Sunday, Nov 08, 2009

Not so secret anymore

The Times: Secret £165bn loan keeping Lloyds alive

Lloyds is being kept afloat with £165 billion of loans and guarantees from the Bank of England and other central banks around the world.

Posted by devo @ 11:01 AM (2575 views)
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35 Comments

1. hpwatcher said...

Very interesting comment at the foot of the page:-

Ken Harvey wrote:
By this very old banker's definition HBOS was being run as a pyramid scheme. A smaller but well run bank was (incredibly) talked into taking it over. The pyramid remains and is being held up by replacing the void of new contributors to the pyramid, with "tax payers money". The latter is not an existing store of cash, but is simply an income stream that is hoped for in the future and which can only be provided for in the here and now by the taxpayer (government) borrowing. When a pyramid has collapsed there is no mechanism known to man that will somehow rebuild it and avoid the losses which have historically been incurred. Simple mathematics proves this to be so. When a bank's loan to deposit ratio gets to one it is bust and by mathematical definition its continuation is impossible.

The non recognition of this one fact is the very most dangerous thing that I have come to see in this world in the course of a long lifetime.

Sunday, November 8, 2009 12:26PM Report Comment
 

2. mark wadsworth said...

I'd say this article is hysterical drivel. Of course the bank is kept alive by "loans and guarantees", that is stating the bleedin' obvious. And yes, we'd be better off all round if HBOS had been knocked on the head in the same way as NR or B&B.

@ HPW "When a bank's loan to deposit ratio gets to one it is bust". That does not compute.

A bank could have loans of £90, coins and notes of £10 (assets) and deposits of £90 and share capital of £10 (financing) and be perfectly healthy.

Sunday, November 8, 2009 12:37PM Report Comment
 

3. braindeed said...

It's almost as if these geniuses are implying there is a fundamental flaw in the 'Anglo-Saxon' economic model - if it were up to them, we'd all end up 'making things' and saving up until we could buy the stuff otthers make.......sick, I'd call it.

Sunday, November 8, 2009 12:58PM Report Comment
 

4. stillthinking said...

I think they are trying to aim at the middle of deflation/inflation, given that an extreme one or the other must occur. Either accept the bank losses (deflation) or print them away (inflation), but there is a middle ground, of which our centralist government is already fond, ie centrally direct the losses, ie half and half default and inflation. For the mass that is the aggregate UK taxpayer there is no difference in any of the three choices, but groups within the taxpayer will either gain or lose. Sort of financial fascism.
The relative winners are mortgage holders(not so nice but much better than could be), the public sector and the financial sector(incidental beneficiaries). Losers are pension funds , private sector workers/investors, non-home owners/savers. By beneficiary I mean that the -proportion- share of the cake is increasing at somebody else's expense, although the cake itself is shrinking.

Sunday, November 8, 2009 01:15PM Report Comment
 

5. crunchy said...

3.
When they crate the money surplus they just bag the interest on Topman.

Why bother returning the shredded suit.

Assiduus usus uni rei deditus et ingenium et artem saepe vincit.

Sunday, November 8, 2009 01:28PM Report Comment
 

6. braindeed said...

ipsa scientia potestas est

Sunday, November 8, 2009 01:34PM Report Comment
 

7. crunchy said...

crede quod habes, et habes! LOL

Sunday, November 8, 2009 01:40PM Report Comment
 

8. letthemfall said...

stillthinking
I agree that the shares of the cake are becoming more unequal, and have been doing so for some time before this crisis, mainly from employees to owners/bosses, and of course to house owners (especially those in wealthy areas), and financiers as you say. However, I don't think the public sector is benefiting especially. Jobs there have always been more stable, simply because the services it provides cannot just be dispensed with in the same way that much of private sector production can. Conversely it does not receive great rewards in boom times as happens in parts of the private. Of course, many in the private sector have not done so well lately because of the inequal distribution in wealth.

Sunday, November 8, 2009 01:42PM Report Comment
 

9. braindeed said...

Romani Ite Domum

Sunday, November 8, 2009 01:42PM Report Comment
 

10. mark wadsworth said...

I second what Stillthinking says at 4.

Letthemfall at 8, there is no long run transfer from employees to owners/bosses. Workers need employers as much as employers need workers, the interests of the two groups are pretty well aligned. The really big transfers are from productive sector (workers and businesses) to non-productive sectors (land ownership, banking and public sector).

"the services [the public sector] provides cannot just be dispensed with..."

Wot? Regional Development Agencies? Subsidies for film and opera? Street football advisors? Sustainable Development Commission? We managed perfectly well without these before they were invented!!

Sunday, November 8, 2009 01:59PM Report Comment
 

11. braindeed said...

MW 10
Wot? Regional Development Agencies? Subsidies for film and opera? Street football advisors? Sustainable Development Commission? We managed perfectly well without these before they were invented!!

RDA's are quite important - we don't want things overheating in the London commute area do we? If that happened house prices would rise over the average wage and things would be horrible - too awfull to contemplate.

We managed perfectly well without these before they were invented!!

'We' just got the Butler to sort that sort of stuff out, didn't we?

Please, just write to the Express - a shoe-in, I'd say.

Sunday, November 8, 2009 02:10PM Report Comment
 

12. braindeed said...

.....or is that, a shoo-in?

Sunday, November 8, 2009 02:14PM Report Comment
 

13. drewster said...

braindeed,

I can't see what RDAs do that local councils aren't already involved in. A quick scan of my local RDA's website shows that most of their work seems to overlap with existing council schemes - regeneration, tourism promotion, and a range of tat under the 'eco' banner. Local councils are at least democratically elected (even if their hands are tied); the same cannot be said for RDAs.

Sunday, November 8, 2009 02:26PM Report Comment
 

14. crunchy said...

Nolens volens

Period!

Sunday, November 8, 2009 02:29PM Report Comment
 

15. braindeed said...

13
Maybe they're just crap at websites....they're not popular with the Red Tops, so they never get a good press.

Sunday, November 8, 2009 02:29PM Report Comment
 

16. letthemfall said...

mark w
There has been a very large transfer of wealth from workers to employers - that is well documented - which has much to do with globalisation- cheap labour in China, cheap and willing immigrant labour in this country. Why have top end salaries increased so much while average worker salaries have been held down? (cf median salary falls over 30 years in the US, the country where the effect is most pronounced).

All the public bodies you quote have their part to play. Would you dispense with the Arts, or with planning agencies, allowing a developers free-for-all? Anyway, the cost of these is relatively small against health and welfare. Banking and land ownership (private sector) as you say swallow up much wealth. There are plenty of good private businesses, I agree, but how many useless ones are there. If the public sector has it's dubious quangos (very few I would say), how about all the questionable businesses, the telephone marketeers, house finding companies, Kirsty Alsops, advertising agencies broadcasting their rubbish on the TV, persuading people to buy what they don't need? We once managed without these too, and could manage pretty well without many of them today. I'd much rather keep the museums, libraries, monitors of the environment, etc because I know that no private company would ever provide them. Without them this country would really be in trouble.

Sunday, November 8, 2009 02:38PM Report Comment
 

17. hpwatcher said...

Why have top end salaries increased so much while average worker salaries have been held down?

Less bosses, more employees?

Sunday, November 8, 2009 02:45PM Report Comment
 

18. braindeed said...

@16
Anyway, the cost of these is relatively small against health and welfare.

Agreed. Unfortunately, Joe Public cant do percentages unless its presented like wot its like on Celebrity jungle factor on ice.

Sunday, November 8, 2009 02:48PM Report Comment
 

19. stillthinking said...

The public sector benefits unduly because whether present or deferred taxation shifts voluntary spending against the private to sector to mandatory spending against the public sector. The role of the state is surely to provide services that cannot be purchased individually, defence being a classic example.

The state oversteps the mark when they deny choice in areas that are economically responsive to decisions of the individual. For example, nobody would appreciate being told which car to buy, but what is government funding for specific car industries apart from this? You are kind of buying one anyway, even if you don't end up with a car at the end.

Can you make the link between a lost job in the private sector and a maintained job in the state sector? I think yes because money is diverted from one to the other through taxation. The danger now is that excessive state spending will collapse virtuous chains of private sector activity, by financially suffocating them. Want to buy a new jacket? Go on holiday? Tough luck, we just spent that on a diversity exhibition in Lambeth, here's the bill.

Sunday, November 8, 2009 03:56PM Report Comment
 

20. stillthinking said...

Really its worse than that because if you wanted to spend your money on setting up a company, or investing in some joint venture that would actually create some jobs you get the same line back. Tough luck, we already spent that here's the bill.

Which is why we are in such an unbelievably bad position. The seed corn has been eaten. The float money spent. Bus money for work travel is gone a.k.a working capital.

Sunday, November 8, 2009 04:00PM Report Comment
 

21. yoyo1 said...

Definition of a bank = being kept afloat with billion of loans and guarantees from the Bank of England and other central banks around the world?
So What's New?

Sunday, November 8, 2009 04:25PM Report Comment
 

22. letthemfall said...

stillthinking
Is there any Govt funding for car industry now? I thought that had long gone. There are special loans I believe (and of course major support in the US) but presumably this will be paid back. It's a fair question though: should a private industry (other than the critical banks) receive such Govt support?

The argument against the public sector only makes sense if one assumes the money spent creates no value. Okay, you can pick on whacky local council exhibition/initiatives stuff, some of which might be a waste of money, but so you can certain private sector activities. Yes, taxation pays for the public sector, and one does not have a choice in the matter. If there were a choice, then civil society would presumably crumble: individually you cannot choose how much defence, education, environment, or even whale-saving is worth. We do that collectively, for obvious reasons.

In my view we get our public services pretty cheap, certainly cheaper than on the continent. Inevitably some will represent poor value, but that's no reason to cut public spending. My own personal experience of public and private sector service is, as you'd expect, mixed; but most recently the most dismal I've had is from a large private company - shambles and incompetent are the watchwords. On the other hand recent dealings with my council show them to be highly efficient.

Just one anecdote of course, but the old maxim, public sector wasteful: private sector efficient is unproven in my view.

Sunday, November 8, 2009 04:34PM Report Comment
 

23. charlie brooker said...

What's latin for "That's easy for you to say"?

Sunday, November 8, 2009 05:08PM Report Comment
 

24. stillthinking said...

I have been to some large companies and seen the same bedded in attitude as council workers, people milling around etc but eventually those large companies fold. My point on the car subsidy which was actually little more than temporary reduction of VAT for cars, was that they could have kept a standard rate of taxation on cars, and reduced taxation instead of providing a subsidy. The reduction in taxation would have contributed to private economic decisions, buy the jacket and so forth, but the subsidy was basically to a single sector, even though the government can't possibly anticipate UK demand. Perhaps there is a case that the average UK citizen is truly too stupid to spend sensibly and might blow untaxed money on beer and cigs, taxation being the equivalent of the 11 o'clock bell in the pub, if voting decisions and private debt are anything to go by.

Anyway, cheap/expensive/necessary/unnecessary is a bit academic now, the die is cast, government finances are busted.

Sunday, November 8, 2009 05:16PM Report Comment
 

25. Hyrax said...

20. Stillthinking. Nail on the Head. Start-up sites like the Tamar Science Park in plymouth are empty white elephants. You can rent a desk as a start-up for £150 a month, but occupying the large empty technology buildings requires about 10 employees. You need to grow seeldings before you can parachute them in as companies employing many people. Unless you live in the welsh mining valleys you havent a hope of RDA. They can always turn these things into Tate Modern extensions I guess, with soviet style employment of 10 ticket cashiers that get paid once a year.

Sunday, November 8, 2009 06:14PM Report Comment
 

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28. Quad said...

22. letthemfall
In my view we get our public services pretty cheap, certainly cheaper than on the continent. Inevitably some will represent poor value, but that's no reason to cut public spending. My own personal experience of public and private sector service is, as you'd expect, mixed; but most recently the most dismal I've had is from a large private company - shambles and incompetent are the watchwords. On the other hand recent dealings with my council show them to be highly efficient.

could it be that your local council is is over staffed and over funded, at the expense of the local businesses being overtaxed and and over regulated by red tape. If business paid less taxes of all types, it would have larger funds to finance new staff, products and services.

Sunday, November 8, 2009 07:11PM Report Comment
 

29. Mark Wadsworth said...

@ LTF, "Would you dispense with the Arts, or with planning agencies, allowing a developers free-for-all?"

Yes, I would. If the eee-evil developers built more homes, offices, factories then we'd all benefit.

"Anyway, the cost of these is relatively small against health and welfare."

You single out Arts subsidies or planning agencies, which may not cost much in cash terms, but you are missing the point. Running the planning system is relatively cheap because a few bod's site there saying "Computer says no". If the NIMBYs ran the planning system it'd be even cheaper, as they'd pass a law saying that nothing may ever be built ever again. The cost of the planning system is not the civil servants involved, it's the huge loss to the economy because we can't put land to its optimum use.

I've nothing against welfare spending (being an enthusiast of citizen's income style universal benefits) as such. I've nothing against health spending (as it's a kind of universal benefit) either. What hacks me off is that a third of NHS 'spending' goes on quangoes, eternal layers of bureaucracy, expensive advertising on anti-smoking, anti-obesity etc.

Let's face facts, govt spending as % of GDP has gone up from 36% to 50% over the last ten years or so. Does anybody believe that things have got the slightest bit better as a result?

Sunday, November 8, 2009 08:25PM Report Comment
 

30. inbreda said...

@4 braindeed

I like your point. But it sounds like an option that hasn't taken full account of the effect of itself. Although it seems quite neat, when people start to figure it out they will behave differently - e.g. buy gold, bot buy gilts etc, and all of a sudden it spirals out of control.

I can't help but feel like something very big is on its way, and when it happens it will happen very suddenly. I just wish I could figure out when it is going to happen.

Monday, November 9, 2009 09:37AM Report Comment
 

31. letthemfall said...

mark w: "You single out Arts subsidies or planning agencies"

I didn't single them out; I was just using your examples.

You are in effect saying the planning system is useless: I think you need to offer some proof for such a strong assertion. Also your views on bureaucracy need backing up: how do you know anti-smoking advertising, for example, is a waste of money? Perhaps the treatment savings to the NHS outweigh cost of ads, and I expect the NHS has done some calculations on this. Give me some figures?


If you'd dispense with the Arts, presumably you'd dispense with all apparently non-economically productive activities - blue skies research, symphony orchestras, health & safety, and so on.

MW:"Let's face facts, govt spending as % of GDP has gone up from 36% to 50% over the last ten years or so. Does anybody believe that things have got the slightest bit better as a result?"

(Actually it's under 48% - about 100bn difference).
Yes. School infrastructure has been much improved - sorely needed. Some steps have been made to reducing child poverty through the credits system. Those two alone are hugely important.

quad:"could it be that your local council is is over staffed "

Show me your evidence.

Monday, November 9, 2009 09:54AM Report Comment
 

32. mark wadsworth said...

LetThemFall "If you'd dispense with the Arts, presumably you'd dispense with all apparently non-economically productive activities - blue skies research, symphony orchestras, health & safety, and so on."

Yes I would. Companies can do their own research, symphony orchestras have no more right to taxpayers' money than anybody else and health and safety quangoes in this country have completely gone mad. That is best dealt with by self-regulation, self-insurance and criminal law.

OK, 48%, 50%, it's a difference of £30 billion. The big difference is from 36% to 48%, an increase of £150 billion per annum. You could rebuild every single school, hospital and motorway in the country every year for that sort of money. The entire education system only costs £70 billion per annum the last time I looked (a third of which is wasted as actual spending in schools is said to be £5,000 per pupil = £50 billion.

I never said anything against actual spending on education, which includes the buildings, and I repeat what I said above that universal benefits to alleviate poverty are a good idea. So don't throw out the baby with the bathwater.

Monday, November 9, 2009 10:10AM Report Comment
 

33. letthemfall said...

You know I have to laugh at some of the criticisms of the public sector I read here. The premise is that public institutions are inherently inefficient, ie they cost more than the value they create. If I say a service costs little, the reply is this is because it has a small number of staff doing nothing useful (which is really just a tautology). And when I say I find the service good, the retort is this is due to overstaffing.

I could easily say exactly the same about the private sector. But it would be equally meaningless without something to back it up.

Monday, November 9, 2009 10:22AM Report Comment
 

34. letthemfall said...



mark w
Well, I suppose this shows a fundamental difference between our outlooks. I would point out that nearly everything we have today by which we measure wealth comes from exploratory research (no immediate benefit obvious) - electricity, antibiotics, vacuum tube (precursor of electronics), computers, etc, etc. Kill research - and it is slowly being killed - and you kill our culture and future.

I know you said nothing against education & welfare; I'm just pointing out some of the value gained from increased public spending. I don't know who says that kind of money you quote is wasted in education, or what happens to it. Do you have a source?

My feeling, mark - and I say this with all due respect - is that you have a deep antipathy towards at least some areas of public sector spending, a prejudice even, and do not recognise the great, if sometimes unquantifiable value that the public sector represents. I can accept that money is sometimes wasted, but I see no fundamental reason, or evidence for, any difference in the private. It is perhaps the most unquantifiable areas that offer the greatest long term benefits - universities, H&S, environmental institutions, arts institutions ... I wouldn't want the country to be without them.

Monday, November 9, 2009 10:44AM Report Comment
 

35. Steve said...

When the private sector hunkers down in the downcycle, cuts back are the norm. Headcount freeze, travel ban, focus on core products etc. You can't carry on spending the way you were to pursue profits that aren't there. But you don't stop being in business (if you can help it).

However, when people refer to cuts in health, education etc., it is almost taboo. Such cuts do not mean there will be no schools and hospitals. The same principles will apply as with the private sector. You cut where you can. But perhaps class sizes will be a bit bigger for a while. That new CAT scanner you wanted doesn't get bought. You cut your cloth according to the resources that you have. What is the problem?






So th

Monday, November 9, 2009 01:16PM Report Comment
 

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