Robert Peston, BBC's business editor, has produced a brutally honest assessment of where he thinks the UK economy will be in 2009 and beyond. It isn't a fun read but it is a vital contribution, from the journalist the City fears, to the discussion about our economic future and how we got here. The article entitled The New Capitalism is introduced in his blog, Peston's Picks. From here you will be able to download the article in pdf format.
Monday, 8 December 2008
BBC's Robert Peston tells it like it is in 'The New Capitalism'
Robert Peston, BBC's business editor, has produced a brutally honest assessment of where he thinks the UK economy will be in 2009 and beyond. It isn't a fun read but it is a vital contribution, from the journalist the City fears, to the discussion about our economic future and how we got here. The article entitled The New Capitalism is introduced in his blog, Peston's Picks. From here you will be able to download the article in pdf format.
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27 comments:
Why can't RP go after those investment managers who got involved with these subprime investments; those who invested with Madoff and did not for a second wonder how on earth his (Madoff) returns averaged 25% year on year...did they not think this to be ODD? or were they, just like all their colleagues ONLY interested in the ANNUAL BONUS?
Of course, it (these losses) will now be clawed back by banks by higer interest charges especially
via credit cards and other "creative charges"
I agree with sniffer! Many of these guys got super rich because of their immoral actions. I think they should be brought into the spotlight and be made accountable, and who was regulating them?
Hang on guys, it was that Scotsman from Kirkcaldy got us all into this mess. He reckoned everyone could look out for themselves and it would all come out for the best, no matter whether you were making pins or bubbles. What about the hidden hand? Was it always looking after the wealthy and are there now just too many of us?
In reply to curly...
I am English but why do people have to refer to Gordon Brown as that Scotsman, would they call him that Paki from Karachi if he was from Pakistan, no of course not because they would be labelled racist. How does him being from Scotland have anything to do with the economy?
To balance my point the Scots can be just as racist toward the English, I know; I live in the Borders, my grandfather played football for Scotland but I would still be racially abused by some people.
Concentrate on the economic points of the post.
Gordon Brown did what any politician would do, he shaped his policies to suit the electoral mood. Would you have voted for him if he had brought in measures to curb your ability to borrow? Cries of nanny state would of been heard across the land. The mess we are in is nobodys fault but those globally who lived beyond their means and the bankers who forgot how to be bankers. However we will all have to pay for it in the end.
The final sentence of the post by Anonymous is well made ~ 'We will all have to pay for it in the end'.
It's natural to want to find someone to blame, such as Gordon Brown or the Bankers, but perhaps we get what we deserve, after all we are all to blame.
I'm sure everyone is able to recall the many conversations had around dinner tables with friends over the last decade basking in the warm feeling of rising asset prices including the values of our homes whilst at the same time acknowledging that it couldn't possibly continue. In the same conversations we would all relate tales of unbelievable loan to income ratios, self-certs mortgages and eye-watering levels of unsecured debt available to people with very modest incomes. Rising government debt levels cynically driven by off-balance sheet PFI initiatives.
Well the day of reckoning has arrived and we can't really claim to be all that suprised. Yes, something could have be done. Legislation and governance on minimal funding gaps and loan to income caps. However, nobody willingly puts measures in place if it's against their interest to do so. As one of the previous posts points out, there would have been an unholy row led by the popular press and people at large.
So what did I do over the last decade. Speaking as one who has been through a couple of recessions, I have been conscious about preparing for the inevitable downturn. I have been living very modestly compared to my income level for over 12 years whilst I cleared the mortgage and built up savings. By rights, I should be more annoyed than most because I was prudence personified. I drove the old cars when all others were driving new ones, I went on camping holidays rather than 2 holdays a year, I only owned the one house (can you believe it, what an under achiever). I now find myself as heavily implicated by the uncertain future as everybody else - and why shouldn't I be. After all, we could all have done something about it including me.
My guess is that this will take 8-10 years to work through to a point where we all feel reasonably OK once again. Many more years after that before the National debt is at a level where we feel is sane. In that time, the world will be a very different place. The city will never fully recover, the balance of power will shift east to where the wealth is generated. Perhaps that is no bad thing.
Thanks for all your comments. Phew! I think Anonymous from 14/01/09 captures a certain mood - part resignation and part 'grim and bare it' - that is indicative of the crunched times we are going through. Those 'dinner table conversations' about society's unsustainable thirst for credit is a great metaphor of those pre-credit crunch days. I suppose my major disagreement is with your phrase 'after all we are all to blame'. I have to draw a distinction between our personal desires for a better life (including one enhanced by credit) and the general lack of dynamism of many Western economies which were driven in a large part society's over-reliance on a parasitic financial sector. I'll concede that might sound a bit old school liberal-lefty but I don't think the blame for the credit crunch, which has now gone on to expose the recessionary tendencies of the economy, can lie at everyone's door equally.
Good luck with your uncrunching and let's keep the debate going.
Sniffer does not appear to have the facts straight in respect of returns from funds using Madoff. Santander's Optimal Strategy Fund showed the following returns:
2007 5,95%
2006 7,45%
2005 6,58%
2004 7,36%
2003 7,95%
another Optimal fund showed these:
2003 8,39
2004 7,64
2005 7,98
2006 10,81
2007 8,45
2008 4,87
What 25% average !!! Many funds on Morningstar did far far better than these over those same years and not for that reason is the broker/manager suspect of being fraudulent. Facts please!
Hiya
Isn't it an saddening irony that the bad guy trader is called Madoff (hint, that's pronounced "Made-off") - since that's exactly what he's done - made-off with billions, just like the hedge funds, Northern Rock et al
To be honest its all sad that greedy bankers have taken amongst everything including confidence out of the market which at intial estimates are going to lead to 3 million plus unemployed in the UK and moving from recession to possible depression.
But on the plus side we will get through it and maybe a little hardship might bring some back some of the old values such as hard work and prudence rather that get rich quick with no hard work - but alas one things for sure the next few years the UK economy is not going to be going in the right direction.
As one of those 30 somethings that now have a house worth considerably less than it was bought for a family to support and a job at risk - I would nt mind one of those bankers losing his yacht in the med to help pay to create a few jobs
Envy is a wonderful thing.. We were all jealous and wished we could get a slice of the action. Find me anyone who would say "No Thanks - I don't want to be paid several million a year" and I will show you a liar.
The sad thing is this WILL all happen again in the future as it has several times before. Someone will discover a new financial wheeze and thousands will pile in and around we go again. We as humans are inherently greedy and live for today.
ANONYMOUS
I DO NO WANT A MILLION A YEAR - THERE ARE many people who do not want to succour to the GOD of Consumerism and Money. Only a truly infected and blinded person can say that a person who does not want to earn a million is LIAR.
I think we are going to see an a massive revival in many sectors of the stock market very soon, particularly in property. There is absolutely no doubt that there is a massive shortage of housing in this country and major corporations are rubbing their hands with glee at getting involved in the lucrative buy-to-let scene. Let's face it -- you get little return on any money invested in building societies, banks, etc, etc. The investment by major speculators in property will start a rise in property values in this country that will elevate values to levels never before imagined.
The banks are laughing their socks off because they are beeing stuffed with billions of pounds of our money and they are, under our noses, accumulating fantastic wealth without any effort on their part whatsoever -- they can't believe their bloody luck. And they are hanging on to every penny until the time is right for them to release a few bob to their favoured candidates.
Hang on to your hats, guys, because there is no doubt that we are in for a bumpy ride but forget the mouthings of these some of these guru twerps because they no percisely nothing and it would be best if they kept it to themselves!
My prediction is that we will come through this blip much sooner than the idiot gurus predict but clearly we will be paying a lot more in tax for some time to come regardless of who the government is.
I think we are going to see an a massive revival in many sectors of the stock market very soon, particularly in property. There is absolutely no doubt that there is a massive shortage of housing in this country and major corporations are rubbing their hands with glee at getting involved in the lucrative buy-to-let scene. Let's face it -- you get little return on any money invested in building societies, banks, etc, etc. The investment by major speculators in property will start a rise in property values in this country that will elevate values to levels never before imagined.
The banks are laughing their socks off because they are beeing stuffed with billions of pounds of our money and they are, under our noses, accumulating fantastic wealth without any effort on their part whatsoever -- they can't believe their bloody luck. And they are hanging on to every penny until the time is right for them to release a few bob to their favoured candidates.
Hang on to your hats, guys, because there is no doubt that we are in for a bumpy ride but forget the mouthings of these some of these guru twerps because they know precisely nothing and it would be best if they kept it to themselves!
My prediction is that we will come through this blip much sooner than the idiot gurus predict but clearly we will be paying a lot more in tax for some time to come regardless of who the government is.
Banks and Government are failing The British People, whilst they cover themselves at the Tax-payers expense. And then, they have the audacity to state we are in a worse state now than since the end of the last World War.
I just wonder what state we would be in if we had had another world war. It just goes to show, not only this Government but successesive Governments, just how they have so badly performed. Especially in allowing, \big business, government Officials \Ministers etc to do whatever they like with our (Public) money.
\how on earth are they going to gain any Public resepct or confidence again??
Yet, every day we hear of more Government corruption and lies. What a bleak future in deed for this small Island that was once a proud and great place to live.
SEE BELOW - ALL OF WHICH ARE UNTRUSTWORTHY:
Government Officials, Minister's,PM's, Banking etc.
Who the hell are we to trust anymore?? Are we to have the same politicians and corrupt Bankers running and ruining our lives? It's time for a revolution. Get rid of all this corruption. These politicians have had it far too good for far too long. We need a good honest Military Dictatorship run by a Good Honest General??
'Britain is well placed to weather the storm' This from the man who is allegedly running the country. Forgive me for not collapsing in hysterical laughter, we have just had another 'Peace in Our time' moment. We elect and pay politicians to look after our and the country's interests, we expect them to manage the country. Anybody can sing when they think they are winning, take credit for the good times, events that would have occurred whether they were present or not. Well, now the chips are down and we find that those who professed to be world class players couldn't even make the worst sunday league team...
PROTECTIONISM IS NOT NECESSARILY A BAD THING.
Gordon Brown and Mandelson fear protectionism because, over the past ten years Gordon has been asset striping, in particular mortgages, pensions, gold reserves, nuclear power stations sold off to the French, hospital buildings sold off only to rent them back, and now there are no assets left with which to borrow against.
At the very least, you need to protect the asset basis, the foundation, of your economy.
But, Gordon Brown, when chancellor at the helm, changed the financial system in 1997 leaving it unregulated, he in effect handed over Britain’s economy to unscrupulous bankers who gambled it away on volatile global stock markets, outside his jurisdiction.
BASIS OF THE BRITISH ECONOMY
Britain has always been a homeowner-based economy - not like the economies of France and Germany, where the majority of people live in rented accommodation. Homeownership made Britain one of the wealthiest and stable economies in the world.
Scarcity of building land, difficulty in getting planning permission and the time it takes to build substantial property using bricks and mortar and with every increasing costs, it all adds up to a very valuable asset that increases in value. Because of this, the majority of people want to get on the property ladder. These assets are the foundation of the British economy and credit ratings upon which stability depends.
In 1992: When Britain joined the European Exchange Rate Mechanism (ERM), it fixed the level of the pound within a band, which put the economy under great strain. The UK's prime minister and chancellor Norman Lamont, tried desperately to prop up a failing pound. The Chancellor raised interest rates from 10% to 12%, then to 15%, and authorised the spending of billions of pounds to buy up the sterling being frantically sold on the currency markets. But the measures failed to prevent the pound falling lower than its minimum level in the ERM. But because Britain has always been a homeowner-based economy, the only thing that could give under the strain was property. That is why, at that time, homeowners suffered negative equity and repossessions. After Prime Minister, Margaret Thatcher, Pro-Europe politicians have persistently tried to change Britains economy, to bring it into line with the economies of France and Germany, but all attempts failed to change the basis of its home-ownership economy. Britain had to come out of the ERM, but it cost the taxpayer 48 Billion pounds.
SO HOW DID UNSCROUPLOUS BANKERS’ GET THEIR HANDS ON HOMEOWNERS’ ASSETS?
Well, in 1997, Gordon Brown when Chancellor, decided that he didn’t like the existing financial system anymore. So he introduced a system were we had, the Financial Services Authority, the Treasury, and the Bank of England, (the Tripartite Authorities) carving up the job amongst them. Just one big problem – when there was a crisis, ‘apparently’ nobody knew who was in charge. The effect of all this – the system unregulated.
The bankers most certainly knew the enormous potential value of your mortgage, backed by the secure asset of your home, and that mortgage-securities would be the driving force behind a powerful booming economy. They knew the Johnston administration in 1968, privatised Fannie Mae and re-constituted it as a government-sponsored enterprise (GSE), and how they used mortgages re-packet aged in the form of (GSE’s) to raise enormous amounts of collateral to fund the Vietnam war. They knew they would make a fortune if they could trade them on the US financial markets in the same way as US Government-Sponsored-Enterprises (GSEs). However, bankers knew mortgages couldn’t be traded unless they were taken out of their protective regulation. So how did they get their hands on them?
Well, first, you must know what you are doing, and know how to have them deregulated. By changing the banking system in 1997, banks were able to raise collateral by repackaging mortgages and sell them on in the form of Collateral Loan Obligations (CLOs) and other similar stealth products. These were traded through institutions, but an institution is not called a bank, and therefore operated outside strict bank regulations. This was the key to the unscrupulous bankers making a fortune.
The questions one should keep in mind is, was it Gordon Brown's idea, or the Bankers' idea, or both? Who persuaded who?
The property assets backing CLOs were so valuable, that other loan sharks wanted to get in on the act - adverts started to appeared on national television encouraging homeowners’ to free up equity from their home and to - Spend! Spend! Spend! The banks’ were promoting credit cards – shopping on the high street was a wash with cash.
However, whilst you homeowners’ were sleeping in your beds, unscrupulous bankers were undermining the financial foundations of your property asset, by taking your mortgage out from under strict banking regulation, re packet aging them in the form of Collateral Loan Obligations (CLOs) and similar products, selling them on and gambling with them in volatile markets on US Wall Street, and lost them, resulting in the credit crunch, falling house prices and the economy left vandalized.
SO WHAT’S GOOD ABOUT A HOMEOWNER BASED ECONOMY?
Scarcity of building land, difficulty in getting planning permission and the time it takes to build substantial property using bricks and mortar and with every increasing costs, it all adds up to a very valuable asset that increases in value. Because of this, the majority of people want to get on the property ladder. Owning your own home gives a sense of security and confidence. You have the confidence to borrow to improve your property and to keep it regularly maintained. It gives the homeowner a sense of, worth, self-esteem and pride in his achievement. These attributes and property that is well maintained is the ingredients that give the confidence to the Banks to lend.
These assets are the foundation of the British economy and credit ratings upon which stability and confidence depends. Banks had confidence in property assets and were therefore willing to lend to their mortgagor-customers and to each other, the result of all this – a booming economy.
But there are different types of domestic customer that banks can lend to –
Those with secure assets – homeowner-mortgagor;
Those with income – credit card holders;
Those with no assets;
Those with no income;
Lending to homeowners was not reckless lending and was not the cause of the credit crunch. The majority of homeowners have too much to lose to be reckless. The cause of the credit crunch was unscrupulous bankers greed using the assets of homeowners to raise collateral in the form of Collateral Loan Obligations (CLOs) and other similar products, a form of gambling, selling them on in volatile financial stock markets, and handing out credit cards to people who had no assets, many of whom were in temporary employment.
The subprime property market in America drained not only the American economy but also Britain’s economy.
The Obama administration has now recognised that the getting the property market going again is the main fundamental asset to recovery of confidence in homeowners and bank lending. Once you stabilise the property market, only then will homeowners have confidence to spend money on the high street.
WHAT SHOULD THE GOVERNMENT BE PUMPING MONEY INTO?
Firstly assets that appreciate in value in your own country. This builds the foundations, the basis of security and confidence upon which the rest of the economy depends.
For example: Property, since the days of Caesar, has always increased in value;
Any devaluation in property is only temporary, which as we have seen, has been induced by unscrupulous greedy bankers, by putting up mortgage interest rates, with the intention to bring about repossessions. These guys know that after being bailed out, they now can use taxpayers money to buy up property at repossessed prices, and when this economic crisis is over, property will soar in value, making them another fortune all at the expense of homeowners and the taxpayer.
DON’T BE FOOLED BY GORDON’S IDEA THAT A FEW BANKERS MADE A MISTAKE OR THAT IT WAS ALL A GLOBAL PROBLEM.
Gordon Brown tells us that the crisis was caused by a few bankers that made mistakes and he has the media convinced of this.
Let’s get it clear. The unscrupulous bankers were the geniuses who dreamed up Colateral Loan Obligations (CLOs) and all types of similar products to make them a fortune. They even awarded themselves for their innovation by accepting these massive bonuses, with no concern for the people they robbed. These guys, made no mistakes. They knew exactly what they were doing. They dreamed up the financial system in which they were operating. In order to make themselves enormous amounts of money they had to know what you are doing. Don’t be fooled by Gordon’s idea that a few bankers made a mistake or that it was all a global problem. These guys, most certainly are no Novices.
Forensic Debate.
Just wait until the country is so badly in debt and our GDP is insufficient to honour this debt that we can no longer do business with the rest of the world.
We are not energy secure, we are barely food secure. We have been running a huge trade deficit for years. Now, with everything contracting except the level of debt, there will be less "money" or services or goods to go around.
I predict poverty and civil disobedience. And sooner than you might think. Oil is becoming more expensive to extract, and despite the bursting of the oil bubble last year, prices will steadily rise as there is less cheap energy to service the global need.
We are in no position to command first dibs on this valuable resource. As a nation, we are insolvent, simply treading water, even without the financial crisis. The energy crisis is much more serious, especially as it coincides with the global downturn. Yet the peak oil situation is rarely discussed as a priority. It could be the knockout punch in the global struggle of lifestyle defence.
Where will be be in 3 years' time?
Subsiding?
Growing our food, generating energy, trading the surplus? Perhaps.
Maybe we'll just be making even more fiat money to promise to pay for all these goods in the future.
Or maybe we'll be doing anything we can to obtain the 5 essential elements of survival.
Water, Food, Shelter and Fire
5th Feb
Economic Downturn?
"Or maybe we'll be doing anything we can to obtain the 5 essential elements of survival.
1/Water, 2/Food, 3/Shelter and 4/Fire"
& 5?
Well written post previous to that accounting booboo
It seems to me that the old maxim of 'control' is being exercised by manipulation of the world's confidence in itself as an instinctive survivor
I know my instinct - even though the manipulators would have us give up
PPPPPHHHHTTTT!! to them !!
Henry
How many times do we all have to read that the Governments palns are not working. Yet they have given the money to the banks WHO won't lend it to people or businesses. We the tax payers will be paying this money back for decades to come so I want to suggest an alternative.
DON'T give the money to the banks. Lets look at clearing peoples personal debts (not mortgages) for example and this is very hypothetical: Lets assume that 20 million people in the UK owed 20 thousand pounds each to the banks. The governemnt wipe that off as toxic debt and that leaves at least 20 million people with more disposable income to use...that would be a better use of the cash than giving it to the banks...(I know it's flawed) but considering it's really our money in the first place...well why not.
This is my first view to this site. Informed, concise and relevant. Well done to all taking part - I'll be back.
Why does the US and UK hang on to the words of these experts such as Ben Bernanke telling us what the future holds .People like these did not see this collossal mess arriving,so,why do they know anything now.It's like the climate people telling us the temps will rise in 50 years when they can't get the weather right tomorrow or next week!!
Experts.There are non!Get in a new government.Brown was a hopeless chancellor.He alone killed off the pensions and got away with it
I've just realized.
Weapons of Mass Destruction (WMD) were here with us all the time !
They were in 'Cabinet' working for the bankers.
At the top of this interesting and informed debate Curly said "Hang on guys, it was that Scotsman from Kirkcaldy got us all into this mess. He reckoned everyone could look out for themselves and it would all come out for the best, no matter whether you were making pins or bubbles. What about the hidden hand? Was it always looking after the wealthy and are there now just too many of us?" Everyone seems to have missed that Curly was referring to Adam Smith's "The Wealth of Nations" (Alan Greenspan's favourite book) not another Scotsman who happens to be MP for that benighted town(Gordon Brown- since it seems to need spelling out). And Curly's question still stands. Why has not the hidden hand come to the rescue? Whether there are too many of us now is a question for another forum.
i have a question.
When the world will stop excanging its money for paper towels with the stamp US federal reserve note on it?
we keep doing it for the past 60 years and now it is the bankers at fault?
if people keep beleieving their politicians it will be another century of bubbles as far as i can see.
My comment is a personal one, we have just sold our house to a young couple, first time buyers. They lived with one of their parents in one room, they saved and because of that were able to obtain a mortgage immediately. They have been able to take advantage of the housing market downturn and buy a much better house in a nice area for a reasonable price.
This is old fashioned prudence and patience reaping its reward, I hope that their friends and contempories will emulate them, I also hope that there are many more sensible young people out there doing extactly the same. We are going to need their expertise in the future, there is nothing to equal learning from direct experience.
in reply to anonymous's reply to curly... "would you have voted for him (gordon brown)"
show me one person in this country who voted for gordon brown and i will give you 100 pounds!
so much for democracy eh!
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