Is anybody in charge or are they just going through the motions?
These start to deal with the ‘elephant in the room’ in Darling’s
disastrous speech yesterday, the unmentioned recapitalisation of our
banks. For even those banks that are trading well - as most are -
are desperately short of liquid funds to maintain their profitable
loan books to perfectly sound companies who depend on them ,
Robert Peston thinks for himself although as a presenter of economics
on TV he still leaves something to be desired [his brain works faster
than his tongue! ] However, his exposition here is couched in
accessible language!
The last contribution asks what Darling is doingh wasting his time in
Luxembourg when the house is on fire at home.
I can partly answer that. He’s going to be talking about the
Emission Charges scheme run by the EU which not only cripples our
ability to keep our electricity going, but adds vastly to
inflation. Poland - as I have reported - is fed up with the whole
scheme but nevertheless may not be able to scupper it altogether.
This is our real government at work - obsessed with bad science to
the exclusion of a real immediate catastrophe.
xxxxxxxxxxxxxxxx cs
===========================
TELEGRAPH - Business 7.10.08
Credit crisis has come at the worst possible time in political cycle
The more a government does to commit taxpayer funds to shore up its
banks, the more responsibility it must take for running those
institutions.
By Damian Reece
Fighting this crisis is not helped by having fag-end governments in
charge both here and in the US. In fact, when you take into account
the headless chickens running Europe, then politicians are
demonstrably making the credit crisis even worse.
Academics among you can debate whether the crisis of confidence here
would be lesser or greater if it was David Cameron and George Osborne
telling you not to panic.
As it is we’re stuck with Gordon Brown and Alistair Darling on this
side of the pond, with an anonymous President over there with two
teams running for the White House that lack any true understanding of
what we’re all up against.
It is true, however, that Brown and Darling are not being helped by
their EU counterparts. Savers are faced with different messages from
different governments which just adds to the chaos, helping to make
this downward spiral spin faster. If they can’t agree on a policy
response, or a form of words that is sufficiently flexible to be
consistent across the EU, then confusion reigns.
The EU is failing its first big test and people are showing signs of
beginning to crave leaders who can fill this vacuum, or at least
produce the rhetoric of self- interest and nationalism that is the
enemy of a civilised solution to the mess we’re in.
But we need to be careful as voters, and more importantly taxpayers,
what it is we wish for. Specific measures can have profound and,
often, unforeseen consequences.
Ireland may well come to regret a wholesale nationalisation of its
banking system – the government there is no better at running
businesses than any other bunch of politicians.
A creature as complex as an international bank in the hands of
amateurs sounds like a recipe for disaster. But the more a government
does to commit taxpayer funds to shore up its banks the more
responsibility it must take for running those institutions.
Caution will presumably be the first priority which, in these chaotic
times, might sound sensible but in fact risks a legacy of moribund
institutions bound up in bureaucracy. That will prove disastrous when
the opportunity for recovery presents itself.
Consolidation needs to be encouraged so the strong take over the weak
and shareholders must face up to their losses. This is part of a
market solution.
However, I regret to say, it looks inevitable that we will have to
provide capital to some of our banks. As I wrote on Friday: “Unless
you are very friendly with Warren Buffett, a visit to the finance
ministry with the offer of high yielding preference shares in return
for a cash injection is not inconceivable for a number of banks in
the US and Europe.”
If capital is needed to shore up Barclays, Lloyds TSB or Royal Bank
of Scotland, and it can’t be found from institutions or private
equity funds, surely it’s better it comes from our Government than
that of another sovereign wealth fund based in China, elsewhere in
the Far East or the Middle East.
A Government-funded financial investment fund, run at arm’s length
from Whitehall by experts on our behalf, could provide healthy
returns for taxpayers, albeit in the long term, but also help lead
the sensible and practical reform of the financial sector that it so
badly needs
===================
BBC NEWS Blog ‘Peston Picks’ 7.10.08
1. Banks ask chancellor for capital
• Robert Peston at 7.00 am
When Treasury officials started working overtime last week on an
emergency plan to inject new capital provided by taxpayers into our
banks, the chancellor wasn't sure how our banks would react.
Would they proudly tell him to hop off?
Or would they put out the begging bowl?
Well last night a trio of the UK's biggest banks - Royal Bank of
Scotland, Barclays, and Lloyds TSB - signalled to Alistair Darling
that they'd like to see the colour of taxpayers' money rather quicker
than he might have expected.
According to bankers, these three were disappointed that at a private
meeting last night with Darling, held at his request, he didn't
present to them a fully elaborated banking rescue plan.
One banker told me that what he called the Gang of Three of Barclays,
RBS and Lloyds TSB told Darling to pull his finger out and finalise
whatever it is he's eventually prepared to offer on taxpayers' behalf.
On paper, Lloyds TSB, RBS and Barclays don't have a pressing need for
additional capital.
But they have become concerned that they are being weakened
significantly by investors' perception that they are short of capital
and their balance sheets need to be strengthened.
Also at the meeting were Mervyn King, Governor of the Bank of
England, and Adair Turner, chairman of the Financial Services Authority.
And although the other big banks were represented, it was the chief
executives of Lloyds TSB, Royal Bank of Scotland and Barclays -
respectively Eric Daniels, Sir Fred Goodwin and John Varley - who
formed a tightly-knit caucus and gave urgent focus to the discussion.
The three banks estimate that they may need around £15bn of new
capital each, with £7.5bn paid up front and a further £7.5bn
guaranteed by the Treasury that would be delivered if it became
necessary.
Current rough estimates are that the capital injection could be as
much as £50bn in total for all British banks.
As yet however, there has not been any detailed negotiation with the
Treasury on the amount of taxpayers' money that may be invested in them.
There is no precedent in the UK for taxpayers to take such
significant stakes in banks.
The Treasury has been working on a rescue plan along those lines, as
I disclosed in my note on Saturday.
The three chief executives will talk again today, so that they can
establish a common position, in advance of any further negotiations
with the Treasury on a rescue package.
The Treasury's current thinking is that it would acquire preferred
stock in the banks, that wouldn't carry voting rights. But it would
also take warrants over the ordinary shares, which is a device for
ensuring that taxpayers would benefit if the banks' share prices were
to rise.
However, the chief executives also told Darling that a capital
injection of this sort would not be enough to stabilise the banking
system.
The steady withdrawal of funds by other financial institutions, the
collapse of the wholesale funding market, remains a serious problem -
which probably can't be solved by the Bank of England continuing to
provide ever greater loans against an ever wider range of collateral.
In the next couple of years, many tens of billions of pounds of asset-
backed securities have to be paid off or redeemed by British banks.
So the banks want a commitment from the government that it will lend
to them, whether or not they have collateral of the sort demanded by
the Bank of England, to allow them to redeem these bonds.
The banks are not looking for a formal guarantee from the Treasury
that it will protect wholesale depositors, which is what the Irish
government gave to Irish banks, but they would like a formal pledge
that it will fill any funding gap created by the steady ebbing away
of wholesale funding
If such a commitment were not forthcoming, confidence in one or more
British banks may continue to ebb away, to a potentially lethal
extent - or so the banks fear
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
2. Banks' most pressing problem
• Robert Peston at 10.02 am
A shortage of capital is a big issue for banks, as I've been
blathering on about for days (and see my note above of this morning
on our banks' meeting with the chancellor and request for a capital
injection from taxpayers).
But the really urgent issue is the breakdown of wholesale markets,
and the increasing difficulty that almost all banks are having in
funding themselves on a day-to-day basis.
The basic problem is that the collapses of Lehman and Washington
Mutual have made all financial institutions wary of lending to any
bank where there is even a scintilla of risk.
It turns out, therefore, that Hank Paulson and the US Treasury were
probably wrong in allowing them to fail.
But that's spilt milk.
The more important point is that, across the globe, there are very
few banks that are finding it easy to raise money from wholesale
sources.
In other words, all this fuss about insuring retail deposits is
beside the point.
We all know that governments won't allow retail depositors to lose
money - so that's not something to worry about.
A far bigger concern is that most banks are suffering a progressive
erosion of the money they receive from other financial institutions.
To date, that's been replaced by colossal loans from the authorities.
In the case of the UK, the Bank of England and the Treasury have
collectively provided well over £200bn of incremental lending to our
banks over the past year.
It's what I've described as nationalisation by stealth.
But all governments will probably need to do more.
What the Irish government did, in guaranteeing both retail and
wholesale deposits in their banks, may turn out to be something of a
model for Europe-wide action.
What we may need is a cast-iron pledge from all European governments
that they will fill whatever funding gaps emerge at their respective
banks from the seizing up of money markets.
It's probably the best outcome that can emerge from today's meeting
of European finance ministers.
Bankers all across Europe are watching this meeting, and keeping
their fingers and toes crossed, that the finance ministers understand
how fragile they are - and that the finance ministers will pledge to
keep them afloat, whatever the apparent strain on public-sector
balance sheets.
======================
CONSERVATIVE HOME Centre Right 7.10.08
What are you doing in Luxembourg, Mr. Darling?
Jim McConalogue, Editor European Journal
Isn’t Chancellor Darling misplaced in going off to Luxembourg to seek
grander reassurances during a time of such an unsettling crisis – key
European leaders (in Britain, Italy, France and Germany) talked on
Saturday and realised that there was no official EU-wide bank rescue
plan.
Now, Darling is going off to guarantee £80K in all savings accounts
across Europe – I wonder if Europe will agree to this? I wonder if it
is the right kind of action that is required? Is this recent market
action really just about bank deposit guarantees? I think it is an
Irish idea and the Irish are not well liked the moment – key player,
Germany doesn’t want to pay for all the debt of all the sinking Club
Med states as it will cost them a fortune. Germany has always fought
for a tough politically uniform European policy in line with its own
ambitions whilst maintaining strong financial security at home. That
should not change in the current crisis. Does Darling support the
Irish idea?
I can’t help but think the European Council negotiations are going to
wind up like the Paulson deal and end up being far too late for some
banks. The financial world cannot wait for the tortoise response of
Labour politicians – but it looks as if it is being left to work its
own way out.
disastrous speech yesterday, the unmentioned recapitalisation of our
banks. For even those banks that are trading well - as most are -
are desperately short of liquid funds to maintain their profitable
loan books to perfectly sound companies who depend on them ,
Robert Peston thinks for himself although as a presenter of economics
on TV he still leaves something to be desired [his brain works faster
than his tongue! ] However, his exposition here is couched in
accessible language!
The last contribution asks what Darling is doingh wasting his time in
Luxembourg when the house is on fire at home.
I can partly answer that. He’s going to be talking about the
Emission Charges scheme run by the EU which not only cripples our
ability to keep our electricity going, but adds vastly to
inflation. Poland - as I have reported - is fed up with the whole
scheme but nevertheless may not be able to scupper it altogether.
This is our real government at work - obsessed with bad science to
the exclusion of a real immediate catastrophe.
xxxxxxxxxxxxxxxx cs
===========================
TELEGRAPH - Business 7.10.08
Credit crisis has come at the worst possible time in political cycle
The more a government does to commit taxpayer funds to shore up its
banks, the more responsibility it must take for running those
institutions.
By Damian Reece
Fighting this crisis is not helped by having fag-end governments in
charge both here and in the US. In fact, when you take into account
the headless chickens running Europe, then politicians are
demonstrably making the credit crisis even worse.
Academics among you can debate whether the crisis of confidence here
would be lesser or greater if it was David Cameron and George Osborne
telling you not to panic.
As it is we’re stuck with Gordon Brown and Alistair Darling on this
side of the pond, with an anonymous President over there with two
teams running for the White House that lack any true understanding of
what we’re all up against.
It is true, however, that Brown and Darling are not being helped by
their EU counterparts. Savers are faced with different messages from
different governments which just adds to the chaos, helping to make
this downward spiral spin faster. If they can’t agree on a policy
response, or a form of words that is sufficiently flexible to be
consistent across the EU, then confusion reigns.
The EU is failing its first big test and people are showing signs of
beginning to crave leaders who can fill this vacuum, or at least
produce the rhetoric of self- interest and nationalism that is the
enemy of a civilised solution to the mess we’re in.
But we need to be careful as voters, and more importantly taxpayers,
what it is we wish for. Specific measures can have profound and,
often, unforeseen consequences.
Ireland may well come to regret a wholesale nationalisation of its
banking system – the government there is no better at running
businesses than any other bunch of politicians.
A creature as complex as an international bank in the hands of
amateurs sounds like a recipe for disaster. But the more a government
does to commit taxpayer funds to shore up its banks the more
responsibility it must take for running those institutions.
Caution will presumably be the first priority which, in these chaotic
times, might sound sensible but in fact risks a legacy of moribund
institutions bound up in bureaucracy. That will prove disastrous when
the opportunity for recovery presents itself.
Consolidation needs to be encouraged so the strong take over the weak
and shareholders must face up to their losses. This is part of a
market solution.
However, I regret to say, it looks inevitable that we will have to
provide capital to some of our banks. As I wrote on Friday: “Unless
you are very friendly with Warren Buffett, a visit to the finance
ministry with the offer of high yielding preference shares in return
for a cash injection is not inconceivable for a number of banks in
the US and Europe.”
If capital is needed to shore up Barclays, Lloyds TSB or Royal Bank
of Scotland, and it can’t be found from institutions or private
equity funds, surely it’s better it comes from our Government than
that of another sovereign wealth fund based in China, elsewhere in
the Far East or the Middle East.
A Government-funded financial investment fund, run at arm’s length
from Whitehall by experts on our behalf, could provide healthy
returns for taxpayers, albeit in the long term, but also help lead
the sensible and practical reform of the financial sector that it so
badly needs
===================
BBC NEWS Blog ‘Peston Picks’ 7.10.08
1. Banks ask chancellor for capital
• Robert Peston at 7.00 am
When Treasury officials started working overtime last week on an
emergency plan to inject new capital provided by taxpayers into our
banks, the chancellor wasn't sure how our banks would react.
Would they proudly tell him to hop off?
Or would they put out the begging bowl?
Well last night a trio of the UK's biggest banks - Royal Bank of
Scotland, Barclays, and Lloyds TSB - signalled to Alistair Darling
that they'd like to see the colour of taxpayers' money rather quicker
than he might have expected.
According to bankers, these three were disappointed that at a private
meeting last night with Darling, held at his request, he didn't
present to them a fully elaborated banking rescue plan.
One banker told me that what he called the Gang of Three of Barclays,
RBS and Lloyds TSB told Darling to pull his finger out and finalise
whatever it is he's eventually prepared to offer on taxpayers' behalf.
On paper, Lloyds TSB, RBS and Barclays don't have a pressing need for
additional capital.
But they have become concerned that they are being weakened
significantly by investors' perception that they are short of capital
and their balance sheets need to be strengthened.
Also at the meeting were Mervyn King, Governor of the Bank of
England, and Adair Turner, chairman of the Financial Services Authority.
And although the other big banks were represented, it was the chief
executives of Lloyds TSB, Royal Bank of Scotland and Barclays -
respectively Eric Daniels, Sir Fred Goodwin and John Varley - who
formed a tightly-knit caucus and gave urgent focus to the discussion.
The three banks estimate that they may need around £15bn of new
capital each, with £7.5bn paid up front and a further £7.5bn
guaranteed by the Treasury that would be delivered if it became
necessary.
Current rough estimates are that the capital injection could be as
much as £50bn in total for all British banks.
As yet however, there has not been any detailed negotiation with the
Treasury on the amount of taxpayers' money that may be invested in them.
There is no precedent in the UK for taxpayers to take such
significant stakes in banks.
The Treasury has been working on a rescue plan along those lines, as
I disclosed in my note on Saturday.
The three chief executives will talk again today, so that they can
establish a common position, in advance of any further negotiations
with the Treasury on a rescue package.
The Treasury's current thinking is that it would acquire preferred
stock in the banks, that wouldn't carry voting rights. But it would
also take warrants over the ordinary shares, which is a device for
ensuring that taxpayers would benefit if the banks' share prices were
to rise.
However, the chief executives also told Darling that a capital
injection of this sort would not be enough to stabilise the banking
system.
The steady withdrawal of funds by other financial institutions, the
collapse of the wholesale funding market, remains a serious problem -
which probably can't be solved by the Bank of England continuing to
provide ever greater loans against an ever wider range of collateral.
In the next couple of years, many tens of billions of pounds of asset-
backed securities have to be paid off or redeemed by British banks.
So the banks want a commitment from the government that it will lend
to them, whether or not they have collateral of the sort demanded by
the Bank of England, to allow them to redeem these bonds.
The banks are not looking for a formal guarantee from the Treasury
that it will protect wholesale depositors, which is what the Irish
government gave to Irish banks, but they would like a formal pledge
that it will fill any funding gap created by the steady ebbing away
of wholesale funding
If such a commitment were not forthcoming, confidence in one or more
British banks may continue to ebb away, to a potentially lethal
extent - or so the banks fear
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
2. Banks' most pressing problem
• Robert Peston at 10.02 am
A shortage of capital is a big issue for banks, as I've been
blathering on about for days (and see my note above of this morning
on our banks' meeting with the chancellor and request for a capital
injection from taxpayers).
But the really urgent issue is the breakdown of wholesale markets,
and the increasing difficulty that almost all banks are having in
funding themselves on a day-to-day basis.
The basic problem is that the collapses of Lehman and Washington
Mutual have made all financial institutions wary of lending to any
bank where there is even a scintilla of risk.
It turns out, therefore, that Hank Paulson and the US Treasury were
probably wrong in allowing them to fail.
But that's spilt milk.
The more important point is that, across the globe, there are very
few banks that are finding it easy to raise money from wholesale
sources.
In other words, all this fuss about insuring retail deposits is
beside the point.
We all know that governments won't allow retail depositors to lose
money - so that's not something to worry about.
A far bigger concern is that most banks are suffering a progressive
erosion of the money they receive from other financial institutions.
To date, that's been replaced by colossal loans from the authorities.
In the case of the UK, the Bank of England and the Treasury have
collectively provided well over £200bn of incremental lending to our
banks over the past year.
It's what I've described as nationalisation by stealth.
But all governments will probably need to do more.
What the Irish government did, in guaranteeing both retail and
wholesale deposits in their banks, may turn out to be something of a
model for Europe-wide action.
What we may need is a cast-iron pledge from all European governments
that they will fill whatever funding gaps emerge at their respective
banks from the seizing up of money markets.
It's probably the best outcome that can emerge from today's meeting
of European finance ministers.
Bankers all across Europe are watching this meeting, and keeping
their fingers and toes crossed, that the finance ministers understand
how fragile they are - and that the finance ministers will pledge to
keep them afloat, whatever the apparent strain on public-sector
balance sheets.
======================
CONSERVATIVE HOME Centre Right 7.10.08
What are you doing in Luxembourg, Mr. Darling?
Jim McConalogue, Editor European Journal
Isn’t Chancellor Darling misplaced in going off to Luxembourg to seek
grander reassurances during a time of such an unsettling crisis – key
European leaders (in Britain, Italy, France and Germany) talked on
Saturday and realised that there was no official EU-wide bank rescue
plan.
Now, Darling is going off to guarantee £80K in all savings accounts
across Europe – I wonder if Europe will agree to this? I wonder if it
is the right kind of action that is required? Is this recent market
action really just about bank deposit guarantees? I think it is an
Irish idea and the Irish are not well liked the moment – key player,
Germany doesn’t want to pay for all the debt of all the sinking Club
Med states as it will cost them a fortune. Germany has always fought
for a tough politically uniform European policy in line with its own
ambitions whilst maintaining strong financial security at home. That
should not change in the current crisis. Does Darling support the
Irish idea?
I can’t help but think the European Council negotiations are going to
wind up like the Paulson deal and end up being far too late for some
banks. The financial world cannot wait for the tortoise response of
Labour politicians – but it looks as if it is being left to work its
own way out.
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