Monday, January 19, 2009

So many questions.

Like most people, I'm mesmerised by what's happening to the UK economy. There are so many questions, and it seems that there are no answers to many of them. What has really shocked me is that the Government committed £37 billions to banks last October without having a clue what liabilities were hidden in the bank's books. What on earth is the FSA for. Anyway it looks as if most of that money has gone - and today the Prime Minister has had to announce that he's committing billions more. Its like watching a huge car crash - fascinating and horrifying at the same time.

Two questions occur to me. Perhaps some of my readers can help with answers. Firstly, since the Royal Bank of Scotland is now 70% owned by the Government, and the value of shares has dropped from 600p to 12p, what's the difference between the current position and 'nationalisation'? It looks to me as if the Government is nationalising RBS by the back door.

The second question concerns the Government's amazing new insurance scheme. It seems that we have no idea what premium the Government is going to charge the banks for insuring their duff loans - or how much dodgy debt banks have on their books which they may want to insure. We could be talking hundreds of billions here. If Dan Brown or Tom Clancy had set one of their thrillers against this sort of financial background, the plot would have been dismissed as too bizarre for publication. And what are we to make of Gordon Brown's supposed shock that up to 80% of these dodgy loans are with foreign borrowers. How can he not have known that? And is this insurance scheme going to cover them. And if its only going to cover the remaining 20% of loans (those lent to UK borrowers) will it make any significant difference to the position of the banks.? I have no idea what the answers are to these questions. Thats not a problem - but it is a bit worrying that neither our Prime Minister or Chancellor has the slightest idea either.

17 comments:

Anonymous said...

who does have an idea Glyn? your lot are deafening in the silence.
I think RBS has to go the way of northern rock and become state owned. The others should be big enough and ugly enough, but suspect that many, many old business wasy are dying, wonder what the future will bring?

Frank H Little said...

what's the difference between the current position and 'nationalisation'?
I believe there is a technical distinction between being a "majority shareholder" and owning a company, and that we tax-payers have not yet crossed that threshold.

As to the FSA, the government could perhaps save us all some money by winding it up. It has been as much use as a Scottish goalkeeper.

JPT said...

As an insurance company the Government is pretty foolish taking on what it's took on if you ask me.

dalesman said...

What is worrying is that the government have set up this guarantee scheme without knowing how much it will cost.
I listened to Darling yesterday, and all he did was waffle. They haven't a clue what the cost is going to be!

Savonarola said...

"Your lot are a deafening silence". May I suggest with the greatest respect that the condition you describe is present in your goodself rather than in Cameron/Osborne. Read Hansard. Read the press. Or do you swallow the Brown slogan 'do nothing' party?

Glyn read John Redwood's blog. RBS has £1.8trillion of liabilities and £1.9 trillion assets. Its the assets that are the problem. No one least of all HMG knows the true value of the assets. RBS is in effest nationalised. Any further asset write downs and HMG will have to inject more money for more shares effectively diluting other shareholders to close to zero. As owners of this bank you and I have a potential extra £200bn debt should RBS assets fall by 10%. Best not to think about it.

Brown is text book clever but he is a market moron. His bank dealings simply an extention of announcing to the world that he was going to sell 350 tonnes of gold. He should be strung up.

Welshman in DC metro land said...

Anon> we have to make our own future. But fat chance of that. The Welsh Assembly Government (WAG) has not been in listening mode and has ignored ways to change the dynamic in the direction of a high GVA economy. Wales has such enormous talent and fantastically important assets, but the WAG is focused on old ways of doing things instead of looking at how former third world states have turned themselves around. Look at Singapore; see how that former Third World state has transformed its future. Look at how its main university outperforms Wales’s premier university in terms of protecting its intellectual property. Singapore’s main university has more registered US patents than all of the universities in Wales combined; at least five times as many registered US patents than Cardiff University. Yet Cardiff University is a world class university, it is a member of the Russell Group of Research Intensive Universities.

By most measures Cardiff University is an EXCELLENT university, is noted for its world-class research. It has a fantastic and well deserved reputation, yet under WAG ‘leadership’, Cardiff and all the other universities in Wales are GROSSLY underperforming in international terms with respect to protecting what should be their (and hence Wales) intellectual property. It’s not intellectual property if it is not protected, and the USA is the largest economy for IP protected goods and services. Why is a single university in Singapore outperforming, on the IP protection front, all of the universities in Wales combined?

I have said this repeatedly: Wales is of a size where its discoveries, if IP protected, would transform the Welsh economy from a low GVA to a high GVA economy. Wales can make its own future, and its future can be high-GVA or low-GVA. So far the WAG has through inaction continued along the low-GVA path. The opportunity cost (and future loss of tax revenues and high paying jobs for Welsh people) is, for Wales, MEGA-HUGE.

While the WAG refuses to harness Welsh IP for the people of Wales, the people of Wales will ‘enjoy’ a low-GVA economy dependent on foreign companies and overly dependent on handouts from London and Brussels … c/o an uncaring or willfully deaf WAG.

Footnote: A certain Welsh MEP is in Washington DC today. A politician who claims to care about the Welsh economy. You might think this arrogant, but when the Prime Minister of Britain visited Chicago I (and two other Chicago Brits) were invited (c/o the British Consulate in Chicago and the Economic Club of Chicago) to meet him at a pre-speech event (Tony Blair was the first active British PM to give a speech in Chicago (Winston Churchill, while British PM, once traveled through Chicago on a sleeper/train).

You would think that since she is but a few minutes drive from me that Ms. Kinnock would ask me to drive a couple of miles to discuss how protecting IP can transform the Welsh economy. Not on your life. Her words are like empty jugs of water in a parched desert. The Welsh economy is BEGGING to be fixed, the financially-strapped and stressed families of Wales NEED CHANGE. I have very personal knowledge of the stresses faced by poor and cash-strapped Welsh families obliged to leave Wales to find a better future for their children. But hey, spout sound-bites for Welsh newspapers, about how much one cares about the Welsh economy and the need for global change while ignoring the NEED FOR CHANGE IN WALES.

Welshman in DC metro land said...

A certain Welsh MEP is in Washington DC today. A politician who claims to care about the Welsh economy. You might think this arrogant, but when the Prime Minister of Britain visited Chicago I (and two other Chicago Brits) were invited (c/o the British Consulate in Chicago and the Economic Club of Chicago) to meet him at a pre-speech event (Tony Blair was the first active British PM to give a speech in Chicago (Winston Churchill, while British PM, once traveled through Chicago on a sleeper/train).

You would think that since she is but a few minutes drive from me that Ms. Kinnock would ask me to drive a couple of miles to discuss how protecting IP can transform the Welsh economy. Not on your life. Her words are like empty jugs of water in a parched desert. The Welsh economy is BEGGING to be fixed, the financially-strapped and stressed families of Wales NEED CHANGE. I have very personal knowledge of the stresses faced by poor and cash-strapped Welsh families obliged to leave Wales to find a better future for their children. But hey, spout sound-bites for Welsh newspapers, about how much one cares about the Welsh economy and the need for global change while ignoring the NEED FOR CHANGE IN WALES.

Glyn Davies said...

Anon - I think you are unfair to the Conservative leadership. Clearly, as the situation deteriorates, 'our lot' have to take a considered view of policy. We've been advocating several potential actions over recent months, including a £50 billion loan guarentee system. But yesterday's announcement's were something else. George Osborne accepted that the situation has become so terrible that he accepted the inevitability of the Government's package - but I don't how Gordon Brown can absolve himself from part of the responsibility for creating the problems. It seems to me that his reputation is in tatters.

Frank - you are right to refer to it as a 'technical' difference. And can we not save our nation by transferring Gordon Brown to keep goal for Falkirk?

JPT - The problem is that a position has been reached where it seems it was either this 'insurance' mechanism or a 'toxic bank'. Both mean the taxpayer losing a huge amount of money.

Dalesman - Agreed. It was scarcely believable.

Savonarola - I do read John Redwood's blog. I do wonder why the media use Vince Cable so much, when its obvious that Redwood has a much clearer grasp of what's going on.

I still have not quite ghot my head around what happened yesterday - but for the first time, I think its possible that the IMF may come in - which would surely be the end of Gordon Brown as Prime Minister, and would lead to a General Election.

Welshman - Can you have 'empty jugs of water'? You can have 'jugs empty of water' or three 'empty jugs' or a 'pair of jugs'. I think we need a wordsmith to tell us.

Savonarola said...

The IMF do not have the money to bail us out.

BoE/Treasury will flood the banks with cash buy buying their gilts and other assets. This will increase money supply resulting in a surge in prices within twelve months since the collapse of £ will itself cause imports to cost more. I suggest that the Govt will monetise its debt which is not repayable with sound money.

Go back to the 60's and 70's. Savers and investors had their savings destroyed by inflation. It will happen again. There is no other way out of this. This is certain whether we have a Lab or Con administration. The damage has been done.

Anonymous said...

Re: IMF, there was a prediction that was on my blog some time ago. It went something like: that it could be avoided, but if not avoided: mega juggernaut economic storm brewing, financial collapse in the CoL (City of London), financial sector employees should seek employment in other professions (e.g., teaching) before the brown stuff hit the fan, that steps taken by government would have no impact on the mega-economic storm/cometh ... sounded Biblical - kind of amazes me that I, with little background/financial knowledge, would communicate such an accurate prediction when everyone was still in real-estate crazy mode. I deleted the prediction - it was all over Google when it was on the blog, but now all traces of it seem to have gone from Google, but I guess it’s archived someplace or other. There was some warnings too about the creation of human-animal hybrids and grave warnings about what this would lead to. A very slippery slope. I think the depth and spread of this recession reflects the fact that we as a people did not recognize the grave error. Human-animal experiments are now underway in foreign countries even if there is some delay in the UK - we sent out the wrong signal. I do believe we have made such a huge mistake that if there is a God we have invited wipe-out. It is that bad. Maybe there will be another flood or something. The Catholic Church seemed to be the only institution of substance that warned of the grave error in legislating in favour of human-animal abominations. You or others might laugh Glyn, but riddle me this: if there is a God how happy would this God be if one of his creations took it upon him/herself to change the fundamental pattern and create cross-breeds of human-animal mammalian cells. It's one thing putting a gene coding for insulin into a bacterium, it's another thing entirely putting a human nucleus in its entirety into a non-human cell thereby creating a cell with a human nucleus and animal DNA (mito-DNA). We have gone down a wrong path.

Anonymous said...

Echo Echo, READ ALL ‘BOUT IT, “Jim Rogers says Chancellor has made 'a pig's ear of the economy”

http://business.timesonline.co.uk/tol/business/economics/article5555898.ece

Anonymous said...

Your response to the Welshman in DC says so much about your political acumen.

He post two concise and considered
responses and the best that you can do is ask stupid questions about literary precision when his meaning is clear and obvious.

I suppose your're just getting in some practice avoiding the issues, eh?

Shame on you.

Glyn Davies said...

Anon - If you were a regular visitor you would know that the points Christopher makes on this post have featured on this blog many times before, over a period of years. He knows that I agree with him regarding intellectual property, which is probably why he uses my blog to pursue his campaign - and his comments regarding the way we regard the human body have been instigated, at least to some extent, by my posts on the subject. Normally I don't respond to comments where my response would simply be repetition, which it would have been here. Clearly you are not a regular reader of this blog or you would have known this.

ROMAN JONES Esq. said...

I'd proposed rather than a Toxic Bank that the Govt should create a UK Building Society out of the good assets of the banks it has been taking over (Lloyds/RBS/NR/B&B) and maybe even Barclays soon. All savers and people with mortgages should be transfered to UK MegaBank and the shriveled husks of the old banks be allowed to collapse. This would safeguard people's assets 100%. The money the Govt is currently pouring in to prop up the banks could then be used as an umbrella capital for this UK MegaBank, all owned 100% by the taxpayer and all profits to the taxpayer. The more stable institutions such as HSBC, Nationwide, CoOp etc can stay independent if they so wished but if they felt under threat - then would HAVE to join MegBank or go bust. No more handouts. Once the economy picks up, MegaBank could be privatised.

Dr. Christopher Wood said...

Anon (04:11:00)> thanks very much for your comments. Glyn is a good soul, he lets me spout on about things close to my heart on his blog and I am very grateful to him for that. Glyn Davies is a Welsh patriot to the core. Unlike many other Welsh politicians Glyn has actually taken the time to consider my often repeated arguments (over some years now) about how the Welsh Assembly is not doing its bit in terms of IP protection. So I do take my hat off to him, and also to you Sir for listening to the same arguments. Also to Jolly Roger for his poems.

PS I am changing tactics, I feel time is literally running out for Wales. The knowledge and expertise that I have is so vital to Welsh national interests that it must be heard at the highest levels of WAG. It is shocking that time is passing, I could be run over tomorrow and the critical knowledge I have that could be used to transform the Welsh economy from a low GVA to a high GVA could be lost essentially for ever. I am probably Wales's top expert on US Patent Law. I know how to use the US Patent System to transform the outlook of the Welsh economy. It is now time to get in the face of senior Welsh politicians who visit the DC metro area but don't bother to get a staffer to arrange a meeting with me. MEP Glenys Kinnock was in DC yesterday, probably still is, and I have received no invitation to speak to her. It is not like I want to spend valuable time generating gas speaking to a senior Welsh politician, but it's VITAL to the Welsh national interest. WAG should give serious consideration to using my knowledge to transform the Welsh economy. I have posted my contact details enough times now on Glyn's blog.

Imho, Glyn Davies is a Welsh Patriot, very worthy, and should be the next Member of Parliament for Montgomeryshire. It is vital that Wales has Glyn Davies in mother Parliament - he understands the Welsh IP issue, how vital it is for the Welsh economy that WAG gets it right. VOTE GLYN DAVIES for Parliament.

Glyn Davies said...

Roman - can't get my head around this. Its along the lines of the F D Roosevelt solution in 1933 - except that more than one bank was left standing. I think about 40% of banks went bust.

Christopher - Thanks. I do think you make strong points about the importance of IP. which is why I've not taken the advice some commenters give me to reject Dr Christopher Woods. I have control through my reject button, and visitors have control through the scroll down facility.

ROMAN JONES Esq. said...

I'd propose merging all the good assets of the failing banks into one healthy Nationalised Building Society and then leave all the toxic debts in the shells of the old banks, and if they went belly up - tough. Banks/bsocs that think they can survive independently such as HSBC, Nationwide, CoOp etc will be allowed to, but if they then need Govt bail-out, they must be subject to being stripped into their good and bad assets and merged into my MegaBank scheme. this may leave many independent banks or it may leave none.