91Èȱ¬

I presented the Richard Dunn Memorial Lecture at the MediaGuardian Edinburgh International Television Festival. Here's the text.

It is an honour to be giving a lecture in memory of Richard Dunn. I never met him but he was - by all accounts - both an unusually charming man and a talented television executive who passionately believed in editorial independence, as he showed in his staunch defence of Thames's Death on the Rock Documentary about the shooting in Gibraltar of three IRA terrorists. And although as chief executive of Thames he confronted difficult issues, such as trade unions' resistance to change, ITV franchises were in his day advertising monopolies, licences to print bucket loads of money. In fact the one serious misjudgement he made was not to bid enough in the first ever channel 3 franchise auction. Yes there really was a time when the value of terrestrial commercial television companies was rising.

Today so much of the industry he knew is confronted by a crisis worse than anyone alive has witnessed. Now I'm going to be looking at just one part of the media industry, news journalism - which is struggling to cope with the combination of a collapse in advertising more serious even than the plunge of the mid 1970s and massive, disruptive technological change. It all feels as significant as anything the industry has experienced since the explosive growth of the great mass market newspapers in the early 20th century or the creation of the 91Èȱ¬ and the establishment of its principles of editorial impartiality.

Now it is probably worth pointing out at this early juncture that what follows are my reflections - albeit the reflections of a not particularly dispassionate observer since journalism has been my life for more than 25 years - rather than some kind of official 91Èȱ¬ corporate view.

No ordinary media recession

I will be looking at the future of our industry from the corner I know best, which is business and economics journalism. But what I have to say, I hope, has relevance for all news journalism. I want to make four points.

First that this is no ordinary recession - the traditional business model of traditional news providers is being wrecked and needs to be overhauled.

Second, in a globalised, 24/7 digital world, individual news organisation may be less powerful than they were, but stories - and to an extent the journalists who own them - shout louder than ever.

Third, I will argue - from my own experience - that the traditional distinctions between television journalists, radio journalists and print journalists are quite close to being obsolete. This has huge operational implications for all media companies and also for regulation of the industry.

Then I will make the case that the financial crisis we're living through - and the end of an era of what I call financial paternalism - shows that more than ever we need a choice of high-quality news providers which are confident in their ability to explain complex important issues in a clear and accessible way. And I will look at whether we can be certain that the commercial news sector's imminent revolution - in launching subscription or paid-for online news services - will meet that important need of any thriving democracy.

The party is over

Now I wrote all this before hearing and the near total liberalisation of the media. But if there is a thread running through my lecture, it is this. Market-based democracies like ours need two kinds of essential infrastructure: robust financial systems that transmit cash and allocate capital where it will be most useful; and competing independent news groups that distribute impartial information so that people can take control of their lives and rein in the over-mighty. Now we have just seen the near total collapse of our financial infrastructure, to a large extent because of misguided deregulation of banking; so we have to ask whether there is any rational basis for believing that withdrawing all regulation and subsidy from the news market would be any less costly to our way of life.
To state the obvious, and to move outside of the media industry for a moment, this has been no ordinary recession. It has been the worst global economic contraction since the Great Depression. And because the crisis had its origin in a glut of debt in the US, the UK and a few other economies, there are reasons to believe that - for the US and the UK at least - recovery may well be a rather long drawn out affair. As the economist Nouriel Roubini said just the other day, there is a significant risk that an insipid recovery could be fairly swiftly followed by another recession.

In the good years, a massive rise in borrowing by households, companies, the public sector and (above all) by banks fuelled an unsustainable boom (from which the media industry was a massive beneficiary) and a bubble in assets, notably housing and commercial property.

Well the party is well and truly over. That said, there are signs that the recession is ending. However the fundamental problem has not been solved. We were living beyond our means and we are living beyond our means. We have to reduce our debts, but doing that in a fashion and on a timescale that doesn't tip us back into recession will not be easy.

Now there is one thing that is absolutely fundamental to an assessment of how long the UK remains in a period of low or non-existent growth - and that is all about why lending to businesses is so weak at the moment. If that is because banks remain too weak to lend, then that is more easily rectified - as and when banks accumulate vital capital for lending through a recovery in profits that will come in the next year or two. If however - as happened in Japan - the more fundamental problem is that businesses have become chronically averse to risk and have chosen to pay down debt and to invest less, well that would remove a vital component of any serious economic recovery.

Collapsing revenues

In the mainstream commercial media industry, many big businesses are conspicuously choosing as their priority a Japanese-style reduction of their excessive debts, by slashing costs and investment. And it is easy to see why. Depending on which segment you look at - television advertising, national newspapers, regional newspapers, display, classified - advertising is down by between 15% and more than 50%. Worse still, many of the media executives to whom I talk don't expect any serious recovery over the coming few years - because for the best part of a decade there has been a partial decoupling between the performance of the economy and advertising revenues.

Google's income has gone through the roof, but advertising revenues for traditional TV, newspaper and radio companies have risen more slowly than the economy in the upturn and have fallen much faster in the downturn. Media analysts Enders expect newspaper advertising revenues to be £3.9bn in 2013 - a staggering 48% or £3.5bn less than in 2007. If that's right - and it is supported by what media executives say to me - newspapers will over five years lose advertising revenues equivalent to the entire annual licence income of the 91Èȱ¬. Which is why they need to find new revenue - and it is why charging for online news will become the norm. Television advertising is expected to suffer a bit less - falling from £3.6bn in 2007 to £2.9bn in 2013 - a loss of £700m of revenue. But - as has been widely noted - the aggregate revenues of ITV, Channel 4 and Five (perhaps £2.7bn) are significantly less than the 91Èȱ¬'s and about half that of James Murdoch's British Sky Broadcasting. On the broadcasting side - if classifying a section of the industry in that way makes sense in this digital world - there are a pair of giants and some minnows with loud voices, strong brands but depleted resources. All of which - to state the obvious - makes the large and protected revenue of the 91Èȱ¬ and Sky's monopolistic control of satellite distribution much more contentious than would be the case if the rest of the sector was booming. And, of course, it raises the question to which I will return of whether the 91Èȱ¬ is the invaluable defender of impartial, public-service journalism, at a time of a massive squeeze on the resources of commercial news providers, or the monstrous squisher of private sector rivals.

To revert to the wider economic picture for a moment, there are two further relevant things to say. First that if there is a widespread trend of British companies paying down debt, as they did in Japan for a decade from the mid 1990s, then that will make it much harder for any new government to cut public spending next year without tipping the UK back into recession. And it would be unrealistic to expect heavily indebted consumers to pick up where they left off two years ago and spend the UK into a new era of growth. On my own estimates, consumers may seek to reduce their debt relative to income by 30 or 40%. Which has negative implications for all businesses depending on consumer spending - and media companies are among those, par excellence.

Animal spirits

How consumers and businesses behave depends on what the great economist Keynes called animal spirits - which as Bob Schiller and George Akerlof have recently pointed out was an important insight that was disastrously ignored by mainstream economists for 60 years. Most economists took it for granted that participants in a market will always behave rationally - which in view of the recent behaviour of bankers would be funny if it weren't tragic. So much greater account of psychology, of how humans actually behave, must be built into models of the economy and the rules that constrain the activities of banks.

Our viewers, listeners and readers believe that the media has an impact on those animal spirits, on their own mood and actions. When the 91Èȱ¬ polled them in April, 63% thought there was "too much doom and gloom" in the media. As you would imagine, I would disagree that we have been too gloomy, but of course I would acknowledge that news stories can have a significant influence on people's psychology and actions. And that influence has increased very significantly as news has gone digital and global - as the run at Northern Rock may remind us.

Those queues outside the Rock's branches on Friday, 14 September 2007, came as a shock to me. But as the Governor of the Bank of England has said, the behaviour of Northern Rock's savers in asking for their money back was rational. Northern Rock made lethal mistakes in both the way it borrowed money and the way it lent - and it was several days before the Chancellor of the Exchequer made an unambiguous statement that depositors would not lose a penny. The incident shows how loud a voice a journalist and a media organisation can have and what a heavy responsibility there is to get the facts and context right.

Are journalists bystanders or protagonists

What this story brought home to me was how - in a broadband, always-on world - the media influences animal spirits unbelievably quickly and on a global scale. The images of the Northern Rock queues were distributed within seconds all over the world, as stills and as video. They came to symbolise the vulnerability of the banking system around the world. And in a UK context, they raised questions for investors and creditors from Boston, Massachusetts, to the Emirates to Tokyo about the viability of other British banks that had many of the same characteristics as Northern Rock, such as Bradford & Bingley and HBOS. Ultimately those banks too would have to be rescued.

It became even harder for journalists to be narrating bystanders, the chorus, rather than protagonists and participants after the collapse of Lehman Brothers, which created panicked hysteria among even the biggest and most sophisticated financial institutions. Again, when I disclosed that Britain's biggest banks had been told by the government that they needed to raise £50bn of additional capital, which meant in the case of Royal Bank of Scotland and HBOS that they would be semi-nationalised, I was staggered when the share price of RBS fell 40% within minutes on the morning of 7 October 2008. But this fall in the share price - and whatever impact there was on the confidence of the bank's creditors and the urgency with which the Treasury then organised a rescue of the banking system - reflected the painful financial reality. It was plainly in the public interest to disclose the weakness of our banks. And the primary justification - for me - of this kind of story is to democratise information that matters to all our livelihoods, which would otherwise be available simply to a few bankers, hedge funds and government officials. That said, no responsible journalist would fail to acknowledge that it would be wrong to weaken such important financial institutions through an exaggerated account of their vulnerability.

In general I would say that the media has had a more distinguished record than governments, central bankers, regulators and bankers in both seeing the risks that were being accumulated in the economy during the boom years and spelling out its implications after the summer of 2007, which is when the credit crunch began. But that would be to argue that the media was myopic while the authorities were blind. And some parts of the media did their bit to pump up the bubble. Newspapers' property supplements and televisions' property shows, for example, illustrate the greatest risk for the media in reporting so many issues, but especially business and finance. How do we have the courage and the insight to go against the mainstream and against powerful vested interests? Let's be under no illusion: the media did too little to challenge the consensus that the world had entered an era of continuous low-inflation growth - or at least not until it was too late.

The new journalism

To be clear, our frailty is not in the loudness of our voices it is in our determination to probe and to challenge orthodoxy. It may be a cliché to point out that there has been a massive fragmentation of news suppliers between the traditional media outlets and a new digital species - many of them highly specialist - with news you can use on everything from the number of potholes outside your front door, or what's going on for hedge funds, plus blogs, Twitter and so on. But although individual news organisations are probably in general weaker, facing both greater financial pressures and more competition than ever, the power of individual stories - and I suppose of journalists, from time to time - has increased. When a story takes off on the internet, as they have many times in respect of the credit crunch over the past couple of years, it's a massive worldwide explosion. But it's not just business or economic stories. Think about how TMZ's disclosure of the death of Michael Jackson went from internet scoop to global TV news within minutes - or how the Telegraph's website became the primary source on the biggest political story of the year, the revelations about MPs' abuse of their expenses. Which brings me to the associated changes in the way that hacks like me work.

For men - usually men of a certain age - there is no greater pleasure than watching the Dutch football team of the 1970s, total football. The point about that Dutch team, but especially the inspirational captain, Johan Cruyff, is that all of them could more or less play in every position. And my argument is that hacks like me increasingly have to become total journalists. When I started in journalism, I wrote one or two stories a week on a clunky mechanical typewriter - it was the last century but it really wasn't that long ago. Now I write up to five or six blogs in a single day, I broadcast on the Today programme, the Ten O'Clock News, as the broadcasting pillars of my output - and up to 20 or so other channels and programmes in a single day.

Rather than total journalists, perhaps we are becoming Denis Waterman journalists as per "Little Britain", i.e. we write the theme tune, sing the theme tune, and so on. Certainly my strong advice to any young person thinking of becoming a journalist is to acquire all the skills, don't think of themselves as wanting to be broadcast journalists, or radio journalists or print journalists: increasingly it's all the same thing. What matters is what has always mattered - the facts, the story. The skill for a journalist is unearthing information that matters to people and then communicating it as clearly, accurately - and if possible as entertainingly - as possible.

Global competitors

For me, the blog is at the core of everything I do, it is the bedrock of my output. The discipline of doing it shapes my thoughts. It disseminates to a wider world the stories and themes that I think matter. But it also spreads the word within the 91Èȱ¬ - which is no coincidence, because it started life as an internal email for editors and staff. It gives me unlimited space to publish the kind of detail on an important story that I can't get into a three minute two-way on Today or a two-minutes-forty-seconds package on the Ten O'Clock News.

It connects me to the audience in a very important way. The comments left by readers contain useful insights - and they help me understand what really matters to people. That is not to say that I give them only what they want. I retain an old-fashioned view that in the end the licence fee pays for my putative skills in making judgements about what matters. Most important of all, the blog allows me and the 91Èȱ¬ to own a big story and create a community of interested people around it. Sharing information - some of it hugely important, some of it less so - with a big and interested audience delivers that ownership and creates that committed community.

Now because of my own indifference to how I communicate a story, whether by video, audio or in writing, I regard the competition as the Telegraph, the Times, the FT, and so on, just as much Sky and ITN. And what's more for much of my output the competition is not just from UK-based organisations with UK audiences. The Wall Street Journal, CNN, the New York Times and the Washington Post are very much direct rivals.

Where audiences get business news

Also, it is increasingly clear that much of the audience doesn't care whether they receive their information via the blog, some other internet channel, the TV, newspapers or radio. We did a survey in February of where British people get their information about the economy. 84% still turn to television first, but 53% used the internet, as opposed to 52% who go to a newspaper, and 37% radio. For young people in the ABC1 category, 61% turned first to the internet - although even for this group TV was out in front with 74%. The point is that in national and international news, convergence has in a very fundamental sense already happened for TV, radio and newspapers. We all do video, audio and the written word.

Digital is our primary distribution network, even if it is a digital link to the micro-printing site in Southern Spain. We are all in the same market.
Here's an odd thing. Technology, working practices and consumer behaviour are all manifestations of the creation of a seamless digital news marketplace. But that is not how regulators or politicians see the news media - or at least not as manifested in the regulations that apply to the market.

Old regulations don't fit the new media world

Here's a tricky question. Are the rules restricting cross-media ownership fit for a digital world? Are the distinctions those rules draw between television, radio and newsprint companies relevant any longer? Is there industrial logic, for example, to the prohibition of a merger between a channel 3 franchise and a national newspaper with more than a 20% market share? Are those rules promoting diversity, choice and competition, or are they preventing a much needed rationalisation of the way that news is provided which is neutral about the digital method of delivery or distribution - video, audio, written - but releases vital resources for what really matters, the journalism, the investigations, the gathering of information?

Which is not to say that there is overwhelming commercial logic for the merger of a newspaper group with ITN or ITV. In a world where channel 3 and national newspapers are in dire straits, arguably such a merger would create as many problems as it solves. Two weak companies combined often create one much bigger but still weak company. And, as it happens, I do feel uneasy about the idea of a newspaper giant owning ITN, for example. But my uneasiness may not be rational. Are we sure that such a merger would any longer represent a grave threat to democracy? What I am saying - and there is nothing particularly original in this - is that we need to come up with a robust new way of measuring market share in news, one which properly captures both the rise and rise of Google in the advertising market and also doesn't seek to treat a television viewer, a newspaper reader, an internet user and a radio listener as though they are different customers of different industries. They should perhaps be seen, within the news market at least, simply as consumers of news.

The death of financial paternalism

But lest anyone should think I am arguing that choice in news provision no longer matters, I am in fact arguing the opposite. More than ever we need a choice of providers of high quality, authoritative news. The question is how to ensure there are enough competing groups with the resources to invest in news - because it is far from cheap to supply people with the information they need to take control of their lives and hold big institutions to account.

In my area, of financial journalism - but I think this argument can be extended - there is more-than-ever a requirement to fulfil that traditional purpose of serious journalism, to empower people to participate fully in democracy. The reason is that for the past 25 years or so we have seen the slow and lingering death of financial paternalism, partly by design of government policy, partly by accident.

There was a time when jobs were for life and a decent income in retirement was guaranteed by a benign employer, with the welfare state rescuing the unlucky or feckless few. Those were the days. Whether it's pensions, or buying a house or acquiring new skills so that we can remain in gainful employment, the onus has been put much more on individuals to make decisions that will determine whether they'll be prosperous or paupers. But are we equipped to make those life-determining decisions?

In that poll of earlier this year, the 91Èȱ¬ asked those surveyed whether they were confident of explaining some basic financial concepts to a friend. The best result was for interest rates. But only a quarter of the poll was confident they could explain interest rates to a pal. 22% felt they knew what the credit crunch was (I'll bet they were wrong), 20% said they understood inflation, and just 11% said they knew what GDP was. Which makes me a bit depressed, given that I have been explaining this stuff for most of my adult life. But my goodness they have a hunger for information. 41% of our poll said they accessed more news as a result of what was going on in the economy. And never in my wildest dreams did I think that my blog would get more than 700,000 hits in a single day. People are desperate to know more. Out of 208 stories covered by 91Èȱ¬ journalism between May 2007 and 2009, news about the state of the British and global economy stood out more than any other for our viewers - the election of Obama was placed only 8th, the start of the Beijing Olympics 16th.

When the high priests failed us

There has been another manifestation of the death of financial paternalism. We have also learned at great cost - from the worst financial and economic crisis since the 1930s - that we can no longer blindly delegate to a technocratic elite, a financial priesthood, vital decisions about how the global economy operates. We were, for example, wrong to allow a self-selecting international elite to set the rules for how our banks - the bedrock of our economy - are prevented from taking excessive risks.

These rules - that conditioned how much banks can lend and to whom - were decided completely outside of the normal democratic decision-making processes by a group of central bankers and regulators, the priesthood, gathered together in Switzerland in what's called the Basel committee on banking supervision. This may sound tedious and abstruse but it was those rules which allowed banks from Switzerland to the US to the UK to lend more than was sensible or safe relative to their capital resources. The severity of the global recession is directly related to the chronic misjudgements made by the priesthood. It was the system they designed that took the world to the brink of financial Armageddon last autumn. As a banking editor in a past life, I was a rare breed of journalist who took an interest in what they did. And I have to say that I would like that bit of my life back. Because it is perfectly clear to me that I was wasting my time taking them seriously. They weren't simply rearranging the deckchairs on the Titanic, they were actually steering the Titanic - our financial system - towards the iceberg.

And what worries me is that we are trusting these unelected officials from regulators and the central banks - like the Financial Services Authority and the Bank of England - to take these decisions on our behalf all over again, without any serious popular debate about what kind of banking system we want. Unless media organisations are prepared to tackle these unsexy complicated issues, how on earth are we going to foment a national debate, how are people going to have a voice on issues that probably affect their prosperity more than whether the tax rate rises or falls by a few percentage points.

Public service journalism

What I am talking about here, as you know, is the importance of public service journalism, about informing and educating the public so that there is democratic participation in big decisions about the future of capitalism. Now at a time when the future of the financial underpinning of the economy is in question, so too is another part of the fabric of our society - the part that transmits not money but the news and information we need to hold powerful institutions to account. And for me, the issue is all about securing the greatest access for the greatest number of people to a diversity of competing high quality news sources.

Against this backdrop the certainty that commercial news groups will start charging for online access is relevant. We should be in no doubt about this. Every news organisation - with the exception of the 91Èȱ¬ - will start charging very soon for any information that has any proprietary element to it at all. As I explained at the start of this talk, there is no way for these groups to survive unless they can generate this additional income.

Against that backdrop, much of what the 91Èȱ¬ does - especially the stuff we do online - may look like unfair competition. And as someone who worked in the private sector without a break from 1983 to 2006 - and who rather assumes that he will return to the private sector one day - I completely understand why James Murdoch has argued that the 91Èȱ¬'s online news service looks like state-subsidised unfair competition. Much of the private sector sees the 91Èȱ¬ as crowding out legitimate commercial players. I feel the private sector's pain on all this - although there is a counter argument.

With financial paternalism in its death throes, just as we are being forced to take control of our financial lives as never before, are we sure that a wholly liberalised commercial news market would ensure that everyone has access to the kind of news and financial information they need and deserve? There already appears to be a consensus that in the provision of regional news there has been a massive market failure that will require state intervention and subsidy to rectify. But is that market failure limited to regional news?

Will the new paid-for online model inform and educate on hard issues - financial matters, but also medicine, the environment, education and so on - that matter to us, or will it concentrate on the more sensationalist and titillating bangs for the buck? And even if paid-for online services do endeavour to fill the gap created by the death of financial paternalism, will millions on low incomes be excluded from access to this information? Should we be relaxed if 'can't pay' means 'can't know'?

There is a debate here about two kinds of fairness. There is the fairness of ensuring a level playing field for players in a commercial market. And there is the fairness of the distribution of information and knowledge to all who need it, irrespective of their material circumstances. These are two different kinds of fairness. They are apples and pears of social justice. But having just lived through the greatest failure in history to distribute financial resources in an efficient and equitable way, we certainly shouldn't assume that a commercial digital market in news will distribute information in a way that would support a healthy democracy. Walter Bagehot - as luck would have it the greatest ever writer on banking - defined democracy as government by discussion. But you can't have a decent chinwag without having the facts. And the big question - one which perhaps Richard Dunn would have relished - is whether the incipient structure of our new digital news industry will promote or undermine the healthy discussion that is necessary for democracy to thrive.

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If you want to know why quantitative easing may not be working - in the sense that it hasn't led to a conspicuous increase in lending -Ìýthis morning's financial results from Royal Bank of Scotland give a pretty good clue.

I'll explain.
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In simplified terms, quantitative easing is the process of buying gilts from investors - to date some £122bn of them.
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Let's assume, which isn't necessarily the case, that when the Bank of England buys gilts from investors the cash ends up in the British banking system.
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Well, if the cash is classified by the banks as a customer deposit, which it might be if the investor that has sold gilts to the Bank of England happens to be a relativelyÌýsmall and unsophisticated institution, then the banks say "yippee".
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Because that deposit increases the ratio of supposedly stable customer deposits to loans and advances: it reduces the banks' dangerous dependence on flighty, unreliable wholesale funds.
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Which genuinely matters, because - as you'll recall - one of the reasons our banking system came so close to collapse last autumn is that our banks had become too dependent on wholesale sources of funds, which dried upÌýafter the collapse of Lehman Brothers when investors took fright and took flight.

Take Royal Bank of Scotland. Today, its chief executive has set a target to reduce its ratio of loans to deposits from 156% to around 100% by 2013.

That will require it to reduce its dependence on wholesale sources of funds by not far off £200bn over the same time period.

So when cash deposits come in, the instinct of Royal Bank of Scotland - and of other banks - is to say "thank you very much" and just sit on the cash, rather than lend it out.

And there's a similar story for Lloyds. In the six months from 31 December to 30 June, its ratio of loans to customer deposits has fallen from 166%Ìýto 152%, as it has simultaneously increased deposits by £20bn and reduced loans and advances by £25bn.Ìý
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To reiterate, that reduction in these banks' respective ratios of loans to customer deposits is a deliberate policy.
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Why?ÌýWell, when Lloyds and RBS increase their customer deposits and don't lend out the cash, they becomes a much safer place for their other depositors.
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So a benign effect of QE may have been to increase the security of our banks for savers - even if that's not what the policy was intended to achieve.
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But actually much of the cash raised by institutions from selling gilts almost certainly isn't converted into customer depositsÌýat banks.
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More likelyÌýis that institutions have lent it to banks and other financial companies in theÌýform of wholesale market loans - the kind which the banks are supposed to be weaning themselves off.
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If that is the case, then there is absolutely no chance that banks - already too dependent on wholesale funding - will lend the money out.
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What's more, some of thisÌýmoney raisedÌýby institutions from gilt sales may have been lent to the banks in the form of short-term debt securitiesÌýunderwritten by the Treasury via the credit guarantee scheme.
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In effect, there will have been a double public-sector subsidy for fund-raising by the banks, with little apparent consequential benefit in the form of lending into the real economy.
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There is a final paradox in this tale of where all the Bank of England's money has leaked.
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The banks may have used theÌýadditional cash deposits to purchase gilts, as they've been instructed to do by the regulator, the Financial Services Authority, which wants to see them holding much greater reserves of genuinely liquid, high-quality assets.

Let's look at Royal Bank of Scotland again. It has a new target to increase its "liquidity reserve" from £90bn to around £150bn. And that means it may well buy an additional £60bn or so of gilts.

So one lot of gilt purchases, by the Bank of England, is simply spurring a separate lot of gilt purchases by the commercial banks - for which the government should be profoundly grateful, because it helps finance the humongous public-sector deficit, but prevents any of the cash being lent to businesses and households that may need it.
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Does that mean QE has been a waste of time?
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Probably not.
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Without it, there mightÌýhave beenÌýeven less lending into the real economy.
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But unless and until the banks' ratios of customer deposits to loans and advances have returned significantly nearer to parity, QE is almost certainly not going to spark much in the way of incremental lending to non-financial companies and personal customers.Ìý

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Although news organisations are fierce competitors, there was an almost audible sigh of relief from most of them when Rupert Murdoch said that News Corporation would start charging for access to its online news sites.

It's not just that the worst advertising recession in living memory means that many newspaper groups are incurring losses.

It's that even after a fall for most of them of between 20% and 30% in their income this year from advertising, and even if the recession may be drawing to a close, they fear that there could be a further fall in revenue from that source over the next three years - simply because technological change is giving new options to advertisers for promoting their goods and services.

So if the costs of gathering news are to be met, a new source of income has to be found.

That said, no media group was desperately keen to be first to start charging for online news.

But once one media group charges, the chances are they all will.

The implications are significant, though not completely clear.

In particular, there are many different ways of charging: on a per day basis via micropayment; or on a subscription; or payment for one service or for a bundle of services, along the lines of Sky Television

Rival media organisations may club together to form online consortia of news services: so, for example, the websites of competing newspapers would be available behind a single subscription wall, in the way that - right now - it's possible to subscribe to bundles of TV channels from competing providers.

Of course there are also implications for how commercial news groups will see the free online news service provided by the 91Èȱ¬.

It's probably no coincidence that last weekend the Sunday Times - owned by Rupert Murdoch's News Corporation - for news groups facing profound economic and technological pressures.

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are witness to the quite astonishing risks taken by HBOS, the bank that Lloyds agreed to buy and rescue - in very controversial circumstances - in the autumn of last year.

It was HBOS's business loans - many of them property related - which contributed most of a £9.7bn charge for debts that are going bad in Lloyds's so-called wholesale division.

And it comes on top of a £9.3bn charge that was incurred in the second half of last year.

So that's £19bn of charges for loans to companies that are turning sour during just one year of recession.

Those losses represent 8% of all loans and advances in that area of activity.

Wow.

And to be clear, this is not a newfangled, new age loss on impenetrable financial products such as collateralised debt obligations.

This is an old-fashioned failure to kick the tyres properly when lending to hotel groups, property developers and investors who in the 1950s would have been called spivs.

The former members of HBOS's board doubtless feel chastened - and the current members of Lloyds's board must surely regret their failure to conduct a proper investigation, what's known as due diligence, of what they were buying,

Here's the better news for Lloyds shareholders and perhaps troubling news for taxpayers - most of these poor quality loans are now being insured by us, by taxpayers, under the Asset Protection Scheme, so future losses will be ours, not the banks.

Lloyds' management is still putting a brave face on the takeover of HBOS.

It says that eliminating duplicated costs in the two banks will yield additional profits of £1.5bn a year by the end of 2011.

Which may be delightful for the bank's owners (taxpayers, again, through a 43% stake that will rise to 62%), but is simply another way of saying that many thousands of employees are losing their jobs.

One other concern is that the bank remains very dependent on funding from taxpayers and from wholesale providers who have proved to be unreliable.

The best way of seeing this dependence is that there is a £223bn gap between Lloyds' loans and advances and its customer deposits, or the non-wholesale loans to the bank which tend to be more stable.

Some of this gap may be closed over the next five years by Lloyds' decision to run off some £140bn of loans to customers.

And there is already evidence that Lloyds is shrinking its balance sheet.

Which is probably the prudent thing to do. Although this reduction in lending risks bringing the bank into conflict with the government over whether it is fulfilling a pledge as a state-rescued bank to increase the supply of loans to homebuyers and also to business.

These results indicate that it is making good on the mortgage promise.

On loans to companies, Lloyds claims to be doing its bit - but that appears to be at odds with a 9% reduction to £198bn in the value of its loans and advances to corporate customers over just the past six months.

Finally, a bit of good news: putting the bad debts to one side, the banking operations owned by this sprawling group - Lloyds, Halifax, Bank of Scotland, inter alia - are still churning out the revenues much as they've done for decades.

This is a group that will generate enormous profits as and when we're through the recession.

As for when the recovery will come, Lloyds believes that bad debts may have peaked, which is earlier in the economic cycle than is normal for banks.

Lloyds will however generate a loss for the year as a whole and the bank expects only a slow economic recovery in 2010.

But the day will dawn - sooner than seems credible right now - when it'll be the magnitude of the profits being generated by this Tesco-size market leader in retail financial services that will be sparking controversy, rather than the horror of its losses.

Update, 10:16:

Lloyds - or rather the Halifax bit of Lloyds - has revised its forecast for what will happen to house prices this year from a fall of 15% to a much smaller fall of 7% or less.

This matters to Lloyds, as the UK's largest provider of mortgages (and, of course, to millions of home owners).

This new forecast may turn out to be too bearish, in that the cumulative fall in its own figures for the first seven months of the year is just 1%.

Next year it expects house prices to be flat or to rise just a fraction.

Also, it is pretty bullish on its ability to increase its income, or top line: it is predicting high single digit percentage growth in revenues within a couple of years - which, if costs can be contained, would generate very significant incremental profits.

In fact - and this may worry Lloyds staff fearful of losing their jobs, it is promising to reduce costs as a percentage of income by two percentage points every year for as far as the eye can see.

Finally, Lloyds has asked me to point out - in case it's unclear - that it did conduct due diligence on HBOS, but not as much as would have been ideal if there weren't important deadlines to meet.

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are a reminder - not that we need them after a recession caused by a banking crisis - that bankers depart from the boring rules of sensible old-fashioned prudent banking at their (and our) peril.

During the boom years, the now nationalised bank took great pride in insisting that it was able to combine a lower-than-average rate of arrears on its mortgages with the systematic practice of providing homebuyers with its notorious Together mortgages - which were worth 80% or 90% or even 100% of the value of the properties customers wanted to own, topped up with personal loans.

Other banks that wouldn't provide such racy 100% and more loan packages were plainly fuddy duddy.

But after months of falling housing prices and rising unemployment, some 3.92% of the Rock's mortgages are three-months or more behind with the payments - compared with just 1.16% at Barclays (which, by no coincidence, remains profitable).

And the Rock has had to take a charge of £602m for the impairment of those home and personal loans.

This charge for loans that are going bad was significantly worse than in the first half of last year, but a little bit better than in the latter half of 2008.

So there are signs that the Rock may be over the worst.

It's now awaiting approval from the European Commission to break itself up - and create a slimmed down bank with fewer of the poor loans in it.

That's a prelude to the privatisation of a re-sculpted Rock.

How far off would such a privatisation be?

Well on the evidence of these figures, many in the City - except those angling for a sale fee - would argue that it would be better not to rush into disposal.

Taxpayers are currently nursing a pretty hefty loss on their ownership of the Rock - though this is not what the chancellor said would be their fate.

The best way to recover that loss is probably to allow Gary Hoffman and his team the time to demonstrate - which is not impossible - that there is an attractive banking franchise hidden beneath those poor quality mortgages and personal loans.

Which may take a good couple of years. Any earlier sale could well deprive taxpayers of full value.

PS. The Rock and the Treasury had said that this bank would do its bit to stem the contraction in the mortgage market by providing £5bn of additional mortgage loans this year.

Because its capital has been so eroded by losses, and because that capital can't be topped up till the European Commission approves the break-up, the Rock will undershoot that target by £1bn.

Which probably makes it a bit harder for ministers to duff up other banks as and when there are allegations that those banks aren't lending enough.

UPDATE, 10:08: I should, of course, point out that the Treasury's policy - now abandoned - of forcing speedy repayment of the Bank of England's emergency loans to the Rock increased the proportion of poisonous loans in the bank's loan book.

Last year the Rock put acute financial pressure on better quality borrowers to transfer their mortgages to other banks. And the Rock was left with those borrowers whom other banks didn't want.

This of course had the effect of increasing the percentage of the Rock's loan-book that's in arrears.

But it should not have had any effect on the absolute level of the charge for loans going bad.

That would have been horrendously large even if the Rock hadn't said cheerio to more credit-worthy customers.

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The big question in this week of banking results will be whether the banks are doing enough to support the economy, following all the help they've received from taxpayers.

Of course, different banks have required different amounts and different kinds of aid from the state, depending on how reckless they had been in the boom.

But they've all had some succour in the form of taxpayer loans and guarantees - even those like Barclays and HSBC that didn't need to be wholly or partly nationalised.

So are the banks providing enough credit to hard-pressed businesses and households, such that the permanent damage to the economy from the recession isn't too severe?

This, I am afraid to say, is not an easy question to answer.

For one thing, more-or-less everyone is agreed - from the governor of the Bank of England to the householder struggling to keep up the payments on a 100% mortgage - that part of the reason we're in such a frightful economic mess is that banks lent far too much relative to their capital resources and to their stable domestic funding during the boom years.

So there is a consensus that they should reduce their loans - or their leverage - for the economic health of all of us.

But equally, more-or-less everyone - again including the governor of the Bank of England and those over-indebted householders and businesses - say that this is neither the time or the place for banks to rediscover the virtues of prudence.

They want banks to be like St Paul: good, or in this case less loose with their credit, but not quite yet.

So what are the banks actually doing? Well, as I've mentioned here in recent columns, the overall statistics show that there has been a sharp reduction in lending to business by banks in recent months, combined with what may be an anaemic recovery in mortgage lending.

But what about individual banks?

Today's results from Barclays and HSBC show reductions in the overall value of their loans and investments in the size of their total balance sheets.

In the case of Barclays, the value of its assets has declined from more than £2tn to £1.5tn in just six months.

That looks like a severe reduction in the amount of credit made available. But appearances are deceptive, in part.

A good chunk of that contraction in the value of Barclay's assets is due to a modest recovery in the value of sterling and also a deliberate decision by the bank to reduce its exposure to complex derivative deals.

So what about Barclays' loans to business and residential mortgages?

The chief executive John Varley says that the bank has provided what he calls £17bn of "new lending" in these categories, split roughly 50:50 between business loans and mortgages.

However, that's not the whole story.

Its overall lending to UK retail customers increased just £1.7bn in the past six months.

And as for loans to businesses, they actually fell in total since the end of last December, from £67.5bn to £62.5bn.

So how are these numbers from Barclays' official balance sheets reconcilable with John Varley's claim that the bank is doing more than its bit to keep the economy going in these dark times?

The bank says there has been a sharp drop in the use of overdraft and other lending facilities.

In other words many customers have opted - perfectly rationally, many would say - to borrow less.

Hmmm.

Here's the great and resonant unknown of the moment.

Is the credit contraction a reflection of less demand from you, me and millions of others? Or are the banks rationing much more than they had been doing?

The answer is - probably - a bit of both.

That said, in the end we are lost if we don't trust the numbers, and the numbers say that the banks are cutting the provision of credit as defined most broadly.

It's inevitable, in those circumstances, that some creditworthy borrowers will be starved of vital finance.

But if the government were to direct the banks to lend more, it's also inevitable that some money will be lent to those who will squander it.

In the end, we have to make a choice about which losses are more acceptable: the cost to the economy today of fundamentally sound businesses that go needlessly bust because they are being starved of credit, or the future cost to the economy of weak businesses that would be propped up if government forced banks to lend to all and sundry.

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The most resonant measure of is that the average pay and benefits of the 22,000 people who work for its investment bank, Barclays Capital, was almost exactly £100,000 for just the first six months of the year.

In other words, investment banking is booming again - with BarCap's profits doubling to more than £1bn, partly thanks to the frenzied attempts by big companies and governments to raise vast amounts of new money.

Across the group, Barclays income has soared 37% to £16.3bn, more than enough to absorb a rise in bad debts caused by the worst global recession since the 1930s.

Charges for loans going bad rose more than £2bn to £4.6bn - and there were £3.5bn of losses on investments, many of them related to the depressed property market in the US.

Because other banks have suffered more from the recklessness of their lending and investing, Barclays has been able to expand its share of the market.

But although Barclays managed to survive last autumn's banking crisis without a direct injection of capital by taxpayers, and it wasn't semi-nationalised like Royal Bank of Scotland and Lloyds, it has benefited from significant loans and guarantees from the public sector.

Barclays benefits from a promise by taxpayers that we won't ever let it fail, because the damage to the economy would be too great to contemplate if it did go down.

So perhaps the biggest risk for Barclays may well be that, when the better times return, it may well be perceived to have become too profitable on the back of taxpayer support.

And what's also likely is that pressure is likely to grow for some kind of separation between BarCap - the high-paying bit of Barclays that is perceived to be riskiest - and the retail bank that looks after the savings of millions.

UPDATE, 10:05: , is of resilience in the face of extraordinary losses on loans.

HSBC's charge for loans and investments that have gone bad was $13.9bn, almost $4bn higher than in the same period of 2008 (this UK-based global bank reports in dollars).

Much of that loss is - yet again - the consequence of bad lending by Household International, the US subprime lender bought by HSBC in 2003.

Since then, Household's poor-quality loans have generated tens of billions of dollars of losses for HSBC.

In fact, a calculation by Bloomberg shows that HSBC has incurred writedowns and credit-market losses of $42.2bn since the third quarter of 2007, the onset of the credit crunch.

That's more than double the disclosed charges for losses and investments that have gone bad at Barclays, for example.

But HSBC remains in profit, to the tune of $5bn before tax in the six months to June 30 - which is not a disaster, although it's less than half what it generated in the same period of 2008.

There was a fat $3.7bn loss in North America (of course), more than offset by $3bn of profit from Europe, $2.5bn of profit from Hong Kong, and $2bn of profit from the rest of Asia-Pacific.

Of all the big banks in the US and UK, HSBC is the one that comes closest to being able to claim - without stretching credibility too much - that it's a proper commercial operation, not too reliant on finance or insurance from taxpayers.

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