EU leaders went to Paris at the weekend and vowed solemnly to co-operate in their handling of the credit crisis. By Monday all bets were off as different countries either broke ranks or strained at the leash in their desire to protect their own private savers first by offering blanket guarantees.
That spectacle has raised all manner of questions — should there be a continental banking regulator for example, to fill the gap between the various central banks and the global regulators like the IMF?
For Britain it raises the immediate question of whether the government should move to stop any seepage of funds abroad by guaranteeing all savers’ deposits. At the moment deposits are guaranteed up to 50,000 pounds.
But the issue of guaranteeing savers’ deposits runs alongside the wider question for Chancellor Alistair Darling of whether Britain should bail out its banks in a blanket operation rather than just acting on a case-by-case basis — effectively buying a stake in the strugglers in a part-nationalisation.
The subject is on the agenda for Monday’s meeting of the crisis National Economic Council.
Bank of England governor Mervyn King has warned of the “moral hazard” in saving banks from their own lack of prudence but the alternative is to let them go to the wall and risk a banking crisis infecting the entire economy and, with it, the lives of ordinary people.
What do you think? Does Britain need a massive U.S.-style banking sector bailout?
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25 comments so far
It’s what I have been saying all along - the Rich and Powerful have been running away with all the money. Now it has come to the crunch - the Pound in your pocket may not actually belong to you. Governments have to carry out a witch-hunt now and the perpetrators of this crisis have to be hung out to dry before things can settle down again.
- Posted by Jim xxxxBritain desperately needs sane regulation of the financial services sector. It is absolutely unacceptable that the reckless behaviour of supposedly regulated banks can jeopardise the world economy as they have. We need an end to dishonest accounting of risk and to put an end to speculation in credit markets that forces people to take undue risks in the forlorn hope to establish a home.
Assuming that this debacle wasn’t intentionally engineered by government (which remains plausible, given an analysis of the past decade’s policies) their grave mistakes should be recognised and corrected immediately. We need absolute transparency - nothing more and nothing less will do. Even if this transpires in a global depression sooner rather than later, at least the world is not engulfed in civil wars… yet.
- Posted by SteveWe need complete monetary reform, money should not be privatley issued, Fractional reserve + money issued as debt needs to end.
- Posted by Smiffywe need to back our monetary system with gold and silver.
The Politburo are huddling right now in Downing Street to decide whether the public mood is ripe to suport nationalistion of the banks.
Never mind the savers! Keep your eye on “The Project”!
- Posted by AndyLimping banks will not -cannot- lend so more banks do have to be allowed to fail provided the contagion can be limited so that this fact alone does not cause other, more solvent institutions to fail. A Blanket guarantee on deposits is therefore the right place for governments to put their cash (it prevents depositors pulling the plug in a panic and causing more failures) rather than the fed’s bail-out fund, which will make the problem last longer by keeping the invalids in the game.
- Posted by Bruce Hogarth-JonesIt makes me laugh to hear so much bleating about the bad banks and how they are bringing the economy to its knees. There’s little or no mention of the greedy customers who wanted everything yesterday and borrowed the money to allow them to do it. Yes the banks should have been more cautious but the borrowers must also shoulder the blame. For all that, i think the banks should be left to their own devices without any support and a true market value be found. Yes, some will go to the wall but that’s the problem with taking high risks…sometimes you come unstuck! So i guess in a nutshell i’m saying the banks took the risks now they should pay for them.
- Posted by Vince1960It also astonishes me how many people buy into the myth that this whole problem is caused by rich bankers and only by rich bankers. It isn’t. It’s caused by millions of ordinary people having been lent money they can’t afford to pay back, thinking that they would be bailed out by rising property prices. Property prices have crashed, their homes are worth half what they paid for them and they’re possibly out of a job. So now it’s back to the trailer park. That’s what this problem is all about. A few bankers on Wall Street being paid $10 or $20 million a year do not create a $700 billion problem. Their pay and their Porsches are a drop in the ocean.
- Posted by MatthewSavers deposits must be protected, if as the Government says 98% of savers are protected (and this figure will be made up of thousands who are running around spreading their finance between accounts) it makes sense to cover the the other 2%. This government needs to get a grip and start showing some leadership. Just do it. We have always had a cast iron guarantee on our savings, take that away and its another huge doubt over the quality of life living in the UK.
- Posted by mammachouThe Tories wrecked our house buying aspirations in the 90’s now Labour is wrecking peoples hard earned savings.
may be time to leave I think.
Can we get real here, if you borrow money you pay it back, just let the housing market sink, savers and tax payers should not support peoples debts.
Good that some commentators are able to see that consumers need to take the blame as well (Vince 1960 & Matthew).
If these whingeing consumers were subject to the medicine that they are saying that the banks should be made to swallow then we might see a slightly different (practical) view emerging.
- Posted by NickYes i suppose a bail-out is unpalatable but it will be reluctantly accepted by people as long as there are no “golden parachutes” for CEO’s etc of the banks concerned. It does though throw up one more worrying
issue though and that is Europe as a whole.
People throughout Europe have been brow beaten by EU leaders into thinking that we must all go into the
- Posted by Ford EdisonLisbon treaty, like it or not. Here we have one of the
first crisis and it is immediately every country for itsself. Ireland start protecting their own and every one else gradually follows.
yes, let the banks sink.
- Posted by podthey,ve taken the brolly off me a few times when its been raining…they deserve to get a little damp.
Of course there has to be a bail out.You want a job, you want to be able to buy goods and services, pay the mortgage etc.Then you need a banking system that has the confidence of its customers.When that confidence is restored start the post mortem in calm conditions.Mistakes have been made and we must learn from them, but remember it is a function of banks to make loans and most new businesses need someone to take a risk on them.So how we regulate in future has to be tailored to a functioning economy for the sake of everyone.
- Posted by Richard FraserHope they don’t announce another $700m bailout as I don’t think the stock markets could take it…
- Posted by Arthur BlundellLets start with a cut in interest rates to 1% to get the banks lending again. The rates have been far to high during the last 12 mts in the UK.
- Posted by Tim WorlockThe banks should NOT be bailed out.
The government should guarantee private pension funds and savers’ deposits but otherwise leave the financial institutions to stand or fall like any other businesses. Bailing them out is simply perpetuating the behaviour which caused the problem in the first place.
The money being thrown at the banks would be better used in setting up a fund to allow businesses to borrow direct from the BOE on pre-crunch commercial terms. Allowing businesses to fail and put people out of work for no reason other than that the banks either can’t or won’t lend is negligence by the supposed managers of the economy, ie the government.
Speaking of negligence, there is plenty of talk about how bank managers shouldn’t be “rewarded for failure”. But the banks didn’t just go off on their own to dig a pit for themselves. They were actively encouraged to do so by the government policies of keeping interest rates low and telling the banks they had to be “inclusive” in their lending, all in the interests of creating Labour’s “economic miracle”.
Why should the people responsible for those policies be rewarded for failure? At the very least, they should lose their taxpayer-funded pensions.
Equal treatment and all THAT old tosh?
- Posted by PeterHi
Lets be clear - many good comments about where we are now. Silly lending etc. However if there is no banking system there is no economy.
The banks are struggling because there is no longer an interbank market to lend to each other and many have used this to operate.
OK - so where now? Nationalise will not get us anywhere. Provide liquidity at a low cost now with a large future payment when the banks are back to better times in a few years would work.
I think that the Government should match Ireland and guarantee all the savers deposits and those of other UK banks when they lend to each other.
This will start to open the markets. Remember that confidence is what has caused this problem. It is getting worse as we are not being firm in what we are doing.
Lets steady the ship and then charge the banks that survive when they can afford to pay - which they will be able to in a few years if we get the markets and the confidence back.
I realise there are other issues - still think that this approach will work - Nationalisation certainly never has!!
Regards
Richard
- Posted by Richard ThomasWe are seeing the worst of all worlds now, the unacceptable face of Capitalism, pure unadulterated greed, and that of Socialism, nationalisation without compensation. This is stuff of the French Revolution! Adding to our woes, ordinary folk cannot choose between Bail-out or No Bail-out, there are no means to do so.
- Posted by Jim xxxxI sometimes wonder if people actually understand what is happening around them. Legislation will not be of any effect on any institution when its primary goal is to make money! We live in times of necessity and no amount of control will ever leverage a banks stance on capitalism. The one rule of law also applies to banking as it does in the real world, the big banks will swallow the little banks. When equilibrium is restored we will all have rather a large tax bill to digest?
- Posted by EdwardTheir is no money in the coffers–the government has mortgaged our assets to middle eastern financial brokers
- Posted by tommyWe live in a capitalist society and run the risks of doing so.
- Posted by DavidNorthern rock and dinosaurs were very successful but the environment changed quickly and neither could survive. We need to be flexible, keep our heads and do what needs to be done now without hesitation. History shows that things go wrong, but this often leads to opportunities and further prosperity.
We need to be positive and position ourselves to take full advantage of the future.
100% mortgages, self certification mortgages, 0% credit cards, balance transfers…do I go on?. The levels of debt generated in the last 8 years are staggering. Consumers have had a ball - the money tree had to go bare at some point.
Oh and the government has had their hand in all of this too…house prices…is does not take a genius to work out that the ordinary man in the street was borrowing way over the odds of their income but as long as the stamp duty was rolling in the government failed to address a very serious financial issue that was brewing…ie the extortionate debt levels - all it needed was for interest rates to rise and the boom would be followed by a bust!
As for the bankers….capitalism…supply and demand. They are not to blame. If they were doing anything wrong…CORRECT regulatory policy should have been in place to prevent their actions from materialising.
I wonder who the economic advisors are to the government….Tom and Jerry?
Hopefully we can learn from this….famous last words I fear though.
- Posted by merinawhen the dust settles some investors will clean up - but meanwhile Darling and Brown will have to hold their noses and agree to underwrite all private savings - Merkel’s decision to do that will have to be matched, or savers will migrate to banks in Denmark, Ireland, Germany etc.
- Posted by David Knopflerlet the shareholders go down with the banks as who gets the benifits when banks report billions in profit year in year for the past several years if the government bail out theys banks what do myself as a higher rate tax payer get from this .as a sugestion as i have three young kids turn my taxes used to bail out the banks as future shares for them in which i am happy to agree otherwise let them go to the wall.just like any other institution
- Posted by john montgomeryNo bail-out. The money will mainly go to enrich those that have caused the situation while they enriched themselves.
Let market forces do their work. Capitalist Society so let it work.
In the course of my work, I have discovered people who all but lost their pensions a few years back due to mismanagement. Nobody came to them and aid, ‘We’ll help you out.’ Now they have a much reduced income from what should have been a good pension.
Market forces every time.
- Posted by ChasNo bailout.
Brown’s “boom” is busted.
Time for a change.
- Posted by Jason