This pulls the stage scenery down with a crash and shows the bare
stage and the complete inadequacy of the goverrnment's attempts to
deal with the crisis by twisting the arm of the supposedly
independent Bank of England and then hectoring the banks.
Both gestures are likely to make matters worse.
xxxxxxxxxxxxxxx cs
===========================
TELEGRAPH 7.11.08
Why didn't the Monetary Policy Committee listen to the business world?
City Comment
By Damian Reece
The Monetary Policy Committee is having a nightmare. We're all
familiar with it - you're running away from horror but your feet sink
sickeningly into the yielding ground. The faster you try to run, the
slower your progress and the further away safety becomes.
Turning, you glimpse your darkest fear and bang, you're awake,
sending the cat flying, knocking over the water glass and sitting
bolt upright panting for breath.
Luckily for our cat, this isn't such a regular occurrence. But the
MPC cannot wake from its nightmare. We're in it and the hand already
on our shoulder is recession.
\
==
Mixed message from the Government
The MPC's failing credibility is a shame and everything should be
done to reverse it. But the Government's is irreversible. There is a
fundamental contradiction in what it is doing to try and hold the
economy together, a contradiction that is feeding into our demise.
It's insisting banks are recapitalised to a deeply conservative
level, while insisting they keep lending. What's the point of pumping
billions of taxpayer pounds into banks, only to insist they use it to
make more loans? You end up back where you started.
If banks are forced to lend to consumers and small businesses,
they'll cut credit to large firms which in turn will have to cut
costs even more to conserve cash.
The uncertainty hanging over the credit lines of many quoted
companies are causing finance directors to worry that auditors may
not sign them off as going concerns at the end of this year. It's the
sort of worry that will ruin many a boardroom Christmas
=-=-=-=-=-=-=-=-=-=-=-=-=
8.11.08
The Government needs to recognise the truth over its muddled thinking
on banks
You may have noticed. Banks are quite good at the small print.
By Damian Reece
They may have squandered trillions on risky lending and investments
during the credit bubble but when it comes to the terms of your
mortgage and mine, they're pretty watertight.
That overdraft leaves little to chance as far as the bank is
concerned. Of course having now lost nearly everything through their
clever clogs money market operations, corporate HQs have had to re-
acquaint themselves with a few simple branch-banking lessons to do
with prudence, lessons they've applied in spades in negotiating their
rescue package from the Government.
Nothing in the capital raising documents issued this past week
remotely requires the likes of Lloyds TSB, HBOS or Royal Bank of
Scotland to pass on the 1.5 percentage point cut in the Bank of
England base rates. The small print is classic bank speak which seems
to have got to Alistair Darling who, by all accounts, got quite
shirty with the banks on Friday when he called them in to find out
what was going on with lending rates.
The Lloyds document is typical. It commits the bank to "restore and
maintain the availability and active marketing of competitively
priced mortgage lending". This is supposed to happen at 2007 levels
until the end of 2011. The word competitively is not the same as
affordable, which is what the Treasury really meant.
Banks simply have to be able to show that they're matching each other
in a market for loans that has suddenly become more expensive, as we
know. You can print all the marketing material you like but junk mail
does not constitute an agreement to lend.
The Government has not required banks to lend more or lend more
cheaply - let's face it that would be rather irresponsible in a
recession, even for Labour.
Neither has it stopped banks from tightening lending criteria or
credit quality which will bar the majority from taking out the few
standard variable rate loans benefiting from the base rate cut. The
only people likely to witness the effects of the full 1.5 percentage
point cut are savers and pensioners buying annuities.
The rate at which banks lend to each other (Libor) did fall on
Friday. But the spread between Libor and the new 3pc base rate has
widened thanks to the Monetary Policy Committee agreeing such a deep
cut, making money relatively more expensive.
Banks have also been keen to point out how the Government has
promised to keep its nose out of their business. Sir Victor Blank,
chairman of Lloyds TSB, wrote to shareholders on Monday saying: "HM
Treasury has confirmed that it currently has no intentions or
strategic plans concerning the Enlarged Group or its business or
employees."
Yes, the Government will try to interfere and apply pressure. It has
imposed restrictions on bankers' pay and rations short term and new
non-executive directors on the bank boards will help make life more
uncomfortable for banks that have taken public money.
This will all be a nuisance but the biggest headache will be for the
Government. It has now made taxpayers shareholders in banks. But to
preserve that money, banks must be allowed to behave commercially
which is bound to upset those same taxpayers who are also customers
and voters.
Banks must also be allowed to behave commercially in order to achieve
the Government's most important aim, which is to recapitalise and
strengthen their balance sheets. This is done not by giving the banks
£37bn of capital then forcing them to lend it out again. It's done by
raising the money and lending less, more carefully and by boosting
retained earnings through the rates at which you lend and the rates
you pay to savers.
If the Government wants lots of state sponsored lending it should say
so, but I suggest that would simply lead us back into the same debt
disaster we're trying to escape.
We need less credit, not more. We need to repair not just banks'
balance sheets but also household balance sheets. The best way to
regulate that is not through heated arguments in Treasury meeting
rooms but through a market that has learnt the painful but valuable
lessons of what too much credit can do.
The fact that the Government wants to avoid this proves it wants to
avoid the truth. It wants to avoid the truth because that reveals
that far from being the brains of the banking bail out, Brown and
Darling played a central role, among others, in causing this whole
sorry mess. Everyone must take their fair share of the blame and
everyone must take the consequences.
=====================
SOME OTHER HEADLINES
The Government needs to recognise the truth over its muddled thinking
on banks
You may have noticed. Banks are quite good at the small print.
By Damian Reece
They may have squandered trillions on risky lending and investments
during the credit bubble but when it comes to the terms of your
mortgage and mine, they're pretty watertight.
That overdraft leaves little to chance as far as the bank is
concerned. Of course having now lost nearly everything through their
clever clogs money market operations, corporate HQs have had to re-
acquaint themselves with a few simple branch-banking lessons to do
with prudence, lessons they've applied in spades in negotiating their
rescue package from the Government.
Nothing in the capital raising documents issued this past week
remotely requires the likes of Lloyds TSB, HBOS or Royal Bank of
Scotland to pass on the 1.5 percentage point cut in the Bank of
England base rates. The small print is classic bank speak which seems
to have got to Alistair Darling who, by all accounts, got quite
shirty with the banks on Friday when he called them in to find out
what was going on with lending rates.
The Lloyds document is typical. It commits the bank to "restore and
maintain the availability and active marketing of competitively
priced mortgage lending". This is supposed to happen at 2007 levels
until the end of 2011. The word competitively is not the same as
affordable, which is what the Treasury really meant.
Banks simply have to be able to show that they're matching each other
in a market for loans that has suddenly become more expensive, as we
know. You can print all the marketing material you like but junk mail
does not constitute an agreement to lend.
The Government has not required banks to lend more or lend more
cheaply - let's face it that would be rather irresponsible in a
recession, even for Labour.
Neither has it stopped banks from tightening lending criteria or
credit quality which will bar the majority from taking out the few
standard variable rate loans benefiting from the base rate cut. The
only people likely to witness the effects of the full 1.5 percentage
point cut are savers and pensioners buying annuities.
The rate at which banks lend to each other (Libor) did fall on
Friday. But the spread between Libor and the new 3pc base rate has
widened thanks to the Monetary Policy Committee agreeing such a deep
cut, making money relatively more expensive.
Banks have also been keen to point out how the Government has
promised to keep its nose out of their business. Sir Victor Blank,
chairman of Lloyds TSB, wrote to shareholders on Monday saying: "HM
Treasury has confirmed that it currently has no intentions or
strategic plans concerning the Enlarged Group or its business or
employees."
Yes, the Government will try to interfere and apply pressure. It has
imposed restrictions on bankers' pay and rations short term and new
non-executive directors on the bank boards will help make life more
uncomfortable for banks that have taken public money.
This will all be a nuisance but the biggest headache will be for the
Government. It has now made taxpayers shareholders in banks. But to
preserve that money, banks must be allowed to behave commercially
which is bound to upset those same taxpayers who are also customers
and voters.
Banks must also be allowed to behave commercially in order to achieve
the Government's most important aim, which is to recapitalise and
strengthen their balance sheets. This is done not by giving the banks
£37bn of capital then forcing them to lend it out again. It's done by
raising the money and lending less, more carefully and by boosting
retained earnings through the rates at which you lend and the rates
you pay to savers.
If the Government wants lots of state sponsored lending it should say
so, but I suggest that would simply lead us back into the same debt
disaster we're trying to escape.
We need less credit, not more. We need to repair not just banks'
balance sheets but also household balance sheets. The best way to
regulate that is not through heated arguments in Treasury meeting
rooms but through a market that has learnt the painful but valuable
lessons of what too much credit can do.
The fact that the Government wants to avoid this proves it wants to
avoid the truth. It wants to avoid the truth because that reveals
that far from being the brains of the banking bail out, Brown and
Darling played a central role, among others, in causing this whole
sorry mess. Everyone must take their fair share of the blame and
everyone must take the consequences.
=====================
SOME OTHER HEADLINES
==Obama faces unemployment levels at 14-year high
Reports show the US labour market is in "full recession mode" after
shedding 240,000 jobs in October
==UK Corporate insolvencies soar as recession bites
Some 4,001 companies went bust in England and Wales in the past three
months as the financial crisis continued to spread to the real economy
=='China heading for severe economic slowdown'
Economist Eric Fishwick argues it will be impossible for China to
achieve anything like growth rates it is projecting
==Royal Worcester jobs in balance after collapse
The manufacturers of porcelain and bone china had no choice but to
call in bankers after failing to agree a rescue pack
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