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The long and short of banks

Robert Peston | 08:46 UK time, Friday, 23 January 2009

When the ban on short-selling was introduced last year, the chancellor basked in the general approbation of this crackdown on financial speculation that was supposedly destroying confidence in our banks.

The impression was created that the Treasury was in part responsible for the prohibition on the practice of borrowing bank shares to sell them (with the speculator hoping to buy them back later at a lower price to trouser the difference).

FSA HQWhich now puts the government in something of a pickle. Because it's very unhappy that the City watchdog, the Financial Services Authority, lifted the ban last Friday on these transactions that generate profits from falling share prices.

But ministers can't easily express their disapproval in public - to do so would imply that they didn't really have much say in the imposition of the ban in the first place.

The thing is that the FSA is an independent regulatory body. And at least part of its role is to promote liquid markets that set prices in an efficient way.

The FSA believes that short-selling enhances the process of setting prices, by capturing the available supply and demand for securities and also relevant information.

As we surely must now appreciate, as we live with the bitter consequences of the popping of the debt bubble, the euphoric buying of assets by manic investors is highly dangerous - so it can be very helpful that the market contains short-sellers expressing a contrary, negative view.

So the FSA would only ban short-selling, or any other similar orthodox and longstanding trading practice, when it detected palpable, significant damage to companies or to the economy that outweighed the market benefits.

There was evidence of such damage last spring and summer. A vicious interaction of malicious rumour and speculative sales was devastating bank share prices, and this in turn affected the confidence of banks' creditors and depositors.

When these creditors and depositors withdrew their funds, banks came perilously close to collapse, which transformed the rumours into self-fulfilling propositions.

The ban on short-selling was therefore a circuit-breaker between rumour and the undermining of banks' ability to fund themselves in the wholesale money markets and from retail deposits.

However, since the ban was imposed last autumn, the funding of banks - their borrowing - has become much more stable, thanks to the forced largesse of taxpayers.

The Treasury has committed around £800bn of taxpayers' money to underpin banks' ability to borrow what they need. A run on a bank that would bring it down is almost impossible today, because banks can secure what they need from us, the taxpayers.

Which is why the FSA felt comfortable about allowing short-selling to re-commence.

To put it in stark terms, thanks to taxpayers' largesse, short-selling bank stocks is no longer a potentially lethal activity.

Even so, many - including ministers - argue that the FSA was crackers to allow short-selling to start again.

They point to the collapse in the share prices of Royal Bank of Scotland, Lloyds Banking Group and Barclays as evidence that hedge funds and other short-sellers are up to their old tricks of destroying the infrastructure of the British economy for private profit.

There's only one problem with this thesis: it's not supported by the facts.

Since the ban was lifted, there has been a negligible amount of short selling.

And although some will be revolted by the disclosure in this morning's Guardian that Landsdowne has made a few millions in profit from shorting Barclays, it's laughable to think that Landsdowne's miniscule short position could have contributed to the billions wiped off Barclays' value since last Friday.

Most of the share price movements in the big banks have been caused by conventional selling of shares by the normal gamut of investment institutions.

Some of these investors may have sold because of their conviction that the shorts were selling the stock down to zero. In fact a number have told me precisely that. But this turns out to be dangerous hysteria, disconnected from the trading facts.

There is an argument that the FSA should have anticipated this irrational depression on the part of pension funds and others - and should have delayed the lifting of the ban until a bit more common-sense returned to the market.

But the main cause of the recent falls in bank shares was the Treasury's massive new package to stimulate lending - which spooked the City for reasons discussed in earlier notes - and a worldwide escalation in fears about the health of banks.

The short-sellers are the convenient whipping boys, not the prime malefactors (if you think it's a crime that the share prices have fallen, which is moot).

As of now, no irredeemable damage appears to have been done. And although it may jar to say so, shares can rise as well as fall - even bank shares.

Comments

Page 1 of 6

  • Comment number 1.

    If you can buy shares to bet they go up, you mudst be able to borrow shares to bet they go down - its a market.

    Its up to the entities themselves to esure their companies are positioned to instill confidence.Period

  • Comment number 2.

    Lets face it if you see Flash buying; you should sell.

  • Comment number 3.

    The madness just carries on and on doesn't it.

    The taxpayer has provided 800 billion to the banks so that....so that.....so that the taxpayer can take out of the bank the money that was originally theirs anyhow.

    Anyone read Alice in Wonderland recently.

  • Comment number 4.

    Storm in a chocolate teacup then.

  • Comment number 5.

    THE DROP IN SHARE VALUE IS THE

    DROP IN CONFIDENCE IN GORDY

    PLAIN AND SIMPLE.

    ALL HE SAYS AND DOES??


    NO CONFIDENCE.

    ITS SIMPLE.

  • Comment number 6.

    Minsters cannot express their disapproval as it highlights their impotence on the issue of short selling.

    If that is true - why are they there?

    Gordo is the puppet - who is the puppetmaster?

  • Comment number 7.

    Did anyone hear Crash on Today??

    - He steadfastly refused to acknowledge this was a boom & bust scenario
    - He proclaimed 10 years of economic 'growth' as being something no other developed country had achieved in the last 10 years
    - He claimed that the BoE had adequately addressed inflation in that 10 year period
    - He claimed that the FSA was one of the best regulating bodies in the world
    - He did not acknowledge that interest rates should have been significantly higher

    He has shown is COMPLETE ignorance of this economic crisis.

    GO AND GO NOW WHILE THE REST OF US STILL HAVE A CHANCE.

    YOU ARE GOING DOWN BUT YOU DON'T NEED TO TAKE US WITH YOU.

    Evan Davis (who is normally pretty good)lapped it up and didn't ask any akward questions - how dissapointing. Shame on you.

  • Comment number 8.

    "The short-sellers are the convenient whipping boys, not the prime malefactors".

    Maybe, but you need to balance the benefits of allowing short-selling against the disadvantages to the broader market and economy.

    My own view is that nothing of importance gets lost if we put a stop to it.

  • Comment number 9.

    Short selling in a "normal market" is fine, short selling in a rumour driven market is not. The FSA have showed clearly just how incompetent they really are. Just having the ability to short sell is enough to spook investors in this market. Well done the UK for shooting itself in the foot again.

  • Comment number 10.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 11.

    Can someone explain this to me ?

    Robert says that there could have been a run on the banks last year, such was the state of their finances. So if all the taxpayers went to get their money out, the banks could not have provided it.

    So Gordon provides 800 billion to the banks so that there wont be a run on the banks. So far I understand.

    So if we, the taxpayer, now go to withraw our money, it is Gordon's 8-- billion that is supplying the money.

    So where did all the original depositors money go to ?

  • Comment number 12.

    Robert I believe the FSA has much to answer for. Their lack of understanding of how financial markets operate is frightning. The come down like a ton of bricks on the small guy who makes 10 grand from a bit of inside info or whack a massive fine omn poor old Wolfson. Yet they are too scared to stand up to the prop trading desks or the hedgies. That they do not believe short selling has been behind the collapse in shareprices is laughable. Just look at the amount of stock out on loan. Seems odd to me that they have not tried to match that with officially disclosed positions, Also look at the performance of the financials. They all began to fall at excactly the same time, coincidence I expect. Announce the date for some info about the rescue plan out and ban short selling with immediate effect we'll soon find out who has been swimming without their shorts on. I guess the FSA has n't heard about naked shorting. The Treasury has every right to be hacked off with the FSA providing the Mayfair Mafia with a free lunch.

  • Comment number 13.

    When big Institutions with holdings equal to a major percentage of the total market issue decide to dump their shares then it's a bit like short selling in effect

  • Comment number 14.

    If Crash Gordon didn't spend all his waking hours looking for somebody other than himself to blame this disaster on we might start getting our selves out of this mess.

    We all know how this has come about, Crash let our banking standards slip to get more high paying jobs in the City and get Blair voted in three times. If this is not so, how comes we are not bailing out mutuals? I suppose with Crash running things we might see that next.

    Does anyone know our top three earning exports? I don't, and I would just like to know how we are going to pay off all this money we are going to borrow.

  • Comment number 15.

    7. dknotty:

    "Did anyone hear Crash on Today??"

    Yes, unfortunately; and I thought he was in total denial. How many times could he work the word "global" into this? Not our fault, then.........

    I thought Evan did OK, but I wish he had quoted GB back to himself to the effect that a weak currency reflects a weak economy and a weak government...........

    He might also have asked whether Britain was still "best placed" to weather a recession; and whether the PBR assumption (of resumed growth in 2H 2009) remains realistic........................

  • Comment number 16.

    11. thats a very good point, the banks have also made billions in profits in the last few years, so where did all the money go,
    Probably on parties and the likes for all the goverment cronies that were partly involved in this scandal that is banking.
    Never again will i trust a bank.

  • Comment number 17.

    Short selling is a convenient target because people don't understand it, and it's easy for something perceived as mysterious to be painted as a threat.

    People understand buying and selling shares, but borrowing shares so you can sell them and buy them back at a lower price strikes a lot of people as a bit "sharp". I don't agree with them, but that's the perception a lot of people have, and it makes short sellers a convenient political target. There are few votes in /defending/ shorties.

    Besides, the baddie in Casino Royale was running a short-selling scam, so that /proves/ it's evil. ;-)

  • Comment number 18.

    Evan's interview was so weak i just wondered if he had something held to his HEAD?

  • Comment number 19.

    It seems that when the short selling is sucessfull i.e. they make a profit the traders are accused of running a company or bank down for profit. And conversely when a short seller gets properly burned as in the Volkwagon case in Germany then the companies concerned are running a scam.

    Why can't people accept that for someone to win there has to be a loser as well.

    And the calls for the PM to resign etc. on what is an economic discussion continue to grow more tediuos.

  • Comment number 20.

    I forgot to add to my post above, Crash seems to genuinely believe that our growth over the last 10 years was sustainable and built on bona fide production and provision of services.

    Will someone please explain what a fonzi scheme is to him?

  • Comment number 21.

    In boringly normal times there might be a role for short selling, in order to prick any bubbles of complacent optimism which may develop due to the absence of perceived danger. That said, it did not in fact stop the banking crisis developing. So in recent years it has failed in a massive way.

    Unfortunately we are not living in normal times, and markets can be expected to behave even less rationally than (it is claimed) they normally behave. So allowing short selling on bank shares to resume at this stage is a big mistake and one which could cost the taxpayer dear.

    For example, in the case of Barclays, RP notes above that some investment institutions "have sold because of their conviction that the shorts were selling the stock down to zero". This may be a "dangerous hysteria, disconnected from the trading facts", but the negative effect on share price and confidence is still real. The government is adamant that that it will not let banks fail. If shorting continues it looks like it may have to nationalize Barclays.

    Whose side is the FSA on?

  • Comment number 22.

    Where did the original money go?

    Evaporated when the most reckless speculative instrument the Credit Default Swap failed. Your money was used to make money on the bank's own account and they blew it producing false, inflated asset values. They are insolvent shells but need to be kept ticking over until they can be binned. Their far reaching involvement in the 'real' economy, into peoples lives, their houses, pensions etc makes their behavior over the past 5 years morally reprehensible.

  • Comment number 23.

    Correct, this is nothing to do with short selling and everything to do with the fundamentals, as they slowly emerge.

    One of which being that the UK govt has no grip on the situation whatsoever.

    The international markets have cast their verdict - you can see it in the price of UK banks' fixed-income debt yields (absolute junk - RBS 51% today !), and in Sterling.

  • Comment number 24.

    Short selling WILL only make prices more volatile.

    AS SHORTS will be closed out and bought BACK!



    So the IMPACT is VOLATILITY that’s IT!




    Ministers are so NAÏVE,



    The FSA know this.


    ROBERT so should you.


    Besides the cost of holding a short position is fairly high and the risks are greater as a share at 100p can fall to zero so maximum profit is 100p but it could to to 500p + unlimited!


    The FSA and anyone in the mkts know this.

    Robert please EXPLAIN!

  • Comment number 25.

    "Landsdowne's miniscule short position" might be the very butterfly that affected Barclays shares. 'In a world of order chaos reigns' Anon.

  • Comment number 26.

    Maybe shares in the banks should be suspended for a few days to let everything calm down?

    Blaming the FSA? Independent regulator? Really?! Give me a break! It would only be independent if those in charge had absolutely no connection to the government or stock exchange!

    Is this not another way of deflecting attention away from the government?

    The damage has and is being done, daily and hourly.

    What is the point in debating the issue? Surely stabilising our economy and planning for our future is more important?

    THEN sort out blame, prosecutions etc.

    Crisis management strategies-short, medium and long term are far more important than continually wasting our energies finger pointing.

    While we bicker like this, the country is going down, rapidly.

    Doesn't Gordy realise this?

    Do you, Robert?

    We are in danger of further tinkering around the edges, while the nation's finances burn.

  • Comment number 27.

    No. 11:

    When you put your money in a bank account, the bank pays you interest.

    It doesn't just create this interest from the ether - it has to earn the money to pay to you somehow.

    Banks do this by lending your money to people who need to borrow at a higher rate than they pay you. So they lend your money at 3%, giving them 2% to pay you in interest, and 1% to pay for running the place.

    As your money is currently lent out to other people, or invested in things that can't just be sold overnight (an investment in a major development in the Middle East, or a new dam in South America, for example), if everyone suddenly wants their money back, they can't get it.

    The only way to guarantee that everyone could have access to all of their money, whenever they wanted it, would be if a Bank was just a big safe - you place your money in there, they do nothing with it, and you earn no interest.

    Not very helpful when inflation will erode the spending power of your money.

  • Comment number 28.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 29.

    Mrs AJB well done spotting it.
    It's worth reading folks...
    Newsnight's economics editor's blog of the 22nd Jan entitled "An Orwellian Episode"
    To find it quickly click on any bloggers link and put - Paul Mason Blog - in the top bar search.

  • Comment number 30.

    #8
    My point exactly!
    I read RP's comments with a growing feeling of incredulity-just who is he protecting? As for his comment regarding Landsowne making a 'few millions from short selling' being laughable, I regard this as totally insensistive to the millions of people struggling to get by on the pennies on which the actions of the 'city boys' have left them to live.

  • Comment number 31.

    There is a basic thing I dont understand.

    Other than the £30 million that the veritas raiders burnt, there is still the same amount of money in the world that there was a year ago. As GB says that with £50,000 deposit insurance 92% of the populations money is safe.

    That means that 8% of the people have all the money. So if the banks went bust it is only this 8% that would loose their shirt. So why not let the banks go bust and the elite 8% can live off the money from selling several of their 10 homes, they will not suffer too much, and WE wont have to starve on the tiny amount of money we will have left after paying tax in the future.

  • Comment number 32.

    The government claims that it did not know the shorting ban was to be lifted, yet from initiation of the ban the date was set. It has been up on the FSA web site since the ban was put in place. What does this say about the governments understanding of the situation or their ability to follow events. Next we must ask why the government is so upset because since the ban was lifted , pretty much no shorting of bank stock has been done. Is it just a convenient excuse to blame events on this rather than the governments own actions? Nobody in their right mind would take a significant short position in a UK bank now, as those involved would soon see their names in print (as Landsdowne have been by Robert).

    Robert has missed out on an important point though and that is that even before the ban the FSA introduced new rules that all significant shorting of stock must be declared. That rule has not been lifted and everybody knows that if they short the banks in a big way the ban would be put back in place. What is interesting though is the evidence that shorting of bank stocks caused the problems earlier in the year may not be quite as explained. Certainly US and UK hedge funds shorted US banks, but the evidence collected since suggests the problem was nowhere near as severe in the UK or against UK banks at that point. The original ban may just have been a political move to appease the Americans and as a demonstration that governments could act in unison to curtail market activity.

    Many people perceive shorting to be a bet on a companies misfortune and certainly US hedge funds and some of the UK Mayfair crowd have done that. The problem is that shorting is a very appropriate strategy in volatile times when combined with going long. This means if the company shares go down you loose on your long position but gain on your short position. If the company shares go up then you loose on your short position but gain on your long. This is a good way to preserve your capital and can be used by pension funds to make sure that that pot of pension money put aside does not deteriorate rapidly as stock markets crash. Fortunately most pension fund administrators are pretty on the ball and will have worked around the shorting ban, but it may mean that every company and person now needs to pay more into their pension.

    Do you think ban was the appropriate action in the UK or was this just more of the UK blindly following the US like we did into Iraq? I still am not sure and think it is an issue that is very badly reported. Full marks to the FSA though for saying the removal of the ban has made no difference, not that the FSA are not making significant mistakes in checking declared positions and in other areas though.

  • Comment number 33.

    Crash should certainly go, but not until HE has been forced (probably by the IMF) to make the drastic cuts in spending that seem inevitable. Otherwise NuLab will just be able to say that it is Tory spending cuts.

    We all know (rather too painfully now) that when you have borrowed too much there are only three ways to deal with it. (i) earn more, (ii) spend less, or (iii) go bankrupt (which also leads to less spending as you then have to live within your income).

    The only questions are; when do we have to start spending less? and how are we to spend less without civil unrest?

  • Comment number 34.

    ~19 MrMuttley

    Gordon Brown runs the economy and he is driving us to bankruptcy.

    You may not see the connection but I do.

    You may think that calls for his resignation have no place here.

    I think that there is no place here for govenment apologists / activists.

  • Comment number 35.

    #20
    Is a fonzi scheme where the PM sticks up his thumbs and says "hheeeeyyy"?

  • Comment number 36.

    Everyone knows this argument of the FSA is nonsense and that banking is finding more and more outlandish tools for producing money out of thin air.

    If stability can only be achieved by knocking shares back and forth like a tennis ball between short or long positions, we may as well have the stock market at Wimbledon!

    The underlying problem is the psychology of players in this game of gambling where there's no rules and no clear lines or net.

    I like the photo on your blog today, Robert. Is that one of the team at the FSA sleepwalking into the office this morning?

  • Comment number 37.

    Actually when I think about it if an appropriate strategy for a pension fund was to go long and short to preserve capital then a ban of short selling a particular companies shares would mean that strategy would not work. The result would be that you would not short and sell your long position. From that you could argue that the collapse of the banks shares is mostly due to the short selling ban. Fund managers would sell all there long positions (shares) becasue they could not take out a short position.

  • Comment number 38.

    The commons Treasury sub-comittee:

    "In its report, the committee said: "In order for public scrutiny to be effectively performed, the magnitude and nature of these liabilities must be comprehensively disclosed."

    So stop trying to blame the S/sellers and start looking at this pathetic way our bail out and its true extent is being hidden by both the Banks and HMG, just as they are doing in the States. They wont disclose it because the reality will bust them all.



  • Comment number 39.

    9. Spot on. You've got clowns like Rogers (Soros' mate) shorting shares and the pound, then explaining to gullible journalists that the UK is finished, the banks are about to collapse etc. Guess what happens to prices then, and to his Hedge Fund's profits.

    We've also got the situation in which certain politicians' hysterical comments are pouring petrol on the bonfire. After Osbo's ''collapse'' comment, now we've got Cameron's reference to the IMF.

    Given that the Conservative Party is largely funded by Hedge-Fund bosses, and by the middle-men who profit from Hedge-Fund activities, like shorting the UK, there's got to be something wrong with this.

    The FSA should investigate what trades went through in the days prior to Osborne and Cameron's statements. Did the Hedgies who fund the Conservatives make money from their leaders' ill-judged comments?

  • Comment number 40.

    Re Barclays

    I thought their continuing decline was because of something I read yesterday about UAE taking hold if it didn't buck it's ideas up?

    The shares are so volatile it's mesmerising!

    Surely they (the shares) are distracting our attentions away from our national finances, redundancies, repossessions, falling sterling value etc?

    Watching a firework display while your house burns!

    Question is-who drives the economic fire engine?

  • Comment number 41.

    If a company is in robust health, short sellers would not make any money, more likely they would make losses.

    The Government does not want any dissent from its view that the UK banking system is OK, and will be supported by them.

    The trouble is that everyone with a modicum of common sense can see that if things are bad now at the start of the recession, things will only get worse as the recession deepens: more businesses and individuals will default on their loans and the banks will rack up even bigger losses.

    And where will the government get these incomprehensibly vast amounts of cash to reimburse us, the banks' current account holders, when the banks do eventually go bust?

    They won't get it from other countries, who will see us as a bad risk. And if some other country is fool enough to lend Gordon the money, they will hold us to ransom.

    I'm sorry, but the once viable UK plc is now bust.

    Thank you New Labour!! ( or more accurately New Totalitarian Communism)

  • Comment number 42.

    There's a similarity to be drawn here between the banning of short selling in an attempt to control share prices, and the pressure the Government is placing on banks to start lending again and re-inflate the housing market. Funny how there was a complete lack of action during the 'boom' years (although this can now been considered as the bust preparation years).

    The Government has demonstrated that they misunderstood then situation, are incapable of acting coherently, and lack the leadership to take appropriate action (the opportunity being missed many months ago). Now ministers are 'unhappy' with the FSA, and yet they still don’t make a stand for fear of looking incompetent.

    Not that I agree with any interference in what should be a free market, or the degree to which bail-outs are being made in our name, or any effort to prop up house prices. Short selling is either a legitimate financial tool or it is not. It is either legal and allowable, or illegal and permanently banned.

    The Government should not meddle; it didn't step in when it should have and now its efforts are nothing more than a farce.

  • Comment number 43.

    Surely a key question is who was putting bank shares out on loan when everyone seemed to be expecting them to fall dramatically. It just seems like throwing money away.

    I assume those loaning the shares were our pension funds, and specifically passively managed index tracker funds. Anyone know if that is the case? I do wonder if it is actually worth considering banning such funds. ie enforce a rule that all fund managers have an obligation to actively manage their funds and get out of positions that are at high risk of losing money, rather than sitting on those positions and trying to make a little bit of money out of loaning the shares out.

  • Comment number 44.

    Again, no one wishes to discuss ways to rebuild/rebalance Britains Imports and Exports.

    The Pound will continue to fall whilst we all Import more than we Export.

    Eventually people will be priced out of the Imported goods market and the exchange rate will stabilise.

    But where the Pound will be in relation to the Euro and the Dollar will be very different from where it is now. Perhaps less than One Euro to the Pound, and closer to Dollar paity.

    Unfortunately continuing falling Sales (and profits) in Debt burdened businesses will mean many many more Business failures, and far higher unemployment.

    Of course falling earnings amongst those left in work will create more bankrupts and defaulters on personal debt.

    Falling Pay will naturally result in lower Tax revenues, and pressure on Sterling and the Gov'ts budgets will grow worse.

    So the Gov't needs to find ways to encourage the Private sector to manufacture and export more, and it needs to find ways to encourage the development of new products and technologies to fill the export gap.

    Has anyone actually produced an assessment of what other countries would like from Britain ?

    What for example would China be pleased to buy from Britain (product wise)?

    We need an assessment of what we can do for other countries that they would be pleased to pay for.

    And we need a Gov't prepared to encourage the meeting of those needs by private sector businesses.

    In the shortterm I would suggest a nice big pay rise to the Public sector (all of it) of say twenty percent, to halt the debt fuelled downward spiral of the consumer economy.

    Long term we need to meet the trading needs of our trading partners abroad.


  • Comment number 45.

    #11 - the situation you suggest would only 'work' if at the same time as we all went for our £800 billion the banks all came to us and everyone else for their £800 billion loaned to us for mortgages etc.

    Banks never have enough cash held to pay everybody out who has deposited - this is why confidence is so important and why a 'run' on a bank is such an issue. 'Watch 'Its a Wonderful Life' (because its a great film and because there is a run on his bank and he says you can't have money coz I've loaned to Ted etc.)

    However of course currently the 'toxic debt' (as people love to call it) exists where not only is there lots of borrowing to people in the form of mortgages that will never be repaid but also various 'wrapper' products where loans have gone from bank to bank.

    The main crisis within the world seems to exist because despite this problem having been in the public domain for well over a year now the message from governments and banks is that the level of toxic debt is still impossible to calculate or ascertain and noone has been able to come up with a STRATEGY or a PLAN to arrive at this figure.

    As any business owner will know from discussions with their own bank, bad information is better than no information and hence we have this complete collapse in confidence which is causing everything else to collapse because unfortunately, all our 'success' over the last ten years was completely built on ever growing credit levels and without CONFIDENCE these are completely unsustainable and the bubble bursts.

    Of course everybody on this blog knows that a bubble based on ever growing levels of credit is doomed to burst and the bigger the bubble the worse we all suffer when it bursts. Once the bubble starts to grow the only way to stop it growing is to burst it so governments do not like to do this because it makes them unpopular and they do not get elected (a problem with a democracy/5 year election cycle) so instead of having small amounts of pain every couple of years we get these cataclysmic cycles - this one is going to be really bad unfortunately.

    The main frustration for most of us, confirmed IMO, by the interview this morning, is that difficult times need strong leadership, openness and direction - a bit like BO is trying to do in US. All we are getting is bluster, indecision, denial and a catalogue of policies that should have been coordinated into one announcement/STRATEGY.

    I do not think the other lot (Tories) will be any better - however I do think that by not having been in power they will be able to say that what happened was wrong, lets move on with new strategies - something the incumbent government is not willing/able to do.

    Sorry for long post - like alot of others I get a bit carried away once I start on this subject.

  • Comment number 46.

    Given the prevailing economic climate and turmoil in the money markets it would be better if the government were to instruct the FSA to re-impose the ban on short selling, immediately.

    It is all well and good for to say that there is no hard evidence to suggest that the lifting of the short-selling ban is causing the collapse in the UK bank share prices, but we do know that these clever undisclosed and largely unregulated people are masters in deception.

    Our government needs to clearly demonstrate whose in charge on this matter and instruct the FSA to re-impose the ban on short-selling immediately. If UK bank shares continue to plummet afterwards then we will all know, for sure, that our banks are in the guano.

  • Comment number 47.

    Brown claims this recession is different because we have low inflation. Inflation has caused recessions in the past because the instrument to bare down on inflation is interest rates. The high interest rates removed disposable income from the public, due to mortgage and debt payments, so less money was available to spend in the economy. A recession ensued. It is why the economy goes from boom to bust.

    What is clear is that in July 2007 the UK base rate was increased to 5.75%. It was the last of a series of increases being used to control inflation which was above the target range and predicted to remain so.

    The interest rate at 5.75% was the highest it had been since March 2001. Whilst in itself it was not historically high, the amount of debt taken on since 2001, which had caused the boom, which was leading to inflation, was at record levels.

    This recession is different because the country was so over borrowed it did not need interest rates of 15% to cause a recession. An interest rate of just 5.75% was considered enough to bare down on inflation.

    The same was happening in the US (although they were 12 months ahead in the interest rate cycle).
    The US Fed base rate hit its high of 5.25% in mid 2006.

    Clearly, high interest rates have an impact on the affordability of mortgages. With so many sub prime mortgages, such rates were sufficient to cause the mass defaults.

    Gordon Brown is right when he says that this recession is different, that it was not caused by high inflation. But it was caused by moderate inflation that required small increases in bank rates, in the US and the UK. Those small increases exposed the foolish lending practices that had been adopted in the US (and the UK), leading to the credit crunch.

    It is interesting to note that whilst Gordon Brown has claimed the lack of mortgage finance in 2008 has been a contributory factor to the problems in the UK, calling for increased lending, the gross mortgage lending in 2008 was greater than in any year up to 2001 - not really a credit crunch in normal terms, only in the irresponsible lending terms.

    http://i410.photobucket.com/albums/pp184/egrid1/mortgagelending.jpg

    In that respect interest rate policy, being used to reduce inflation, was no different to previous

  • Comment number 48.

    Once again this incompetent government has spun itself into a corner on short-selling.

    I don't like short-selling as it smacks of gamesmanship which in my narrow puritan view implies cheating, but it is part of life so I adjust.

    As you rightly say Robert, the short sellers are just the whipping boys for a wider, more dangerous state of affairs.

    In his enthusiam for ending boom and bust Mr. Brown has chosen to end the economy. That is the real issue.

    Time for change!

  • Comment number 49.

    I agree with every word of Post number 7 from dknotty. I listened in complete disbelief to Gordon Brown's interview on the Today programme this morning. He seems to be in complete denial of the part the British Government, and especially himself, have played in getting us into this financial mess. The interview was just a prepared rant and I wonder if anyone counted the number of times he used the word Global! If he would just show the slightest bit of humility and admit to any portion of blame he might get some sympathy. As it is he is acting like a bull in a china shop and I am frightened for the future of Britain.

  • Comment number 50.

    The short-sellers are the convenient whipping boys, not the prime malefactors (if you think it's a crime that the share prices have fallen, which is moot).

    All that rubbish for one salient point, now turn it round to attack those government positions on the short sellers. Can you take on the spin machines Robert?

    Frankly anyone willing to commit money in today's market is bonkers because no one can feel the floor yet.

    You can't blame all those investors for dumping stock when ministers have been saying "we will nationalise" and all those share holders will get nothing. Better to have something than nothing, and maybe they can re-invest it if the market turns around.

  • Comment number 51.

    11 and 16.

    The billions in profit made by the banks 2002-7 were paid out in dividends to shareholders (around 80%) and salaries and bonuses (around 20%) for senior staff...

    The world's banks have lost much more than their collective deposits- hence global government injections of cash via share purchases- 37 billion in the UK at the moment, not 800 billion, by the way.

  • Comment number 52.

    A previous post asked where all the deposits in the banks had gone. Part of the answer to this is to Google 'Fractional reserve banking'.

  • Comment number 53.

    Dear CanaryWharfBanker

    Of course Banks take deposits and lend to those with viable business plans and on-going solvent businesses. They do this prudently and cautiously. Or, at least, they did. Since Big Bang and deregulation they have created a parallel virtual economy based on false asset values to make money on their own account. The Credit Default Swap, Counterparty Risk. The Masters formula looks elegant, it was tested again and again by the world maths elite on behalf of JPMorganChase. It was permitted by the US Congress as an afterthought to the main 15000 page finance act on the last afternoon session before Xmas 2000 without scrutiny. It spread like a virus in your boardrooms. The Philosophers Stone. Insurance without risk. 99.85% certainty. Over the counter. No exchange. Free Money. Selling Insurance without ever paying out and spread it as a tradable instrument throughout the worlds banking system.

    Real Banking is boring. Good Servant. Bad Master.

  • Comment number 54.

    @27 Not very helpful when inflation will erode the spending power of your money.



    But, CanaryWharfBanker, what causes inflation?

    Isn't it the process of paying interest on non-existent money?!!!

  • Comment number 55.

    Bank shares will only recover when asset values stabilize.
    This may not be too far away. Local estate agents tell me that they are much busier than last January on enquiries and completions. In part this is down too much cheaper money and much more realistic prices being accepted by sellers.
    Further falls in base rate will encourage these green shoots!
    Maybe the time is right to buy bank shares.

  • Comment number 56.

    I too listened to Our Great Leader on Today this morning - it was quite hard to stomach I have to say.

    To say that this recession has no parallels with past ones is ridiculous - in the end they are all caused by the same thing - human greed totally overcoming reality for a period of time - with the inevitable bust following. The only difference this time is that the excesses were so well hidden within derivatives of ever increasing complexity that the eventual crash was delayed (and will therefore be worse).

    For us in this country, we have compounded the problem with 11 years of typical Labour excess and waste which will only make things worse for us.

  • Comment number 57.

    re # 27

    If it's not a good idea just to leave your money in a big safe when prices are rising, the converse must be true when prices are falling.

    I reckon we will soon be entering a period of deflation, so I'm off to buy shares in companies that make great big safes.

    Somebody told me there were always winners in a recession, and now I'm going to be one of them!!

  • Comment number 58.

    Dear Robert
    Ive come to the conclusion i do not like what Britain has turned out to be, not because of the BANKING crisis or Recession, but in the words of a well known Political Editor,
    "Were being ruled by a bunch of spivs who have bought the Economy and the country to a stand still by ignoring all the rules and regulations for the sake of PARTY POLITICSand the City "
    Forget the money crisis Britain has a worse crisis than that, and that is a Social Crisis where the failure of the State to help the low paid and the poor created a division that is clearly defined as the "Rich and the poor," and the poor are bailing out the rich and therefore are being Driven further into poverty due to being taxed to death, and having to decide weither to Heat themselfs or feed themselfs,
    All the government is concerned with is the credibility of the Banks, who are raking in Tax Payers money, whilst people die of the Cold and lack of food.
    because it has become too expensive.
    Britain is a divided Nation through Class, the rich and the poor, and rip off Utility companies, repossession agents and all for the sake of a saving Quick BUCK. and Bonus's
    there is absolutely no reason at all why familes are to be being forced out of their homes due to non payment of Motgages, ( they can be re financed or Frozen until this crisis is over.,) and we British call our sellfs a caring Nation.
    Banks are showing themselfs to be the Vultures they are stripping every last pound off the bones of a civilised Nation by driving people out of their homes and on to the streets in a crisis THEY CREATED, and who now being bailed out, not by Government, but by the PEOPLE the tax payer.
    The government is Protecting the Rich, and excluding the General public from the Middle classes downward from any help, by bleeding them dry of money, having allowed PRICES TO ESCALATE, AND CREDIT TO MAKE THE RICH RICHER.,
    "A weak pound is a weak economy and is ruled by weak management."
    This is the state of Britain today run by a bunch of POLITICAL AND CITY SPIVS WITH SELF INTERST THEIR ONLY GOAL.



  • Comment number 59.

    Short sellers are LOCUSTS, so ban them forever NOW.

    BUT IT IS NOT THEIR FAULT. Is it?

    It is the IDIOTS who own the shares (i.e. the managers of our pensions for instance) that are willing to LEND a share and then take in back REDUCED IN VALUE.

    Sack them all and ostracise them!

    As for all those gigantic profits from the banks in boom years, people are asking where the money went. I'll tell ya: It went to the same shareholders that are now complaining!

  • Comment number 60.

    Why is short selling allowed when it's blood brother the Bear Raid is just a small step away???????

    http://www.wisegeek.com/what-is-a-bear-raid.htm

    If you allow short selling you will never ever be rid of the destructive power of a Bear Raid.

  • Comment number 61.

    Robert,
    You claim that short selling has a valuable role to play in determining the correct price of an asset. If that was the case then there really would be no more boom and bust. Well, hey, BREAKING NEWS, we're in a 'bust'!
    Shorting undoubtedly allows money to flow around the system, but it doesn't create wealth - it just transfers it. As has been strongly hinted, it is much easier to manipulate a market and make money going short than it is with traditional, long, trading. This is particuarly true of AIM listed companies where shorters can really affect (artificially) the price of a share.
    But, rather than banning it, why don't we just tax the profits of short selling more heavily? A rate of 80 per cent on short selling profits would be about fair.

  • Comment number 62.

    Robert, saying that the rapid decline in banks share price is due mainly to the recent treasury stimulas package is clearly an opinion, albeit one you are obviously entitled to have.

    I for one still believe that buying and selling of commodities (see oil price etc over the last year), currency and shares, purely on speculation and rumours, causing self fulfiling prohesies is tremedously damaging to the UK.

    Sorry, but entities make £12m just from exploiting herd instinct is wrong

  • Comment number 63.

    Comment 17 : johnthelutheran

    I think there's two points about short-selling that the layman would like to be made clear about:-

    1. Why are so many shares available to be lent to organisations that are known to be putting together a short-selling operation to drive down the market value of these shares?

    Is it really that the share lenders genuinely believe that the commissions they are paid outweigh any potential downside from the risk that the short-selling operation may be successful?

    Or is it more that the commissions are paid to the fund managers, not the owners of the shares, and that the decisions whether or not to lend are made more with the fund managers' interest in mind than that of the beneficial owner?

    2. How much of the success of short-selling operations is good judgement, and how much is due to actually creating the forced sales from which the cheap re-purchases may be made? In other words, do the short-sellers know, if enough of them are participating, that they will create price falls sufficient to force rule-following institutions to sell, irrespective of what these institutions believe to be the true value of the shareholding?

    Is short-selling really about identifying and arbitraging overvalued shares, or is it more an unwritten conspiracy between agents to generate income for themselves by milking value from the shareholder principals, but actually creating little of value to anyone?

  • Comment number 64.

    Who cares anymore! All this reflection upon who was to blame is getting us nowhere!!!!

    We need to focus our attention upon developing a clear strategy to get us out of here.

    Where are the infra-structure development plans that we were promised months ago?

    Who is going to identify which of our industries need to be rin-fenced protected?

    Who is going to identify which business will provide our future competitive advantage and how we can nurture them?

    Who is going to plan and provide training for those poor people who are going to lose their jobs? What facilities are available and what are we going to train them in?

    When will we take control of our power and transport industries so that they work for the benefit of the country?

    When are we going to create an organisation that will properly sponsor R&D?

    If we don't get started NOW it will be too late!

  • Comment number 65.

    Brown is constantly blaming 'the Yanks and the Banks' rather than taking responsibility for the mess he has created.

    Didn't he/ Blair grant knighthoods to half the Banks' CEOs???

    Sir Fred Goodwin (RBOS)
    Sir Peter Burt (HBOS)
    Sir George Matthewson (RBOS)
    Did John Varley (Barclays) get a knighthood.

    If the banks were to blame for the credit crunch why did Brown/ Blair knight their CEOs. Assuming it wasn't 'Cash for Honours' Brown/ Blair must have been big fans of these guys when everything was going well.

    Did they also grant an honorary knighthood to Greenspan, the US treasurer, for 'services to banking stability' as well? Sounds like they were fans of the YUanks as well.

    Make your mind up Crash - if everyone is to blame except you - why did you knight them all.

    Also - if this is the global crisis Crash keeps harping on about and his handling of the UK economy is no worse than everywhere else - why has the pound collapsed?

    We have no hope of a recovery in shares, house-prices or the pound until Crash is replaced. Short them all.

  • Comment number 66.

    Just seen Darling on Sky. What cobblers. "global blah blah.." "hard working families blah blah..". He was asked three times to admit it was Labours fault - it had happended on their watch - and he just came out with the same old trash. I've just bought a shed load of bank shares, as it's the only way I can see of getting any of my tax pennies back.
    Lets see where I am in Browns Britain. Made redundant last October, parents are ill and face losing their house to pay for care charges, can't get a dentist for love or money, Council Tax higher than the post office tower, house worth less than I bought it for, meagre savings with no interest and so on. Gee thanks Gordon. No more boom and bust. Tony Blair bust eitherbe the shrewdest or luckiest bloke on the planet.

  • Comment number 67.

    Crash shouldn't be forced out, all the back benchers that put him in unchallenged should go, then he can stand up in parliament and represent nothing, which is all he is fit for.

    These same back benchers let Blair drag us into wars that we are still paying for, in lives as well as money. If we sack Brown all he will do is go off and earn a fortune just like Blair did - as did Thatcher and Major, for that matter.

    Still haven't see an answer for my question at #14, are we all so ignorant of how we pay our way in the world? No wonder we are in the state we are.

  • Comment number 68.

    #1 I agree. Short selling must be an option for an efficient market.

    #2 Who sold our Gold reserves when Gold was at its cheapest for years - Crash Gordon!

    If people thought bank shares were oversold then they would be buying them and the price would go up. Even at current prices noone wants them. Shareholders have recently been stung by having to finance rights issues for a start and now they are being effectively nationalized without compensation. Avoid!

  • Comment number 69.

    @ 8. Agree with that.

  • Comment number 70.

    39. At 10:29am on 23 Jan 2009, MunichMadrid7980 wrote:

    We've also got the situation in which certain politicians' hysterical comments are pouring petrol on the bonfire. After Osbo's ''collapse'' comment, now we've got Cameron's reference to the IMF.


    So you are of clear mind and state the word "collapse" and references to the possibility of having to go to the IMF are hysterical comments?

    I suppose you can see the green, green shoots of recovery as well.

  • Comment number 71.

    # 20 dknotty

    "Hey Richie Cunningham" Fonzi is a leather clad bloke who is all mouth and trousers... noting to do with GB

    You mean Ponzi I think

    #17 johnthelutheran

    Thanks, but I think most people do understand short selling - part of the issue with it is that it is easier to create a fall in share prices than an increase and many systems now kick in early and sell automatically.

    In addition with the onset of a global market we now have financial behemoths that not only influence markets domestically but are doing on a global scale (not that many banks have managed to crash the global economy into the ground) – we see it in all walks of life, a handful of Supermarkets are now not far off controlling the distribution of food and other essentials within the UK.

    Competition is essential to a good economy but we have to impose limits at some point in this new world. I fear that the new banks we are creating are going to become more of a liability in the future, apparently we couldn’t afford to lose either Llyods TSB or HBOS.... you think joining these together and creating a bigger bank will rid us of a problem. No, we are creating a creature that all Governments in the future will be terrified of!!! Especially as its duty is to its shareholders and it’s the Govs objective to push its shares back into the private sector asap.....

    It may not seem ideal, but lots of smaller company’s means less trouble if one fails, more employment, more choice... yes higher prices, but one way or another we have to pay for everyone who lives here....

    It's a new world out there and we are still running it under the old rules, a bit of short selling never hurt anyone.... but the smash and grab companies are are growing and maybe we need some rules to control them....

  • Comment number 72.

    Short sellers are one of the very few players that can be guaranteed to tell no lies. A small beacon of truth in a sea of mendacity - these people should be praised, lauded, and held up as heroes.

    There actions are often visible, and if they get it wrong then they lose big time - no government bail outs for these guys, no recognition for the public service that they perform.

    The criminal fraud that was Enron was exposed by a short selling operation. Without the short sellers Enron would have still have collapsed - albeit later, and the only thing that would have been achieved is that more people would have lost more money.

    Short sellers have assisted in enbabling part of the fall in bank share prices seen in the last 18 months or so. All that short sellers have done is expose the insolvency of a good part of the banking system. It would still have been insolvent with or without the actions of short sellers. Are you really saying that you would prefer not to know this information?

    Even if you don´t want to know then you free to ignore it - just go out and buy shares in banks.

    Why would pension funds fear that short sellers may sell banks down to zero? The answer is that fund managers also know that a large part of the system is irredeemably insolvent - but they just won´t tell you. Only short sellers will speak this truth.

    No-one is afraid that short sellers will sell down BP or Berkshire Hathaway to zero. The reason that they are not afraid is that they know that short sellers cannot change facts - these companies (and others) are not insolvent, and do not suffer from complacent, incompetent and mendacious management. Any sustained move against them will quickly result in the insolvency of the short sellers.

    People complain about the malign and incompetent nature of the the government and its agencies and yet do not seem to value one of the very few effective counterbalances to the administrative culture of malignant incompetence.

    Blaming short sellers is akin to blaming a medical Dr. for making you ill.





  • Comment number 73.

    The way I see it, lifting the ban just gives the government an excuse to blame drastic reactions on short selling rather than a reaction to their policies/performance.

    For this reason, I would ban short selling. Then when the markets still falter and companies burn, we can ban the government.

    Plus with taxpayers investing so much money at this time, it would be wise to stop the practice of quick profits at others expense until such time as we are paid back in full.

  • Comment number 74.

    Are there other markets where you can buy negative quantities of things? Short selling just adds to the market volitility - great for traders, but not investors.

    If we are trying to reduce volitility then we should ban short selling.

    The market has a mechanism for setting a price on a stock - what people will pay for it. Encouraging greater betting on the market; without ensuring adequate capital coverage should be discouraged.

    We should be trying to get a stable, responsible market, at th moment it is up and down like a yo-yo; demonstrating that the city greed knows no bounds.

  • Comment number 75.

    Can someone please explain short selling to me?

    Why would anyone in their right mind lend their shares to someone who intends to drive their price down???

    Here's me £6 Lloyds shares mate, give em me back when they get down to 50p will you.......

  • Comment number 76.

    #11 Where did all the depositors money go?

    OK: You deposit the bank £10,000. The bank credits your account with £10,000, keeps £1000 (in case you want some back) and then loans £9000 to someone else.

    That £9,000 is spent and eventually comes to the bank. The bank credits that person with £9000 (Total money deposited with the bank now £19000 - total loans £9000). The bank keeps £900 and lends out £8,100.

    That £8,100 is spent and comes back to the bank. the bank credits that person with £8,100 (total money deposited with the bank is now £27,100 - total loans £17,100).

    So from taking £10,000 the bank has lent £17,100 for people to spend - the £7,100 is new money.

    Now the three depositors want all their money back. The bank has to find £27,100 - and only has £2710 liquid assets. The only way they can pay back the money is to call in the loans (or restrict further lending) - or borrow money on the money markets - which are virtually closed.

    Of course you can think of other scenarios - the money might be spend abroad - in which case it has left the country and the person who spent it has to find the money in the UK - whose money supply has just gone down - making money scarcer.

  • Comment number 77.

    It's not short selling that is the problem or should be banned. It is the lending of shares to short sellers by the fund managers that should be banned. This gives the short sellers the power to drive down the value of the shares and thus the value of the fund when the shares are returned. The fund manager is effectively defrauding the investors in the fund.

  • Comment number 78.

    This is DISGRACEFUL from Robert Peston!

    On a day when the PM laid himself open to the most severe criticism over his handling of the economic crisis and it was officially announced that the UK is in recession yet ANOTHER article about BANKS!



    I'm really fed up with this. On this website the only mention of the recession is a page of little homilies from Auntie about how to cope if you're facing insolvency.

    The whole country's facing insolvency this time you fools!


    GC

  • Comment number 79.

    ...'As we surely must now appreciate, as we live with the bitter consequences of the popping of the debt bubble, the euphoric buying of assets by manic investors is highly dangerous - so it can be very helpful that the market contains short-sellers expressing a contrary, negative view.'...

    What nonsense!- two wrongs don't make a right!

    If it's these wild swings that cause problems then they need controlling. Market forces are not the forces of nature - if they are, then the FSA may as well not exist. Short selling by 'borrowing' shares should be banned and our cleverest financial brains should find a way to moderate the excesses of the 'manic investors'. I don't have the answer but it sure as hell isn't short selling!

  • Comment number 80.

    Brown's crass remark that 'he's not interested in the opinions of 'speculators' commenting on Sterling shows what a clown he is because everyone knows speculators can sink a currency if they want to. Look what they did to the pound in 1990-91. Brown has no 'package of measures' that will protect against that and if the currency drops low enough Britain, a net importer (net BIG importer) won't even be able to buy abroad, let alone sell.

    Ask anyone who imports.

    He should be interested, very interested.

    GC

  • Comment number 81.

    #47

    Your idea works in principle but not in practice.

    The elements which make up how inflation is calculated make all the difference.

    Quite simply, house prices/ rentals should have been included in the inflation figure the bank was targetting.

    If this had been the case, we would have probably seen interest rates at 7-8% rather than the ~5%.

    This would have limited the extent to which the asset (house price) bubble would have grown before the burst.

    The idea of this is totally missed on Crash.

  • Comment number 82.

    If you think that miniscule share holdings are not enough to get the ball rolling and create a negative selling spree then you are stupid.Who at the FSA thinks that you legally own the shares if you are borrowing them?If you want to take the risk then you must purchase the shares in full on your own balance sheet and see how easy it is to play the game.But we have loads of crap overseen by the FSA,securitisation,special investment vehicles.......what we need is non bankers appointed down at the FSA not city mates.For all the income the city creates(short term) it is industry and taxpayers that are left standing.

  • Comment number 83.


    If short selling is necessary to properly value assets why don't they make it legal for renters to short sell UK houses? Go on, rent me your house, I'll sell it, put the money in Euro's and buy it back in a year.

    The serious point is that allowing short selling of one asset class may disadvantage its apparent value relative to other asset classes and in this case make people more likely to invest in property rather than industry. A lot of the UK's problems are due to under-investment in industry and over-investment in property.

  • Comment number 84.

    Banks, Banks , Banks are the fall guys for everything in the economy and nicely take the pressure off the Government.

    I heard the car industry complaining today that Banks aren't lending and are causing the problem.. where have we heard that before ...its a stuck record.

    I would encourage any one to test it out by walking into a high street branch of your most popular ( or unpopular ) of a UK bank and ask if they would do you a personal loan to buy a car.

    Any one who has a decent credit rating will get the answer yes... if your credit rating is bad then then you probably shouldn't be asking in the first place, and expecting the bank to say no if we expect bank's to lend prudently.

    No the real reason for the problem in the car industry is demand. No one wishes to take on commitments in this time - that is the reason for the slump. Bank's are a convenient media driven excuse

    That slump was driven by Government policies ... and now frenzied in the media.

    So what if output has contracted by 1.5% ..it is still 98.5 % operational.

    A contraction has to come at some stage and as long as everything else moves in the same way, so what we will all have to draw in horns just a little , including the Government purse.

    As for the issue on shorters, earlier this week shorters probably made 30-40% out of the drop in Lloyds group share price in one day ...not bad money in one day if you can make it ..... it's hardly surprising it is going on.

    At least the economist on "This week" on BBC last night began to paint a more balanced view on the banking position - it was brave to swim against the tide of furore, but probably closer to the truth for doing so.



  • Comment number 85.

    It is a sad fact that very few people trust these banks any more and that is the root cause of the bank share sell off.

    Not only do people not trust the banks or whatever the Government and its various organs (FSA, Treasury, BoE) are up to in the background but also, and most importantly, they perceive that the banks auditors have completely and utterly failed.

    Sure, these jobsworths have ticked the boxes, and their mindset lends itself to that sort of activity, but actually they really needed to think outside of their boxes.

    Auditors, heal thyself.

  • Comment number 86.

    Thankyou Robert, about time we had some decent analysis. Hope it gets a wider audience and people realise it's not short sellers, unlike the gruniad's comments, which are still spouting "eat the rich" type comments...

  • Comment number 87.

    RBS & Lloyds will be fully nationalized soon, it is simply denial to pretend otherwise. The share price of Barclays cannot be protected, short or long.

    Bank of America's acquisition of Merrills is already starting to unravel because of the huge hidden losses, sevret last-minute bonuses etc noew being revealed.

    Barclays' acquisition of parts of Lehmans should now be suspect. How many last-minute bonuses were made? Combined with the garbage in Barclays' own SIVs, how much rubbish was acquired covertly with the Lehmans deal?

  • Comment number 88.

    Would someone please explain a puzzling aspect of short-selling to someone who is obviously not as smart as the rest of you....

    I own 100 Acme shares at 100p. My asset is therefore worth £100.
    My mate Kevin, who does a bit of short-selling, sidles up and asks to borrow them until tonight. Promises he'll make it worth my while.
    Kevin and his mates flog the 100 Acme for £100 and contribute to Acme dropping 10p on the day.
    Right at the death, Kevin buys back 100 Acme for £90, gives me back my share certificate, a fiver for my troubles and pockets the other fiver. Says we'll do it again.
    Problem is, my asset which was worth £100 this morning - and might still have been worth £100 but for Kev and his machinations- is now only worth £95.
    If Acme go up tomorrow, I'm OK but shares - especially bank shares - can go down as well as up. On this occasion, Acme stays down.
    Kev asks,if I'm up for it again tomorrow. Another fiver for my troubles. But if we keep doiing this, my 100 Acme are going to be worth less than the price of a pint. So why in God's name would I lend them to him again??

    Yes, I know this is simplistic and in the real world it's much bigger numbers and much more sophisticated but surely the principles are the same. If short sellers are going to ply their trade with "borrowed" shares then there has to be a complicit "lender" of said shares. Even allowing for the bookie-style "laying off" of risk the lender cannot afford an indefinite depreciation of his/her assets. Sure, there will be little old ladies iin the country who do not monitor their portfolios and take a major bath on their Acme shares but I don't understand why the "big boys" in the City are complicit in a process which must logically end in self-destruction.

  • Comment number 89.

    "it's laughable to think that Landsdowne's miniscule short position could have contributed to the billions wiped off Barclays' value since last Friday". Peston

    It is even more laughable to suggest that short selling is a harmless past-time. Millions of share short sold sends asignal to the market in two ways

    Tracker unds are forced to sell to mirror the index thus further forcing down the price

    Investors seeing the short sellers and tracker funds selling a particular stock tend to follow suit.

    The markets I am afraid react to sentiment and not common sense.

  • Comment number 90.

    Re: 39

    Honest, informed exchanges are necessary, political banter and gossip and opinionated bystanders are always there as part of the scenery.

    Labour have a big problem, mainly of their own making, and they are wriggling.

  • Comment number 91.

    Also known as 'Rette Sich Wer Kann' ('Each Man for Himself') and often times referred to as 'The Lifeboat Game,' this pure negotiation game puts a different spin on the typical ocean catastrophe. There's been a boating accident, and a rag-tag group of six lifeboats is trying to make its way to one of several islands just over the horizon. However only one boat will make any forward progress in a given turn, so players try to convince everyone to vote for his particular favorite. To further complicate matters, the sailors can't seem to decide which boat they want to be in, so they're constantly jumping out of boats to swim to another one. As if all that wasn't enough, one of the boats springs a leak each turn. If the boat is at maximum occupancy when the leak occurs, then players vote to decide who to toss to the sharks!

  • Comment number 92.

    Its all about confidence in the system,and as long as Gordon and Darling are in charge there will be none.

    With the banks perilously close to nationalisation,investors are removing their assets before they ARE worthless.

    When it comes to talking down the economy Gordon is doing it in spades,making kneejerk announcements without any detail being given.

    I despair as to where we will be in 12 months time, there must be an election before Gordon gives out any more multi billion pound handouts .

  • Comment number 93.

    Yes shares can go down as well as up but we are still waiting for the true reasons from the Treasury why Bradford and Bingley was nationalised and not saved like all the other banks two weeks later - nice to know any future run on other banks will not force them into nationalisation. Robert perhaps you can find out some answers to the exact reason why Bradford and Bingley was nationalised seeming as it was solvent before it was nationalised and ask at the same time why did the government did not save it like it did the RBS and HBOS now part of the Lloyds Banking group.
    Looking at the share price of the banks the FSA should be looking at short selling transactions now on the banks - it is clearly evident that this has been going on. Why not ban short selling until there is evidence that banks have restarted lending to businesses/individuals and we've got ourselves out of this recession.

  • Comment number 94.

    Talking book: it is much easier to knock down a stock - just ask questions - than to promote a stock - requires facts to justify.
    Facts can be regulated, questions cant be. Asking questions is good but vulnerable to abuse by so called naked short sellers.
    Seems like a charter for hedge funds to raid pension funds.

  • Comment number 95.

    Imagine there was a highly liquid derivative instrument for the UK Property market.

    Your house is worth say 500,000 pounds and your rightly nervous about the state of the economy and falling house prices.

    You decided to take a market neutral position by shorting the property market by 500,000 pounds. Does this make you a speculative monster? NOT!

    I would actually argue that shorting PREVENTS asset bubbles - and makes the market much more liquid and transparent.

    Derivatives are a "Zero Sum Game"

  • Comment number 96.

    Short Sellers in Brief

    They are basically risk taking gamblers. Been around since markets evolved in 17th Century.

    This is how it works.

    The market works on a balance of greed and fear. When investors get frightened they sell (or have to sell if they have to meet commitments elsewhere).

    Once the hyaenas spot a weak zebra they focus on it.

    Mechanism.

    I make my shares available (for a fee) to Mr Shortseller. He promises to return the same number of shares to me on settlement .. could be a week or two or three.

    He sells the shares and then into action. The shares must go down (anything goes - rumour, lies, just anything) to force others to panic and sell, forcing the price down. Once he thinks they are down he buys again at less than he paid for them and pockets his 'profit'. He might share some of his profit with me to keep me sweet.

    The panicked sellers have been fleeced.

  • Comment number 97.

    More evidence that the government doesn't know what to do, so does anything.

    Total knee jerk.

    Why don't THEY do what the Banks won't, and lend money. At least that way they'll (we'll) get some direct return. Leave the banks to sort themselves out, just like every other sector of the economy. (a free market?)

  • Comment number 98.

    A lot of people are asking...what are the total losses, we must have disclosure.
    Well I suspect the countrys' finances are now probably in a similar position to what they were in 1945.
    Hard times, here we come.

  • Comment number 99.

    re # 85

    The banks' auditors are between a rock and a hard place. They probably know they should be qualifying the accounts (not sure on what basis - unable to form an opinion on the value of the underlying assets?), but If they do qualify the accounts the banks will go bust for sure.

    So the audit report, which is supposed to protect investors interests, will end up making the shareholders investment worthless - great!

    I never was sure what the value of the audit report was...............

  • Comment number 100.

    #40 tigerjay, #64foredeckdave and #78 GC

    All on similer lines here I think, I too was dissapointed with RP's blog today. Did not make me feel like posting on it,. Why focus on a sideshow in the context of the days much bigger economic news?

    It is starting to feel like RP is still fiddling with his high finance out of personal facination while the economy burns, yet he still gets prime spot / interface with the general public at the beeb.

    The rather grittier Paul Mason on Newsnight is better equiped for the next phase reporting and should get prime spot now I think, it is moving away from the banks now, if that is all RP has in the locker he should step aside.

    I have started to post on Paul Masons blog (did not know it existed until today) as well. Only 20 posts on it! Absolute travesty!

    Foredeckdave, yes we really do need to start to focus on answers before it is too late, there are far too many people mesmerised by watching thr process of the house burning down and not thinking about where they are going to live the next day.

    I tried to find 'Beard 1s' Delphi Forum he alledgedly set up yesterday but could not. Some of us need to start to try to pull together and get some ideas out there. I care too much about this country just to watch it burn but there does not seem to be any tangible outlet except here in cyberspace at the moment. The states seems to have found theirs, we need to find ours and quick.

    Jericoa



 

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