The credit crunch, banking crisis, thread

Well, yes. It's a bit silly to lend money to people when there's no realistic expectation of them ever paying it back. What do they teach them in those business schools?

The most galling thing is that it was so effing obvious. It's been frustrating to watch this huge credit bubble build over the last few years and realising that no-one was going to see sense and deflate it. It’s all down to wilful, short-sighted greed by the banks and the fact that governments can’t resist basking in the feel-good factor.

Okay, you could argue that individuals are responsible for borrowing too much based on too little, but the financial sector should’ve known better. And the knock-on effect of *their* stupidity is going to affect everybody.

A sixth-former could’ve understood the lunacy of the sub-prime market if it was scribbled on the back of an envelope by... another sixth-former. The banks must have known. Bastards.

p.s. My father-in-law has always argued for the nationalisation of banks. I think he may have had a point.

p.p.s. I'm going for a lie down now... I can feel an attack of the vapours coming on.

~
www.fabulousmother.co.uk

i did love a comment i read today in the guardian, i think it came from the outgoing chief exec of merrill lynch, he blamed speculators for the demise of merrill lynch - he doesn't know the meaning of irony

"The most galling thing is that it was so effing obvious. It's been frustrating to watch this huge credit bubble build over the last few years and realising that no-one was going to see sense and deflate it."

Well, the problem is that deflating the bubble didn't make sense to anyone who was in a position to make a decision to do so. From the bankers point of view, they were making lots of money, from the government's point of view (in the case of the US and the UK) they were sustaining strong economies despite the fact that they no longer actually made anything real.

While there's a sort of buccaneering charm to some forms of professional gambling, it was pretty stupid to end up in a position where professional gamblers in sharp suits were the major 'producers' in our economy. But the Thatcher governments actively chose to us in that situation.

The UK economy is horrifically dependent on financial services - as a result of conscious political choice - and that made it seriously risky to regulate The City properly, even when it was actually in the interests of The City (never mind the rest of the population) to do so.

Quite right, it only made sense to burst the bubble if you looked at the long-term and felt a responsibility towards it, which they didn’t.

I’m not a City-basher particularly. The City, historically, has brought real money into the country simply by dint of it being an international financial centre. (Not at all sure how it works, but I’m guessing commissions/fees of some description for handling foreign trades… or having foreign banks operate here… you know, being the croupier rather than the punter.)

Anyhow, we’ve certainly always relied on the City for a large slice of this countries wealth. But… and it’s a big but, as you say, we now rely on it way too much and, as you say, it’s mostly just gambling, especially after de-regulation. So when it goes tits up…

What’s left after the City? We have no manufacturing left to speak of and I read somewhere recently that a staggering 80% of jobs in the UK are now in the service sector. Brilliant, that’s the first sector to fall on its arse in a recession. As someone said about here or the States, we’re simply selling hamburgers to each other… we don’t actually produce anything.

p.s... now I’m depressed and I’m going to slope off and open a bottle of cheap wine... and vow not to watch Despatches about the scary stuff they’ve been adding to the bottles.

p.p.s. don't get me started on Thatcher's passion for de-regulation... Mad Cow Disease was a direct result... there's a link there somewhere...

~
www.fabulousmother.co.uk

"But… and it’s a big but, as you say, we now rely on it way too much and, as you say, it’s mostly just gambling, especially after de-regulation. So when it goes tits up…"

Yes. Not that gambling, within reason, is a bad thing in a market system. People make loans or invest money on the basis of risks and returns. If that didn't happen at all that nothing would ever get made and the Western world wouldn't be the relatively comfortable place that it is for most people.

The problem is when people are taking financial gambles so reckless - and so far divorced from the real businesses or properties that they're supposedly tied to - that they can only be sustained for as long as everyone is able to suspend disbelief.

"What’s left after the City? We have no manufacturing left to speak of and I read somewhere recently that a staggering 80% of jobs in the UK are now in the service sector."

We're good at arms and drugs which, as I've probably waffled on about here before, are industries bankrolled by the state.

Optimistically I'd suggest that The City isn't completely screwed.

Too many men in pink shirts moving around too much pretend money.

Though the collapse of the easy credit/housing bubble was easy to foresee the knock on effect was not. Bankers are not complete morons, they were aware they were dealing in risk and covered themselves and limited their exposure.

The problem was that when it started to collapse some of the products they'd been trading were so fiendishly complex that they couldn't work out how much they were in for (though not complete morons, neither were they as smart as they thought they were) - and with that uncertainty the market for lending to each other dried up. It's that lack of liquidity what felled Northern Rock, and together with aggressive short selling is felling the others.

The fun bit at the moment is that it's the really aggressive wankers who are going out of business and the nicer people (BofA is apparently a very nice place to work) are hoovering up their assets.

They've banned the selling of shorts now, so maybe it will calm down. Shame, I really wanted Goldman Sucks to go under.

"The fun bit at the moment is that it's the really aggressive wankers who are going out of business and the nicer people (BofA is apparently a very nice place to work) are hoovering up their assets."

It certainly is amusing that Lloyds TSB, who not long ago were being merciless mocked for their fusty belief in lending against deposits are now running a megabank.

Maybe not amusing in a good way.

I gather the only reason Lloyds were a wiser head is that they nearly went under due to foolishness a few years ago (but isn't that how everyone gets wise).

Schadenfreude is nice, but we should think of the knock on effect. All those cocaine dealers and lap dancers who will now be feeling the pinch.

And there is absolutely no reason why there shouldn't be a nationalised bank. When banks deal with customers these days they just try and sell product - there's none of the 'protective' bank manager thing left. And that's very dangerous. It's indicative of the way in which they operate overall.

Nationalise banks, energy companies and railways. It'd be a good start. Cor, I think I'm back in the 80s. See - we were right all along.

i'm with you on that tony!

interesting as well that dull banks like Lloyds, Bank Of America and Barclays, who didn't adopt the risky business models of others are now hoovering up some right bargains

"Nationalise banks, energy companies and railways. It'd be a good start."

Well, it would be good have a mutual/not-for-profit company operating in the energy sector.

We have a nationalised bank already.

Yes, it was obvious...

"Though the collapse of the easy credit/housing bubble was easy to foresee."

And thus many people did what I did, sold their property and now look forward to buying a much nicer one when properties drop by an average of 30% which is the minimal nominal price drop I think we'll see.

If it was so easy to forsee why did so many of my friends buy property in the last 5 years and are now going to lose their shirts? **** knows but yet again I have zero sympathy.

Nationalisation? Well America by bailing out Fannie Mae and Elmer Fudd have effectively turned half of the States into a giant council estate. I am sure they'll be able to inject damp into the walls in time for Christmas.

jude

"Cacoethes scribendi"
http://www.judesworld.net

As Maddan rightly said "The problem was that when it started to collapse some of the products they'd been trading were so fiendishly complex that they couldn't work out how much they were in for..."

The reason for this is another example of the appliance of science (econophysics) http://www.ge.infm.it/~ecph/index.php
resulting in highly complex calculations for derivatives. http://en.wikipedia.org/wiki/Derivative_%28finance%29

These scientists have attempted to reduce the operation of the stock market to a complex model of risk management... the result is financial rocket science where the market is propelled upward but no-one can be certain how much fuel is left and when it runs out the market plummets back to earth.

The Financial guru Warren Buffet has been warning long and loud that derivatives are weapons of mass financial destruction - but greed makes people deaf!

One piece of good news (see my previous 'science as career thread' and 'David King' thread)... a journalist commented that the City will survive but it will be changed forever and as a result may not be the most attractive destination for the brightest graduates. Our best scientists may stay in science as a result of what is happening in the city.

jude

"Cacoethes scribendi"
http://www.judesworld.net

What's 'short selling'? As I said to a friend back in the 70s 'capitalism will eat itself.' It's unsustainable. As an environmental scientist predicted, by the year 2100 80% of the world's population will be gone, due to natural disasters. The article was in The Guardian and if one should want to find it I'm sure rooting around on their site will give it up.

So far as I understand it Styx -

In a way Short Selling demonstrates the complexity of the moden market.
The short seller borrows shares to sell in the belief that their value will fall and he will be able to buy them back a little later and return them to the lender (with the lending fee) and make a profit.

For the lender it might at first seem to be a no lose situation but if a lot of shares are sold short then investors can start panic selling causing the stock to plummet... in which case the lending fee charged by the lender will be dwarfed in comparison to the loss he has due to the reduced value of his shares.

Oh, I seeee. So it’s nothing to do with boxers then. Thought it was a sign of traders getting carried away. Look at mine, see, D&G… polka dots… no skids… what will you give me? No, go on, don’t be an idiot, what will you give me? (that last bit was ‘aggressive’ short selling).

~
www.fabulousmother.co.uk

I hate passing comment on things outside my field of expertise (and that is pretty much everything except invertebrate zoology, bioethics and medical law!) but from the numerous economic commentaries I have been reading closely I understand that there are three prongs to the problem.

1. You begin with a lie, for example as David points out the lie that this person who has a very limited income can afford their staggeringly huge mortgage repayments.

2. The lie is packaged up, and as Dan points out, is made insanely complex and then sliced and sold on so everyone has a piece of the rotten lie but has no idea how rotten it really is.

3. Fiat money! To quote L Rockwell, "The word fiat means: out of nothing. Money out of nothing is money that is eventually worth nothing. The possibility of precisely that happening emerged on August 15, 1971. Since Nixon severed the last tie of the dollar to gold, the world's monetary system has not been restrained by anything physical. We've depended on the discretion of central bankers. We can't trust that, and this crisis shows precisely why.

The first problem helped stoke the housing bubble, the second problem has accelerated the inevitable housing crash (and will contribute to the overshoot on the return to trend). In the UK our economy is too reliant on the financial sector and flogging houses to one another, both of which are fake wealth and pretend money, so we are in a pile of poo. I don't think we are going to see queues of folk outside the soup kitchens but we are in for a painful correction and those who predict a bounceback commencing in 2010 are being overly optimistic. Other economic downturns/ housing crashes last 2-3 years on the way down followed by 4 years flat. Why should this time be any different? In fact, if anything, all the evidence points to it being worse. The housing bubble was bigger, households are more indebted, and the labour government has simply manipulated statistics to make it look as though unemployment is low.

jude

"Cacoethes scribendi"
http://www.judesworld.net

"The housing bubble was bigger, households are more indebted, and the labour government has simply manipulated statistics to make it look as though unemployment is low."

Well, that's true but (to an extent) all governments do that and the Tories scam for shifting millions of miners and industrial workers on to incapacity benefit is one of the costliest examples of it.

What Labour has also done is vastly increased the number of people employed in the public sector. Off the top of my head, I think there's been something like 1.5 million new public sector job created since 1997, including a net increase of over 800,000.

There's clearly room for debate over whether this level of spending on public sector staff is a good use of cash but, aside from the question of the actual delivery of services, the employment involved helps (has helped) to drive the economy.

"In the UK our economy is too reliant on the financial sector and flogging houses to one another, both of which are fake wealth and pretend money, so we are in a pile of poo."

Well, there's nothing wrong with property and financial services have their part to play, the problem is when they're the only thing driving the economy.

As I've mentioned before, though, this was a political choice.

Right-wing politicians are generally not very keen on any industry that employs large numbers of skilled blue collar workers because they join trade unions and demand to paid lots of money.

So Thatcher/Major/Blair either actively crushed industries that involved skilled blue collar workers or just let them wither. The result is that we don't make real things that we can sell to people.

"What Labour has also done is vastly increased the number of people employed in the public sector. Off the top of my head, I think there's been something like 1.5 million new public sector job created since 1997, including a net increase of over 800,000."

Absolutely... most of the new jobs created in the last 10 years are in either the public sector or construction industry. You're right, financial and property has a part to play but as you point out, unfortunately there's nothing much else (except guns and drugs of course).

"There's clearly room for debate over whether this level of spending on public sector staff is a good use of cash but, aside from the question of the actual delivery of services, the employment involved helps (has helped) to drive the economy."

When I see some of the jobsworths in the public sector (and I have done contract work for the deputy prime minister's office, the treasury solicitor and the old DoE and seen it first hand) I am reminded of Russia in the nineties. Our school always had a 6th form trip to Russia before the end of communism there. Russia claimed full employment but you'd see people sitting in these little booths at the bottom of escalators paid to watch over the escalator!!

We have pen-pushing equivalents of escalator watchers in the thousands. Having so many non-productive positions is has the same net effect fiscally (though not socially) as paying out £30K pa unemployment benefits.

I agree with your point about successive governments crushing industry in recent history and I don't think there are any easy answers.

jude

"Cacoethes scribendi"
http://www.judesworld.net

what is likely to happen, is that the financial sector, having had to go cap in hand to governments will accept some government regulation of their industry - as it is prudent at the moment to do so...

but in a few years time, they will start bellyaching about how government red tape is threatening profitability, or something similar, and how we need to free up the financial sector so it can make more money - pay more taxes etc

and someone in government, with a very short memory, will agree

With regard to excessive numbers of public sector employees...well, they're not employing them currently in the Home Office...they are always having to employ temps to clear backlogs. This may be connected to sea change in that department (Points Based System looming which should be less labour intensive)? Also, currently there's a big shortage of jobs available in the public sector, indeed jobs vacancies are in short supply generally. In my experience the trend at the moment is towards less staff undertaking greater work loads. Teachers can't be found, etc etc.
I don't like the idea of this big shake out leaving us with less competition in the financial services, but agree that the competition should be backed with real money and real assets...too much of the workings of the financial world seems to have been operating in the realms of fantasy. Writers are the ones who can rightly make money out of fantasy...

Apparently by 2005, public sector employment had risen by 940,000 under New Labour:
http://www.moneyweek.com/news-and-charts/economics/gordon-browns-great-j...

I personally think this a good thing but it's not something the government have been particularly open about when trumpeted 'record levels of employment' in the economy.

As you suggest, it doesn't necessarily have any significant connection to staffing levels for front line services.

For example, employing four people to ask the community what it thinks doesn't do much to solve the problem of the local hospital being four nurses short.

This is worth a watch if you missed it on Monday night. It's a 30 min program.

http://www.itv.com/CatchUp/Video/default.html?ViewType=5&Filter=27194

For me, the most worrying thing is that I still find Michael Portillo vaguely attractive.

jude

"Cacoethes scribendi"
http://www.judesworld.net

Oh dear Jude, what a confession..! He has improved slightly with age...but that's the most that can be said.

On Radio 4 this morning the phrase 'the end of capitalism as we know it' was used...if the US government can't sort out their rescue plan...what might replace 'capitalism as we know it'.., 'capitalism as we don't know it'? I notice Japan is buying into Lehman Brothers...it's said that Asian & South East Asian nations have huge cash stashes...

"what might replace 'capitalism as we know it'.., 'capitalism as we don't know it'?"

I think we're moving from a system where governments ignore the financial services industry at the request of bankers to a system where governments actively prop up the financial services industry at the request of bankers. There is an element of consistency.

Americans are going to have to stop equating market regulation with socialism.

they are up in arms about it, trickle down socialism!!

Hell guys, loosen up! It's a great buying opportunity!

try borrowing money!!!

Don't need to.

No neither do I...

and there are plenty of mortgages available for those with good credit history, a sizeable deposit and who want to borrow 3 x their salary. Lending to anyone else is partly what caused this in the first place.

As Michael Portillo pointed out in 'Tonight' programme (posted link above) those who are resourceful will be able to adapt, find other employment if they lose their jobs etc. In the recession of the early nineties my father lost his job as a corporate tax specialist and took a mundane job number crunching and we just about survived.

The coming downturn (http://www.telegraph.co.uk/finance/comment/edmundconway/3090601/Financia...) which may or may not be this apocalyptic will I think be a good thing in many ways.

The brightest minds in economics have failed to ascertain why we have boom and bust cycles or how we can avert them. But what many fail to realise is that recessions are not only an inevitable part of capitalism but a necessary part. Inefficient companies go bust and those that survive become streamlined and more efficient.

Roll on the bad times says I!

jude

"Cacoethes scribendi"
http://www.judesworld.net

bradford and bingley hit the dust as well, nationalised as well, with the £20bn in savings being sold to Santander, the spanish banking group who are having a great credit crunch - all the toxic mortgages will be owned by the british public - grand!!

plus, some problems with dutch/belgian banking group, fortis, apparently

financial meltdown !!

The Icelandic government has taken control of the country's third largest bank, Glitnir, after it faced short-term funding problems.

etc etc etc.

The French government nationalised the UK's nuclear industry last week. Although I don't think that was to do with banks.

http://news.bbc.co.uk/1/hi/business/7641733.stm

congress votes against the $700bn rescue plan - i'd hazard a guess that they felt it was too socialist - and that doesn't go down too well to american ears -

like the free market was really working well

Congress was getting deluged with phone-calls from angry voters. Good day for vultures.

It failed (partly) because we are so close to the US elections and all the politicians are fighting for their seats. Many probably feared a voter backlash if they voted to pass the bill.

I don't think the financial apocalypse will come but if it does and we are reduced to a bartering system, does anyone want to swap the PS2 game tie in of the kids' film "Happy Feet" cos P's nephew has completed it after just one weekend?

jude

"Cacoethes scribendi"
http://www.judesworld.net

"i'd hazard a guess that they felt it was too socialist - and that doesn't go down too well to american ears - "

Not exactly. It was voted down from both sides.

The Republican right did indeed think it was socialist (a quite bizarre position for a bill explicitly formulated to preserve the existing capitalist order as great an extent as is possible). But they were obviously correct to say it was massive government intervention in the economy and they tend to use 'socialist' as a shorthand for any government intervention in the economy other than military spending, irrespective of the actual likely results.

On the opposite side liberal Democrats (which is the nearest thing there is to a left in American politics), voted against because they didn't want their poorer and relatively left-leaning electorates to see them 'bailing out Wall Street'.

As Jude says, there is an election in a few weeks. All House seats are up for grabs.

It seems the American voter doesn't see the connection between risk to financial markets and risk to their own livelihood.

Who knows, they might be right.

very strange vote, haven't they heard of government whips? democrats voting with republicans both for and against

they'll have to go back and cobble another deal, cos share prices are still dropping

"very strange vote, haven't they heard of government whips? democrats voting with republicans both for and against"

It's a very different system in America.

Representatives careers depend to a much greater extent than here on voters' views of them rather than their party.

And, possibly more importantly, because the executive and the legislature are separate, there's no payroll vote. Tony Blair would've lost loads of votes, even with his landslide majorities, if he hadn't had over 100 MPs at all times who had some kind of government role.

my comment was a bit tongue in cheek!!

representatives only serve for 2 years, so are on constant campaign footing, the senators have it a little easier with 6 year terms -

over here the house of lords plays a sort of senate role, although they can only delay legislation are are pretty toothless in the main

How bad could it really get if nothing is done?

According to William Buiter :

1. The US stock market tanks. Bank shares collapse, as do the valuations of all highly leveraged financial institutions. Weaker versions of this occur in Europe, in Japan and in the emerging markets.

2. CDS spreads for banks explode, as will those of all highly leveraged financial institutions. Credits spreads generally take on loan-shark proportions, even for reputable borrowers. Again the rest of the world will experience a slightly milder version of this.

3. No US bank will lend to any other US bank or any other highly leveraged institution. The same will happen elsewhere. Remaining sources of external finance for banks, other than the facilities created by the central banks and the Treasuries, will dry up.

4. Banks and other highly leveraged institutions will try to unload assets at fire-sale prices in illiquid markets. Even assets not viewed as toxic before will become unsaleable at any price.
The interaction of a growing lack of funding liquidity and increasing market illiquidity will destroy the banks’ business models.

5. Banks will stop providing credit to households and to non-financial enterprises.
Banks will collapse, both through balance sheet insolvency and through liquidity insolvency. No bank will be safe, not even the household names for whom the crisis has thus far brought more opportunities than disasters.

6. Other highly leveraged financial institutions collapse on a large scale.

7. Households and non-financial businesses revert to financial autarky, among wide-spread defaults and insolvencies.

8. Consumer demand and investment demand collapse. Unemployment shoots up.

9. The government suspends all trading in financial stocks until further notice.

10. The government nationalises all US banks and other highly leveraged financial institutions. The shareholders get nothing up front and have to wait for an eventual re-privatisation or liquididation to find out whether they are left with anything at all.

11. Holders of bank debt get a sizeable haircut ‘up front’ on the face value of the debt and have part of the remainder converted into equity that shares the fate of the old equity.

12. We have the Great Depression of the 2010s.

jude

So senators vote later today and the soon-to-be-up-for-re-election Congressmen tomorrow... fingers crossed...

dance marathon, anyone?

~
www.fabulousmother.co.uk

I can't see public support growing much just by the treasury upping the amount of savers deposits they guarantee. Despite the seriousness of the consequences of the bail-out failing, the only way I see it being supported strongly by the public is if government do the unthinkable and not only curb executive pay but start seizing their assets. No matter how revolted we are at the likes of Adam '125% mortgage' Applegarth sitting in his mansion and spending his days on the golf course, this is morally and legally hazardous and practically impossible to do. An employee can never be fiscally held to account for a bankrupt company no matter how much they contributed to the mess.

Nonetheless, I think the congress will pass the bill tomorrow despite the risk of voter backlash.

Yes Congress has been getting a lot of angry emails but the majority of people are still apathetic or confused. They watch their 401k plans dwindling and they just want it to stop. The bill will pass in some form or other. But will it be more than a bandaid?

Most commentators see it as a six month stopgap. The underlying problems will need to be dealt with by the next president. They will need to deal with problems from the bottom up. Currently trying to firefight from the top down through necessity.

jude

"Cacoethes scribendi"
http://www.judesworld.net

i heard an amercian bloke being interviewed about this, just an ordinary punter, he said that this £700 bn was a big price to pay out of tax payers money, for basically fuck ups by the banks - he'd prefer it if the money was given directly to ordinary people. This would start a consumer boom, people would pay off their toxic loans - everyone's a winner

"This would start a consumer boom, people would pay off their toxic loans - everyone's a winner."

I agree that a general tax rebate would be a better use of that money but specific interventions to pay off loans/ stop people being repossessed not only rewards those who have been reckless but prevents them from learning a painful lesson.

I graduated in 1997 so have only every worked in the boom times. I have noticed that my generation's brains are so far removed from financial reality that their wallets and lifestyles need a dose of corporal punishment to sort them out. It hurts a lot in the short term but builds character!

jude

"Cacoethes scribendi"
http://www.judesworld.net

"...a general tax rebate would be a better use of that money"

Not from the point of view of the government who are at least getting something for their money with the current plan, something that is -at the moment- poisonous debt, but may, assuming things one day recover, turn out to be quite valuable.

true...

j

there are multi flaws in the tax refund idea!!

meanwhile, Iceland is basically bankrupt, it's government does not have the funds to bail out their failing banks

Yes, the consensus on the forums of some of the morbid economic doom websites I frequent is that Iceland will be the worst country hit, closely followed by Spain, USA, UK and Ireland. They will probably switch to the Euro or peg the krona against it.

The bail out plan in the US is just throwing good money after bad. I think the only effect in the UK is that it may delay complete capitulation in the housing market by 6-12 months. Given the recent developments in the world feeling is average property price in UK will decline by 50% peak to trough (revised from 25-35%) and that looks more and more likely as the weeks go by.

William Buiter's 12 steps to the depression will still probably manifest though in a milder form.

jude

"Cacoethes scribendi"
http://www.judesworld.net

So Jude you think that people who've been repossessed and now homeless have been "reckless" and need to learn a "painful lesson". I think that's a very callous view for a christian to take - most people have ended up there because the rented section is very poor in the UK and ordinary people have continually been urged to get on the private housing ladder, they've only been trying to better their circumstances by home ownership as every good Conservative would urge. I'd put the bastards responsible for all this up against the wall and shoot them, as soon as we know just which of the multifarous bastards in the financial world should be first.

If you look back at the 'NASA Blindness' thread, you will read that whilst I have some sympathy and I agree that the lenders should be held to account for irresposible lending, people must bear some of the responsibility themselves. What ghastly paternalistic society have we become when we say people have no part in the blame for their 5x salary 100% mortgage and multiple credit cards?

People need a roof over their heads, the rental sector needs to be improved, yes we need more Tenant Managed Organizations and housing co-ops.

But the debt bubble wasn't just about putting a roof over people's heads. How many people who are repossesed/ go bankrupt took equity withdrawal from existing property? How many bought luxury items and holidays on credit cards? How many are amateur by to let landlords who will end up losing their own property as well, how many were speculators buying into the frenzy that thought prices would only ever go up so they could make a killing for nothing instead of working for it?

There is also a large section of society who like me did stay in rented accomodation and took personal responsibility by not taking out an unaffordable mortgage despite being continually urged to get on the private housing ladder.

jude

"Cacoethes scribendi"
http://www.judesworld.net

i read that the iceland government has been asking the unions there to get the pension funds reinvested in iceland - wasn't aware that unions controlled the investment of pensions, maybe they do in iceland - the unions are basically saying - yes, but only if you join the euro - are we seeing a comeback of union power ?

I think we're going to see a comeback of cash power. There's been too much funny paper around. There are trillions of dollars waiting to be reinvested if the US government and Wall Street start showing some fiscal responsibility.

I'm somewhere between Neil's position and Jude's position. Some people have been very reckless, not to mention (in the case of the worst of the buy-to-let amateur landlords) greedy and cynical.

Others have, as Neil suggests, just been honestly trying to do what the government said they should do.

If you have an economic model so heavily reliant on home ownership and also - as the Conservatives consistently have - actively stigmatise people who don't own homes, it's not really surprising when people take risks in order to own homes.

The problem is that in order to promote a dream that works extremely well for some sections of society, Thatcher, Major and Blair had to pretend that it was possible for everyone to reap the benefits. It wasn't and it isn't.

A position supported by the Indy.

http://www.independent.co.uk/news/business/analysis-and-features/20-reas...

They give twelve suggestions as to who is to blame. Maggie Thatcher is included for 'the deregulation of the mortgage market; encouraging the demutualisation of the building societies; selling off council housing; and encouraging the national obsession with home ownership.'

However, the homeowner and consumer is included because 'It's easy to blame traders, bank bosses and watchdogs, but no one was forcing us to take 125 per cent mortgages or to rack up debts to pay for Caribbean holidays and Jimmy Choo shoes..'

jude

"Cacoethes scribendi"
http://www.judesworld.net

football is in trouble as well, running a football club has never really made financial sense, most clubs are in debt, and up until now, they were able to manage the debt (with a few casualties)

now west ham looked fucked, they are owned by an icelandic billionaire (well he was a billionaire last week)

now his cupboard is bare (relatively)

could be the end for the insane salaries...

"football is in trouble as well, running a football club has never really made financial sense, most clubs are in debt, and up until now, they were able to manage the debt (with a few casualties)"

Well, that specific case aside, the interesting question will be what happens to TV money (which is the real difference between 1980s football and 2000s football).

Currently the Premiership deals have continued to massive due to the presence of competitors to Sky such as Setanta whose involvement pushes up the costs of rights.

I'd hazard a guess that the Murdoch empire is fairly secure but I imagine the pretenders to the throne of football coverage could be going belly up quite soon it the current conditions.

So Murdoch will have to pay less, and so on.

sky are pretty secure i guess, but come renewal time, they may decide to bid less (although they run the risk of losing the contract if they are outbid, and sky are fairly dependent on footie)

if they don't have any competitors, then they can name their price, which will be a lot less

it's a time bomb

still, not to worry, britain is coming over all socialist, part nationalisation of banks - who'd have predicted that when blair took over

Excellent (and terrifying) description of what has gone wrong here (an hour long show, but worth it).

incredible really - the govt has bought 60% of RBS, and 40% of lloyds/hbos

nationalisation - michael foot is vindicated!

They need to fix this fast before the newspapers run out of adjective/weekday combinations.

Today's alliterative effort is Monumental Monday, I hear.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/momentous_m...

What I find shocking is that the RBS and Lloyds-HBOS have agreed to return to mortgage and small business lending levels of 2007. Nothing wrong with the latter but this attempt of the guv'mint to reinflate the housing bubble is terrible. Is the guv'mint trying to encourage a return to insane 2007 levels of irresponsible lending cos I thought that's what got us into this mess in the first place? I am consoled by the fact that it won't work and will at best (from their pov) cause a temporary bull trap
http://img127.imageshack.us/img127/5522/bubblepsychologydm7.jpg

jude

"Cacoethes scribendi"
http://www.judesworld.net

Morbid Monday 2008 (Guv'mint decide to try and reinflate housing bubble)
Terrible Tuesday 2009(with 600bn funding gap the only way of keeping mortgage lending high is to keep banks nationalised permanently)
Walloping Wednesday 2012- An entire generation can only afford a home by borrowing 10 x salary fom the goverment banks effectively selling themselves into a lifetime of slavery
Thirsty Thursday 2015 - Mass mortgage defaults from UK borrowers bankrupts the whole country. Sales of cheap vodka and meths triples as people drown their despair.
F***-off Friday 2020- anyone with any sense emigrates

Can't quite see it myself and I think the government will back down on their demand when they realise it is unsustainable.
jude

"Cacoethes scribendi"
http://www.judesworld.net

"incredible really - the govt has bought 60% of RBS, and 40% of lloyds/hbos

nationalisation - michael foot is vindicated!"

Well, obviously that's not completely true. These are not nationalisations motivated by a ideological opposition to profit-making capitalism - which is the route 1983 Labour was edging towards. But Brown and Darling's 'this not a normal nationalisation' rhetoric is complete bullshit.

The government is taking a stake - in at least one case, a majority stake - in companies. It is putting a number of 'independent' representatives on the boards to safeguard its interests, and it is putting down a series of conditions about lending operations and directors' bonuses.

After that, they're apparently being run at 'arm's-length' without political interference but if you own the majority of company's shares, hire and fire the board, and determine its commercial practices, it's slightly difficult to see what there is left to be at arm's length from. Perhaps the non-interference is a commitment that Alastair Darling won't be appearing in RBS TV ads?

I support the government's decision on this but I think the portrayal of what they're doing is slightly disingenuous.

true - it isn't exactly what foot wanted in 1983, but i'd say he is quite satisfied that he has been rehabilitated in a small way, and at 95 is lucky enough to be around to see it

interesting that the tories are largely supporting the move which is largely (albeit not totally) a result of their free market policies of the 80s and 90s

be interesting to see how this affects other tory flagship policies

PFI will companies be able to get the funding t oget involved with future PFI projects, with credit tightening up, I would think this less likely

Transport - will companies be able to fund large scale improvements of rolling stock, etc, with credit so difficult to find, if franchises fold, the government has to step in and manage the franchise, and when franchises end, will there be a flurry of companies interested in taking them on?

"After that, they're apparently being run at 'arm's-length' without political interference but if you own the majority of company's shares, hire and fire the board, and determine its commercial practices, it's slightly difficult to see what there is left to be at arm's length from."

Spot on buk. The devil, as usual, is in the details.

brown seems to be having a good crisis - no mutterings from disgruntled labour party members for weeks now

They're probably busy checking if they have anything left in their offshore accounts.

mandy has plenty - resigns from his job as a euro commissioner, gets a pay off, plus enhanced pension, and a nice £100k salary as a cabinet minister

The Government has been warned that unemployment could spiral to 3 million after the biggest jobless rise since 1991 left 1.79 million people looking for work. Today, Gordon Browne said one way to tackle unemployment and at the same time climate change was to train people to install loft insulation. I guess we can expect the department of loft insulation to roll out the loft insulation retraining scheme very soon. The Minister for LI heading a large department in Whitehall produced a strategic masterplan. By 2010 each local borough and council should have a team of loft insulation managers, ten administrators, four research officers and a diversity officer to ensure equality of opportunity for all those involved in loft work.

jude

Don’t forget the government research project canvassing thousands as to the question, ‘What will loft insulation mean to you?’

Their findings, published in 2011, will necessitate a re-branding of the DLI to ‘The Department of It Will Make Homes Cosier Whilst Cutting Fuel Bills and Helping the Environment.’

After much fanfare and a £250,000 bill for the new logo, someone will point out that the type is too small on the letterhead to be read by the visually impaired and the entire policy will be quietly dropped without a single roof being insulated.

In 2012 a junior civil servant will be caught flogging suspiciously large amounts of loft insulation on Ebay.

~
www.fabulousmother.co.uk

cartoons of brown are appearing as some kind of financial super hero - how he must be loving the crunch