[Archived] The End Of Global Capitalism?

[thenodrog]

Paulson in the USA is proving to be an absolute goon. He's only gone and predicted that several more banks and businesses will fail over the coming weeks- great way to sustain the confidence the interest rate cut was designed to bring back for inter-bank lending to begin to unstick itself!

There's nothing wrong with 'telling the truth to shame the Devil? Is there Philip? Or is telling the truth a no go area in banking?

[philipl]

There's nothing wrong with 'telling the truth to shame the Devil? Is there Philip? Or is telling the truth a no go area in banking?

Paulson's job with Bernanke is to put a regulatory and fiscal regime in place that works.

A working system is one that everyone has faith in.

Paulson was given a blank sheet of paper to divise are working rescue. He came up with the $700bn plan to do that. Now he says he got it wrong effectively by saying more banks will go bust.

The banking system is jammed up because perfectly good banks won't lend to anybody because they don't know if they are going to go bust like Lehman did and Kaupthing-Singer & Friedlander in the UK has just done (much smaller). Incidentally, Paulson and all the staff in the US Treasury were all Goldman Sachs people and isn't it odd that the Goldman arch-enemy Lehman Bros was allowed to go bust whilst AIG which underwrote all Goldman's trades had to be saved?

It was Paulson's job to unjam the situation and his comments have just re-jammed it. It probably will not unjam until he is fired. The collateral damage in the meantime to the real economy will be immense.

[Paul]

Looks like UK tax-payers will find they are funding a UK equivalent of Paulson's toxic bank and US tax payers will have to stump up for an equivalent of the UK fund to buy equity in banks thus part nationalising them.

I have questions. The average headline on the UK package is "£400bn of taxpayers' money" used to rescue UK banking system. Now as far as I'm aware the UK doesn't have £400bn stashed away for a rainy day, if we did I'd be interested to know why? Surely the true situation is the government have underwritten the loans and have / or will make arrangements to borrow the money should it be required in future? I presume the money used for part-nationalistaion has been borrowed from somewhere and it is merely the lender sees the UK government as a better bet than a UK bank?

If the UK goes bust or can't repay the debt I suppose taxes will rise to meet the repayments but surely it is only at this point it becomes tax payers money which has bailed out our financial institutions. So my questions would be these:

The government is merely guaranteeing borrowings or it really has come up with £400bn, effectively in cash?

Where does this £400bn come from? I've not heard any explanation of this. Why would the UK have £400bn stuffed in the mattress?

Why call it tax payers' money when we have to stump up only if the whole thing goes tits up? If that happens no one will have any money anyway!

Is this money more simply, but less dramatically, understood as the government promising to back the UK banks to the tune of £400bn if things go further down hill?

I've seen no real discussion of where this money comes from, merely dramatic headlines with explanation of how the funds will be used. I don't believe it really is taxpayers' money unless things go badly wrong and we, the taxpayer, really do have to pay it back via increased taxation. I'm not suggesting the media are being misleading (for once) but I'm less than convinced the headlines which grab the public's attention are accurate on this.

[Alan75]

Listening to some finance bloke yesterday he stated that it is funded by the tax paid/to be paid.

However it will be a case of taking off philip to pay paul.

ie cuts in public spending/ roads education health etc etc

[Paul]

However it will be a case of taking off philip to pay paul.

I would like to thank philip for his generosity and look forward to the cheque arriving!

[Paul]

On another aspect of the crisis I'd raise an issue which seems to be ignored. I know our little business is going to have a tough time in the next six months, especially in getting outstanding customer accounts settled. We do however feel 2009 will be a good trading year. Very aware of the potential difficulties we are planning new strategies and products to ensure this happens. We will not be asking our bank for support.

In sharp contrast we all observe the financial traders actions in the current crisis. These people and businesses have literally hundreds of billions thrown in their direction in an effort to resolve a crisis of their making. Despite this all I hear is comments to the effect this "may not be enough" or "we'll have to wait and see", certainly the stock market reaction yesterday suggests yet more money may be required.

These financial experts seem very bold when times are good but when the going gets tough lack the ability to stand and fight for the business. Would it be fair to describe the financial sector as cowardly? Just how much help do they require? I see no help for real business just billions chucked at wimps who so far have proved incapable of standing their ground and fighting for their jobs.

[philipl]

The reason why Governments are turned to in circumstances like these is that if needed, Governments control the printing presses and can print more money.

Ordinarily doing that creates inflation but when you have a massive deflation caused by all the banks and everybody else hanging on to what they have got, temporary liquidity has to be injected.

The other thing to keep in mind is that the Darling plan isn't an absolute give away. It is acquiring equity stakes in banks at prices that do not wipe out the existing shareholders (unlike the "rescues" in the States which have wiped out the existing shareholders' positions in Fanny, Freddie, AIG). So the equity holders still have a real interest in the game continuing and the Government is holding paper it can sell when things look better.

The Darling plan is proportionately four times bigger than the Paulson plan but it offers a greater chance of the tax payer coming out ahead on the deal over the long term.

I come back to the IMF estimate that if all the bank loans in the suspect categories are worthless rubbish, it amounts to about 5% of GDP of the USA, EU, China and Japan. Even in such an extreme situation, the money Darling is committing in his plan would not all be lost because of the way it is structured.

In the short term UK Government debt will burst the 60% of GDP ceiling but frankly that is not the number 1 thing to worry about now.

Looking at the markets so far this morning, they are mixed which points to the Darling plan having effect. On the quiet, several European countries are in the process of copying it and will announce the same thing today and it looks very likely Paulson will be going back to the Congress asking for a Darling plan in the USA.

[Flopsy]

its all the fault of robert peston who's currently two months into a plot to ensure he's the only person who ever appears on tv

[broadsword]

Brother, can you spare a digit?

[ABBEY]

its in days like this im glad Im skint.

[jim mk2]

Would it be fair to describe the financial sector as cowardly? r jobs.

Not cowardly, just unaccountable.

If you make mistakes your business closes and your family suffers ; if bank executives make mistakes taxpayers fork out billions to keep the bank going and the executives walk away with millions in compensation.

[Al]

its all the fault of robert peston who's currently two months into a plot to ensure he's the only person who ever appears on tv

There is an element of truth in what you say Flopsy. His comments are so negative that they become self fullfilling. It's time he shut his mouth.

[grizfoot]

I have questions. The average headline on the UK package is "£400bn of taxpayers' money" used to rescue UK banking system. Now as far as I'm aware the UK doesn't have £400bn stashed away for a rainy day, if we did I'd be interested to know why? Surely the true situation is the government have underwritten the loans and have / or will make arrangements to borrow the money should it be required in future? I presume the money used for part-nationalistaion has been borrowed from somewhere and it is merely the lender sees the UK government as a better bet than a UK bank?

If the UK goes bust or can't repay the debt I suppose taxes will rise to meet the repayments but surely it is only at this point it becomes tax payers money which has bailed out our financial institutions. So my questions would be these:

The government is merely guaranteeing borrowings or it really has come up with £400bn, effectively in cash?

Where does this £400bn come from? I've not heard any explanation of this. Why would the UK have £400bn stuffed in the mattress?

Why call it tax payers' money when we have to stump up only if the whole thing goes tits up? If that happens no one will have any money anyway!

Is this money more simply, but less dramatically, understood as the government promising to back the UK banks to the tune of £400bn if things go further down hill?

I've seen no real discussion of where this money comes from, merely dramatic headlines with explanation of how the funds will be used. I don't believe it really is taxpayers' money unless things go badly wrong and we, the taxpayer, really do have to pay it back via increased taxation. I'm not suggesting the media are being misleading (for once) but I'm less than convinced the headlines which grab the public's attention are accurate on this.

I agree it isn't techinically taxpayers money as such because the government are borrowing the £400bn they are pumping into the financial system. However the £50bn used to part-nationalise the banks could be at real risk should things not pick up, the hope is that the banks do pick up again and the government can then sell their shares in the banks for a profit. The government are of course charging interest on the amount being borrowed by banks so it's not like they are giving away free money to these failing banks. The taxpayer is however likely to see either an increase in tax to cover the cost of increased government debt (which is now well above the orginial 40% of GDP Gordon Brown set out) or indeed pay through public sector cuts.

[Alan75]

Heck I see good old Lancaster Lancashire CC have been investing my council tax in Iceland.

Frozen assets

Lancashire County Council - £10m

Lancaster Council - £6m

Chorley Borough Council - £2m

South Ribble Borough Council - £5m

I look forward to the next local elections and hike on council tax

[Paul]

Heck I see good old Lancaster Lancashire CC have been investing my council tax in Iceland.

Frozen assets

Chorley Borough Council - £2m

As if things aren't tough enough already

I'm starting to wonder where the bail outs end? I heard the director of a children's hospice charity calling for £5.7m from the government to cover their losses in Iceland. It's heart-rending story and one can imagine the headlines but where should the government stop? I haven't checked recently but I guess my pension has gone south at the moment. I'm up for some compensation because I saved for years only for some idiot banker to screw up.

This is getting a bit silly. I can follow the logic of supporting the banking system and UK retail depositors but all these organisations who CHOSE to invest abroad? I'm far less sure about that. A line has to be drawn in the sand, we shall all be paying for this for years to come and the government has to be realistic in what it can achieve.

[Alan75]

As if things aren't tough enough already

I guess my pension has gone south at the moment. I saved for years only for some idiot banker to screw up.

Like being advised years ago to get my pension through equitable life.

The problem being that these so called advisers including the FSA are never held accountable.

[philipl]

The Iceland crisis will have to be worked through both in Reykjavik and in London.

Brown has treated the Icelandic Government like a hostile power but to be honest it is difficult to see what they could have done differently. The extent of the councils and charities' losses will depend on what assets (and what value is left in them) the Government has seized using anti-terrorism legislation (!) to take control of the British operations.

I wrote on here many weeks ago that the spreads the Icelandic banks were paying meant they were fundamentally unsound and a West Ham supporter came back at me saying but their banker was the best positioned and richest. Well he was able to last five days longer than the weakest Icelandic bank.

My point is I could see that and avoided things Icelandic. The pros advising people like charities etc could and should have seen that.

Finally, yesterday the world markets were bumpy but by recent standards stable.

When America opened it fell off a cliff- well done Henry Paulson and your stupid big mouth. In these times, there sre no fundamentals, only sentiment and Paulson saying more banks will go bust when he has got his fund to prevent exactly that (plus admitting that $700bn was not a calculated number but sounded big enough) has killed sentiment and another chance to put a floor under this one.

What a prat.

[Billy Castell]

FTSE currently down 8-9%, under 4,000 points. That's quite a fall.

[Flopsy]

Economist article

[philipl]

Economist article

The fourth comment on that article is perhaps the scariest.

US attorneys are in a mad scramble to make their name and fortune as being the one to nail the first Wall Street big wig for his misdeeds.

JP Morgan Chase is actually a relatively sound bank but if their senior officers are fearing for their liberty they are going to be focussed on a court room in Grand Plains, not managing the current crisis.

I am not arguing that the criminal implications of what has gone on be set aside- far from it; but the chances are that all the folks sitting in the seats in the USA where they could do something about the crisis are going to be far more concerned about fellony charges coming their way. McCain made some particularly agressive remarks about going after the guilty on Wall Street yesterday.

This whole thing is getting scarier by the minute

- a Japanese Life Insurance company collapsed this morning

- despite the $25bn support they have already received, talk is of GM and Ford going bust

- next week, about $550bn of losses from Lehmann Bros will officially be finding its homes

[jim mk2]

FTSE currently down 8-9%, under 4,000 points. That's quite a fall.

These are momentous events, far worse than 1987 and the dot.com crash. This could be another 1929 .

The Kennedy family made their fortune buying shares in the 1929 gloom ; for those brave enough there is an life-changing opportunity opening up now.

[Billy Castell]

Christ, Ford and GM might go bust? Now we know we're in trouble. If McDonalds and Coca Cola get in trouble we'll know capitalism is dead.

[yoda]

Christ, Ford and GM might go bust? Now we know we're in trouble. If McDonalds and Coca Cola get in trouble we'll know capitalism is dead.

Fraud and GM are always nearly going bust!

If mac and coca get in trouble then you would be right,

As jim mk2 says above, lots of opportunities coming up, just been talking to a builder who has just bought 3, 2 year old properties in Florida for a pitance, he can afford to sit on them or rent them and wait until the market picks up again.

[Billy Castell]

Do we throw on Carlos and try to score, or shall we bring on Mokoena and try to stem the goals?

Sorry, wrong thread

DAX (Germany) is currently 9% down, CAC (France) 8% down and the FTSE 7% down. You've got to be brave to buy shares right now. You could make a killing in the long term, but which plummeting company would you pick?

I'm so glad I'm not one of those stock traders on the floor. I'd be shooting myself.

Oil is down to $80 a barrel, so we may have cheaper petrol and energy in a few months time. Thank goodness.

[Flopsy]

with interest rates and inflation pretty low i think that this isn't anyway near as bad as peston would have us believe