) we need to remove this ridiculous subsidy of debt that we British taxpayers hand out, which costs each and every one of us big time.

If debt was not tax subsidised by all of us, yes, it's price would go up, but at the very same time the price of equity would come down, and we'd end up with an economy (i.e. our businesses) structured in a much more balanced and resilient way.

The economic system that we have at the moment is not broken, it is just plain wrong. Post WWII economic conditions no longer prevail. The society of post WWII no longer exists. The whole mindset of the 1950's is clearly a bygone age. Today we need new thinking and new ways. Not old thinking and old ways. Time to move on people. Here are a few new ideas
1.All profit returned to the collective for the good of all and not the few.
2.All taxes abolished as a result of 100% 'Professional state' management of GDP profit.
3.Salaries based upon company profitability.
4.Public sector pay set to UK average for comparable positions.
5.Benifit system to continue as now.
6.'Political governmet' should be seperate form 'Professional government'.

I'm sure its workable and will produce a happier society.

6. At 11:00am on 28 Jun 2010, copperDolomite wrote:

Such a shame none of us will see them down the dole being told a cut in their £65 a week is what is required and from that you'll have to pay rent (PS the electricity is going up too) and sorry there are no jobs - because they are so rich it won't happen to them, just us lesser mortals.
......................................

What are you saying, that these people are not smart enough to use the benefits calculator to discover they can also get housing benefits or is it because they haven't blown their savings on a new car yet?

Some very complimentary comments have been attributed to the Chancellor concerning the recent Budget propsals, however considering that UK ‘s current financial deficit was not brought about by the public’s mismanagement of affairs but rather by the 13 years of a Labour Government and irresponsible behaviour by the Banks and financial services. Yet this new coalition Government are about to instigate a heavy bout of taxation against the same innocent tax paying public.

There is an alternative case however that could be considered by the Government in respect to reducing the Budget Deficit. An estimated £ 327 billion, can be gathered, far more than the Government would need to save to fund the budget deficit of approximately £ 155 billion.

In 2007 according to official figures £ 167 billion was wasted on quango’s, now no doubt that figure is probably closer to £ 200 billion. Added to which another £ 60 billion is paid out to around 800,000 bureaucrats installed in the NHS. Estimates of only 400.000 medical staff are employed by the NHS, and apart from many being paid very low salaries, whilst being overworked, are having to cope with the continual changes made by the bureaucrats calculated it would appear to sabotage the NHS.
Over £ 100 billion was wasted on EU regulations according to the Governments Better Regulation Task Force Annual Report 2005, with a foreward by Tony Blair.
Since then the waste in these areas has got much worse, yet still it appears the Government will not publish the full figures. In consideration therefore, if this present Government cuts all the waste at 2007 levels, it would save £ 167 + 60 billion which equates to £ 227 billion, and probably save Industry another £ 100 billion, totalling £ 327 billion, way beyond what is now required to clear the budget deficit. So why is the question; do the Government not make these massive savings?
One can be forgiven for thinking- Is it to tax the nation until it collapses; to continue to fund its bloated life styles and waste, or to save the nation and cut out the offensive monumental amount of waste currently polluting the United Kingdom.
Your view on the above would be much appreciated.
Thanks

> this would represent a return to the kind of prudential standards we haven't seen
> for perhaps 50 years - the more so, if Paul Tucker of the Bank of England gets
> his way and the risk-weightings attached to different types of loans become
> subject to continuous review.

Normal people already know that risks change continuously, so they must be reviewed continuously.

But we had to have this crisis before the banker-cretins could grasp it. Tell us Robert - who hired these dunderheads? And why?

To the ordinary person in the street then it means minimum 25% deposits for loans which in turn will mean:

everyone has to save again
while we're saving we're not spending
not spending means the recession
recession means spending little saving what you can
Stagflation
Deflation

I know a country called Japan and they survived because they made things and bought their own produce (and a few whales)

I know a country called the UK that makes little and survives by offering "services"

Services that people dont want when they are saving

"Or to put it another way, the new era of so-called austerity is about a good deal more than a squeeze on the public sector: some percentage of the economic growth we enjoyed over the past 20 odd years that was generated by the availability of cheap bank debt, well that's gone. "

That's the success story of this summit if true. We'll see. Of course, the downside is when politicians implement social policies designed to work on the back of cheap credit. Has anyone pointed this out to Osbourne yet?

The more I read this stuff, the more obvious it becomes that the monetary system is no longer fit for purpose. Governments are looking for a measure that will 'fix things', but each measure has its downsides, that could make matters worse. The governments plans are all in the same situation; options are no cut backs, and Greece mark 2, or cutbacks, which will result in an even worse recession. The Government is pinning its hopes on economic growth, with no plan B. Why do we even need economic growth? Because we need it to continue our debt based monetary system of our own creation. If you tried to explain it to someone visiting the planet they would think we were nuts to have such a system. I enjoyed reading this article, it helps to understand the gravity of the situation and how crazy it is.

I think I heard some politicians trying to hint that the banks can go some way to raising their capital ratios by not paying bonuses to themselves and in the process improve their tarnished image.
Indeed it would be stupid to get into situation where tax payer has to give the banks the money needed to improve reserves and instead of giving fixed capital amount needed immediately banks should be forced to put away a certain percent of profit pre bonus.
cheap credit isnt necessarily a help to the economy we all know it has just lead to reckless overborrowing, so being afraid to get banks to put their house in order in case it raises cost of new borrowing is not rational.

We have failed to grasp the lessons from the recent banking crisis which is that the financial industry is too clever for the regulators, the politicians, the financial journalists and the civil servants. All we are doing at the present is lining up the chairs on the titanic whilst ignoring the functional problems of global finance. The people that run England are all outside of UK government control and many are close bed fellows of the existing governmnet.

17. At 12:24pm on 28 Jun 2010, Seer wrote:

The economic system that we have at the moment is not broken, it is just plain wrong. Post WWII economic conditions no longer prevail. The society of post WWII no longer exists. The whole mindset of the 1950's is clearly a bygone age. Today we need new thinking and new ways. Not old thinking and old ways. Time to move on people. Here are a few new ideas
1.All profit returned to the collective for the good of all and not the few.
2.All taxes abolished as a result of 100% 'Professional state' management of GDP profit.
3.Salaries based upon company profitability.
4.Public sector pay set to UK average for comparable positions.
5.Benifit system to continue as now.
6.'Political governmet' should be seperate form 'Professional government'.

I'm sure its workable and will produce a happier society.

......................................................

Great idea! I was on the brink of closing my business when reading your point 1 but then I read point 2 and 3 together and discovered if I just raise my salary each year to represent all of the companies profit and then pay zero tax on it I will be much better off. It will certainly produce a happier society for me!.

*
11. At 11:38am on 28 Jun 2010, John_from_Hendon wrote:
Robert wrote:

"some percentage of the economic growth we enjoyed over the past 20 odd years that was generated by the availability of cheap bank debt, well that's gone. "

The biggest tragedy for the UK was that we were fooled into thinking that house price inflation was growth! We wasted most of our potential growth in credit on house price inflation. This puts the UK in the same league as Japan - absolutely bu****ed when it come to recovering! (And worse still we are still 'hoping' house prices will rise rapidly again - this path leads only to absolute economic ruin!)
****
TOTALLY AGREE.
The root cause of the situation we find ourselves in now was low interest rates, being too low for too long.
"We didn't see this coming was the call"
You mean they didn't want to see... was the realistic answer, because there was no votes in the reality.
It amazes me that politicians who mess up can just walk away without any penalty, blaming everyone else.
If they were stripped of their pensions and not allowed to hold any office again, would make the next in line think twice before putting the countrys finances behind that of the holy political party they represent.
"Off with their heads"

"19. At 12:52pm on 28 Jun 2010, taylor wrote:
Some very complimentary comments have been attributed to the Chancellor concerning the recent Budget propsals, however considering that UK ‘s current financial deficit was not brought about by the public’s mismanagement of affairs but rather by the 13 years of a Labour Government and irresponsible behaviour by the Banks and financial services. Yet this new coalition Government are about to instigate a heavy bout of taxation against the same innocent tax paying public.

There is an alternative case however that could be considered by the Government in respect to reducing the Budget Deficit. An estimated £ 327 billion, can be gathered, far more than the Government would need to save to fund the budget deficit of approximately £ 155 billion.

In 2007 according to official figures £ 167 billion was wasted on quango’s, now no doubt that figure is probably closer to £ 200 billion. Added to which another £ 60 billion is paid out to around 800,000 bureaucrats installed in the NHS. Estimates of only 400.000 medical staff are employed by the NHS, and apart from many being paid very low salaries, whilst being overworked, are having to cope with the continual changes made by the bureaucrats calculated it would appear to sabotage the NHS.
Over £ 100 billion was wasted on EU regulations according to the Governments Better Regulation Task Force Annual Report 2005, with a foreward by Tony Blair.
Since then the waste in these areas has got much worse, yet still it appears the Government will not publish the full figures. In consideration therefore, if this present Government cuts all the waste at 2007 levels, it would save £ 167 + 60 billion which equates to £ 227 billion, and probably save Industry another £ 100 billion, totalling £ 327 billion, way beyond what is now required to clear the budget deficit. So why is the question; do the Government not make these massive savings?
One can be forgiven for thinking- Is it to tax the nation until it collapses; to continue to fund its bloated life styles and waste, or to save the nation and cut out the offensive monumental amount of waste currently polluting the United Kingdom.
Your view on the above would be much appreciated.
Thanks "
And yet it was the private sector, in the form of the banking system, the refused to behave responsibly that led to the credit crunch that brought on the recession that led to a fall in tax receipts that made a significant contribution to the governments budget deficit. But you would rather punish the public sector instead. A sector that is subject to far greater public scrutiny than the private sector, and which for the most part does not involve a bonus making risk taking culture. I'm sure there are plenty who dont pull their weight, but at least they didn't bankrupt the country in the first place.

(So the G20 leaders might be catching up with people who post comments on RP's and SF's blogs, wow, perhaps RP/SF ought to catch up with them as well by responding in general to posts both here and maybe also when on the box.)

Anyway alongside the dynamic capital requirements, why are we not discussing dynamic loan to value requirements as well? At least in the UK with asset bubbles, particularly residential property, the idea of large deposit in boom lower deposit in bust would seem to make some sense (aligned to house as savings, avoiding negative liquidity etc.)

@ 26. At 1:42pm on 28 Jun 2010, Uphios wrote:

> Great idea! I was on the brink of closing my business ...

Don't hestitate if it's a "finance" business. We need only
the miniumum necessary to service the economy; the rest are
just free-loaders.

Sadly all this tough talking is likely to amount to a big fat zero. They are talking about a fragile recovery. A recovery in what, credit bubbles?

One piece of the regulatory jigsaw was always going to be a bit of banking reform that could have amounted to something, but why bother, when there's a (credit bubble) recovery to fix up?

But bank regulatory improvements alone were not genuinely going to make things right. Other things would be needed, not least better company reporting standards. i.e some credible accounting requirements, things like that as well perhaps? We all know Glass-Steagall is a goner (has been for over a decade.) But what about Sarbanes-Oxley, introduced in the wake of the Enron and Worldcom scandals? Being fairly recent and given the recent banking meltdown, laws like that should be safe for now, right? Wrong...



But hey! At least you'll be able to own your own gun in Chicago, can't all be bad? Why bother with financial reporting standards, when the US is determined to back off on civilisation? Rareified things like that just aren't needed in the wild west...

#27

Indeed so, regarding house price lunacy.

Napoleon allegedly said we were a nation of shopkeepers. If that was all we did, that would be bad enough. But we got completely the wrong end of the stick by then racing to become a nation of amateur landlords. At least the coalition has shunted up CGT to try to forestall some of this. 2.5 cheers - lose 0.5 points for not upping it for all and to 40%.

Who knows - we might even find working folk then investing in something useful such as our productive companies. Younger people might be able to afford a house, even though they would be paying sensible interest rates. Developers might stop the speculative building of shoddy appartments for the 'buy to let market' (IMO "buy toilet") all over green land, so ratcheting up the feedback mechanism.

Commentators talk about growth being the only way out of recession. Maybe so, but excess house price inflation is not growth it's merely a trickery of GDP statistics.

The financial industry mafia will continue to use extortion with the governments and the governments are making these small changes simply because the people will not longer accept the abuse the governments heap upon the people to protect the wealthy.
Bankers will continue to argue that they have a right to steal, it is at the core of the banking industry.
Pitful expressions of representative government that are unwilling to protect the people from these greedy criminal organizations. As each government is faced with issues primarily caused by assuming the bad debt of the banks. The banks accept no responsbility in the future for paying back these bad loans that their elected handmaidens made the debt of the people. Corrupt governments arguing technical matters and reserves when the issues are about taxpayers assuming private debt of the banks with the added insult of higher interest to pay off that debt. The Victorians are in charge as the next economic revolution is on hold because of the corruption required to maintain the status quo.

I am amazed that I am having to write this because no one else has picked Robert up on the blindingly obvious point that his blog misses.

The price of borrowing will rise and almost certainly by a decent amount. This should have been obvious to anyone with anything more than a basic grasp of economics or business.

For too long in the early part of this decade up until 2007 the price of borrowing was subsidised by a number of complementary factors within the banking sector.

1) There was an increase in the supply of capital to lend partly from foreign banks coming into the UK market most noticeably the Irish and Icelandic banks who saw the UK as another stable market to develop their business outside of their relatively small home market. The same could be saif of ING with their market leading ING Direct arm. This was aided by American financiers such as GE Capital, MBNA, Lehman Brothers et al who sought to export their US based growth models to the UK. One of the first things you learn in economics is that an increase in supply leads to a fall in price. This tends to lead to an increase in demand.

2) The global upswing and the apparent affluence in the UK backed by rising property prices fooled people into borrowing more money and releasing equity from property. Much of this "affluence" was merely a paper increase in wealth built upon both a rising stock market and also a property boom that had grown beyond any rational sensible level. This bubble had to burst sooner or later.

3) The paying down of government debt meant there was not the supply of long term debt to meet demand from banks and life assurance companies and others for a fixed income for their liabilities to pensions. This had to be met from another source hence so called safe CDO's and CDS's. The banks thought this passed the problem on and borrowed their assets out again and again. Anyone unsure why this was bound to go wrong merely needs to google the phrase "LMX Spiral".

Robert, we are moving back to an era where credit will be given out on sound economic grounds and at a fair price. Those of us that haven't over extended ourselves can accept that a short term over supply of capiotal has come to an end and rather than the age of austerity we are acttually entering an era of common sense after a period of irrational exuberrance. Those that have over extended themselves well they are going to struggle.

RP:

"banks would be forced to hold core equity capital equivalent to 10% or more of their risk-weighted assets "

++++++++++++++++++++++

How is this value going to be determined when the 'risk-weighted assets' could not be correctly valued or rated in the past and probably still cannot be?

BTW, I see that the US banking regulations have been tightened so we will inevitably follow suit (a good thing if we do).

Banks WILL HAVE TO HOLD MORE CAPITAL


what will constitute capital....gold,silver,diamonds land


No, something of immutable and absolute value ....Government debt in the form of gilts

lol


The government will have no trouble offloading its up the swaanee mark to book debt onto the banks to replace the banks own off balance sheet up the swwaanee mark to book assets .



Fiat currency is to the western world what AK47's were to communism

Shireblogger at comment 9

"complete lack of candour" - is that the same as the lying liars are lying to us again?

Averagejoe at comment 23

underlining his suggestion to read

We are in an unprecedented global situation, there is no road map because nobody has been here before.
I suspect that current efforts by our politicians are patches on an already perished inner-tube. We should demand honesty and expect some credible long term solutions rather than .....

Cameron spins "tough but fair" at G20. No tough and regressive. & 'Tough and courageous'. No tough and mean spirited.

How dare they try and justify the VAT increase as progressive by pointing out that the rich pay more VAT than the poor because they spend more. True but for the rich it is discretionary for the poor essential.

This typifies the callous nature of the Tories (and now the Liberals) who do not recognise (or do and don't care) that the rich have voice & choice the poor do not.

Don't wait for the promised cuts, which will be another blow to the less well off, protest now - write to your MP and go to his/her surgery, go to demonstrations ,question everything.

My questions are -
When are we pulling out of Afghanistan?
When are you cancelling Trident?
Why have the Kelly papers been locked away for 70 years?
Why are most police forces holding DNA illegally?
Why such a derisory tax on Banks in the budget?
Why is Gove wasting money on the failed Swedish type school initiative?
Why wasn't Israel condemned for it's most recent atrocity?
Where are the jobs coming from?
Why shouldn't capital gains be taxed at the same rate as income?
Why don't you tax aircraft fuel?
Why do we need a new aircraft carrier?
Why can't the 50% tax rate level start at £100,000 and 60% levied at £150,000?
Why is Cameron acting as Obama's poodle (as Blair did with Bush)?
++++++

Robert,

We, the 60 million public, provide (or some may say given the Hobson's choice) very cheap credit to the banks.

@23 Averagejoe

I took the www.chrismartenson.com Crash Course a couple of years ago.

Everyone should do it.

Or to put it another way, the new era of so-called austerity is about a good deal more than a squeeze on the public sector: some percentage of the economic growth we enjoyed over the past 20 odd years that was generated by the availability of cheap bank debt, well that's gone.
----------------------------------
Some of us never had cheap debt, in the absence of being able to get a bank loan for a house move we resorted to a loan shark. The bank lost out, we paid that debt back including interest several times higher than the banks was. We had no choice at the time, we had to move. If the bank had loaned us the small amount we needed we would have paid it back in less time, but of course thats the problem, it was a 'small' loan and would have been paid back in a short space of time. By comparison my mother has a loan and keeps being pestered to extend it and take out yet more, which if she does will not be covered by insurance and she doesn't need. The point is, the banks have gotten greedy, they want more and more of us to get into debt, that is how they make their money, by customers debt.
So as much as I keep seeing the whole banking system will change how it does business and take less risks. No it wont, it has to take risks, it has to keep pushing more and more customers to take on more debt at a higher cost to themselves. Based on this, I think I will take my chances with my friendly local loan shark should I need a loan in future.

Arh dear the landslip that occurred a while ago. Hmm yes I remember that one. And the crowd that gathered around waiting for the ground to float back up. And the sage called Darling who appeared at the edge of the slip and said yow will arise I have forcast it. Must have read about the floating islands that Gulliver talked about.

Anyway just what is so bad about reality. Oh yes its going to cheese off a whole load a people. That really bothers me.

Best just relax back in the bathtub matey. Get the rubber duck out.

As I am rereading ol' Nics manual for dealing with troubled times - 'The wish to acquire more is admittedly a very natural and common thing; and when men succeed in this they are always praised rather than condemned. But when they lack the ability to do so and yet want to acquire more at all costs, they deserve condemnation for their mistakes.'
Niccolo Machiavelli

What we need is a man to save the world, oh sorry, I forgot, we had one.

Robert wrote 'it implies that banks would be forced to hold core equity capital equivalent to 10% or more of their risk-weighted assets in the good years, perhaps as much as 12%, falling to a minimum of 4 or 5% during a downturn.'

Surely, core equity capital needs to be greater in a downturn, when there is more chance of high loan defaults upsetting confidence, than in the good times

34. At 4:03pm on 28 Jun 2010, Ian_the_chopper wrote:
I am amazed that I am having to write this because no one else has picked Robert up on the blindingly obvious point that his blog misses.

The price of borrowing will rise and almost certainly by a decent amount. This should have been obvious to anyone with anything more than a basic grasp of economics or business.
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You think that. I think that. But we seem to be the only people on the planet that do.

Our previous Government thought that depressing saving was a good idea. Our present Government seem to think the same but according to recent figures, UK households are ignoring them and the rotten returns and are starting to do it once again.

[I suspect there is a 'hole' in the statistics and that it is well-to-do households investing in asset 'things' (gold, paintings, etc) having paid off short-term loans, credit cards, etc. Looking at rough numbers, I find it hard to believe anyone on £24K pa or less can save at present.]

We talk about safe capital for banks but we seem to want to keep on using funny money to create it.

" 'Ere Pete, funny I fought, after I paid for my beer I fought it tasted, well, sort a funny, like. " "Well Dud, it's because you paid for it with money that is unsound. " "Whot sorta sound does money make, Pete?" "It has a solid and strangely reassuring deep and melodius ring to it, Dudley, as if a gold bar was dropped on the marble floor of the Old Lady of Threadneedle Street." "Oh!" "Can't she afford carpets, then Pete?"

43. At 10:02pm on 28 Jun 2010, Up2snuff wrote:

That kind of sums it all up when you think Pete and Dud had a better grasp on economic reality than most!

I have an idea which could assist with this along with our other structural problems.

The UK has a built environment representing about 10% of the land mass, whereas other European countries can be more like 12%.

If we were to release the land, much would happen:

- over-inflated property values would reduce
- personal property-fuelled credit would fall
- house price/earnings ratio would return to a sensible rate
- opportunities for business and residential development would abound, creating employment (local) and affordable housing
- low interest rates and modest inflation will protect those heading for negative equity (they can simply sit tight - after all a house is a home more than it is an asset in one's portfolio)

Myabe as a bonus, we might lose a few (more) estate agents!

Morning Robert,
your blog seems to imply that the tough measures required to make our banks "safer" have been postponed for now.
As Shireblogger above points out, how are the banks going to raise the £800 billion that they need to refinance over the next 3 years???
We need some informed comment from you on this, Robert.

Excellent comments especially 14, 15, 23 and 33. Robert keeps saying we need to get the banks lending more to get the economy moving again. Why, perhaps because he used to work for a bank ? Why can't the government or Bank of England create new money at zero interest, to match growth in new business and population ? As others have said, especially John from Hendon, the economic growth of the last decade is just a huge increase in house prices and debt. As 15 says have a look at Bank of England reform Act.

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

48 Michael Jackson must have seen "Miracle in Milan"




prophetic to say the least!

Apart from miracle in Milan what did the Romans ever do for Michael

48 No complaints ,it was a fair cop guv,you dun me bang to rights.lol

What was the tipping point a]bwanana b]allgorythm or c]bottom line


Miracle in milan ,an early attempt by bankers to hand out free credit cards

simondav, Archytpe,
I have looked at the Bank of Englan Reform Act, and I agree with almost everything I have read except the idea that the BoE should determine how much 'deficit spending' the government are allowed to do. I can see why people do not trust the government not to just spend money purely to get elected, but then it also means that democracy is undermined to some extent (as it is currently), and it can be got round by appointing BoE members who will simply do whatever the government want them to do.

A better solution might be to allow the government to instruct the BoE if it likes but to enforce in law that the BoE publsh whatever decisions is takes or is instructed to take, within 48 hours of taking them, so the public can kick out the government if necessary.

Given the huge insight many bloggers and blog commentators have about this now, it would not be unreasonable to expect the public to make the right choices.

Kind Regards

The changes are peripheral and I think reflect that national and international politicians are generally completely out of their depth on the key and related issues ... how to have a safe and active economic system without destroying the planet and creating gross ineqaulities around the planet.

The politicians seem to be seeking for a great 'knock out' summit meeting and agreement for which they can take personal credit and until then, the global economy with crawl and splutter in many countries and regions while other exploit the global resources and profit from the resource shortages of others.

Global transparent accountancy standards?
'New money' to direct and alter banking behaviour?

Until we have these making progress alongside banking reform ... the world economy will, overall, be in slump mode.

The other way of looking at the current world economy is that the current 'slow-down' is very important and something to be welcomed otherwise the world population will destroy the planet's fragile eco systems and resources much more quickly than by global warming ... as our mindless amd economic political class puruse antiquated and idiotic growth policies which exacerbate this damaging consumption.

The politicians are still pandering to the vested interests and ignoring that sustainability is now more important than 'growth' ... and what is needed is a gloabl agreement on localised contributions to sustainability and economic growth so that global 'bottom up' sustainable sustainable growth strategies e.g. for business, employment, infrastructure can be employed that is right for individual countries and economies as encouraged by ending trade deficits and other imbalances and in equalities. This means that GATT and trade tariffs should become much more high profile.

This could mean e.g. irrigating the Sahara and having better green transport agreements and appropriate import/export trade tariffs.

Growth will not mysteriously happen with our current outmoded universal money until/unless there is another credit boom, of one form or another ... sooner or later money will start to be over-printed again ... and another damaging economic credit boom phase will ensue

The signals are ... change most of our 'universal outmoded and dangerous money' into something more stable and less risky ...and the banks will have to reorganise themselves in order to adapt and make 'profits' through sustainable beneficial enterprise. This is far more effective and quicker than waiting for Basel fiddling to be consigned as useless and to history.

What nonsense it is sugested that banks will be able to avoid public/taxpayer intervention/bailouts if they hold core equity capital equivalent to 10% or more of their risk-weighted assets in the good years, or perhaps as much as 12%, which may fall to a minimum of 4 or 5% during a downturn.

It basically means that instead of taxpayers having to face a possible 100% bailout, there is still a REAL reality of a 90% bailout or 88% bailout or 96%/95% in downturn years.

To say that it is impossible for such an outcome to happen again is no different to saying that Germanys goalie couldnt and wouldnt just kick the ball over the heads of England players and result in a simple goal, just wouldnt/couldnt happen COULD IT!!!!!!!

I'd like to know what will prevent massive losses if access to a sell button was denied.

The reality is that for instance presently a banking gambler can have £100,000.00 to gamble with, they will use that £100,000.00 to access £10 million or even £50 MILLION of funds to gamble with and keep their finger close to the button so that if the gamble goes wrong then they ONLY lose their own £100,000.00 and the £50 million they borrowed is safe.

But what if there is a fault, system failure, power cut, virus, or any number of other incidents that denies access to the gambler to minimise their losses. The WHOLE amount can still be lost, they could still lose upto 90% or is it 900%, ABOVE their actual cash holding so who will pick up the bill, because once again they will not be allowed to totally fail because it would just instantly impoverish the WHOLE world, but such an incident would result in much greater damage than this time.

My point is, is that sometimes even the MOST SIMPLE and OBVIOUS threats dangers can manifest themselves, JUST BECAUSE they are so obvious and unlikely.

This NEW condition, when IF ever fully implemented, which is doubtful, will basically restrict the gambler to only gambling with £900,000.00 of non held money, they CAN STILL gamble with an extra 900% that they DO NOT have and LOSE upto 900% of funds that they DO NOT HAVE, (£900,000.00 is 900% of £100,00.00), hence though the risk to taxpayers has been reduced, the FACT is is that it STILL remains and the TOTALITY of the amounts of money actually has NO RELEVENCE or BEARING.

ALL this talk of protecting taxpayers is just a pretentious CON/LIE, the ONLY FACTUAL way that taxpayers can be protected, FULLY or PART, is whereby banks actually have 100% of the funds/money that they gamble with and present plans to make them have 10% or 12% is STILL a LONG LONG way off from 100%.

HENCE, REMIND ME.......... WHO EXACTLY IS GOING TO COUGH UP THE REMAINING 90%/88% IF NEEDED, which by the REALITY of 1920s/1930s and todays present disaster is actually and FACTUALLY MORE likely to repeat itself in the future, than to NOT repeat.

Can anyone answer my question about the UK budget deficit? Does it include the interest payments on the loans taken out to bail out the banks?

I suggest everyone who has posted here, reads this:

and then you will all realise this debate of capital reserves is just a big red herring.

A sticking patch on the banking rules, designed to prop up a system which is on the inexorable path to failure. The Problem with our monetary system is a systemic one and is mathematically provable to fail.

So no amount to G20 summits with the bankers who want to continue the system of economic dominance, will detract from this.