economic situation is dire

[ianrobo1]

So the highest risk bonds are now government backed, do you think these will now be traded/sold on? Sounds very much like it's all starting again.IMO

a simple rule should be a;pplied that no high street bank can be an investment bank

seperate the two

in fact we have the model that should be adhered to, the building soceities

[Gringo]

So the highest risk bonds are now government backed, do you think these will now be traded/sold on? Sounds very much like it's all starting again.IMO

a simple rule should be a;pplied that no high street bank can be an investment bank

seperate the two

in fact we have the model that should be adhered to, the building soceities

Interesting response on two accounts.

Firstly the point you are making has a hair breadth's relevance to tinkers point that you quoted.

Secondly, doesn't this contradict the point from a couple of days ago that "the markets" were to blame for all of this.

[ianrobo1]

So the highest risk bonds are now government backed, do you think these will now be traded/sold on? Sounds very much like it's all starting again.IMO

a simple rule should be a;pplied that no high street bank can be an investment bank

seperate the two

in fact we have the model that should be adhered to, the building soceities

Interesting response on two accounts.

Firstly the point you are making has a hair breadth's relevance to tinkers point that you quoted.

Secondly, doesn't this contradict the point from a couple of days ago that "the markets" were to blame for all of this.

what I meant si s if they were seperated then you can allow investment banks to fail and thus no need for government backed trades if the high street banks are seperate the 'normal person is protected.

Clearly the market is to blame because the market demanded and encouraged the formation of these 'super banks' the market now has to be propped up by teh state

Wasn't it right that int he US these banks were seperated by law after the depression until a few years ago when that was repealed (was it Clinton or Bush ?)

[Gringo]

always said it Gringo, Markets place the emphasis on profits and increasing 'shareholder value'

this encourages greed

this encourages risk taking

the more unregulated the market is the worse it gets

and so we get to where we are now

So it wasn't the banks, wasn't the govts, wasn't the regulators - it was the markets.

"Markets don't place no emphasis on nothing"

People drove the profit motive.

Markets are required for trading from wheat to oil, from CDSs to CDOs.

So it's the markets fault, even thought it was the regulators that allowed it, the govts that wanted it, and the banks that committed the act.

Markets don't demand, they faciliate the wishes of other actors. your comments make no sense.

[ianrobo1]

yes they do Gringo, the free marketers were desperate for total freedom, they got it and blew it

as I have said so many times

ALL TO BLAME

[leviramsey]

yes they do Gringo, the free marketers were desperate for total freedom, they got it and blew it

The biggest offenders in the whole thing were two organizations that wouldn't exist in a free market: Fannie Mae and Freddie Mac.

The bulk of subprime was forced on the banks at gunpoint by the government.

If that's a free market, I'd love to see a command economy.

[Straggler]

60 just laid off at my place of work. Not me thankfully, but we were all ticket holders for that particular raffle. The official line is that they won't need to do anything like this again, but 6 weeks ago there was no need for redundancies at all. In the next 6 weeks, who knows.

[ianrobo1]

yes Lev, there was intervention by clinton to fufill the dream of an home owning demcoracy, I hope the oidea that everyone should buy their own homes is dead, that is the root cause of this problem and the one back in the 90's we never learn

[leviramsey]

The simple fact is that owning a home is generally a rather poor investment (indeed, about the only point in its favor is the measure of forced savings that paying down the mortgage provides; in a lot of ways this is similar to whole life insurance vs. term insurance). You're almost always better off renting and sticking the difference between the cost of ownership and the rent into the stock market. Not only will you generally get a better actual return, you're investments are a lot more liquid.

[snowychap]

Government prevented from taking Barclays stake by deal with Abu Dhabi

Well, not prevented as such but certainly unlikely.

A clause inserted during the Abu Dhabi Royal Family’s investment in Barclays last October has made it practically impossible for the Government to take a meaningful stake in the bank, The Times has learnt.

News of the clause is likely to reignite controversy over the way that Barclays raised the money — dubbed at the time by Vince Cable, Liberal Democrat Treasury spokesman, as “a scandal of mammoth proportions”. Barclays shares fell another 9 per cent yesterday, having collapsed by 35 per cent at one point, amid speculation that it is poised to raise more capital — either in the market or from the Government.

But the small print in the deal, in which Barclays raised £7.3 billion from Abu Dhabi and Qatar, means that if the bank raises fresh capital before the end of June, the Middle Eastern investors would receive a greater number of shares for their original investment without paying more. If Barclays were to raise fresh capital at last night’s closing price, for example, it would automatically hand almost 50 per cent of the bank to the Middle Eastern investors. The only way to get around the anti-dilution clause, should Barclays need more money before the end of June, would be if new capital was raised at more than the 153p-a-share at which paper issued to Abu Dhabi and Qatar is due to convert into Barclays stock.

This would mean that if the Government wanted to take a meaningful stake in the bank, it would have to do so by paying more than 153p for Barclays shares — which were trading at just 66.1p yesterday. The Treasury would face accusations of wasting taxpayers’ money were it to do this.

The clause was inserted at the request of Amanda Staveley, chief executive of PCP Capital, the private equity firm, who advised the Middle Eastern investors on taking the stake. It is understood that she insisted on the clause because she was concerned that instability in the markets in coming months could potentially force Barclays to raise more capital.

The Times has seen a letter from Ms Staveley to Sheikh Mansour bin Zayed Al Nahyan, the owner of Manchester City Football Club and the Abu Dhabi royal who led the deal, explaining the benefits of the clause.

Part of it says: “If Barclays does have to issue new shares at a price which is, for example, half our agreed price, then you will automatically get twice as many ordinary shares for the money you have already invested. If this provision comes into effect you could, subject to the size of any new investment, potentially end up owning significantly more of Barclays Bank at no extra cost.” Ms Staveley last night declined to comment but sources at Barclays confirmed the clause exists.

Meanwhile, Barclays was yesterday pressing on with contingency plans to bring forward its annual results amid growing investor unease over its financial strength. Although it is due to publish its figures on February 17, it is trying to speed up the process to pacify increasingly nervous investors. Traders fear that the bank’s £1.4 trillion balance sheet could contain more hidden problems and that the worsening global economy will add to the red ink.

The lifting of the ban on short-selling — making down bets — on bank shares last Thursday has added to investor fears, though there is little evidence of widespread “shorting” of bank shares. MPs on the Treasury Select Committee yesterday wrote to the Financial Services Authority asking it not to hesitate in re-introducing the ban if it found shortsellers were undermining stability of the banking sector.

[tonyh29]

time for a no confidence vote on this government me thinks , sure labour will send the whips out and win it with their majority but it will provoke a leadership challenge and let sbe honest , we do need a new leader

[thetrees]

time for a no confidence vote on this government me thinks , sure labour will send the whips out and win it with their majority but it will provoke a leadership challenge and let sbe honest , we do need a new leader

The situation is so grave that we need coalition government, gathering up experience and intelligence from the entire political spectrum, with a PM who is neither Tory nor Labour.

The further damage that Brown is inflicting on our country just to save his reputation is criminal.

[snowychap]

time for a no confidence vote on this government me thinks , sure labour will send the whips out and win it with their majority but it will provoke a leadership challenge and let sbe honest , we do need a new leader

That wasn't in response to the Barclays story was it, Tony?

I guess not because I can't see why the government ought to be responsible for the small print in a private transaction between Barclays and the source of some of their funds.

[Gringo]

yes Lev, there was intervention by clinton to fufill the dream of an home owning demcoracy, I hope the oidea that everyone should buy their own homes is dead, that is the root cause of this problem and the one back in the 90's we never learn

Thought it was markets?

[snowychap]

Mr Peston's blog today was quite good:

link

The government really really really doesn't want to nationalise Royal Bank of Scotland or any of the other big banks.

That was the thrust both of Adair Turner's interview on the Today Programme this morning and of Paul Myners's article in this morning's Financial Times.

As if you needed telling, Turner is the silken-tongued chairman of the City watchdog, the Financial Services Authority, and Myners is the big-booted City minister who made a modest pile building up a fund management business in the boom years. We can safely assume they speak with authority on this issue.

Turner said that losses being incurred by banks right now are "not dramatically worse" than the FSA expected in October when it forced the big banks to raise £50bn of new capital - with £37bn coming from us, from taxpayers.

That was an unambiguous re-affirmation that they're not bust, in the FSA's view - which matters, since it's the FSA which has the power to determine whether a bank is fit enough to continue taking deposits.

However that's not the end of the story, because the banks could of course suffer losses that would muller them in a fundamental sense - and would of course prompt yet more financial support from taxpayers to prop them up.

In that context, it's striking that Turner was dismissive of demands that the banks must "come clean" about the extent of their dodgy loans and investments - which if memory serves me right has been something of clarion call by the prime minister in recent days (is it plausible that the head of the FSA would contradict Gordon Brown?).

Turner said that the banks and the FSA have a detailed understanding of what's on their balance sheets.

However only a soothsayer would claim to be able to predict with certainty how markets will move in the coming weeks or the precise course of our recession.

That's got nothing to do with whether the banks are hiding stuff. It just means that no one can know with certainty the future market value of banks' investments or the degree to which businesses and householders will have difficulty keeping up the payments on their debts.

These are, to use the Rumsfeldian cliché, "known unknowns".

And it's because there are these "known unknowns" that the Treasury announced on Monday its scheme to insure the banks against losses on loans and investments that could destroy their balance sheets and cause them to collapse.

Or, as Turner makes crystal clear, the insurance scheme is a way of staving off nationalisation of the big banks.

In other words, the government has decided that it would be better for you and me as taxpayers to take on the liability for the potential future losses of the banks, while preserving their semi-detachment from state control, than for us to own them and control them outright.

That said, Royal Bank and Lloyds Bank can only be semi-detached from the Treasury, because we as taxpayers own 70% of Royal Bank (or at least we shortly will do) and 43% of Lloyds.

But this is what you need to know and what investors in general appear to have missed in an outbreak of mass-hysteria that nationalisation looms: the prime minister and chancellor have made an unambiguous judgement that the general good would be better served by the semi-autonomy of the banks than by making them instruments of the state.

Why?

This is what Myners says in the FT: "The capacity for soundly managed banks and markets to support the generation of wealth in the economy could never be matched by the public sector...British banks are best managed and owned commercially".

Hmmm. On that basis, let's hope that the past, in the form of the banks' grotesquely inadequate management of risks during the last few years, isn't a guide to the future.

All this means that a very heavy burden rests on those at the Treasury who are frantically trying to make a success of the insurance scheme.

The guinea pig is Royal Bank of Scotland. It hopes that by the time of annual results on 26 February it will have made significant progress in identifying loans and investments whose losses above a certain level will be insured away by you and me.

This is a pretty tall order, because the bankers and Treasury officials will be trying to put a price on "known unknowns": it won't easy to agree the fee that RBS will pay us for being relieved of liability for losses whose certainty simply can't be measured in a scientific way.

But, as by now you'll have worked out, the Treasury will be pulling out the stops to make the insurance scheme work. Because if they can't get it to work, it's difficult to see how the 100% nationalisation of Royal Bank of Scotland - and even perhaps of Lloyds Banking Group - can be avoided.

[ianrobo1]

yes Lev, there was intervention by clinton to fufill the dream of an home owning demcoracy, I hope the oidea that everyone should buy their own homes is dead, that is the root cause of this problem and the one back in the 90's we never learn

Thought it was markets?

Is housing not a market ??

in fact in many ways the ourest form of any market we have ?

[Gringo]

There is a market for houses, but that's now what you said.

There is a market for oranges, but I don't believe that "that is the root cause of this problem"

[ianrobo1]

officially in a recession now

not exactly a shock

agriculture being the only industry that is still growing which is strange I guess

[thetrees]

agriculture being the only industry that is still growing which is strange I guess

An industry that is growing on the back of cheap imported labour who receive minimum wage at best.

The future is bright....... :bonk:

[snowychap]

agriculture ...is still growing ..

Fixed.