UK Govt to bail out banks

It is really hard to keep up with all the developments that occur daily in this crisis. Now the UK govt had announced that it will bailout the countries eight main banks in a deal worth up to 50 billion GBP and an additional 200 billion GBP in a line of credit.

This is on a day when:

– the ASX fell by 5%
– the AUD fell to under 69 67 US cents
– the Nikkei fell by 9.4%

Every day the situations get more and more bizzare.

UPDATE: The US Federal Reserve has just cut rates by 0.5% down to 1.5%, the Bank of England by 0.5% to 4.5% and the ECB rate is down to 3.75%. It seems that there is a co-ordinated plan of action by the banks. Who knows if it will work.

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41 Responses

  1. Every day the situations get more and more bizzare.

    Read – frightening – last time it was just Wall St – this time its everyone!

  2. The rot has well & truly set in.
    Incomprehensibly vast chaos on a global scale…like we didn’t have enough of that already.

  3. It’s all *Pixie* Rudds fault. You all thought I was away with the fairies but now the chickens have come home to roost. You lot ‘slept walked’ your way to the election and sacrificed the man of steel and the world’s best treasurer for Swan song. Youse have only got yourselves to blame for the current global crisis.
    Gillard has a knife out for Rudd and will claim the throne soon only to be upturned by the suave and switched on Malcolm Turnbull. My head hurts. Now youse have got what youse all deserve. I have some scones in the oven. Peter Costello has fingers tightly on the wheel of the Australian superpowered economy and now look what’s happened all fanks to you loonie left, mateus-sipping people. I have the last laugh cos youse got it all wrong. and now it’s almost bedtime. Where did I put my meds..and one more thing, I was right, and if youse had only listened to me everything would be so much better, because it would’ve been…

  4. It’s only going to get bumpier too.

    Wait til all those people that cant afford to pay their mortgages start defaulting on their credit cards too.

    Businesses will start downgrading their dividends to shareholders, share prices may fall further.

    Then it will be the property market next to collapse.

    I hope I’m wrong, but can’t help seeing it all unfold…

  5. Ouch! Not just a pretty face am I? Wink

    http://blogs.theaustralian.news.com.au/geoffelliott/index.php/theaustralian/comments/us_news_media_is_dominated_by_shouting_matches/asc/

    John McPhilbin
    Wed 29 Aug 07 (04:21pm)

    I, like yourself, Geoff, have been expecting an economic slowdown and some major correcting for some time now.

    The obvious and increasingly prevalent use of debt to fuel economic growth (including the staggering use of credit cards for daily living expenses) has been used to create a number of bubbles (i.e. stocks, housing, and consumer spending) and needs some serious attention by way of effective government intervention and controls.

    Just how deep and wide these corrections will be is hard to really tell.

    We seem to have been lulled into a false sense of growing affluence which is ironically the same phenomena that preceded the Great Crash of 1929 and the Great Depression that followed.

    Jacob Saulwick of the London Telegraph wrote on June 26 something that really caught my attention:

    “THE risk of a 1930s-style economic slump” he claimed “has been heightened by “euphoric” markets tapping cheap global credit, one of the world’s pre-eminent financial institutions has said.

    In its annual report the Bank for International Settlements noted that the conditions which led up to the Great Depression of the 1930s and the Asian crises in the 1990s were reflected in the current environment.

    “Each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived,” the bank said.

    The BIS, the central bankers’ bank, pointed to a confluence of worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

    “There is a high degree of complacency, coming out of the long period of low interest-rate environment, and a low volatility environment,” Singapore’s Second Finance Minister, Tharman Shanmugaratnam, said.

  6. http://www.news.com.au/business/story/0,27753,24464472-462,00.html

    I guess things aren’t rosy here either.

  7. Then in my usual fashion went on to say:

    Geoff, Just to add to my previous comments we here in Australia need to start considering whether our stock market’s reaction (yes, it’s taken a another pounding on the back of falls in the US) is more than a simple reaction to US markets. Or do we have similar issues with growing and doubtful debts? It’s easy to get bogged down in detailed theory or political debate over the economy in general, including interest rates and our growing prosperity rather than making hard-nosed assessments of the sustainability of growth fueled by easy money, namely debt.
    Mr Howard’s response recently to the fact that household debt has reached the $1 trillion figure was: “Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property.” Personally, I think his assessment is too simplistic and politically convenient (it is an election year). For me, the lights really came on when I recently came across an insightful assessment of what seems to be one of the primary causes of the emerging economic picture and potential financial crisis in the US. Unfortunately the same elements and conditions that are causing distress in the US also seem evident, in large part, here in Australia. Former US Federal Reserve chairman Alan Greenspan comes in for some major criticism because of his policy that sought to promote greater consumption as a way to increase prosperity through the use of easy money and artificially low interest rates. Another concern is the role of tax systems and their failure to encourage saving and investing. Economics author Jim Rogers wrote in 2003: “The current bubble that Greenspan does not see is the consumption bubble he is causing. He has the lunatic idea that a nation can consume its way to prosperity although it has never been done in history.”
    In America, if you have a job, you pay taxes. If you buy a stock and you get a dividend, you pay taxes. If you have a capital gain, you pay taxes again. And when you die, your estate pays taxes. If you live long enough to get social security, they tax your social security income. Remember: you paid taxes on all this money when you originally earned it yet they tax it again and again. These policies are not very conducive to encourage saving or investment. They promote consumption.
    By contrast, the countries that have been doing well the last 30 or 40 years, are the countries that encourage saving and investing. Singapore is one of the most astonishing cities in the world. Forty years ago it was a slum. Now, in terms of per-capita reserves, it’s one of the richest countries in the world. One of the reasons Singapore was so successful is its dictator, Lee Kwan Yu, insisted that everyone save and invest a large part of their income. Whatever Lee’s policies toward personal freedom, at least he forced people to save and invest. History shows that people who save and invest grow and prosper, and the others deteriorate and collapse.
    Artificially low interest rates and rapid credit creation policies set by Greenspan and the Federal Reserve caused a bubble in the US stocks of the late 1990s, policies now being pursued at the Fed are making the bubble worse. They are changing it from a stock market bubble to a consumption and housing bubble. And when those bubbles burst, it’s going to be worse than the stock market bubble, because there are many more people who are involved in consumption and housing. When all these people find out that house price don’t go up forever, with very high credit card debt, there are going to be a lot of angry people.
    No one, of course, wants to hear it. They want the quick fix. They want to buy the stock and watch it go up 25 percent because that’s what happened last year, and that’s what they say on TV. They want another interest cut, because they’ve heard that’s what will make the economy boom.

  8. And finally, because I’m sure that mammoth freefall in stocks today meant there was some significant margin calls, I wrote:

    Geoff

    Another form of risk-taking that was widespread in the 1920’s was lending on margin (margin lending), guess what? It’s seem a revival in recent years.

    Recently, here in OZ, many people entered agreements with various banking institutions, I’m led to believe, to borrow ‘on margin’ money to combine with their existing superannuation balances in hope of creating a larger nest egg for the future by investing larger sums in superannuation funds of their own choosing.

    Here’s a disturbing reality for these and other investors and a factor that helps trigger market volatility and large financial losses – it’s called ‘Lending on Margin’ It was reported last week “BORROWING to buy shares has more than doubled to $36.2 billion in the past two years, accounting for $88.8 billion worth of Australian stocks and helping to exacerbate the sharp falls on a highly geared market. We didn’t see this coming: LENDING ON MARGIN TO INVEST IN STOCK MARKETS IS AN HISTORICALLY DANGEROUS THING TO DO – taking on debt in the hope of making a profit in an historically high stock market has brought ruin to many an investor in the past.”

  9. Sorry guys had to get that off my chest..my internet has down all day.

  10. Just heard on the 7.30 Report that the UK bailout is actually partial nationalisation of the banks.

    This was followed by a professor from UWS in NSW whose predictions have me feeling kind of ill and scared. The professor apparently has a blog called Debtwatch.

  11. OK JMc – what do you advise, now? (I’m fine, own everything, super in cash – and The Minister is the best book-keeper in Oz)

    What about everyone else?

    Pay off debts, reduce or eliminate unecessary spending (eg watch TV instead of hiring or movies, reduce telephone use, make dinner instead of buying it, limit use of lights and other power) watch the cents and dollars take care of themselves?

    I bet you’ve done that all your life, too, mmm?

    Any advice…?

  12. John McPh:

    “Singapore is one of the most astonishing cities in the world.”

    Financially maybe. But you still can’t chew gum.

    The people who live there sacrifice personal freedoms in exchange for their ‘utopian’ lifestyle.

    It’s a lot like GATTACA as mentioned somewhere else…

  13. TB;

    Did you watch the 7.30 report? Talk about depressing. Looks like we’re all bloody doomed! DOOMED!

  14. And in Singapore you can’t be gay, you can’t say anything about the government, find anything out about your CPF (super)… and basically you have to do everything that LKY tells you to do.

  15. Thanks for that link Sans Blog. That interview was pretty depressing stuff.

  16. This is what happens when Dudd and Goose are in control. This is what people voted for in the last election. People voted for debt and unemployment and this is what they got.

    We need Peter Costello to be running our county but we have Goose instead.

  17. Reb

    I was just at the gym (still able to work out a bit) and was thinking of the impact the meltdown is going to have on professional (and other) sports. A lot of their money comes from commercial sponsorship from financial institutions, and I think that that money might start to dry up in the near future.

    I am just leaving my super where it is – I am still more than 25 years off needing it, so I reckon that as long as I have units, they will start to come back.

    Dinner beckons now – I am cooking for three vegetarians, and after Lehkni’s post in the other place I am tempted to put some chicken or fish in and then say “what – do you mean you guys a vegans?” LOL

    Oh – and lehkni – expect an email re next week.

  18. Also, John in Singapore and Malaysia you can just be collected off the streets and locked up indefinitely without charge under the guise of ‘security’ laws, so it pays not to speak out against anything the government is doing.

    But I do agree with your take on the causes of the economic meltdown though…

    🙂

  19. Oh come on Neil – we need more proof that you actually believe what you are writing – you seem to be just going through the motions.

  20. Joni,

    A number of coporate sponsors are already pulling out of the Melbourne Cup.

    The meltdown will affect everyone, of this I have no doubt…

    Cooking for three vegetarians? Tofu burgers all round…

    Enjoy and catch you tomorrow…

    reb

  21. Joni

    Briannie backs up the claims a bit more at post No. 3..!

  22. Hi Joni

    Yes you got me right. I was sort of trolling. But I do not totally disbelieve what i said. I have always believed that the ALP always produces debt and unemployment. ALP people think they know everything but are fools that know nothing.

    What we need are people with common sense not people with PhD’s. We need more normal people, people like carpenters, plumbers, train drivers, farmers in government.

    We do not need Union hacks. The people who run the Liberal party know how to create a job. labor Party people only know how yell for benefits.

    cheers

  23. Okay, the Singapore example was a purely economic example.

    Live within your means, save and invest wisely. Rapid debt creation policies designed to encourage excess consumption is simply counter-productive in the long-run. Unfortunately, it’s not until the long-run catches up that the real damage becomes evident.

    TB

    You’d be right, I’ve always been frugal and especially so over the last five years. Long story, but I’m far from being the money bags I should be right now simply because I chose to take a stand on principle, now I’d be lucky to get hired simply because employers don’t take kindly to whistleblowers. Nor would the banks be willing to loan someone whose been struggling with depression and is living on workers comp.

    I truly wish it were different but it isn’t.

    But hey, I’m also a fighter.

  24. Sans Blog | October 8, 2008 at 7:10 pm

    Debt Watch:

    http://www.debtdeflation.com/blogs/

    Thankyou Sans because the graph on that page illustrates what I have been saying for a long time about Howard deliberately encouraging debt.

    Note that prior to 1996 there was a long period of steady increase in personal debt that quickly started going down under the “recession we had to have”. Paul Keating discouraged spending (which is one of the reasons the economy tanked and unemployment went up) to achieve a long term economic reform goal. The right love to can Keating’s high unemployment numbers as a sign of bad economic management, but they were actually a sign of very good management and long term planning. There is a good article on this I can dig out.

    Then Howard got into power and look what happens with the graph for Australia. From personal debt levels starting to decline, it almost instantly exponentially sky rockets upwards. This was never ever sustainable and could only lead to a lot’s of heartache and misery at the end of it, something Howard was repeatedly warned about, even from Costello (so it seems he did have some economic nous), yet Howard went ahead encouraging debt fuelled spending at unprecedented levels with just about every budget he released, especially those in election years.

    In Australia we didn’t need to get to the situation we are currently in because all the warnings were there and the solutions were on offer for seven years or more, solutions that were deliberately ignored and advice that was used to do what was advised not to do. With an unprecedented resources boom we could have used that largess for infrastructure, health, education and skills expansion to alleviate the loss from the required spending decline and have weathered the current economic storm. We more than just about any other country in the World were in a unique position and it only required a competent government with foresight and strategic planning to carry it off, yet we got an inward looking, ideological and short term planning for political gain government instead, and we are looking at the result.

  25. 22. stuntreb | October 8, 2008 at 7:42 pm

    Joni

    Briannie backs up the claims a bit more at post No. 3..!

    No way, look at the punctuation and sentence spacing.

  26. Firstly thanks so much Human Dividend for letting me know about this site. I am now home.

    I tend tto agree that things will only get worse for the time being but we need to put things into perspective here about a few matters.

    1) the US lent loans to people who did not even have a job. our major banks did not.
    2) The US lent 120% of the value of a home against these loans. Our major Banks only ever lent 80% so there was a 20% buffer.
    3) We were approximately 3 years behind the UK and the US in promoting and developing these types of loans. What has saved our economy is that we were behind the US and the UK.

    It has absolutely nothing to do with who is in government at the moment. What it has to do with is the explosion of absolute capitalism. As we found out last night the CEO wage 20 years ago was around 20 times the average salary. The CEO wage is now over 200 times the average salary. This is where the whole system has gone Kaput. I own my own business so believe in private enterprise, hoever when you have a capitalist society you need a social ( not socialist) government to ensure balances and checks are implemented to prtect the masses. This is what had been thorwn out.

  27. But hey, I’m also a fighter. JMc

    You wouldn’t have to convince me, ‘ole mate!

    Looks like your prediction of 5 years or more for the economy to recover may be correct…

    That pendulum is a funny thing – I’ve been telling my kids (all late 30’s) it would eventually arrive. Now it has and they have buffered with over payments of mortgages – you can almost sense the “calm” within the family that “they can handle it” – feels good. They are all very good at their jobs and well entrenched in what they do (the two girls are well qualified and their husbands in the type of jobs that will be the “last to go”).

    A little phrase keeps ringing in my head – “…a recesssion is when you know someone out of work – a depression is when you are out of work…”

    I do hope this brings the nation together and the selfishness I see in younger generations is replaced with Aussie compassion and help for each other when the hard times kick in (I think this is something of a “phony war”), in the next six months life is going to get really really tough for some…

    …as usual the rich and priveleged have created a situation that will be paid for by the poor and vulnerable…whether it be economic crises or wars…equal rights, egalitarian society – my @rse!
    …………………………………………….

    As for Comment 3 being Briannie – I’m afraid “youse” gave it away, reb, nice try! 🙂

  28. Hey, Shane, welcome to the fold been saying that for years absolute communism doesn’t work nor does absolute capitalism…

    …and socialists (in the true sense of the word) who own businesses do well because they service the people’s (clients’s) needs rather than chase the dollars…easy.

    I remember (well) knocking back a contract for $17000 because it would exploit the supervisors in the client company
    but help the project manager ( upwardly mobile young thing) improve her resume…that’s when I felt I’d “made it” – when I could put principle over money…

  29. Thanks TB its nice to be home. I really like a blog site where all opinions are expressed, but in a more calmer and less bitter and hysterical than Akerman and Bolt. I do however hope that opinions that disagree with mine are printed as that is what debate is all about. Put forward your points listen to others hopefully find some common gournd on some points and agree to disagree on others without spiteful name calling. As you know from my comments on Blogocracy (RIP) I have maintained my priciples since I can remember.

  30. TB

    ….as usual the rich and priveleged have created a situation that will be paid for by the poor and vulnerable…whether it be economic crises or wars…equal rights, egalitarian society – my @rse!

    It’s so telling though with the news of the AIG executives celebrating their taxpayer bailout with a weekend stay at one of the most exclusive resorts in the US.

    Nice sentiments TB, but even though ordinary folks and hard workers who by their hard work and sacrifice allowed those at the top this greed and over indulgence might attempt to be a little less selfish and instil some compassion into their children, those at the top will still wring every cent they can by whatever ever means they can and pass onto their children, “greed is good” and “individualism is right”.

    This was typified by the executive of Lehman Bros being grilled by the Congressional hearing. He made US$400 million over the last eight years, and though he was so sorry all this had happened and he knew three years ago his firm was in trouble, he never contemplated taking a salary cut or giving up any of his luxuries. And I have no doubt if he could he would attempt to get a US$50 million p/a wage out of the tax payer bail out money for himself saying he is worth every cent and there is nothing wrong in trying to make as much money as possible, even if that amount is obscene and unwarranted and comes from the taxpayer.

  31. TB:

    “I’m afraid “youse” gave it away, reb, nice try!”

    Bugger! Sprung!

  32. Take it easy people. The daughter & I are off to the farm for a few days to unwind before the end of school hols. She’s very excited because she’s old enough now to learn how to ride the 4wheeler (supervised of course) & we have 2 doz. eggs to launch at Poppy’s friendly cows. hehe.
    Very impressed to see BLOGOCRATS thriving after such a short time; I imagine it will only grow from here. Hopefully it doesn’t eat up too much of your free-time reb & joni; I often wondered how Tim managed a life around running his blog.

    Glad to see you made it here Shane, I wasn’t sure if my message would get binned or not; that Paul Colgan character isn’t a fan as I’ve had a few digs at him that he hasn’t posted. Apparently he’s a “recovering conservative”, whatever that means, which is fine; but he doesn’t like being dissected.

    Take it easy all. Will check back in on the weekend.

  33. Oops. Wrong thread.
    That was meant to go on Midweek Mayhem.

  34. TB

    You’re a wise man TB and your kids should be grateful for your wise counsel. That calm in the storm is a nice feeling.

    Cheers

  35. John McP

    We can thank Manly for beating the Storm into submission last W/E 😉

  36. 36. Dave55 | October 9, 2008 at 12:10 pm

    Luv it! 😀

  37. God must be a Storm supporter (like me). They lose and the whole world goes to hell in a basket.

  38. Adrian @ 38

    😀

  39. Dave55

    Wasn’t it absolutely brilliant – 40 – zip was never a result I expected.

  40. John McP

    Yep, and me neither. I did think they would win but not not that.

    And look at the market chaos it has caused (just to keep it on topic 😉 )

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