This morning’s papers naturally cover the crisis! I give here a
summary from the Guardian and extracts from the Telegraph.
But first I have met with two commentaries which are well worth the
reading. The first from Peter Oborne from the Mail, and then
Ambrose Evans-Pritchard in the Telegraph, who seems to think that it
may only be ghastly instead of catastrophic - but he’s not sure! .
More later I expect!
xxxxxxxxx cs
But let’s look on the bright side. Obama has realigned his
inaugural and is personally going to walk to it barefoot on the
Potomac.
========================
1 COMMENT
=-=-=-=-=-=-==-=-=-=-=
DAILY MAIL 19.1.09 (Timed 0858 hrs)
We’re a nation on the brink of going bankrupt
Peter Oborne
If Chancellor Alistair Darling has lost his game of poker with the
markets the consequences for the credit worthiness of the British
state are dire
All hopes of Gordon Brown managing to save the world with October's
great banking bail-out have proved tragically misguided.
The £37billion injected into the banks last autumn might have helped
save the financial system from instant meltdown. But its effects have
proved at best temporary, and now the money has disappeared without
trace.
The consequences of this failure are grim indeed. Britain now faces,
for the first time in history, the prospect of national bankruptcy.
This is because Chancellor Alistair Darling made one fatal mistake
last October. He placed what amounted to a government guarantee
behind the British banks as the bail-out package.
This act was seen as a symbolic gesture which would restore
confidence in the British banking system. Very few people believed
that Darling's bluff would be called.
Since then, however, the international economy has entered a downward
spiral. It suddenly looks worryingly plausible that poor [?’poor’ ? -
cs] Darling has lost his game of poker with the markets – and that
his bluff will be called. If that happens, the consequences for the
credit worthiness of the British state are dire.
Consider the following terrifying facts. Our national debt officially
stands at approximately £400billion – in itself a frighteningly high
figure and our annual borrowing is now larger as a percentage of
gross national product than in 1976, when Labour Chancellor Denis
Healey was forced to call in the International Monetary Fund to
rescue the economy.
However, that £400billion is minute compared with the collective
indebtedness of the banks which are now under effective government
control.
Let's take the case of just one – the RBS group, whose two principal
assets are Royal Bank of Scotland and NatWest. RBS has outstanding
loans and other assets amounting to an eye-watering two trillion
pounds. That's five times the size of the national debt.
Already the taxpayer owns a whopping 58 per cent of RBS thanks to
last autumn's bail-out. And that figure is now certain to rise very
sharply because every day comes fresh information of how shockingly
badly this wretched bank has been managed.
To give one example of RBS's suicidal carelessness among many, it is
owed some £2.5billion by the Russian oligarch Leonid Blavatnik which
will never be seen again. Next month, when the bank announces its
results, it is expected to unveil a truly terrifying loss of
approximately £30billion.
These losses – and new ones are emerging every day – are all met by
the British taxpayer. Indeed, RBS's asset value merely needs to fall
by 10 per cent, and twice the annual cost of the National Health
Service is instantly wiped off the national balance sheet.
And RBS is only one of many banks which, thanks to Alistair Darling's
insane generosity last October, are now guaranteed by the Brown
government.
So, unfortunately, is HBOS, the piece of stockmarket quoted alphabet
soup resulting from the merger of Halifax and Bank of Scotland. So is
Lloyds. So is Northern Rock and Bradford and Bingley.
Guaranteed by the Brown government
And it looks at least possible that the Government will soon be
obliged to step in and rescue another banking giant, Barclays, after
its share price collapsed by 25 per cent in late trading on Friday.
It is no longer difficult to imagine the national debt doubling or
even trebling if this banking crisis persists for much longer. If
that happened, the economy would collapse, Britain would go bankrupt
and the receivers would be brought to bear.
Admittedly nations do not actually go into liquidation when they go
bankrupt. But the process is every bit as humiliating and would
certainly cost millions of jobs, and mean a huge drop in the living
standards for every single one of us.
National bankruptcy occurs when the national debt grows so large that
investors believe it can never be repaid. At that point they go on
strike.
Two things then happen. The currency collapses. That is already
starting to happen with sterling, precisely because of growing
international fears about the solvency of the British state.
And the government starts to print money. Unable to borrow money in
the form of loans to pay off the national deficit, it orders the
central bank to create it. This was the tactic resorted to when
Germany went bust in the early 1920s, and by Robert Mugabe in
Zimbabwe. As these two examples show, the result can be extremely
inflationary – but Bank of England officials are now actively
contemplating this course of action.
So Britain is now on the route to national bankruptcy. How can Gordon
Brown and Alistair Darling avert this desperate outcome during the
frantic negotiations with the banks over the next few days?
First, they need to learn the lessons of the failed bail-out last
October. This means not chucking good money after bad. It is now
embarrassingly obvious that Gordon Brown and Alistair Darling
invested in the banks without troubling to discover how disastrous
the true situation was.
This time round they must do the necessary due diligence – however
horrifying the consequences and whatever dreadful skeletons they find
rattling in the cupboard.
Second, they must not protect the shareholders, as they did last
October by paying too much for the shares they acquired. The brutal
truth is that RBS, HSBO and Lloyds are totally worthless without
government backing. I am no believer in state ownership, but I am
afraid that the shareholders – who did such a wretched job keeping
management accountable at the height of the credit boom – must be
punished.
Thirdly, senior management at these banks still enjoy sky-high
salaries. To give one example among many, Guy Whittaker, the finance
director of RBS, is on £700,000 a year. This profligacy is obscene
and must be ended at once.
Fourthly, Gordon Brown urgently needs to make the spending cuts to
ensure our national solvency in these desperately troubling times.
Sadly, the Prime Minister shows no sign at all of taking this prudent
course of action.
Finally, we must hope and pray. We are now on a downward spiral, and
these are the most terrifying economic conditions for 80 years.
===========================
Biblical debt jubilee may be the only answer (timed 0608 hrs)
Once again, Britain leads the world in the macabre speciality of
saving banks.
By Ambrose Evans-Pritchard
The Treasury's £200bn plan to soak up toxic debt will be followed
within days by a US variant from the Obama team. Germany cannot be
far behind.
As one bail-out succeeds another at ever more inflated price tags,
rescue fatigue is becoming palpable. People are bewildered, fearing
that good money is being thrown after bad.
The doubts are understandable but there are tentative signs of a thaw
in the global credit system. Libor lending rates in the US, Britain
and Europe have fallen sharply. US mortgage rates have dropped from
6.5pc to 4.88pc since October. Companies can issue bonds again.
"It is easy to conclude that none of the Government's policies are
working," said Professor Peter Spencer from York University. "We must
not lose sight of the fact that they have prevented the collapse of
the monetary system."
This is not does mean that recovery is imminent. Nothing can prevent
a long purge as years of credit leverage give way to debt deflation.
It means only that the downward spiral – the "adverse feedback loop"
feared by central banks – has been arrested.
The first three pillars of the global bail-out are in place.
Government money is rebuilding the annihilated capital of banks. This
has further to run. Core lenders in the US, Europe and parts of Asia
will be nationalised, but that is a detail at this point. It scarcely
matters who owns the banks – unless you are a shareholder – so long
as they lend.
The Fed has cut rates to zero. It is buying mortgage securities on
the open market, and eying Treasury debt next. Fellow central banks
are exploring their own ways to print money.
The $3 trillion (£2 trillion) fiscal blitz by the US, China, Japan
and Europe plugs an emergency gap. With luck, it will keep the world
economy on life-support just long enough to stop recession and
banking crises from feeding on each other with lethal effect, as they
did in 1931.
The latest plans to "ring-fence" bad debts in sceptic tanks [sic! -
cs] puts in place the fourth pillar. The UK Treasury's version
involves a state insurance scheme, letting banks shuffle off their
crippling loads and escape mark-to-market torture.
The US version is a "bad bank" for mortgage debt. It is more or less
the old "TARP" passed by Congress, before the funds were diverted
into bank recapitalisations. This method worked after the Savings &
Loan crisis in the 1980s. The market found a floor. The Treasury even
made a profit.
German finance minister Peer Steinbrück said he "could not imagine" a
bad bank in his country. Time will tell. Der Spiegel reports that
Germany's top 20 banks have €300bn (£270bn) of bad debt, booked at
"illusory" prices. They have written down just a quarter of their
losses. [That’s three-quarters to go then! -cs]
Taken together, the rescues may make the difference between global
recession and a deeper slump that causes mass unemployment and social
turmoil, perhaps destroying the open global order we take for
granted. We can only guess.
There is no guarantee that the measures will succeed. The vast scale
of government borrowing may exhaust the stock of global capital.
Markets are already beginning to question the credit-worthiness of
sovereign states. The Fed may find it harder than it thinks to
disengage from colossal intervention in the bond markets.
In the end, the only way out of all this global debt may prove to be
a Biblical debt Jubilee.
Creditors are not going to like that.
===========================
2. NEWS REPORTS
=-=-=-=-=-=-==-=-=-=-=
DAILY MAIL 19.1.09
RBS loses £28billion in a YEAR as Darling warns British economy
will collapse if second bank bailout fails
By NICOLA BODEN, JAMES CHAPMAN and IAN DRURY
• RBS unveils losses of up to £28bn for 2008
• State interest in the bank increased to 70%
• Billions more of taxpayers' cash spent on new bailout
• Public purse used to underwrite 'toxic debt' of banks
• £50bn boost to mortgage lending
• Darling admits he doesn't know how much it will cost
Record loss: Royal Bank of Scotland is facing losses of up to
£28billion for 2008
Royal Bank of Scotland today revealed it is facing losses of up to
£28billion for last year, the biggest in UK corporate history.
RBS - as of today 70 per cent owned by the taxpayer - could
ultimately face losing £45billion for 2008 once write downs on other
banks it has purchased are factored in.
The staggering figure emerged as the Government unveiled plans for a
second multi-billion pound bank bailout in a bid to stave off
economic disaster.
Alistair Darling admitted the whole economy will collapse if this
latest attempt to rescue the financial system does not work.
THIS IS JUST THE START OF A LONG MAIN ARTICLE. I haven;t the time or
energy left to precis the rest - but worth reading!
========================
GUARDIAN 19.1.09 (Timed 1058 GMT)
Darling warns of economic collapse without latest banking bail-out
'Things out there look very grim, but we will get through this,' the
chancellor said
• Graeme Wearden
Alistair Darling today insisted he was right to use hundreds of
billions of taxpayers' money in a fresh bail-out of the banking
sector, saying the recession would be much worse if he did not act.
The new measures to support mortgage lending and consumer loans were
attacked as a "blank cheque" by critics this morning, but the
chancellor warned that the consequences of inaction would be grim.
"If the banking system collapses, every single one of us would see
the obvious problems. The economy would come down with it," he told
the BBC. "The cost of not doing anything would be far, far greater.
If we don't get lending going, the recession will be longer, deeper
and more painful".
"It may seem a very wet, miserable January morning, things out there
look very grim, but we will get through this," Darling added.
Darling was speaking after the Treasury released details of a second
banking bail-out, and Royal Bank of Scotland announced it will make a
loss of up to £28bn for 2008 - the biggest loss in UK corporate history.
Gordon Brown told a Downing Street press conference that the loss
showed the consequences of "irresponsible lending" [under the verry
rules set out by - er - Gordon Brown -cs] .
Under the new plans, the government will insure bank loans for
corporate and consumer debt. By offering to cap potential losses, the
government hopes to encourage banks to lend again. Economists said
the Asset Protection Scheme looks like a form of quantitative easing
- effectively pumping more money into the economy.
The government is also making a three-pronged effort to stimulate the
mortage market: up to £100bn will be provided to underwrite new
mortgage lending, the existing £200bn scheme will be extended, and
state-owned Northern Rock is being given a new mandate to increase
its lending.
And the Bank of England is also being given new powers, in addition
to its control of interest rates. It has been authorised to spend up
to £50bn buying a range of assets from the banks, both to increase
corporate credit and for monetary policy purposes.
The government said it was taking the measures - just three months
after its first £37bn bail-out - after the global financial and
economic situation continued to deteriorate. It said that it was
"essential" to meet demand for lending from businesses, homeowners
and consumers.
The plan means that the taxpayer is exposed to billions of pounds of
potential losses. In return, the government plans to force the banks
to increase their lending to help the UK economy through the
recession. Banks will be charged a fee, which can be paid in cash or
shares - suggesting that companies like Barclays and HSBC could soon
be partially owned by the government.
Vince Cable, Liberal Democrat Treasury spokesman, said the original
bail-out had failed because the government had not forced the banks
to increase their lending in return for their capital injections.
"It's now clear that the money was not used for lending, but was
instead used to cover bad debts," said Cable.
"I don't like to talk about blank cheques, but I fear that's where we
are now," he added.
And Peter Spencer, from the Item Club, said that "it sounds like
heads the banks win, tails the taxpayer loses".
Binding measures
The chancellor insisted today that the banks will have to pass the
money on offer into the wider economy.
"If the banks use the measures we are offering today then they will
have to enter into legally binding measures to increase lending. Just
hoarding the money doesn't help us as businesses or individuals,"
Darling said.
The Treasury is also changing the terms of the first banking bail-
out, which has failed to revitalise the sector. It will swap its
existing preference shares in RBS, which carried a high rate of
interest, for ordinary shares, taking its stake in the bank to almost
70%. In return, RBS has promised to increase its lending over the
next 12 months by £6bn - another attempt to get money flowing to
borrowers.
The City gave today's measures a broad welcome, with the FTSE 100 up
by 76 points, or 1.8%, to 4223 this morning. But RBS plunged by
nearly 30% to 24.8p, extending the taxpayer's losses since taking a
large stake in the bank.
The new measures, which come three months after the first banking
bail-out, were announced this morning following a weekend of talks
between the government and bank chiefs. The banking crisis reared up
again last week when America's Merrill Lynch posted an unexpectedly
large loss and which culminated with Barclays shares plunging by 25%
in the last hour of trading on Friday afternoon. It insists, though,
that it made a profit of at least £5.3bn last year.
RBS sees huge loss
RBS said this morning that it expected to make a full-year loss of
between £7bn and £8bn before goodwill is taken into account, having
taken more writedowns on so-called toxic assets, some based on
mortgage loans that turned sour in the credit crunch.
[detailed RBS figures as summarised above]
========================
EXTRACTS --->
Telegraph
No cap on taxpayer risk over bank rescue plan, admits Gordon Brown -
Gordon Brown has admitted there is not yet any cap on how much risk
taxpayers will have to bear as a result of his plan to insure banks
from billions of pounds of losses on bad loans. - - - - - - -
Alistair Darling, the Chancellor, earlier conceded that he can't
estimate how much taxpayers' money will be on the line in the latest
bank assistance package.
Ministers say the new package, which comes only three months after
another £500 billion bailout, is vital to restore bank lending and
help companies get credit and stay in business. - - - - - - - - -
Mr Brown reacted angrily to suggestions that he was handing a "blank
cheque" to the banks by offering to protect them against the
consequences of that lending.
He said: "You are completely misunderstanding this to suggest this is
a blank cheque. Quite the opposite. It is for the Treasury to decide,
after an analysis, what the insurance will be."
But he admitted that ministers have not yet set any upper limit on
the value of loans they support or the level of risk taxpayers will
bear. - - - - - - - -
In a statement to the City, the Treasury said the Asset Protection
Scheme scheme is expected to operate for "not less than 5 years."
"To increase confidence and capacity to lend, and in turn to support
the recovery of the economy the Government is today announcing its
intention to offer protection on those assets most affected by the
current economic conditions," the Treasury statement said. - - - - -
- - - -
summary from the Guardian and extracts from the Telegraph.
But first I have met with two commentaries which are well worth the
reading. The first from Peter Oborne from the Mail, and then
Ambrose Evans-Pritchard in the Telegraph, who seems to think that it
may only be ghastly instead of catastrophic - but he’s not sure! .
More later I expect!
xxxxxxxxx cs
But let’s look on the bright side. Obama has realigned his
inaugural and is personally going to walk to it barefoot on the
Potomac.
========================
1 COMMENT
=-=-=-=-=-=-==-=-=-=-=
DAILY MAIL 19.1.09 (Timed 0858 hrs)
We’re a nation on the brink of going bankrupt
Peter Oborne
If Chancellor Alistair Darling has lost his game of poker with the
markets the consequences for the credit worthiness of the British
state are dire
All hopes of Gordon Brown managing to save the world with October's
great banking bail-out have proved tragically misguided.
The £37billion injected into the banks last autumn might have helped
save the financial system from instant meltdown. But its effects have
proved at best temporary, and now the money has disappeared without
trace.
The consequences of this failure are grim indeed. Britain now faces,
for the first time in history, the prospect of national bankruptcy.
This is because Chancellor Alistair Darling made one fatal mistake
last October. He placed what amounted to a government guarantee
behind the British banks as the bail-out package.
This act was seen as a symbolic gesture which would restore
confidence in the British banking system. Very few people believed
that Darling's bluff would be called.
Since then, however, the international economy has entered a downward
spiral. It suddenly looks worryingly plausible that poor [?’poor’ ? -
cs] Darling has lost his game of poker with the markets – and that
his bluff will be called. If that happens, the consequences for the
credit worthiness of the British state are dire.
Consider the following terrifying facts. Our national debt officially
stands at approximately £400billion – in itself a frighteningly high
figure and our annual borrowing is now larger as a percentage of
gross national product than in 1976, when Labour Chancellor Denis
Healey was forced to call in the International Monetary Fund to
rescue the economy.
However, that £400billion is minute compared with the collective
indebtedness of the banks which are now under effective government
control.
Let's take the case of just one – the RBS group, whose two principal
assets are Royal Bank of Scotland and NatWest. RBS has outstanding
loans and other assets amounting to an eye-watering two trillion
pounds. That's five times the size of the national debt.
Already the taxpayer owns a whopping 58 per cent of RBS thanks to
last autumn's bail-out. And that figure is now certain to rise very
sharply because every day comes fresh information of how shockingly
badly this wretched bank has been managed.
To give one example of RBS's suicidal carelessness among many, it is
owed some £2.5billion by the Russian oligarch Leonid Blavatnik which
will never be seen again. Next month, when the bank announces its
results, it is expected to unveil a truly terrifying loss of
approximately £30billion.
These losses – and new ones are emerging every day – are all met by
the British taxpayer. Indeed, RBS's asset value merely needs to fall
by 10 per cent, and twice the annual cost of the National Health
Service is instantly wiped off the national balance sheet.
And RBS is only one of many banks which, thanks to Alistair Darling's
insane generosity last October, are now guaranteed by the Brown
government.
So, unfortunately, is HBOS, the piece of stockmarket quoted alphabet
soup resulting from the merger of Halifax and Bank of Scotland. So is
Lloyds. So is Northern Rock and Bradford and Bingley.
Guaranteed by the Brown government
And it looks at least possible that the Government will soon be
obliged to step in and rescue another banking giant, Barclays, after
its share price collapsed by 25 per cent in late trading on Friday.
It is no longer difficult to imagine the national debt doubling or
even trebling if this banking crisis persists for much longer. If
that happened, the economy would collapse, Britain would go bankrupt
and the receivers would be brought to bear.
Admittedly nations do not actually go into liquidation when they go
bankrupt. But the process is every bit as humiliating and would
certainly cost millions of jobs, and mean a huge drop in the living
standards for every single one of us.
National bankruptcy occurs when the national debt grows so large that
investors believe it can never be repaid. At that point they go on
strike.
Two things then happen. The currency collapses. That is already
starting to happen with sterling, precisely because of growing
international fears about the solvency of the British state.
And the government starts to print money. Unable to borrow money in
the form of loans to pay off the national deficit, it orders the
central bank to create it. This was the tactic resorted to when
Germany went bust in the early 1920s, and by Robert Mugabe in
Zimbabwe. As these two examples show, the result can be extremely
inflationary – but Bank of England officials are now actively
contemplating this course of action.
So Britain is now on the route to national bankruptcy. How can Gordon
Brown and Alistair Darling avert this desperate outcome during the
frantic negotiations with the banks over the next few days?
First, they need to learn the lessons of the failed bail-out last
October. This means not chucking good money after bad. It is now
embarrassingly obvious that Gordon Brown and Alistair Darling
invested in the banks without troubling to discover how disastrous
the true situation was.
This time round they must do the necessary due diligence – however
horrifying the consequences and whatever dreadful skeletons they find
rattling in the cupboard.
Second, they must not protect the shareholders, as they did last
October by paying too much for the shares they acquired. The brutal
truth is that RBS, HSBO and Lloyds are totally worthless without
government backing. I am no believer in state ownership, but I am
afraid that the shareholders – who did such a wretched job keeping
management accountable at the height of the credit boom – must be
punished.
Thirdly, senior management at these banks still enjoy sky-high
salaries. To give one example among many, Guy Whittaker, the finance
director of RBS, is on £700,000 a year. This profligacy is obscene
and must be ended at once.
Fourthly, Gordon Brown urgently needs to make the spending cuts to
ensure our national solvency in these desperately troubling times.
Sadly, the Prime Minister shows no sign at all of taking this prudent
course of action.
Finally, we must hope and pray. We are now on a downward spiral, and
these are the most terrifying economic conditions for 80 years.
===========================
Biblical debt jubilee may be the only answer (timed 0608 hrs)
Once again, Britain leads the world in the macabre speciality of
saving banks.
By Ambrose Evans-Pritchard
The Treasury's £200bn plan to soak up toxic debt will be followed
within days by a US variant from the Obama team. Germany cannot be
far behind.
As one bail-out succeeds another at ever more inflated price tags,
rescue fatigue is becoming palpable. People are bewildered, fearing
that good money is being thrown after bad.
The doubts are understandable but there are tentative signs of a thaw
in the global credit system. Libor lending rates in the US, Britain
and Europe have fallen sharply. US mortgage rates have dropped from
6.5pc to 4.88pc since October. Companies can issue bonds again.
"It is easy to conclude that none of the Government's policies are
working," said Professor Peter Spencer from York University. "We must
not lose sight of the fact that they have prevented the collapse of
the monetary system."
This is not does mean that recovery is imminent. Nothing can prevent
a long purge as years of credit leverage give way to debt deflation.
It means only that the downward spiral – the "adverse feedback loop"
feared by central banks – has been arrested.
The first three pillars of the global bail-out are in place.
Government money is rebuilding the annihilated capital of banks. This
has further to run. Core lenders in the US, Europe and parts of Asia
will be nationalised, but that is a detail at this point. It scarcely
matters who owns the banks – unless you are a shareholder – so long
as they lend.
The Fed has cut rates to zero. It is buying mortgage securities on
the open market, and eying Treasury debt next. Fellow central banks
are exploring their own ways to print money.
The $3 trillion (£2 trillion) fiscal blitz by the US, China, Japan
and Europe plugs an emergency gap. With luck, it will keep the world
economy on life-support just long enough to stop recession and
banking crises from feeding on each other with lethal effect, as they
did in 1931.
The latest plans to "ring-fence" bad debts in sceptic tanks [sic! -
cs] puts in place the fourth pillar. The UK Treasury's version
involves a state insurance scheme, letting banks shuffle off their
crippling loads and escape mark-to-market torture.
The US version is a "bad bank" for mortgage debt. It is more or less
the old "TARP" passed by Congress, before the funds were diverted
into bank recapitalisations. This method worked after the Savings &
Loan crisis in the 1980s. The market found a floor. The Treasury even
made a profit.
German finance minister Peer Steinbrück said he "could not imagine" a
bad bank in his country. Time will tell. Der Spiegel reports that
Germany's top 20 banks have €300bn (£270bn) of bad debt, booked at
"illusory" prices. They have written down just a quarter of their
losses. [That’s three-quarters to go then! -cs]
Taken together, the rescues may make the difference between global
recession and a deeper slump that causes mass unemployment and social
turmoil, perhaps destroying the open global order we take for
granted. We can only guess.
There is no guarantee that the measures will succeed. The vast scale
of government borrowing may exhaust the stock of global capital.
Markets are already beginning to question the credit-worthiness of
sovereign states. The Fed may find it harder than it thinks to
disengage from colossal intervention in the bond markets.
In the end, the only way out of all this global debt may prove to be
a Biblical debt Jubilee.
Creditors are not going to like that.
===========================
2. NEWS REPORTS
=-=-=-=-=-=-==-=-=-=-=
DAILY MAIL 19.1.09
RBS loses £28billion in a YEAR as Darling warns British economy
will collapse if second bank bailout fails
By NICOLA BODEN, JAMES CHAPMAN and IAN DRURY
• RBS unveils losses of up to £28bn for 2008
• State interest in the bank increased to 70%
• Billions more of taxpayers' cash spent on new bailout
• Public purse used to underwrite 'toxic debt' of banks
• £50bn boost to mortgage lending
• Darling admits he doesn't know how much it will cost
Record loss: Royal Bank of Scotland is facing losses of up to
£28billion for 2008
Royal Bank of Scotland today revealed it is facing losses of up to
£28billion for last year, the biggest in UK corporate history.
RBS - as of today 70 per cent owned by the taxpayer - could
ultimately face losing £45billion for 2008 once write downs on other
banks it has purchased are factored in.
The staggering figure emerged as the Government unveiled plans for a
second multi-billion pound bank bailout in a bid to stave off
economic disaster.
Alistair Darling admitted the whole economy will collapse if this
latest attempt to rescue the financial system does not work.
THIS IS JUST THE START OF A LONG MAIN ARTICLE. I haven;t the time or
energy left to precis the rest - but worth reading!
========================
GUARDIAN 19.1.09 (Timed 1058 GMT)
Darling warns of economic collapse without latest banking bail-out
'Things out there look very grim, but we will get through this,' the
chancellor said
• Graeme Wearden
Alistair Darling today insisted he was right to use hundreds of
billions of taxpayers' money in a fresh bail-out of the banking
sector, saying the recession would be much worse if he did not act.
The new measures to support mortgage lending and consumer loans were
attacked as a "blank cheque" by critics this morning, but the
chancellor warned that the consequences of inaction would be grim.
"If the banking system collapses, every single one of us would see
the obvious problems. The economy would come down with it," he told
the BBC. "The cost of not doing anything would be far, far greater.
If we don't get lending going, the recession will be longer, deeper
and more painful".
"It may seem a very wet, miserable January morning, things out there
look very grim, but we will get through this," Darling added.
Darling was speaking after the Treasury released details of a second
banking bail-out, and Royal Bank of Scotland announced it will make a
loss of up to £28bn for 2008 - the biggest loss in UK corporate history.
Gordon Brown told a Downing Street press conference that the loss
showed the consequences of "irresponsible lending" [under the verry
rules set out by - er - Gordon Brown -cs] .
Under the new plans, the government will insure bank loans for
corporate and consumer debt. By offering to cap potential losses, the
government hopes to encourage banks to lend again. Economists said
the Asset Protection Scheme looks like a form of quantitative easing
- effectively pumping more money into the economy.
The government is also making a three-pronged effort to stimulate the
mortage market: up to £100bn will be provided to underwrite new
mortgage lending, the existing £200bn scheme will be extended, and
state-owned Northern Rock is being given a new mandate to increase
its lending.
And the Bank of England is also being given new powers, in addition
to its control of interest rates. It has been authorised to spend up
to £50bn buying a range of assets from the banks, both to increase
corporate credit and for monetary policy purposes.
The government said it was taking the measures - just three months
after its first £37bn bail-out - after the global financial and
economic situation continued to deteriorate. It said that it was
"essential" to meet demand for lending from businesses, homeowners
and consumers.
The plan means that the taxpayer is exposed to billions of pounds of
potential losses. In return, the government plans to force the banks
to increase their lending to help the UK economy through the
recession. Banks will be charged a fee, which can be paid in cash or
shares - suggesting that companies like Barclays and HSBC could soon
be partially owned by the government.
Vince Cable, Liberal Democrat Treasury spokesman, said the original
bail-out had failed because the government had not forced the banks
to increase their lending in return for their capital injections.
"It's now clear that the money was not used for lending, but was
instead used to cover bad debts," said Cable.
"I don't like to talk about blank cheques, but I fear that's where we
are now," he added.
And Peter Spencer, from the Item Club, said that "it sounds like
heads the banks win, tails the taxpayer loses".
Binding measures
The chancellor insisted today that the banks will have to pass the
money on offer into the wider economy.
"If the banks use the measures we are offering today then they will
have to enter into legally binding measures to increase lending. Just
hoarding the money doesn't help us as businesses or individuals,"
Darling said.
The Treasury is also changing the terms of the first banking bail-
out, which has failed to revitalise the sector. It will swap its
existing preference shares in RBS, which carried a high rate of
interest, for ordinary shares, taking its stake in the bank to almost
70%. In return, RBS has promised to increase its lending over the
next 12 months by £6bn - another attempt to get money flowing to
borrowers.
The City gave today's measures a broad welcome, with the FTSE 100 up
by 76 points, or 1.8%, to 4223 this morning. But RBS plunged by
nearly 30% to 24.8p, extending the taxpayer's losses since taking a
large stake in the bank.
The new measures, which come three months after the first banking
bail-out, were announced this morning following a weekend of talks
between the government and bank chiefs. The banking crisis reared up
again last week when America's Merrill Lynch posted an unexpectedly
large loss and which culminated with Barclays shares plunging by 25%
in the last hour of trading on Friday afternoon. It insists, though,
that it made a profit of at least £5.3bn last year.
RBS sees huge loss
RBS said this morning that it expected to make a full-year loss of
between £7bn and £8bn before goodwill is taken into account, having
taken more writedowns on so-called toxic assets, some based on
mortgage loans that turned sour in the credit crunch.
[detailed RBS figures as summarised above]
========================
EXTRACTS --->
Telegraph
No cap on taxpayer risk over bank rescue plan, admits Gordon Brown -
Gordon Brown has admitted there is not yet any cap on how much risk
taxpayers will have to bear as a result of his plan to insure banks
from billions of pounds of losses on bad loans. - - - - - - -
Alistair Darling, the Chancellor, earlier conceded that he can't
estimate how much taxpayers' money will be on the line in the latest
bank assistance package.
Ministers say the new package, which comes only three months after
another £500 billion bailout, is vital to restore bank lending and
help companies get credit and stay in business. - - - - - - - - -
Mr Brown reacted angrily to suggestions that he was handing a "blank
cheque" to the banks by offering to protect them against the
consequences of that lending.
He said: "You are completely misunderstanding this to suggest this is
a blank cheque. Quite the opposite. It is for the Treasury to decide,
after an analysis, what the insurance will be."
But he admitted that ministers have not yet set any upper limit on
the value of loans they support or the level of risk taxpayers will
bear. - - - - - - - -
In a statement to the City, the Treasury said the Asset Protection
Scheme scheme is expected to operate for "not less than 5 years."
"To increase confidence and capacity to lend, and in turn to support
the recovery of the economy the Government is today announcing its
intention to offer protection on those assets most affected by the
current economic conditions," the Treasury statement said. - - - - -
- - - -
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