George Osborne agrees the Euro is in a crisis and urgent action is needed
The IMF say a vicious circle of weak growth and weak balance sheets is fuelling a crisis of confidence and political dysfunction in the EU and US (otherwise called the Republicans) could derail any hope of recovery.
The market is being flooded with dollars that EU banks can't get from inter-bank sources.
And everywhere there is political inaction.
This is a phoney war: this is the crisis I talked about earlier this week developing as I suggested it would.
So yes, we need to print money, as I have already suggested, and we need to do something else.
Candidly, we have to prepare now for the complete, even if temporary, nationalisation of banking.
In 2008 we let banks off the hook. We threw hundreds of billions at them - and they took it all and gave nothing in return.
Now they are in crisis again - a crisis at least as bad as in 2008. And they need capital very, very badly in very short order. There is no functional market that can supply that capital in the timescale required - it's weeks at most, maybe less. So only government can. Bail out 2 is now inevitable. I think the IMF at least know that.
The fact is the banking system is now failing again. It's systemically failing. And in that case only nationalisation can save it.
And it's only nationalisation of the banks that can also save nation states from failure too at this moment. The reason is simple: if the banks are brought under state control then first of all we can undertake radical reform of the way in which they operate before handing parts at last back to private owners (on which more in another blog, later). And second, we can do what else that is really needed: which is massive cross cancellation of debt so that balance sheets of countries and banks are deleveraged all at the same time in an act of mass debt forgiveness - the ultimate Jubilee.
Oh I know this is radical. But not that radical. The threat we're facing is at least as bad as that of war: both threaten the well being of the state and all who live in it. And in times of war the state takes control of assets - and returns them afterwards, if appropriate.
That's what must happen now. Ring fencing is fine - and might be appropriate in 2019 when this mess has been sorted out. But for now prepare for the whole hog - because we won't survive unless the banks move under state control and very, very soon, and not just here but across the whole of Europe and beyond.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Never happen. Entrenched self-interest riding along with corrupt political self-interest will not allow it.
None of the current crop of weeds, sorry….politicians….will ever have the guts to do it.
In any case, the bankers and their rich friends will not suffer, just the little people.
Let them eat cake.
We may have no choice
The Treasury will drive it – as Darling said they did last time, regrettably
“And second, we can do what else that is really needed: which is massive cross cancellation of debt so that balance sheets of countries and banks are deleveraged all at the same time in an act of mass debt forgiveness”
This pre-supposes that all countries/regions act in the same way – US, EU, UK, Switzerland, Japan, Hong Kong, Singapore, China etc. – which let’s face it is never going to happen.
A staged, coordinated massive sovereign and bank default would be the biggest fraud ever perpetrated on investors. I think would also trigger a massive depression.
You wildly underestimate the scale of the problem
And coordinated action may be required – and is beginning to happen
And no it won’t be a fraud ion investors – it will be designed to preserve some value where there will be none
This debt needs to be cancelled. The IMF/ECB/EU are fully aware that Ireland, Greece, Spain and Italy can never pay back this debt. Most of it is illegitimate debt anyway. It was mostly caused by the bad bets of the banks. Indeed, the only reason austerity measures are being imposed on Britain by this shower is not to pay for debts run up by the previous administration (who, up until the credit crunch were spending less per GDP than the Major government) but to pay for the debts of the banks. Rather than taxing the banking and financial sector to pay for the crisis (taxing derivatives and bank transactions would raise billions), public services are cut, anenities are sold off and pensions are robbed!
It’s time democracies wrested control of their economic affairs from the corporations, banking and financial sectors. We must put in place capital controls, strict regulation of banking and finance and governments allowed to run their economies as they see fit, not at what is best for the financial sector.
Time to swing the economic pendulum back the other way!
Richard – are you in touch with the folks over at http://www.positivemoney.org.uk/ ?
Vaguely
If you’ve got five minutes (or less) you might like to quickly look over their proposals:
http://www.positivemoney.org.uk/our-proposals/
I agree with a great deal of what they say but they seem to fail to understand that what they refer to as flaws in the banking system aren’t flaws at all. They’re design features and they’re there for a purpose. That purpose is the creation and the maintenance by the rest of us of a financial elite. What we live in is designed to work the way it does, against the interests of the majority and for the interests of a minority. That’s the economy working exactly as it should. We aren’t going to fix this, it isn’t broken. Instead we need acompletely new model.
Most people don’t realise how banking works, I think we’d all agree. What’s needed is education. I watched Torchwood last night – no I’m not changing the suibject – and in the final few moments of the show, the chief villainess (played by former Mr’s Clint Eastwood, Frances Fisher) gloatingly revealed how they were going to take over the world. We’ll take over the banks, she said, because the banks run the governments, and the governments run the people (evil grin). And then the Torchwood team blew her to pieces. I wonder how many viewers noticed that bit about the banks? This is the first time I can recall seeing any reference to the banks running things on popular television.
I’m encouraged. 🙂
BB
Everything you say here is spot on, exactly what is needed. But it will need massive pressure from outside Parliament, from all of us, to make it happen, as our politicians are totally in the pocket of the bankers.
But if you nationalise the banks and then have a debt jubilee, it is the taxpayer that will end up footing the bill as the new owners? Though it is probably a good idea for the UK being the most indebted nation in the world.
We pay the bill anyway if we spend a decade or more in crisis
Print the money! Why go into debt?
Yes, pay them in “quantitatively eased” euros.
Why not?
States punishing bank investors for a crisis caused by states being unable to pay back what they borrowed from banks doesn’t feel right.
OK, I realise that here we’re talking about punishing investors in UK banks for over-lending to Greece, Ireland etc. And I realise that the banks were key architects in this whole ponzi mess that we’re now trying to sort out (however, I consider the governments just as culpable). So I’m not sticking up for the banks.. but it’s all a bit, well, off.
And, of course, as you indicated yesterday when talking about the UBS fraud.. much of the real cost of all of this falls on our pension schemes and those smaller investors who had no reason to question the banks (after all, the government was telling us how great they were!).
But let’s be clear: that wealth arose because banks created debt that was not repayable on behalf of those who got wealthy as a result
“States punishing bank investors for a crisis caused by states being unable to pay back what they borrowed from banks doesn’t feel right.”
It shouldn’t feel right. Banks don’t lend anybody anything, instead they create new money when they pretend to lend. They do this under license from the government. So let’s get this straight. The governments, instead of creating money interest-free themselves and distributing it to the community for socially productive purposes (let’s not forget we have fiat currency now where inflation/devaluation is in the eye of the beholder, not a mathematical inevitability like with commodity-backed currency) the governments give the right to create money to privately-owned banks and then borrow what they need from those banks at interest, interest which the man in the street, the electorate whose interests government is supposed to be promoting, has to pay. This doesn’t feel right because it isn’t, it’s very wrong. What it feels like is an ongoing conspiracy between government and the finance houses against the broader community. As more and more people begin to understand this, expect to see blood on the moon.
BB
I don’t know whether it would work, but in private sector insolvencies they often respond by issuing equity of varying values. In the case of Greece you’d say:
debt-holders that are foreign governments will be rewarded with A shares. Greece undertakes to repay those, with a reasonable interest rate & Germany underwrites them.
debt-holders that are EU banks or Sovereign Wealth Funds will be rewarded with B shares. Greece undertakes to repay those, but with nil interest rate & Germany will underwrite them.
debt-holders that are hedge funds, private investors & the like will be rewarded with C shares. Greece undertakes to repay them in the long term, in the meantime there is no interest & nobody underwrites them.
Hear all the swines that have been snuffling about the trough when they realise they’ve been had !
“States punishing bank investors for a crisis caused by states being unable to pay back what they borrowed from banks doesn’t feel right.”
But that’s not what really happened. The crisis was caused by the greed and stupidity of the banking and financial sectors.
Credit Default Swaps, made up of Mortgage Backed Securities from mostly from sub-prime mortgage lending caused this crisis, as did the rating agencies giving AAA status to what was basically junk.
It was the banks that largely caused this, NOT states!
Stevo
We are talking, here, about the soverign debt crisis. Not the sub-prime crisis. The fact that Greece cannot pay back what it borrowed can’t really be pinned on dodgy US mortgages.
Oh come on, they’re related events
Without financial crisis we would not have the same sovereign debt crisis now
There’s very good blog on Real-World Economics review comparing Greece and Germany now and East and West and East Germany following unification. An awful lot was destroyed in the East to the benefit of the West.
It is all linked, I don’t mean to deny that and/or perpetuate the daft idea that we can blame everything on government spending… which I think is what Stevo thought I was doing.
But the first wave of the crisis came when everyone realised that the banks had loaded their balance sheets with worthless mortgage ‘assets’. Now, everyone has seen that they’re also loaded up with potentially worthless sovereign debt instruments. The fallout from the former crisis has contributed to the scale of the latter one – but the fact remains that governments have taken on obligations that they cannot now meet, and I’m not going to blame the shonky mortgage arrangements for that.
Fair enough
But much of that debt was taken on because of #gfc1 – let’s not forget it
But not all either, I agree
“We are talking, here, about the soverign debt crisis. Not the sub-prime crisis. The fact that Greece cannot pay back what it borrowed can’t really be pinned on dodgy US mortgages.”
I’ll think you’ll find it largely can! If the banks didn’t fail, it is unlikely the debt crisis would be as big as it is today.
If Greece DID have big debts, then there was no reason that the Greek government could had come to some to some arrangement over its debt repayments. This always went on. The banks were owed the money and nations were big enough to demand more time to stretch out the loan and pay less over a longer period of time. Not so now! The banks want their money and they want it now! This is despite the mess the banks have mostly caused themselves in the first place.
I presume returning the temporarily-nationalised banks to private ownership would be done on a franchised basis after stripping out systemically-important functions, with the Bank of England holding the lion’s share of the equity, as you suggest on your “Network Banking” blog. Presumably also, therefore, you do indeed mean to nationalise ALL the banks. Are you assuming that they will all fail, including domestic banks? Let’s hope you are right about that, because otherwise it could be extremely expensive.
I do indeed presume they will all fail without support as they would have done last time – they are a system, not independent entities – the independence is a convenient narrative
If it could not be demonstrated that any bank could have survived without support for some then the system of valuation will be undertaken on that basis
Right. So a bank that funds all its loans from deposits (95% loan to deposit ratio) and places excess reserves either with the BoE or on the interbank market – but does not borrow from either – would still be nationalised? What would the compensation be? I ask because it is surely unlikely that such a bank would fail – and I know of at least one bank for which this is an accurate description.
I suspect that’s a mutual
Name it
And even so – it lends interbank – it is still utterly dependent on the rest of the banking system in that case to make money so it fails along with the rest – it will have unsustainable bad debt if other banks fail so it would, of course, have to be nationalised
Can’t reply to your reply, so has to be separate comment. No, not a mutual. And there’s more than one. Here are a couple of links: http://www.kingdombank.co.uk/ and http://www.charitybank.org/. Both are FSA regulated deposit-takers and lenders. You might have heard of CharityBank – it’s an offshoot of CAF, which is also a bank, of course (I used to work there). I haven’t included CAF itself because although it is listed as a retail bank by the FSA it only deals with charities, not individuals. It’s also much more active on the international markets and therefore more at risk.
Both these banks are placing EXCESS deposits on the interbank markets. Yes, there is a risk of loss if the interbank markets fail, but it would only be a small proportion of their deposits as the remainder are lent out to socially-useful projects. They would of course, as FSA-regulated banks, be able to use the BoE discount window (established after the failure of Northern Rock) to meet daily funding requirements if necessary, although at present Kingdom Bank at any rate is choosing not to. I don’t think there’s a great risk of serious loss, really – both these banks are in effect doing full reserve banking and are well capitalised. A much bigger risk to both these banks is loss of deposits due to recession – people stop giving to charitable causes when money is tight. CharityBank did indeed make significant losses in the 2008 recession, as Malcolm Hayday points out in his introduction to the report and accounts.
I really do wish we didn’t spend time arguing about examples picked precisely because they are not relevant
CAF for example if nationalised has no owners – nor is it any meaningful sense a bank for most purposes
I also suspect very strongly you will find it clears through another bank and if true that will support my case
Arguing all cases from the extreme does indicate something rather odd about those making the point
Oh dear. I did say I didn’t include CAF, didn’t I? Although it is unquestionably a bank. CAF provides comprehensive banking facilities to the charity sector and is the market leader in this field. It has direct access to BACS, CHAPS and SWIFT – I know because I put in the system that does that. It has a banking licence and is FSA regulated. It is a registered charity, as is CharityBank, so it has trustees, of course. Here’s the link to its website https://www.cafonline.org/charity-finance–fundraising/banking-and-investments.aspx. I also left out Unity Trust Bank, which is 73% owned by trade unions, and the Co-Op Bank, which is of course wholly owned by the Co-operative Group. Both of these would also be at risk because of their international activities. Would you nationalise those too?
I note you don’t comment about the two small banks I identifed, except to dismiss them as irrelevant. There are a couple of others: Airdrie Savings Bank, Julian Hodge Bank. I assume in “all” banks you don’t include private banks such as Arbuthnot Latham or Hoare’s – as their clients are mostly HNW individuals it would be completely ridiculous for the government to take them on, surely. And presumably you also don’t include private merchant banks such as Rothschilds or Close Brothers.
I would have thought it was unlikely that banks wholly or partly owned by major retail companies would be a risk for the taxpayer unless their losses were sufficiently large to bring down their parent – in which case the government would be bailing out Harrods or Tesco. Are you excluding these too? If not, there is no question but that government would have to compensate the parent for the compulsory purchase of its subsidiary.
Finally, what is your position on Standard Chartered, which although UK-based does business mainly in Asia and Africa, and HSBC, which has extensive retail operations in Asia? I think China might have something to say about UK government seizure of its major retail banking network. Or would you intend only to take over the UK operations – what was originally Midland Bank?
The reason for making all these points is that in saying “nationalise ALL the banks” you’ve made an exceedingly sweeping statement without defining what you mean by a bank. You may only mean the four clearing banks. If so, you should say so.
I meant all banks involved in payment management
That was as clear as I think it could have been
And yes – I would nationalise all without exception if and when te payment system fails – without compunction -0 this would be as dire as war and it would be an absolute duty to take the system as a whole under state control
But do read it in that context -that’s the way I wrote it
And I meant what I said
It really is time you get your head round systemic failure – you seem to have no comprehension of it