The Inside Man

You could, but you'd have no chance of winning. The game is not one you can win. Banks are carrying a massive amount of "assets" on their books right now, market to a fictional model. If they were to mark to market they would have to downgrade the assets and declare a potential loss (to be realised once the assets are disposed). They can't do it yet, and what's more they have been told not to do it by the government, as they don't want a run on house prices. So, they are sat on the books, and increasingly off the books in a SIV, with the debtors paying a token towards the debt (or nothing in some cases) in order to stay in their house (which is better for the bank, as empty it's likely to be trashed and lose more value, or be harder to sell on at the appropriate point). At some point the assets will be disposed of, or wrapped up on a CDO and sold on, but right now is not the time for them to be materialising any more losses. The banks are trapped, and they know it, but they have no choice. It's like sitting on a time bomb. They know prices are falling a bit, and they are pumping the news to make them sound like they are rising, but they can't do anything in the short term due to the political pressures. The FSA knows it too... but it has accountability over the products sold and how customers are treated, not the way that a bank values it's asset base, so it can't force a bank to downgrade. And although they have started to kick back, they are on a limited leash and can't declare the truth without starting a run (again, counter to their and the BoE charter to maintain stability). Add to that the fact that they are disorganised and toothless, and you have a public sector cut waiting to happen. The Bank of England knows it... but they too are in Gordon's pocket, and cannot do anything about it, nor can they threaten stability. It's the mother of all stand-offs. Imagine three people in a circle (4 if you include the treasury) all pointing at the others and saying it's their responsibility. This is one of the main reasons that house prices have not crashed. Last time around the banks would have forced repossessions up and disposed of the asset (house) in a way to regain the capital they are owed, but quickly and at a "fire sale" rate which brings down the value of the surrounding houses. This time around they have largely avoided this, preferring to sit on the asset in most cases. With that and everything else, prices have not been under enough pressure to fall. My feeling is that none of the above is sustainable.... and at a point where the prices start to drop significantly the banks may be panicked into asset disposal in order to ensure that they are not themselves liquidated. Without the pressure of an election from the high command they could start to cause some real downward pressure on prices if they dispose of assets at long last. Then again, we could just QE-up some more credit and liquidity to keep the wheels moving in the vain hope that eventually everything will get better... T.I.M.

OK, I won't go into the arguments over sovereign debt, personal debt, etc, they are all well documented here. My point is that this board, and the economy outside of it, tends to go in cycles. I've been lurking for years and posting occasionally, mainly in the hope of seeing house prices drop so that we can trade up without donating a kidney, but I've not been what you would call an avid enthusiast. However, we seem to be on an upswing again... this time it's not credit (or the lack of)... it's debt. And the 'head-in-the-sand' attitudes of politicians versus the 'oh s**t' missives being posted by economists (professional and amateur). And the growing numbers that we all know, one day, we will have to stump up for. Is it me, or is it all feeling like it did around here in 2007. Before the Rock and the other banks went up the creek there was this feeling of impending doom... and I've been feeling it again here. So are we going to start seeing programmes on "the debt crunch" in the next few months as the real, unadulterated truth of just how much debt we're all in sinks in (after all, there is no such thing as 'government debt'... it''s our debt as we'll have to pay it from taxes levied on US). Are we all about to get the hangover from hell from this, and see things start to fall apart like they did last time? Just a thought. BTW, in the bank all is well... bonuses are being paid and it's as if the world has been repaired.... Cheers, T.I.M.

Errm... you need to know a bit more about the banks. Sainsburys Bank now owned by Lloyds Banking Group. It was put under a seperate licence (after being merged into one - what fun that was) as there was a run on deposits due to the 50k limit. But it's still Lloyds. Tesco is not yet a clearing bank, and uses RBS to clear and settle for them. So, if RBS were to go under, although your funds would be "safe" you would still not be able to transact through the bank, leaving you high and dry. This will change over time, though, as I believe Tesco is planning to build a "proper" bank. Personally, I wouldn't worry too much about who owns who... I would just look at the best rates and spread your money around. T.I.M

You might want to do something more positive than just rant, or vent your spleen, why not take it direct to the top? An e-petition has been created on the Number10 site, here: http://petitions.number10.gov.uk/bank-greed/ OK, so it's not likely to result in any immediate changes, but at least Gordenron's team read that site, as opposed to this one. T.I.M.

Greetings Mr Peston. I wish I was paid what Fred was paid... unfortunately I'm not. I do understand, but unlike you I am party to the facts rather than the speculation. There already had been runs (read my post) on both retail and corporate deposits, but actions were in plan and could have been taken to reverse this. However, in the end a few of our board members decided to roll over and capitulate to a government takeover. It was the easy option and they folded like a cheap suit. My bank could have survived the crisis, not in great shape, but survived with sufficient business intact to make a decent profit. Not quite the armageddon scenario you describe. Believe me, I know all too well how badly the bank (and mainly it's board) f'd up. Why do you think I'm here (and have been lurking here since the early days of cgnao's 100% guarantees and goldfinger's blatant heavy metal ramping). I've seen the bad deals, the mad lending, the risks taken and signed off... the lot. It was insane, and very wrong. I've protected myself, my family, and as far as I can, my colleagues. I've used the situation to my advantage in many ways, and looked after my own. I did question a lot of what we did, and how we were operating, but was considered naieve. So I got on with my job and made sure I did it well. So yes, I understood and saw it all. Many of our board also did, but took the risk as the rewards (for them) were massive. And whilst they all walk away with 100's of K's in severance bonuses, the rest of us will have to work twice as hard to get by with no bonuses or pay rises in sight. I know, as a banker, I'm not exactly popular around here, but it would be good if you could stick to the facts - much of which I would be happy to share. T.I.M.

That might be something to do with the BBC being the Pravda of their day, and Pesto being in the pocket of Campbell and Mandy as their official mouthpiece. I work for one of the two banks mentioned. Yes, it was serious. No, it was not as serious as it was made out by Pesto. Funds were available but not at the rates that made them commercially viable... it would have resulted in some pretty massive short term losses, but not insolvency. We also saw a run on deposits, which meant that the funding gap increased, but again not catastrophically. So their is a grain of truth in the story, but it's not as clear cut as it sounds. Remember the "24 hours to save the NHS" back in the day... guess what, this is the same all over again. Normally an institution would sue based on someone in the press making such comments, but given that we are now government owned, the comments were made by an ex-officio member of the government, and we have bigger issues to sort out, the government spin can be left to run (even though it sickens me to think that they are getting mileage out of a situation that they helped engineer). T.I.M.

Most definitely not a teenager... I wish I still was! I've seen more than one recession. 5% rates are historically lower than the norm (about 7% over the last 100 years, IIRC), but the point Blanchflower was making in cutting the rates was not aimed at retail credit-fuelled consumers, it was aimed at investment in business and the impact it would have in lowering the LIBOR rate to the point where it was considered 'reasonable' by companies who had become used to sub 5% rates to fund investment and cyclical credit lines. Remember, the trigger for the about-turn was a closure of the wholesale funding market, on the basis that a 7%+ LIBOR rate was considered too high (or, not economically viable for organisations that had assumed <=5% lending in their business model). I work in Corporate banking. Believe me, had we cut rates 12+ months ago well in advance of the recession we would be in a different place right now. The tail-off in our business and subsequent impact on our customers from an escalation in LIBOR rates murdered the market, and resulted in the effects that are starting to trickle through now. Closures, redundancies, etc. But 'drastic actions', 'save the world reactions', et al are all too late, since the damage is done. The whole problem is lack of confidence. The failure of the BoE and government to react IN ADVANCE of the effects has not just compounded the issue, it has massively escalated it. Confidence is all that matters. Markets turn on changes in confidence, and not the result of rate meddling and fiscal stimulii. Confidence, in this case, would have been higher if the markets had considered the actions of the BoE and the Government to be pre-emptory. The free markets made the judgement on the lack of direct action from the BoE and government, and dried up. My point about "Danny" is that (if you bother to read his work, rather than the commentary on them or some assumptions about his views) he did see all of this happening in the US, and the pattern that was emerging in the UK, and projected that an early rate cut would act as a pre-emptory stimulus to the economy and could LESSEN the impact of the downturn. The rest of the MPC disagreed... they were more worried about inflationary effects. Most of my peers and colleagues thought this to be somewhat short sighted and started hoarding capital. End of story. I know it's not fashionable to defend economists and bankers on here... or to provide a counterpoint to doom and gloom, but let's keep some perspective and save the vitriol for the real idiots that deserve it... Gordon, Alistair, Merv, bank CEOs, etc. T.I.M.

I think you are all being a little harsh on the man. He did see the problem earlier than the rest of the MPC, called for action, but was consistently outvoted. I suspect his motivation in not renewing is that he failed to convince the rest of the MPC that the the blindingly obvious was true... therefore why should he waste his time continuing to talk to these idiots. I've been in the same position. No matter how much of an argument you make, the collective egos and mass delusion prevails. You may as well just move onto a place where your opinion is valued. Good luck to him. T.I.M.

This is an excellent thread. I've worked with and for retailers in the past, so I've a little insight into the P&L practices and supply chain challenges that retailers manage. And so I do have some sympathy for a modern, large scale retailer. That said, last week I decided to buy a new TV, and so went shopping. 4 retailers in close proximity, so some competition. As an experiment I decided to see if I could bid the price down a little, but it was clear that they had all done their research, and most refused to co-operate. One did price beat the cheapest, and was also pleasant to deal with, and so they got the business (Comet). The most entertaining conversation was with the salesman from Currys, who showed me a computer screen that had both the store stock level (12) and the store discount level (5%)... so I offered him this price. He refused and told me that he could not sell it for less than list price now, as it would appear on a report and he would have to explain it. I suggested that £30 profit for DSG was better for him than £0 profit from no sale, but he still refused and so I left. The interesting thing about this is that it concurs with SNACR's views, but it could be a strategy that costs a store real profit in this market, and could ultimately lead to a loss of cashflow and liquidation (and cashflow is king in retail). I agree that in a normal market I would avoid hagglers like the plague, but I suspect that more people like myself will just be looking for a good deal in the coming year or two, and I'm someone that spends about £20k a year on toys and technology and doesn't complain often. I don't want the cheapest price as I value service, but like a lot of people I like to feel that I've got a good deal. Can all retailers really afford to turn such customers away in this market? Can they afford principles over liquidity? Food for thought. T.I.M.

I know a lot of people on here are looking for a bigger published MoM drop, but has it crossed your mind that ~2% might be as 'good as it gets'? In a catastrophic situation (as we have now), the market just freezes. A small number of forced sellers sell at a big discount as they have to, people moving for work reasons (company moves), immigration and downshifters will keep some movement in the market, but unforced sellers just don't sell. A lot of sellers will take their houses off the market, a lot will just languish, and sales numbers will fall dramatically. Just what we're seeing now. Also, the segmentation of sales is changing. We're seeing a LOT less sales in mid to larger homes (apart from Oligarch mansions), and more in smaller homes (flats, terraced houses, etc). The way in which the average values are calculated means that larger drops in smaller homes that are selling are cancelled out by 'no drops' in the more expensive houses that are not selling. So the seizure of the market skews the reported drop. I'm of the opinion that at the moment the most the market will be reported to fall is about 2%, +/- around 0.5% on a MoM basis. Question is, how long does it keep going? That's where we will get the 40%+ or 50%+ drop.... after it's been falling at that rate for 2 or 3 years... Of course, if we hit a wall (mass redundancies, banks crashing, riots...) then the rules change. It may accellerate further... but I am not sure. People take time to adjust to new prices, they are emotionally attached to the perceived value of their house, and this stops them from just knocking off a big lump of the price. Finally, for the tinfoil hatters, the numbers are also 'adjusted'.... guess which way :-0 T.I.M.

Agreed - the market doesn't look like it loves the deal. In terms of consolidation, the two businesses do fit well together. For example, LTSB has little north of the border, whereas BoS has a large retail network. LTSB is strong in SME banking, HBoS is not. BoS Corporate is strong in structured finance, LTSB (Black Horse) less so. Yes, there is some retail overlap, but it's not as drastic as you would think. Yes. there will be some consolidation of branches, but in real terms the retail network is a fraction of these banks operations, and the cost impact (and eventual savings) are worth it if you can get access to the massive deposit base that HBoS is sat on in return. Daniels is no fool, and he would not pounce on this had there been no value. It will be interesting to see how this unfolds over the coming months, but I can see why this would work (and for one hope it does). The other point you're missing in this... in the jungle, the bigger animals tend to survive longer. Consolidation will lead to a smaller number of much bigger players. A combined LTSB and HBoS would be able to pull it's weight in this world, but either of them on their own might find it hard. Look at Citi, HSBC, CDBC... T.I.M.

OK... as much as I normally like your posts, what evidence do you have that this is the case? Is this not the market simply hammering what it sees as the less safe equities, given the number of other banks that have gone under? Yes, the LTSB deal is not complete yet, but buyers remorse? Really? If anything, I can see that this might end up with the deal being re-priced, but LTSB still get a lot of deposits, systems, people and branches for a song. Things at HBOS are really not as bad as you make out (I hope!) And yes... I have a vested interest in this one...

One of the most accurate analyses of the problem I've read in a long time. Very well put. I just wish we had politicians that truly were interested in changing things for the better, rather than engineering their popularity, scoring points off each other and winning the next election. Acceptance of some politically incorrect truisms (and responding appropriately with investment) rather than futile attempts to re-programme society would make this country a much better place for everyone.

You should be able to pick up a 987S on a 55 plate for that if you look hard. Great car.... just find a good independent to look after it!

Bloody great cars, yes, bloody awful experience owning them though. I've had Boxsters (great fun), a 911 (had to do it) and we currently have a Cayenne as we have a family... although it is in the dealer for £10.5k of repairs as it leaked in the rain and flooded the car's electrics (yes, Cayennes leak, a lot of them, but it's not well known!). Now in a battle with Porsche over who is responsible for the bill... which just about sums up the whole experience. 4 cars, over £250k spent plus servicing and maintenance costs, and Porsche don't want to fix the car for me (which is under a Porsche extended warranty!), but they expect me to pay for them to do it. Fortunately, the backstop is that the insurance will pay. If I was to sum up Porsche's attitude towards me as a customer it would be "scr*w you". And it's not just now... every time I have taken a car in for a service it's been a horrible experience. If you challenge a bill (even when clearly wrong) you're treated like a peasant that can't afford the cars, or if you question what work they want to do, or why, you get a lecture on how they know far better than you and a look that makes you feel about 5 years old. It's a shockingly bad way to treat customers. Funny thing is, even though we're now in a dispute I still get a lot of mail from them begging me to buy cars, with their "exclusive weekend experience" (mass mailshot) and "pricing to sell"... ha! So long as I am breathing I won't buy another one of their cars. And their UK MD is about to know that. Do I regret buying any of them? Only the Cayenne, and only because of where we are now. The rest were fabulous cars, you just had to put up with the a**hole main dealers. But as for falling sales? I hope they go under. I would shed no tears to learn that the whole dealer network were made redundant. They deserve nothing less. And no... we didn't borrow/MEW the cars... hard work paid cash for them.

Rumour has it that they might actually delay the presidential race as a result of the financial crisis. I know this has been touted on here before, so I was in disbelief at hearing this, but it came from a trusted source. Still, just rumour at this stage so please don't flame me... I just thought you might want to know...

What the hell is going on here? I'm a 'converted lurker' who has been here for a year or two, I remember cgnao and goldfinger's posts and I have to say the board is less fun now that they are no longer here. RB's posts have been consistently on the mark, as far as I am concerned, and he has been proven right numerous times over the past year when it comes to the current financial crisis. I agree with his views and analysis most of the time, and think he's got a good handle on the situation. I don't give a **** what else he believes in. I personally don't believe in God but that doesn't mean to say I don't know what I am talking about when it comes to debt markets, risk or capitalisation. Where is the link? And so what if his other beliefs differ from yours... Beliefs are just hypotheses that you accept as the supporting evidence is enough to convince you personally that it holds. Other people may be less convinced, or be working to other hypotheses. In the end what does it matter... as long as you're happy in your beliefs why do you feel the need to challenge others? Get a grip. I hope this tirade doesn't make RB stop posting. There's enough bullying going on in this country without it happening on this board too. Let's move on, shall we?

Didn't you spot this... how else does NR get enough funding to repay the debt to the BoE/Treasury... thus allowing them to become independent once again and for Labour to declare this whole thing a roaring success. It's all simple really. Just think of the desired outcome and work backwards...

And as we all know, our great leader is a big fan of the economic policies of Ayn Rand, the author. Hmmm. I too thought it was a great spoof. It is a spoof... isn't it? Funny thing is, even if it is a spoof, with what I've seen happen in the past six months, I really would not be surprised to see that sort of statement produced sometime soon by this collection of halfwits that are running the asylum. The ridiculous is becoming reality.

Yes, but then again nothing is selling either! Might be something to do with the local population. The docklands is full of BTL (heavily leveraged, and therefore can't afford to drop) and young mortgagees that have never experienced a correction ("what do you mean, Kirsty told me that this would only go up in value...") - therefore they can't drop or won't drop, but then again they won't sell either. Until their bank makes them redundant and then they will dump it fast, or be repossessed. Then you'll see the drops. BTW, I've spent years working in WC2, EC1, EC2 and E14... and I'd take my northern s***hole over these areas anyday. I can walk to my pub without getting mugged, go running without having to take mace, and the last graffitti I saw was at an art exhibition. The reason we spread the rumour that it's grim up north was to keep southerners from getting on a train out of Euston and overcrowding our towns and villages.

I agree... and I'd add Appleton too. But I'm still seeing prices unchanged from 6, 12 and 18 months ago as houses languish on the market in the 500-800k range. I think a lot of people put their houses on to see if they could cash in on the HPI, but haven't dropped them in line with the HPC. I hope they take 20% off soon, then another 20%, and another... Interestingly, I recently saw an 800k property that needed a LOT of work. Ok, in current prices it would probably be on nearer the 1m mark with the work done, but it's been on 18 months already and is going nowhere fast. I offered 650k, 18% off list, and although the EA wasn't surprised I was given a firm "I don't think so" by the vendor, with the impression conveyed that it was an insult. Maybe they will come back to me in a few months...

Thanks. I've been trying to convince myself that it's all just relative, but I'd still have to take out a mortgage for this one, and that means having debt again. I'd be happy for this to be inflated away, but given that pay rises are likely to be non existent for the next few years, I don't think this will happen. My colleagues are largely those with heads in the sand... I'm not sure sentiment has really had any effect on them as yet. But I work in one of the large mortgage banks rather than an investment bank (although we do have an investment arm), so we are seeing more impairment and defaults, but provisioning against it for the moment. I have two other questions... - Does a 3x main salary mortgage still fall within the bounds of sanity? I'm not talking 4.5 or 6x here in order to be able to afford this... but it's still a lot of money - If this has come down from 1m to 800k, how much further *could* it fall? I guess it's also time for us to get our house valued then and see what the difference is.... Cheers, Gary

I know, I know... I shouldn't be looking to move house as I paid off my mortage last year, and I had planned to 'bunker down' for the next 2 years whilst prices dropped (and I work in a bank so I know how bad things are)... but a place has come up which is pulling at all my emotional strings... It's a barn conversion on what was once a farm, the conversion was done about 12 years ago but is clearly very tired now and it needs a lot of updating (new bathrooms, kitchen), some building work and re-decorating throughout. It has over 8 acres of land, and is in a great location for commuting. It's big, and it has a lot of potential to be a 'dream home' with some work. It's been on the market for 18 months, was on the market for £1m about 6 months ago but didn't shift, and it has come down to £800k now. But what sort of offer do you think I should make? I was thinking of starting with 20% off this price at £640k, and maybe topping out at 700k, but in the current climate and given the reductions already I'm not sure whether this is insulting or crazy. Serious suggestions please... plus any arguments that you think I should make to the EA in order to persuade them that I am not barking mad in making a low offer! Many thanks, Gary