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So Mervyn King got one thing right, of all the banking systems we could have, this is the worst.
However the regulators do nothing to address this problem. When the dominoes start falling it will be even better than the Guiness advert.
When the end comes, I shall sit quietly reading a good book with a large glass of brandy in hand.

"According to the Bank of England, up to £500bn of wholesale debt is due to mature by the end of 2012. "

Oh dear. Given that the policy actions of the last few years has been to kick severe credit quality problems into the long grass (i.e. from bank balance sheets to the bond market - via Secutisation - and from there on to the Gvt & Central Bank balance sheet), we are indeed going to get a rude awakening when this cesspool matures!

These Zombie banks can only be kept alive for so long.

"de-regulation, originally designed to stimulate competition merely led to mis-pricing of credit resulting in sub-optimal lending practices and massive risk transfers"

Something has to snap... You can just feel it.

The question is 'who's gonna be the first?'...

"But I don't think any of us would see that kind of return to a credit-crunch lending drought as a good idea."

NO, let's all borrow enormously and drive prices upwards as that seems like a good idea doesn't it

Or perhaps we could spend some time learning, sorry re-learning, those old proverbs:

There is no such thing as a free ride
Look after the pennies
Live within your means

And many, many more.....

And QE2 is delayed for risk of a perhaps few percentage points of inflation !

2011 will also be a testing year for the BoE. Will the MPC transmogrify into a UK version of the FOMC ? Should politicians redefine the remit of the BoE ?

Will the Chinese wish us an 'interesting' New Year ?

Questions, questions, questions.....

Well if the banks have even a modicum of sense they will be good little chaps and do as their told on bonuses. Assuming the LibDems and the Bank of England are 'all talk and no action' would seem to be a suicidal strategy.

Banking is very important to the UK economy in the short to medium term. It does seem to me that over the longer term London is in decline as a global financial centre. Not to say it won't continue to be an important player (say like Tokyo or Singapore today). Just that it will never again reach the heights of the early noughties. I also suspect that at least one of the UK's global banks will have ceased to exist within 5 years and at least one other will have relocated with 10 years.

Of course the banks could reduce what they need to borrow by simply failing to make new loans to businesses and households, as existing loans are repaid. But I don't think any of us would see that kind of return to a credit-crunch lending drought as a good idea.

What? Not lending hundreds of billions to numpties who have no hope of paying it back is not a good idea?

There are some who might think that such an attitude springs from the belief that the only driver of the UK economy for the prior 13 years was reckless borrowing and squandering and runaway house prices. But I'm sure you're not one of then Bob. And I'm certain you're too smart to think that the way to solve this economic crisis is to simply all go out and start borrowing and squandering even more money we don't have.

What a ridiculous notion that would be.

Of course the banks could reduce what they need to borrow by simply failing to make new loans to businesses and households, as existing loans are repaid.
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Yes, but the loans being repaid are obviously the low risk ones.
Which would just leave the banks with the remaining poor performing loans.

If they don't lend more the giant Ponzi scheme just comes to an even quicker end?

Maybe this would be a good thing>

RP wrote: That's why the Bank of England says that "banks' board should apply restraint in distribution of profits to equity holders and staff". In other words, cash should be hoarded as capital, to protect against potential future losses, rather than paid out in bonuses and dividends.
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Surely all the talented directors that are so hard to retain must be aware of their personal legal obligations with regard to solvency and responsible decision making?
Why does any regulator or the BoE need to remind these magnificent stars of their duty?

When Mr King says the Banks need to preserve their capital to cater for future bad provisions you'd think they'd listen. Well you would if you thought our politicians ruled the country and not the bankers. And you would if you thought the bankerati has the interests of their shareholders and the nation at heart. But of course they don't and they don't need to because it is they that pull all of our strings. Good on PM Cowan Ireland for calling the bankers bluff. It will be an interesting struggle to see whether it's Clegg or Cameron who wins over here.

The world may not end in 2012 as per the Mayan calendar. But like a number of posters here I think something big is going to erupt in the near future. Part of the eruption may be the public's patience with this ridiculous monetaty system. But I suspect it's going to be more profound than that.

So paying bonuses appears to place the banks (and us) at significant increased risk. This will bee an interesting one for Osborne, King and FSA but it will at least clarify the power relationships between government and the banks, not forgetting that a large part of the sector is in public ownership but so far not under public control.

Breaking news! William Shakespeare foretold of the credit crunch:

Neither a borrower nor a lender be;
For loan oft loses both itself and friend
And borrowing dulls the edge of husbandry.

A lot of posters here don't seem to know that the money supply is almost completely dependent on borrowing.
If there were no debt there would be no money.
97% is created by borrowing from private banks by governments , corporations, councils, businesses and individuals. Interest has to be paid.
Only 3% is created as cash, interest free to create.
This is really a philosophical point and not a bean-counting one.
Is this what we want?
The answer has to be no but the system is imposed on us anyway.
For enlightenment, look at "Money as Debt."



As to why austerity is not an answer, Prof Mark Blyth will tell you;

The interdependence of banks across national boundaries has been a fact of life for a long time and presumably one would have thought given the risks inherent to that circumstance that the banks would have adequate firewalls in place. What you are telling us, Robert, is that these firewalls do not exist. Oh dear!

I am not surprised as I expect such considerations went out the window along with mortgages of only three times salary and the building of risk factors into the rate of interest charged on a loan.

Whilst I accept that the taxpayer is the lender of last resort I am fast becoming very tired of having the bankers hands in all of my pockets. Why should I continue to subsidise their industry when there has been absolutely no attempt on their part to voluntarily put their house in order. Everything has to be asked of them or demanded from them before they lift a finger in appreciation of the taxpayers' contribution to their well-being. There has to be an end to the taxpayer's subsidy but from what you say this will not be the case. I am distinctly unamused although I appreciate your candour.

It is time that the bankers accepted that reality bites for them as well. Time to direct all their surplus cash into building their balance sheets. This is the time fat salaries and bonuses come to an end. It is also time for the government to stop treating the banks with soft soap and get out the stiff scrubbing brushes and the carbolic. It is time to zing the whip over the City and bring it to heel.

Banking reform now!

"According to the Bank of England, up to £500bn of wholesale debt is due to mature by the end of 2012. That includes something over £200bn effectively owed to taxpayers through the Treasury's Credit Guarantee Scheme and the Bank of England's Special Liquidity Scheme.

Of that £500bn or so, between £350bn and £400bn falls due for payment this year."

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Well I never, you'd never have thought would you.
Actually I did.

As the say - move along people nothing to see here.

CRASH AND BURN

If the banks really are that close to their limits, then how can they still justify the bonuses?

...unless their only motive is to plunder their own cash cows for all they're worth!

"That's why the Bank of England says that "banks' board should apply restraint in distribution of profits to equity holders and staff". In other words, cash should be hoarded as capital, to protect against potential future losses, rather than paid out in bonuses and dividends."

Really, so the banks shouldn't be run as a rampant, out-of-control Ponzi scheme? And bankers have to be told this?

As previous posters have said, banking reform is so urgently needed now its unreal. But I can't see the current government's cut-and-laissez-faire approach facing up to that, can you?

1. At 08:50am on 17th Dec 2010, creditunionhero wrote:
So Mervyn King got one thing right, of all the banking systems we could have, this is the worst.
However the regulators do nothing to address this problem. When the dominoes start falling it will be even better than the Guiness advert.
When the end comes, I shall sit quietly reading a good book with a large glass of brandy in hand.
...............
The ponzi scheme is beginning to meet its end. The only question is when, 2011? Its certainly looking shakey. Monetary reform hopefully will arise from the ashes. Well we can but hope.

I intend to leave as little as possible in my bank accounts next year. My matress would be much safer. Failing that a little yellow metal wont go amiss.

'...for our banks?'

for THEIR banks, shurely??

GC

Some big bubbles took 25 years to sort out, we do not want this.

We probably need to hive off from the govt banks a few really healthy banks that can lend safely based on the competitive cost of credit in a functioning market. We should let the other parts go down.

Perhaps sadly we may need quantitative easing, higher interest rates, with govt depositing money into banks.

Generally, I am fed up with the way banking has taken over the economy. We need to get value added production above consumption. This is the Wealth of the Nation (not shuffling debt around).

This week’s editorial in Investors Chronicle (not a left wing mag) is written by Alistair Blair (past winner of the Business Writer of the Year Award). He believes that prison or penury is the best thing for the bankers who cause this sort of thing.

I agree, but let’s do both!

Banker gets top award!

I can't link to the full article due to paywall but this gives a flavour

In all seriousness I think the discussion over the value of the banks to the economy has only just started and as it progresses I believe it will become apparent to most people that the answer is a resounding "not a lot"...

Then, we can finally move on to reforming the banking system properly instead of tweaking the edges as we are now.

There will be no banking reform, it is just too easy for them to avoid it. There will always be a convenient excuse to put it off, and there will always be a politician telling us we have no choice but to let them off as the economy won't function unless the banks get life all their own way.
Can anyone explain how the banks are any different today compared with pre 2007?
Bit by bit each and every reform or proposed change is kicked off into the long grass never to be heard of again.
All that is left for them to do is see off the FSA's new guidelines for mortgage lending and it really will be back to the noses in the trough style, tax-payer underwritten business as usual.
The previous government bent over backwards to keep the banks in tax-payer funded clover, and the current chancellor was still publicly calling for the total de-regulation of the mortgage market long after the entire world banking system had collapsed. What chance do tax-payers have?

Of that £500bn or so, between £350bn and £400bn falls due for payment this year.

Now that is a substantial amount of money to raise, in wholesale markets that are a long way from the kind of depth and liquidity of the pre-2007 boom era. It is on a par with the peak amounts raised by banks in the balmy years, so it is by no means certain they will be able to raise it all, in this chillier climate.

By no means certain? What on earth are you talking about. Clearly it is nigh on impossible. Why are you so scared of just telling it how it is?

All I know is, that if I ever travel in a run-away train with you, and you tell me you have looked out the window and "it is by no means certain that we will stop before hitting the buffers"... I will be jumping off without hesitation!

Robert - I'm confused - wasn't this the same warning given in 2008......2009 and 2010?

This is what depression looks like - you can't see it from the inside, it's only once you get to the end and you look back do you realise where you've been.

Startling to see people still saying the crunch was the result of subprime borrowers rather than the inevitable conclusion of a City-wide game of chicken played on profit models resembling clowns' unicycles pedalled on converging tightropes (luckily for clowns, all conducted over a tax-funded safety net).

It seems generally agreed that:-

1) The UK is in worse straits than the rest of the world
2) What has happened now is a result of actions by our banking industry in the early noughties
3) In the early noughties we had world-leading financiers in London

Why then do we worry that if we hammer the instigators of the crisis - whose avariceand incompetence caused the crunch - they will up and leave. Surely, given 1 2 and 3, we're better off without them?

If the Irish govt can do it ... call the bluff of the Irish banks ... why is it that our London centric govt can't stop the executive bonuses of banks in the UK?

Our UK banks will lend any amount of our money to foreign investors ... Why is there no UK govt or regulatory control over this strategically vital area regarding opportunity cost for all of UK plc?

Legislation is urgently required and also with a new UK strategic body to oversee the economics of bank lending and not just the pure money issues.

Some time ago in 2007 I started to empty my English investments and bank accounts to transfer them to Euros amongst other currencies. It just goes to show that I could have saved myself the bother for my position is still one of extreme precariousness.
I sincerely wish I had lived life at the high table, no cares in the world and then said, can't pay, won't pay. Perhaps I could have asked the government for my taxes back for I needed a bailout.
Whatever the outcome I shall consider seriously spending my life's savings, leave no inheritance tax to pay, not burden my children with my leftovers and go for the rest of my life with cap in hand.

Oh great so we are going to be owning even more banks, thats not the sort of christmas present we need in anyway shape or form.

Best get the printing presses rolling perhaps 400Bn this time to keep things going ??? 200 Bn after all did nothing...we really dont want to skimp on our future generations tax burden and we need to keep our so called experts in the comfort they are used to.

It appears to me we either let our own banks fail or wait for someone elses banks or governments failure to take them down.The result is the same, but which is cheaper ??? rock and a hard place.

I have noticed a pattern with the holdings in RBS and Lloyds the Government is currently sitting on.....every time there is a new report which concludes that the 'taxpayer might make a profit from these holdings' by some body or other - then soon afterwards the shares take a nosedive (as they have today)

What a shame the ONS were so keen to paint a bright picture on behalf of the Government they now look rather stupid. Of course with EU worries (to which the banks are exposed), the BP worries (which I believe Lloyds has some exposure to), the mortgage worries (which they are both exposed to) and the commerical property / SME exposure - we're a long, long, long way from any profit - and that's just the 'media simple' paper profit level, not the actual adjusted profit taking into consideration our viable alternatives for those hundreds of billions.

I'm just waiting for early next year when the economy either comes to a standstill or starts going into reverse again - and the Government who will blame "the weather" on this rather than facing up to the fact that they caused it.

I seem to remember Gormless Brown doing a similar thing - blaming "economic headwinds" and "credit storms" in a clever effort to fool the sheeple into thinking it's down to deity intervention and not corrupt and useless politicians and greedy bankers.

Oh how the sheeple are going to be soooo peeved when they work it all out - still I suspect Tories aren't thinking that far ahead and if they are they're response will be...

"...the hoorendus state in which the previous Government left our finances...."

...as Michael Gove reminded us yet again this morning when he didn't want to answer why he's cutting EMA.

We have got ourselves into this situation and we are still in a state of denial. Efforts

by the Coalition Government to force the banks and the country to face-up to the

reality has failed.The reality that Britain is no longer great..When this reality is

faced, then..and only then can we move on and repair the damage done.

Call me cynical, but i expect to see more articles like this in the next two months (the DT finance section is full of them most days) so they can justify QE2 in QTR1 of 2011.
How any banker can be given a bonus when the Banks are basically insolvent beggars belief.

Bim.

In view of the above (e.g. #26) can anyone tell me why the Footsie is so buoyant? Or is it just that it would be a lot more buoyant without all this? Is the British economy really doing that well?

quote/
Of course the banks could reduce what they need to borrow by simply failing to make new loans to businesses and households, as existing loans are repaid. But I don't think any of us would see that kind of return to a credit-crunch lending drought as a good idea.
/unquote

Maybe if they were lent the money by the government they could make lots of loans to businesses?

Or have we tried that?

There's so little relevant debate here, most of it is just angry bile about what happeneded.

Whether you like it or not, we all benefitted massively from the actions of the banks, up until 2007, when we all realised (far too late) that their actions were unsustainable.

The solution, according to most of the angry mob on here is to let the banks go bust, put the bankers in jail because that will make everyone feel better. Retribution without a thought to the consequences.

No-one ever makes the point, that regardless of how you might feel, that the only worthwhile debate is what to do about the debt.

Everything else is just emotion.

The only solution, is to try and muddle through the best we can, and wait for inflation to work it's trick. The consequences of banks/central banks and nations defaulting do not even bear thinking about

Can anyone tell us how much money the UK banks gambled, sorry invested, in overseas banks which is also due to be paid back next year. Surely the UK banks will only have to refinance the difference, not the full £500bn, assuming they do not play Russian roulette with our money again.

32. At 13:12pm on 17th Dec 2010, writingsonthewall wrote:
================================================================

Spot on - completely agree.

As for 'the Tories thinking ahead' - that is the best oxymoron ever.

Also to the point - who is paying off their debt at the moment and will be next year and in 2012 (we will no doubt have a similar blog in 6 months time)? Well primarily people who the banks are keen to lend new money to but the people don't want to as borrow as they are solvent. Bang there goes your profitable customers.

That leaves the people who can't afford to pay them back - not profitable. Ergo no payments back to UK Government.

Well I suppose we can always take a larger stake in them if the don't pay back.

Oops, just re-read RP's words, and saw £140bn.
So that's £500bn, less £140bn, less £200bn (QE which could be extended at market rates), which leaves £160bn to find by 2012 or £10/£60bn to find in 2011.

Now how much was that bankers bonus pot?, and the shareholders dividends? and the savings from pay freezes (we've all had them so why not the bankers?)

Gizza Job, surely I can't do any worse than the current lot.

'According to the Bank of England, up to £500bn of wholesale debt is due to mature by the end of 2012. That includes something over £200bn effectively owed to taxpayers through the Treasury's Credit Guarantee Scheme and the Bank of England's Special Liquidity Scheme.'

The magic words 'up to'.
No-one seems to have considered the possibilty that the entities to whom this money will be repaid may wish to lend it again to the same or other banks.

37. At 13:48pm on 17th Dec 2010, thetubbster wrote:

"There's so little relevant debate here, most of it is just angry bile about what happeneded."

That's nice of you to say so...

"Whether you like it or not, we all benefitted massively from the actions of the banks, up until 2007,"

I think you're confusing 'all' with 'select few' there - they aren't the same you know. I'm not 100% sure but I haven't been paid over a million pounds in a bonus since......well ever actually....and I think you'll find that is pretty common.

"when we all realised (far too late) that their actions were unsustainable."

Well some people (although I don't include myself in this) were actually saying it before they all went bust - but strangely the 'select few' who control our Government and our media made sure that message was drowned out.

"The solution, according to most of the angry mob on here is to let the banks go bust, put the bankers in jail because that will make everyone feel better."

...well it's a start - but the problem with jail is there is room for appeal...

"Retribution without a thought to the consequences."

...a bit like investment without thought to the consequences? - surely the punishment should fit the crime - yes?

"No-one ever makes the point, that regardless of how you might feel, that the only worthwhile debate is what to do about the debt."

No it isn't the first part is to establish how we got the debt in the first place and how we stop it happening again.
I presume when a giant bill comes into your household you simply start making plans on how it's going to get paid - you don't bother checking whether the bill is correct - or even for your house!

"Everything else is just emotion."

Emotion is when you suggest we should all get patriotic about it and start issuing cheques to pay back the missing money. Rationality is when you ask questions about how we ended up in this situation - and really ask not simply accept the first story the media put out.

"The only solution, is to try and muddle through the best we can, and wait for inflation to work it's trick."

Muddle through? - no it isn't, the people didn't cause this mess so why shoudl they all be made to pay it back?

"The consequences of banks/central banks and nations defaulting do not even bear thinking about"

Well you had better get thinking about them soon because that's what's going to happen (and is happening already)

BAILOUT = DEFAULT

'39. At 13:53pm on 17th Dec 2010, M_T_Wallet wrote:
32. At 13:12pm on 17th Dec 2010, writingsonthewall wrote:
================================================================

Spot on - completely agree.

As for 'the Tories thinking ahead' - that is the best oxymoron ever. '

I think they are thinking ahead. The destruction is quite deliberate. They even have a manual. Shock Doctrine, anyone?

We're doomed! (ref: Dad's Army).

So what would I do if I knew the boat was sinking? I would have ploughed my HUGE salary and MASSIVE bonuses (earned over many years for taking risks with money I did not own) into a nice little pad somewhere else in the world and I would go there and watch with satisfaction at my great luck (? greed) whilst all those who did a decent job for a low wage sank.
So it is okay to sink the boat as long as you have already bought the lifeboats; especially if you used the drowning people's money to buy them.

I ain't never gonna be scared no more. I was, though. For a while it looked as though we was beat. Good and beat. Looked like we didn't have nobody in the whole wide world but enemies. Like nobody was friendly no more. Made me feel kinda bad and scared too, like we was lost and nobody cared.... Rich fellas come up and they die, and their kids ain't no good and they die out, but we keep on coming. We're the people that live. They can't wipe us out, they can't lick us. We'll go on forever, Pa, cos we're the people.

@44 - "I think you're straying into the realms of fantasy now"

The bank's won't actively defy the Bank of England. The B of E will supply them with more QE, it hasn't formally shut the door on this policy. Or taxpayers WILL be bailing out the banks again!

The "fire in banking" rages on!

Yet these policy makers are almost trying to hide it. As if we can't already see what is happening or that we're meant to go along with the "joke," and laugh with the bankers, rather than at them? Are the authorities on laughing gas or what?

People might first try and understand what £500 billion is? Think in terms of the ECB bailout fund - that is for the whole EU - which is €750billion or about £660 billion equivalent. So one country's bank's, (i.e Britain) needs to refinance a sum that starts to come close to that which amounts to the entire bailout fund.....for a continent!

They must be a little bit worried. Must be one or two even shaking in their boots? No wonder they're on the laughing gas, or is it just hysteria at the top?

Hello, just re-posting my comments from Wednesday for those who may have missed them! see below

Also - when is RBS going to revise their bad loans in Ireland upwards? RBS loan book in Ireland is over TWICE as big as Lloyds! (there bad debt ratio will be less ...but!)

btw there will probably be a general election in Ireland in Jan, the oppostion will almost certainly win and will basically renegotiate the bail out as much as possible...suffice to say it won't be in the banks favour.

"78. At 23:01pm on 15th Dec 2010, You wrote:
a lot of you are missing the point - that 3.35bn is gone and not coming back.

Its' gone indirectly to the Irish subsidiaries of UK banks RBS and HBOS, (along with the other billions already sent to keep the capital ratios of these banks at the minimum levels). along with the billions and billions the Irish govt has poured into the Irish banks, which is also not coming back.

and its actually €7+bn UK is contributing to the EU bail out mechanism.same as the €800m (?) it gave to the greek bail out fund.

Have a look at the latest Bank of International Settlements figures out on Tuesday (see ftalphaville.co.uk) -

as of Q2 this year UK banks have $187.5 bn exposure to Ireland of which just over $31bn to banks and $97 bn (ninety seven billion!) "non bank private" ...which would be what? property developments, mortgages etc...

Think about it, Ireland too big to fail for the UK."

To all of you readers (apart from the smug - they had it coming, or I'm alright, or I have been saying this for ages) then I'm aware of four considerations.
Firstly, even if you are ok, what about your neighbours, and friends, do you really wish bad times on all of them too.
Secondly, despite a desire from many to think its just UK banks chiefs being bad, I actually think most bankers work in a similar way, so most other countries will be in a similar situation, following similar (perhaps flawed) standards.
Thirdly, tax collectors too, have a long bad history like the money lenders; however both are necessary, our economy cannot do with out them.
Fourthly, its all a confidence issue, and with the honest truth that most things never happen as bad as we think, and often take longer than we expect before they do, then I do sincerely think that each passing year, economies grow, people make modest improvements to systems, and cataclysms are avoided. If you want it to fail, always talk about it failing, then with no confidence, it of course will.

I'm sure even Mr Peston now rues doing his bit to grease the failure in confidence of Northern Rock, something about with great power comes great responsibility, he only lived up to half of that a few years ago, but now perhaps confidence can be maintained, matters eased through, and those of you smug people can move on to salivate over some other misfortune. I don't want my kids in a society with no banks, and lots of poor people slapping each other on the back saying "those bankers, they had it coming" Perhaps none of you have heard the saying, you cannot just sink the officer’s quarters in a boat.

Interesting how the 'nationalised' banks RBS, Fannie Mae, Freddie Mac, . . . seem to be the only banks that never really recovered after 2008 crash.

When did the 21st century international banks systems with 'offices' the UK suddenly become UK banks in need? When they needed a UK tax-payer bail-out.

Many posts on the credit crunch scream at 'the evil banks' for 'pushing unsuitable loans at unsuitable people', as if they held guns to people's heads and made them take loans. For everyone who chooses to lend there has to be someone who chooses to borrow. Now the same 'evil banks' are condemned for not lending enough.

There are three guilty parties in this (four if you blame the government/regulators as well):
1 The lenders, who made loans available withough adequate checks that people could pay back (did they really believe that self-cert mortgages wouldn't be a liar's charter?)
2 The advertising industry, who bear a lot of blame for creating a culture of never having enough, never being contented, 'having' to have things we really don't need
3 Those who borrowed what they couldn't afford to pay back. In other words, us. OK, some probably borrowed just to make ends meet, that's different. But for most it wasn't. Too many people unwilling to live within their means and choose not to buy that thing they want but can't afford. Too many people who have bought into the lie that 'I want' means 'I must have' means 'I have a right to have'. In short, who have bought into the same greed as the bankers.

In other words, in pointing the finger at the banks, dont forget the other three fingers pointing back...

If we only bought what we could afford, and only borrowed what we could reasonably expect to pay back, and learned to be satisfied, much of this would never have happened.

I'm sure someone will say 'but the bankers were greedier, look at the billions...' But how many of us would have behaved better if we'd had the same opportunities? I suspect most of us wouldn't be as 'good' as we think we would be. Think about it.