I have written a lot about how I think there are now two economies. Ours and the bank’s. Here is a glimpse of the sort of evidence that convinces me it is true. Just from today.
Portugal’s rating was downgraded again today. This time by two more notches because of continuing ‘concerns’ that Portugal’s financial position will deteriorate further and her propects for growth continue to be weak.
Meanwhile Greece had to return to the bond market again. It found that to get buyers for €1.6 Billion euros of its debt it had to agree to pay 4.65% in interest which is up from 4.55% in April.
And in the UK the news is that accoring to a study by PricewaterhouseCoopers (PwC) there is a 70% chance, ie likely, that house prices will remain below ’07 levels for 5 more years, until 2015 and a 30% chance that they still won’t have recovered in 10 years (2010). The longer house prices stay low, the longer bank ‘assets’ will be ‘impaired’ and banks will insist on our help and backing. A long seige.
None of these developments can be classed as good news. Add this to concerns about whether the European bail out fund is going to unravel as I wrote about last night, and together they paint a picture of a decade of grim times ahead of us. And one during which we are expected to accept a permenant state of cuts and ‘austerity measures’.
This is the news of us. For the banks it is all quite different.
European stock markets are heading up again today making it six days in a row.
Closer inspection gives a clue. The stocks driving the gains are all bank stocks. Why should they be booming? Well is is reported that France and Germany are leading efforts to ‘water down’ the Basel bank rules that were supposed to be an important part of the over-haul of bank regulation. The new rules were to have forced banks to hold more capital against their liablities, so as to make them better able to withstand losses themselves and not have to rely on yet another public bail-out.
The banks complained about how onerous it would be for them, how it might make them less willing to lend if they had to hold more capital. According to Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets, the expectation that the ‘reforms’ are now going to be watered down is “…the main reason for the gains.”
France and Germany are the nations whose banks are most heavily exposed to sovereign debt losses and defaults from Greece, Spain, Portugal, Hungary Italy and Ireland. Ironic doesn’t quite cover it.
All the bad news for nations and people and growth and public debt, does not pollute the air up where the bankers live. And frankly they don’t care what happens beneath them, down where we live. Why should they?
We have a new aristocracy.
Not many replies today Golem. I think readers needed a rest after the Fusion debate.
I think you're being too diplomatic by classifying the banks as an aristocracy. The aristocracy of old recognised there was a social structure that needed to be tactfully maintained. Look after your servants and they would look after you.
Now, a 'plutocracy' conjures up the right image: money grabbing, back stabbing, champagne guzzling. 'I don't get out of bed for less than 6 zeroes. Haw! Haw! Haw!'
Hi Golem,
I don't agree with one point. Lower property prices (with respect to wages) is NOT bad news for the people down where we live. It might be bad news for the banks (and therefore the people who have to bail them out eventually). The only people that profit (in the end) from high property prices are the banks – well, actually the people that run them, rather than the shareholders.
Of course the report is pure speculation so we will see how it turns out, but I tend to feel that any opinion that is the opposite of what the banks actually need has more chance of being based on the truth.
Rob,
I agree totally, low house prices are the only solution. Painful though it will be for many people cought in negaitve equity. High house prices are , in the end a social evil. Speculaively high prices are a crime.
I stand guilty of building up debt off the back of the rising price of my house. If I sell my house it will not pay off all of my personal debt.
However, I'm realistic and know that high house prices are not sustainable. If I make a loss, so be it. I own the debt and it will be paid by me, not the taxpayers (eventually). That is the risk you take when you leverage your assets … isn't it?
It is Rich.
You've nothing to feel guilty about. You had reasons to leverage some debt out of your major asset. You put thta money to use and you are intending to pay off your debts yourself.
There's no guilt anywhere in that, that I can see.
Maybe you now regret it, but that's you're business isn't it?
I've taken on debts for reasons I thought were great and afterwards found I was wrong. But I just put my head down and paid for my mistake.
At least we are trying to formulate clear thoughts about what has happened and will happen. And we're not just sitting with our mouths open waiting to be spoon fed whatever self-serving propagnda suits the real debtors.
I look forward to reading you comments whenever you contribute.