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A lot of people on this site have been calling for Northern Rock to assume the toxic debts of other lenders and become a national savings and loan. As I understand it, this process may begin with the B and B mortgage book.

It's nice to know the government gets its ideas from reading this blog.

When is the Govt going to step in an hand over cash to private pension holders who have seen their pension plummet due to the irresponsible bankers?

To whom has the £20bn been lent?

Has the Spanish bank Abbey paid £20.6bn for the £20bn of savings (i.e. £600m net)?

Follow the actual money and not the words!

[Why can't the ampersand-pound; symbol be used?]

So the tax-payer is a little less at risk?

I wonder who will pay for the 500 million pound sterling interest charge on the 20bn pound loan . . . . oh, I see it now - the bank customers will with increased bank charges and fixed costs.

Aren't bank customers (be they businesses or individuals) tax-payers?

Another Gordon Brown hidden tax initiative to fund a broken government that knows how to spend money but has no idea how to do it sensibly - all at at the cost of tax-payers.

'unthinkably huge'?

What's unthinkingable in this environment?

We've never seen anything so hairy as this, the losses could be way more than normal thinking.

Taxpayers will get stuffed whatever happens.

The provisions of the USs proposed Emergency Economic Stabilization Act include: "Top bankers, meanwhile, will see their pay limited, and "golden parachutes" - huge payments when they leave the firm - will be banned"

When do we get this in the UK?! We seem to have adopted most of the other proposals by stealth, so it's only right to get the ones we need to restrict the system and try and bring some control back!

Also, have you noticed when any US commentator or politician (particularly Obama) talks about "Main St", it sounds false and insincere?!

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I can't help noticing that the FTSE100 has opened down 2.7%, despite all these efforts.

"City pays....."

This article just repeats and reinforces a lot of the government's spin on this story. Instead of the taxpayer bailing out BB, we're asked to believe, the Big Bad Banks are being made to do it. Hooray.

Except, who owns these banks? We do - through pension funds, insurance policies, savings schemes.

Actually, we end up paying in two ways for this. A less competitive banking system will increase rates and charges, so we pay that way. They'll have to, to pay for this. And, as shareholders, we lose a second time.

This should not be presented as any kind of free lunch for the public. It's payback time for a decade of irresponsible lending.

What happens to those who have an 'offset' mortgage with B+B? For example a £100,000 mortgage offet by savings of £35,000. Under the FSCS they would be entitled to a zero payout. They can however draw their £35,000 at any time - should they do so immediately and move it to another bank?

Mr Peston, time for you to spread your wings in the media world !

What you need to provide is an antidote to those now hideous 'lifestyle' programmes which will now be so passe..

For starters,

1/ What about a programme to tell all those buy-to-letters what to talk about now that their one-way-bet property portfolios have re-discovered the law of gravity ?

2/ An antidote to all articles telling us all what hideous bits of modernist furniture we should buy with our 'building society' winfall..

3/ A telly programme called 'Carpet-baggers' which tracks down those people who listened to the advice in those tedious Sunday supplements, telling them which bits of contemporary art to buy with their 'windfall'. Maybe some of those bits of art are now worth more than the shares sold to enable their purchase !

Suggest you have a 'brainstorming' session yourself, Robert, as you are on a bit of a roll, and the commissioning editors will have lots of time to fill now that 'Kirstie and Phil', will be out of a job...

What about...
Repossession, Repossession, Repossession.

Those dark clouds may be blowing an ill wind, but they do have a silver, if not golden, lining.. !

The shareholders are already wiped out and I assume the holders of subordinated
bonds etc. are in a similar position.
I do not see how these persons are going to be responsible for future debt.
The loan book value will now go into free fall as everyone sticks two fingers up to their loan provider GovUK.
You would need to be a mug to pay that lot.
You are better with Santander than GovUK.

regards

How many more mergers and nationalisations are out there?

When all the dust settles, there won't be much banking competition on the high street!

According to the Ö÷²¥´óÐã market data pages, share prices are sharply lower this morning, led by banks. RBS is down more than ten percent. Deja vu.

Slightly off topic but can't believe there hasn't been a blog on the $700bn rescue over the weekend.

Shares are falling again this morning. Looking at the clauses that have been added onto the bill does anyone think it might be too big a compromise for the banking industry to swallow.

It's defintiely more tax payer (read voter in election year) friendly in it's new form but I just wonder whether the clauses will stop it having the effect Paulson originally wanted. And with bank shares plummeting again this mornign I'm guessing I'm not the only one.

Dear Robert
Bankers have acted illegally and they must be held to account for what they have done.Yet again the tax payer bears the blunt of failed banks, if it were a private commpany it would go under.
The ways in which the financiers and bankers have acted over this crsis is tanatamont to fraud, and were bailing out criminals, The CITY is embedded with these people, and the Failure of the watch dogs is of major concern and must not go unaccounted for. The FSA, is a major player in this and is up to its neck in responsiblity, for failure. Those involved should face criminal charges, and the bonus's paid stopped, because these people have humped misery on millions, who are suffering from Gordon Browns tax regime we cannot afford the Labour party or Bankers who create such crisi's.

ermmm.. how will the banking industry pay the £450m interest payment when the whole system is broke?

Robert,
I suspect that the actual losses will be smaller still, as nearly all of the B and B buy to let mortgages are to amateur landlords not companies so the bank should be able to recover the debt from the individual. What we could however see is people having to sell their own homes or remortgage to pay the BandB off when their BTL houses are sold at a loss.

The rise is the housing market has been driven by easy credit, now that credit has dried up we will see a continuing fall in house prices until such a time that the bottom rung is once again within the reach of a first time buyer. Don't buy as an investment for at least 5 years.

Comment 3 svrsig

Abbey will be taking on board liabilities of GBP20 billion, not assets. That's what the retail deposits are. They're debts owed by the bank to the depositors. As far as this is concerned they will expect a transfer of GBP20 billion in assets to balance these additional liabilities they are taking on. Hence the Treasury's GBP20 billion loan which will end up as an asset in Abbey's books.

I've not yet been able to discover from the details released how much Abbey have paid for the part of the B and B business they have acquired. It'll be small, compared with the value of the assets/liabilities taken over.

#9

I can't agree with you more Friendlycard, this is pay back time and it is going to be tuf for all, also no one should be taken in by the Tories trying to spin the yarn that they could have managed the situation any better - as I said in another thread/blog it was the Tories in the 1980s that planted the seeds of all this. Two words come to mind, Chickens and Roost...

Politically neat but financially irresponsible. At the precise moment when the banking system needs to be re-capitalised for the good of the economy the Govt adds a huge contingent liability on it.

I am sure the markets are spooked because there is now no limit to the collective losses the banks could face. And if the rating agencies start another round of downgrading,including on Building societies, as they look at these new liabilities, this move will be seen to have been very ill-judged.

I'd give it about three weeks before the Govt has to go back to nationalisation.

Robert,

Your claim in "B and B: taxpayers on hook for GBP 40bn" seems to have been quite wide of the mark.

A quick view of the accounts would have shown that the losses might amount to GBP 14bn (as I said in my contribution to the above blog) - and even this will, it seems, be down to the banking industry - although I don't full yet understand how and when.

Please try to be less alarmist.

The plain truth is that as soon as any financial institution comes under pressure its shareholders will lose everything because the assets of the institution are almost totally illiquid (as was the case with B and Bs mortgage book.)

I am still worried about the effect on the pressure on repossessions by the ex B and B (and NR) defaulting mortgagees. Now the impetus to repossess and foreclose is modified by the fact the the mortgagor is the state and this may make the decision process entirely different from a commercial banks. This may give rise to significant distortions in repossessions.

(However NR is showing signs of being just as aggressive as any other bank in foreclosing.)

#13

The UK survived, and prospered, for years with not much more than six (including the two big Scottish) banks, people don't always want or need competition but they ALWAYS want and need stability and a well run ship...

18:

Good point. I think the indicator to watch here is the average house price divided by average earnings.

Historically, that ratio has traded between 3 and 4. In recent years it's been over 8 - absurd really. It needs to fall back to below 4, and might even over-shoot on the way down, especially if - as you point out - BTLs have sell their own houses because of BTL loss liabilities.

The same logic might apply to second home owners as well as BTLs.

Falls thus far have been concentrated in cities - overbuilt flats predicated on the BTL boom have fallen most. But this might spread more broadly. A report this morning says that average earnings in rural England are below 18 thousand whereas average house prices are over 230 thou. This is totally unsustainable, and awful for young people needing housing in rural areas.

Altogether, a further fall of 40 percent or so looks likely. But this isn't wholly bad news, because first time buyers will get a chance now.

Is the FSCS now wiped out? I see the govt have guaranteed it. What is the liability there and what happens when the next bailout is needed?

I'm much happier with this B'n'B rescue than I am with the NR one. I like the fact that financial services will pick up the cost of the loan to the FSCS as well as any shortfall after the mortgage book is wound down. No doubt the remaining banks will try to pass the costs on to us, the customers.

Fair play to Alistair Darling and his colleagues, this is a good deal for taxpayers and B'n'B employees (six months security is better than none). Mr Darling also communicates better than our Leader (although I might be a wee bit biased against GB).

On a personal level, my buy to let options just got tougher but as long as the government refuses to build houses that people want (i.e. not flats), then I'll weather the storm.

20:

Thanks. Actually it's been a long-running saga, with both Tories and Labour culpable. In the 1970s, government was almost broke - bailed out by the IMF on the brink. Then Mrs T started the ultra-free-market model - it worked in some ways, but then it went too far, and started a debt spiral. Neither Cons nor Lab had the guts to address this issue. Hence payback time now. Turning building socs into banks happened under both parties. Both are to blame.

I can see why people might want Lab out. I'm far less convinced that they really want Cameron in. Both parties have been irresponsible. Personally, I think I might vote Lib Dem for the first time. Vince Cable is impressive.

Let me explain-:. The problem is not with subprime mortgages, but with derivaties.All the bad loans may amount to 5 trillions $.The big bet's taken by the poker players in the city(hedge funds etc) amount to at least 900 trillions.These bets should cancel out, but if some players cannot pay up,then the whole system fall's down.That is happening now and the governments cannot stop it. Please tell me if I am wrong,or get the biggest exclusive of your career. Not waving( subprime) but drowning (derivaties).

#21

Dammed if they do and dammed if they don't. As you say, it was the political way to go but not the best - wingeing tax payers have to be placated!

#9 Friendlycard - those who have pensions invested in bank shares have benefited disproportionately from a decade of irresponsible behaviour and huge bank profits. You could argue that the crisis is not directly their fault, but nor is it the fault of the taxpayer or those who have placed savings in boring low yield government bonds or deposit accounts, accepting the lower return for lower risk.

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Will Mr Pym lose his job for falsely claiming B and B were solvent just a week ago ?

And will the pension Funds be able to pay their Pensioners if they keep losing their investments ?

Especially after they rallied round to bail out the rights issue not four weeks ago?

What a disgrace !

So, which company will be subjected to the media rollercoaster next ?

Shareholders beware !

Media scrutiny will damage your wealth !

What we are going through is self inflecting and becoming worse by day. All this could have been avoided if BOE and government acts properly.

Rents are going up by 15% per annum, so I don't expect house prices to fall further. From what I can see house prices have fallen by 20% based on peak prices and asking price now. We still have under supply of houses, we need 300,000 houses per year but it never happened in the past, that is one of the reason for high prices and as things are we are not going to build much in the future as well.

Also in US there is not a generous benefit system where if you are unemployed your rent get paid, so this will also sustain rent plus now Eastern Europeans can also claim benefits, if they start moving their families to UK, rent will go up even further.

Dear Robert

LOOK AT THE STOCKMARKET GRAPH FOR THE FSTE, OVER THE LAST 18 MONTHS, YOU WILL SEE IT IS ON A DOWNWARD TREND CONTINOUSLY, AND THE BANKING CRISIS IS NOT THE CAUSE.

More of a general point over the actions of the City.
Regulation appears to more reactionary to what traders are up to, than proactive.
I'd have thought that a more proactive stance is necessary, since, what is the point of a regulator not fully understanding all the technicalities of new financial 'tools'?
It would be better to provide a list of allowable 'tools' of trading that the City can use and enforce these.
If then some bright spark comes up with a new one, rather than being allowed to simply get on with it, it should have to go through rigorous analyses before being set loose on the market, and if it passes, it can then be added to the list.
Rather like pharmaceutical testing.

Your piece on the news channel is unclear, to me at least. The subject switches from the nationalised "toxic debt" to the £35,000 deposit guarantee. The High street deposits have not been nationalised but sold, so the guarantee is the same (subject to bank licences). Surely the risk to the taxpayer is all the bad stuff we are left with and I assume there are no guarantees supported by other banks. Darling also used this trick in his interview.

Why do most bloggers here think that BTL mortgages will default.
In the current market Rental income is rising, if you could pay the mortgage when you took it out it is even easier to pay it now.

The only people that will be in trouble will be those that need to liquidise that BTL asset to fund their own home as they have to sell at the bottom of the market. There arent that many people in that position and any property speculator that is selling now is a fool beyond belief.

Most BTL mortgages required a Value to loan way below market. i.e. most BTL's would have had 25%+ deposits so the market has to go down a fair ammount more before they are in negative Equity.
Also most BTL required an income 120%+ of rental income, with rental incomes on the rise theat percentage is rising.

Sub prime is the problem not BTL.

Re #19: I wonder what a fair price is for that 20bn savings business. Do the old tenets of bank loyalty (customer inertia) still hold, or will everyone from BB be trooping into Abbey and withdrawing their money?

28 - Silverport

Exactly - Property has an intrinsic value - even if it's only 30 percent of what was borrowed.

This derivatives stuff scares the pants off me (not literally, thank goodness).

As you say, it should cancel out but I bet some of it won't and the sums of money are huge.

The B + B nationalisation was triggered by a credit event - i.e. the downgrading of B + B bonds.

Thus loads of liability all over the place from derivative deals.

How many more credit events will there be? Downgrading of bonds? I can see there being rather a lot.

With the lack of liquidity just now, it's time for tin hats on and get under the desk!

Does B and B i.e. the taxpayer have to but those loans from G M A C that it agreed to last week?

32 - supercalmdown

Yes they probably were solvent last week.

It's the downgrading of the B+B bonds which meant they (and a lot more of the financial sector) were liable for billions of pounds in covering derivatives contracts which has led to the insolvency.

If downgrading continues on other bonds (and there's nothing to say it won't) we're in for a real bumpy ride.

Dear Robert

The root cause of this Money crisis is not the credit crunch, there is some economic warfare going on here.This crisis is a result of this, and the there is going to be a lot more, the West 's Finacial instututions are under attack, and the indicator is the FSTE'S
shares graph, it is on a continual slide in the down wards direction, Some of the Experts in Finance should start looking at the Root cause of the Problem, as it has not yet been detected. Britain and America are the victims, and it is definately going to get worse.

I think RBS is going to go

bbc moderators suck

#34

All this could have been avoided if both bankers and Joe public had not been so addicted to "get rich quick" scams and cheap credit, of course Govt. (and the BoE by extension) is to blame in so much that it didn't have stringent regulation in place.

35:

Interesting. You might well be right. But, if it isn't the banking crisis causing it, what is it?

My own view is that it's probably a combination of factors. High commodity prices have drained huge sums of liquidity out of the resource-importing economies. This liquidity drain has helped crystalise the banking crisis, which was probably due to happen eventually, anyway, due to the borrowing bubble. Oil prices have fallen from their highs but remain very far ahead of five years ago.

#35

This banking crisis has been brewing for the last 10 to 15 years, if not longer.

Just because the drop in the FSTE pre-dates the current banking crisis it doesn't equate that the two are not linked.

I do wish people stop moaning about the current crisis and blaming everyone and everything except capitalism and human nature. Sure the State (or the taxpayer) is going to bail out the banks, what did you expect?

Do you want Capitalism or Communism? If you want the former then put up and shut up; if you want the latter then get off your backsides and do something about it!

Ehyy...??? "Not much"?? How come??
Who pays the banks??? WE DO!
so really we are the one's who pay for this nationalisation too...poor suffers again...always has...and there's nothing this 'Golden' Brown gov can do to stop this trend!

The BB nonsense is as crazy as the scenario reached for Northern Rock. There is and never shoudl be a reason for taxpayers to come into the equation

Banks have shareholders and Bond holders and in the final analysis they take the benefits and must take the pain.

Paulson has said the agreemnent means that those who don't get any payout when the $700 billion runs out will be on their own. Yet Darling says noting of the sort

Does he and the incompetant Labour Party think the Taxpayer has an open ended cheque book. There was always another way but they really ave chosen to fall hook line and sinker into the Banks bluff of spin.

The full extent pof this madness is that the banks have not come clean on what their liabilities are so to pay 1p is sheer lunacy.

Certainly when the banks are prepared to trust each other it seems insane to asume anyone shoudl trust them in good faith.

This whole mess is not global it isthe clear fault of incompetant government thinking the good times, cheap money, cheap imports from the far east and ever rising house prices were here for ever.

This government set up a framework of regulation that was inept and had no leadership.

For the FSA to now say it is going to interview directors of banks and insurance companies to establish that they know what is going on is peurile in the extreme. No director can swear they know what is going on.

What that pathetic regulator ought to be doing is going over internal memo's to see who was asking questions over the last years and if no one was then ensure those directors can never hold office again.

Lets face it the FSA is in no position to tell people how to get their house in order when you look at the way it has been run over the last 5 years!

This mess has been created by the previous Chancellor and the previous Prime Minister - who as First Lord of the Treasury should have asked questions but chose not to-.

The previous Chancellor was anything but prudent and clearly had as much idea of running the economy as a dead mule.

Generations to come will look back at this time in bewilderment and curse the Labour Party for the mess they were left with.

Not only do we need a new governing party we need a total overhaul of the FSA who have been shown year after year to be out of the league they are working in.

This is the worst solution that could have been created and we should all feel worried.

43:

Now I understand your earlier comment. You are SO right. We have bought into a globalisation model that others only buy into where it suits them (try exporting to China or India and you'll see what I mean).

Whilst the US and UK have a rose-tinted vision of global free trade benefiting everyone, China, in particular, sees the world competitively. Look at how they're locking up resources worldwide (Angola, Sudan, Iran and many others). We need to wake up to this. Our industrial companies, resource companies, utilities and financial institutions are being bought up before our eyes.

It's part of the short-term greed thing that has hit our financial system. As well as borrowing recklessly, we've been welcoming foreign buyouts of our assets like it's a free gift of their money. Crazy.

We're even worse at this than the Americans. At least their utilities are American-owned, and they stopped CNOOC buying Unocal. The UK should wake up to competition.

#50

We would all pay what ever happens, we pay if it's nationalised, we pay if the banks bought/took over B+B debts, we pay if B+B went bust (with the loss of the depositor savings) and every other bank in the UK had a run on them today - meaning that it really would be 1929 all over.

Just accept that somethings, like defence spending, have to be paid for what ever by the population - otherwise we might as well just give up as a nation.

I'll say again what I have said before, this is not a political issue, it's a business issue, if you really want to blame a politician then blame Thatcher for creating in the 1980s the beast of a banking system we have now - the Tories could have been in power, the Lib-dems could have been in power, the Monster Raving Loony party could be in power, Donald-Duck could have been in power for that mater, we would STILL be faced with the same problems.

There is little point in blaming politicians or regulators for this fiasco. They are incompetent, always have been and always will be. You may as well buy a rabbit and then complain because you can´t teach it to fly.

The problems are global, because we live in a global economy. This must be true because politicians are always telling us it is true. Also there is nothing we can do about it and this must also be true because this is what politicians also tell us.

One very simple thing that could be done is to stop the British Government cross subsidising the Spanish state - all you need to do is transfer any deposits from BB into a UK institution. That would shore up remaining UK institutions and lessen the likelihood of further domestic defaults, which in turn would lessen the likelihood that your pensions will turn to dust sometime before you do.

There are only people and in the end it´s up to people. If you think you are powerless then you are, if you think you have power then it is yours to take.

"The answer, surprisingly, is not much."

Surprisingly? Astonishingly, I should say. Are you sure you've done your sums right?

If I understand correctly, the taxpayer has just lent the banking industry a great big pot of money. That's only a loan instead of a gift if it gets paid back. Can we really be sure it will be?

@54

How little you know of finance.
A deposit is a liability to a bank.
A deposit is something that they owe to the depositer.

The assets for a them is the mortgage, that is money coming in every month until the mortgager either pays off the whole ammount or defaults at which piont the bank reposseses and takes over the bricks and mortar of the asset and sells it for themselves.

@55

Its pretty simple really Abbey/Santander takes the liability of the deposits and gets the asset that is the branch buildings.

The government gets the asset which is the mortgage portfolio. for them to make a loss virtually every mortgager would have to default and them make hefty losses on the repossed bricks and mortar

Hello No 56.

Most people will understand the word asset as something that has value, and the word liability as something that implies an obligation to someone.

The problem with you financial types is that you don´t explain that an asset can also be something that has a negative valuation i.e. something that most people would regard as a liability. This is exactly what the BB mortgage book is: an asset with a negative value, that is why it has been nationalised.

It is true that the cash on deposit is a liability in the sense that it needs to be paid back to the people it belongs to shoud they ask. In the meantime the holder of those deposits, in this case Banco Santander, are free to use these deposits to aid the day to day running of their business - that is why all retail banks want depositors. If cash on deposit was simply a liability in the sense that you imply then no bank would want depositors of any sort.

The fact that they do want depositors and that the banks that are still in business are aggresively competing for peoples savings suggest that the banks see some value in having deposits. As interbank markets sieze up and/or become more expensive then deposits increase in value to banks as they provide alternative financing options.

In this case British depositors are assisitng in lowering the average cost of funding to a Spanish entity.

I may not know anything about finance but I do know I would rather have access to someone elses money on terms that are acceptable to me (i.e on terms that that I can guarantee to make money, or to lose less money than I otherwise would have) than I would own an asset that is worth half what I paid for it.

My point is related to value not to some accurate but pedantic and irrelevent definition of the words asset and liability

After reading what must be at least 10 comments about how much the taxpayer is losing out to the hands of business, I have to say I'm surprised.

We buy stuff off businesses. They charge more than it costs them and they make a profit. I believe its called capitalism.

We accept that because we get services/goods out of it. If B and B had charged a bit more for their services to make them more robust, granted, it would only be B and B customers who lose out, but we don't have that luxury now. We're all losing out because of the banking mess, so once again we're paying for it.

Look at it like yet another credit card we maxed out.

OK, its a simplistic representation and I agree that we need a couple of chief execs to lose a few million to make it remotely palatable, but such is life.

51: "Does he and the incompetant Labour Party think the Taxpayer has an open ended cheque book."

Yes, they think the taxpayer is the gift that keeps on giving!

NuLabour have done nothing to create any real industry in this country. All they have done is spend money - a large portion of which was taxation from the financial sector. They allowed the financial sector to run out of control while they just thought of new ways to spend the money. The whole thing was just a house of card built on debt. The fundamental problem is that we cannot pay off that debt.

And it gets worse! The only real resources that this country has are coal and clever people (we have a long history of inventing new things, but since the end of the 19th century we have not been successful at commercially exploiting inventions). The environmentalists will not let up burn the coal, and the education system and media has stacked the odds against anyone intelligent!

Oh Dear! The bail-out that couldn't fail, seems to have failed.
Hairy...? We are into Dave Lee-Travers territory now.

@ 61

Dave Lee-Travers? I think we're in Chewbacca territory already!

Having seen your Bush broadcast it was teh bit where he said he was 'confident' that sent the shudders through me.

Given his track record if he is indeed confident we all need to worry and fill our mattresses!!

If those succoured are compelled to transfer an equal amount in current value of its shares to a Public trustee/Bank of England/Office of Financial Responsibility proposed by George Osborne both state and patient will prosper. The voting of the public trustee could be limited to annual meetings at which the remuneration of directors and bonuses for staff could be endorsed or amended. Shareholder AGMs are the normal vehicles to judge the conduct of its employees and board of directors. Options vesting in the stricken should be forfeited on application for relief. No hypothecation of this debt should be permitted

For goodness sake we all need banks in which we can trust. If you live in some rural idyll and own everything and just live off your land and don’t need any money then you are all right. The rest of us need the financial system and a fundamental part of it is the banking system. Banks can only function if customers know their money is safe. If, everyone, for whatever reason, fears for the safety of their money they will remove it and any bank, however well run, will collapse. Now Robert Peston has given the impression that British banks are risky.
Thanks. What is needed is calm and confidence, and I don't know how that will be achieved while this dramatic news coverage is going on everyday. So let's talk about something else!