The long and short of banks
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).
Which 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.
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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
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Lets face it if you see Flash buying; you should sell.
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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.
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Storm in a chocolate teacup then.
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THE DROP IN SHARE VALUE IS THE
DROP IN CONFIDENCE IN GORDY
PLAIN AND SIMPLE.
ALL HE SAYS AND DOES??
NO CONFIDENCE.
ITS SIMPLE.
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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?
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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.
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"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.
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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.
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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 ?
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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.
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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
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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.
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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........................
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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.
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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. ;-)
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Evan's interview was so weak i just wondered if he had something held to his HEAD?
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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.
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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?
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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?
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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.
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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.
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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!
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"Landsdowne's miniscule short position" might be the very butterfly that affected Barclays shares. 'In a world of order chaos reigns' Anon.
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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.
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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.
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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.
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#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.
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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.
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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.
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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?
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~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.
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#20
Is a fonzi scheme where the PM sticks up his thumbs and says "hheeeeyyy"?
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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?
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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.
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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.
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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?
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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?
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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)
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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.
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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.
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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.
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#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.
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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.
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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
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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!
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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.
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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.
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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.
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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'.
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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.
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@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?!!!
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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.
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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.
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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!!
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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.
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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!
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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.
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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.
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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
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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?
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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!
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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.
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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.
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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.
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#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!
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@ 8. Agree with that.
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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.
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# 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....
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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.
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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.
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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.
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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.......
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#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.
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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.
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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
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...'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!
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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
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#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.
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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.
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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.
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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.
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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.
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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...
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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?
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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.
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"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.
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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.
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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!
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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 .
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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.
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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.
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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"
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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.
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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?)
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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.
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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...............
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#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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72 arm and a leg - ion times
re short selling.
I agree. I do not see what the problem is. It is only effective against weak businesses. A robust business would wreck them. The stakes are high but the risk is high. You wouldnt take a high risk without the prospect of a high return. As for all the people who complain about it. The answer is quite simple. If you genuinely believe a share has been pushed artifically low in value due to shorting then the obvious thing to do is to buy at that point and hold long. By doing so, providing your judgement is correct you gain and also damage the short seller. NB I do not hold shares at present and have never been involved in short selling.
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We need to move more towards a system centred more on VALUATION. The root of current problems stem from not being able to value with a reasonable degree of confidence.
Decisions on what tools and instruments the financial markets should or should not be allowed to use must, to a large part, be based on how they would impact the valuation process.
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#72 armaged[i]ontimes
One of the few posts this morning that actually makes sense.
Shorting can actually act as a restraint on the formation of bubbles.
(One of the bi-products of the current crisis is that a number of new phrases have found their way into common usage without a real appreciation of what they mean - see comments on this blog and Government /Opposition pronouncements for further details).
The problem for the UK banks is that the Government has declared it's hand: "we don't really understand what we're doing, what the size of the hole is, but whatever happens we'll keep shovelling tax-payer's money into it".
It's a bit like trying to keep the pound within the ERM on Black Wednesday - the rest of the market can see where to place their bets because the biggest player has telegraphed what it intends to do.
A prime example of the country being led by those with no relevant real-world experience.
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BBC Breaking News!
Pound miracle! Pound bounces back! Up half a cent against the dollar!
Other stories this Friday Lunchtime!
Pound half-cent bounce - is this the end of the recession?!
GC
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96 blefuscu
'sellers have been fleeced'
You can only fleece a sheep. Answer, dont be a sheep.
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This may have been asked before so I apologise in advance.
I know that if I sell shares that I do not own with the intention of buying them later at a cheaper price then that is short selling. What confuses me are the comments regarding borrowing shares so that I can sell them short. Does this mean that when I do buy them later, then I deliver them up to the person from whom I borrowed them in the first place?
If this is correct and I have borrowed them from a Pension fund trustee, surely the pension fund trustee is in breach of his fiduciary duty to the fund knowing that I want them to sell them short which ought to drive the price down.
Or, knowing that I want to sell them short because I believe them to be overvalued, shouldn't the fund just sell them on the market BEFORE I get the chance to short sell.
Also, if I short sell without borrowing shares is that naked short selling? And, isn't that illegal in the USA?
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12 Billion rights issue....all is well
15 Billion recapitalisation...all is well
28 Billion loss....all is well
Inspirational stuff!!!
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88. Fingertapper wrote:
"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".
Try this. You don't actually own these shares on your own behalf - your ownership really is that of managing someone else's money. This someone else pays you a flat commission for doing this for him. So your own situation is not affected by the fall in Acme's share price. So you might as well lend the shares to Kevin and pocket his fiver.
Now I may be being unduly cynical in wondering about this but, as your question explains, it is hard to think of any other rational reason why you might lend your shares to someone whose aim is to make sure they are worth less when you get them back!
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Castles built on sand
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GB was given an easy ride on Today this morning.
Obviously the recession was someone else's fault and as Chancellor he did a great job fighting inflation.
Questions that could have been asked:-
What were the Government and BoE doing whilst house prices were rising at 15% per annum?
Of his 10 years of solid GDP growth, how much was due to mortgage equity withdrawal?
Whose responsibility was it it monitor the loan/capital ratio of Banks?
Did this movement from a factor of 20 to a factor of 45 not raise any concerns?
As Gordon says " the key to the solution is an understanding of the real problem"
Exactly!
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Why does the Government not sell RBS for a pound or two to some dodgy foreigner and then just allow it to go bust. It would be cheaper to pay compensation to domestic savers up to the £50k limit than to worry about trying to fund the liabilities.
That way the liquidator would pay off the liabilities by having a fire sale of the assets and we could draw a line.
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I have a mortgage of £45k and savings of £30k therefore if hyperinflation occurs then my net £15k borrowings are devalued and I can then own my house outright by paying off the mortgage instead of buying a loaf of bread, or similar.
So - for all the reckless idiots who have credit situations far worse than mine then hyperinflation is the solution to all their problems at the expense of all the pensioners and savers out there.
Of course if currency devaluation is going to happen at the same time then I should really move my £30k savings into Euros or dollars or some other currency - but this would leave me exposed to an unexpected currency movement in the other direction so I won't do this.
I've never lived in hyperinflationary times - what will happen to prices of food (go up a lot I presume), cars (?), houses (??), wages (?) - ie will everything just go up together or will costs go up and wages stay down which will leave us all very poor?
Finally someone asked me a simple question yesterday that I couldn't answer - 'When the government says they are going to print money what actually do they mean & how does this help?' In other words how does printing some more money actually get into the economy and benefit us?
To anyone who replies thank you very much - due to the 'popularity' of this blog I doubt you will get to read my thanks if I posted them afer reading your reply!
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Almost there Mr Peston, almost as in almost a criticism of the governemnt
PS no mention of the horrendous 131,000 leap in unemployment and no mention that we are 'officially' in recession on any of your blogs this week
Numerous on message mentions of course though of 'global problems' 'fault of the bankers' etc etc
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Short-selling (no matter how small the size) should never have a part to play in stock's sell-down. I find it difficult to believe that a shareholders will lend his shares to short-sellers who will indoubtedly try to destroy the value of their property.
Are UK shareholders that stupid ? Or are they they totally unaware that their shares were being loaned out by their custodians for some speculative short-selling plays. From the sound of these blogs they cannot be that stupid. And if it is the second case, short-sellers are taking advantage of the less informed shareholdes, when they have access to the other people's share and move it aroud in the market without the legitimate shareholders being cognizance of it.
Frankly, your UK economy deserves to suffer and die if some people can boast about making money by destroying the value of other people's property through short-selling. UK citizens are not patriots when they condone such acts and are active traitors when they short-sell.
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88 I've always wondered that too...
96 You now need to answer 88's question:
Why would you lend your shares (if you personally own them) to the shorter knowing that your shares were probably going to be worth less at the end, even taking into account the fee the shorter pays you?
I can see that if you were a share 'manager' (pension fund manager or the like) and the shorter was effectively giving you personally a 'back hander' to lend him the shares you manage why this would be an attractive business....
But surely here you're working for your own interests, not the interests of the owners of the shares you're managing?
Perhaps the answer is for share owners to move shares out of funds that lend their shares for shorting? That would put a stop to it....
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100 jericoa
What is in play has been initiated some time ago. The process has to work its way through. The process cannot be stopped it is too big.
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steve_webprogrammer:
The banks have to invest depositors' money so they can deliver expected returns. It doesn't just sit there waiting for you to come and ask for it back, otherwise you'd get no interest and the banks' shareholders would get no dividends. And they wouldn't be able to pay their staff to manage your money.
They invested in assets that have either fallen in value, or that they physically can't sell because nobody wants them any more.
And in addition to using your deposits, they borrowed from money markets to increase their lending capacity and hopefully create even better returns.
So there's a problem - you want your money back, but hang on, the bank can't give it back because a) they've lost money through investments going bad and/or b) they can't borrow it from the money markets, because they've dried up (why? because none of the banks or investors have the confidence to lend to the banks - in case they fail!).
That's why the govt had to buy stakes in the banks. If the banks fail, the economy stops... you don't get paid, I don't get paid, my grandad doesn't get his pension, commerce grinds to a halt etc. etc...
The govt didn't give them £800b just to lend us it back at 8% and watch the money roll in... it was to keep them from falling apart and us paying a much bigger price.
Paul
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There isn't any evidence to suggest that short-sellers set the market.
They are simply doing what all other speculators are doing ie attempting to predict the market (which is folly).
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Short Selling:
How cosy for interested parties to have an exclusive blog written by the Banking Broadcasting Corporation Business Editor.
Can we have some more RP blogs about cute ways of making dosh from shuffling bits of paper around? Things I'd understand and could diversify into? Or doesn't the dirty world of making things qualify as 'business'?
GC
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What might the 'lender' get from short selling apart from a fee?
After all he gets all his shares back but they are worth less!
Answer: LIQUIDITY without selling.
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Don't blame the hedge funds, they are just traders...Try blaming the stupid people who have handed over their money to pension fund managers, and the government for encouraging them.
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112 grimupnorth
I am sure one of the others more knowledgable will comment but as I understand it printing money dilutes the debt. It has downsides with it as it effectively reduces the value of money.
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Robert says:
"
it's laughable to think that Landsdowne's miniscule short position could have contributed to the billions wiped off Barclays' value since last Friday. "
I'm not so sure.
A small amount of selling (long or short) can have a very big effect on pricing in a thin, volatile and nervous market.
The price change affects millions of shares so the aggregate reduction in "value" is huge but a bit misleading when used as a comparison with the small trading volume which can cause it.
This in turn can have a big effect on opinions and sentiment and contribute further to instability of prices.
In an engineering analogy I think shock-absorbers are needed.
Some friction and delays could be put into the system to reduce wild swings, possibly in the form of stiffer immediate taxes or other charges on buying and selling and more discouraging settlement conditions.
At present, with dealing costs quite negligible there is little to deter gambling.
In addition to friction and delays there might be ways to put the other component of stabilisation to work. That would be prompt, punishing counter-action to price movements by a very well-funded (government) trading organisation acting as a recoil spring.
This would make speculation duller and less attractive and could help to smooth our rocky road to stability.
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hantsguru @ 110
So, Gordon Brown was given an easy ride on Today this morning.
I can't say I'm overly surprised because in my opinion, the 'Gilligan' affair did enormous damage to the BBC.
Following crude threats by the Government to the BBC over its future license funding during the Gilligan episode, it became clear to this blogger that 'he who pays the piper calls the tune', which in this case is the Government, not the license fee-payer.
I have not listened to Toady ever since then and doubt if I will until the BBC's funding model is changed so that it can exert genuine independence from bullying politicians.
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"at least part of its role is to promote liquid markets that set prices in an efficient way."
This is crapspeak justification for having markets which exist largely for speculation and not investment. Add in the "free" currency markets too, and it means less real investment and more money chasing around the world in pursuit of a quick buck. As Keynes said in The General Theory..., ' ..the professional investor and speculator ... are concerned not with what an investment is really worth to a man who buys it "for keeps", but with what the market will value it at, under the influence of mass psychology, three months or a year hence.'
Things have moved on since Keynes: three months has become rather a long timescale. I wonder, in a typical year, what the ratio is of the value of stock market transactions, to the total value of the stock market. I suspect we would be shocked.
Long term lack of real capital investment has seriously weakened the productive capacity of the British economy. This is because we allow the financial markets to reward speculation more. We need to reintroduce measures, like a time-tapered short term capital gains tax, to reverse this.
The major political parties seem both to be hoping for a return to business as usual. This is what we the people must not allow.
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The economy will eventually get reconstructed by the working men and women of this country.
Reconstruction will have to be co-ordinated.....the market cannot do it alone
Essential ingredients for the reconstruction program will be;
Near self sufficiency in raw materials and energy
Widespread deployment of manual labour resident in the locality in which the product or service is sold. Manual labour does not need to be unskilled....think surgeon, think draftsman, think builder
Widespread provision of social housing
Raising of the retirement age to 75
Scrapping 50% of university courses and replacing them with technician level training courses
Being free of burdensome debt repayments
Giving up the notion that the "knowledge economy" is anything but a side show
Giving up the notion that private sector is good and public sector is bad. (There is a pretty even distribution of good and bad practises on both sides of the divide)
Giving up large expenditures on software. Any 15 year old school kid can write software.......so why has this government spent billions on the stuff?
Giving up large expenditures on medicines. Just make generics and forget about the new stuff
Replacing education, education, education with jobs through carbon reduction, jobs through carbon reduction, jobs through carbon reduction
Bringing back student grants for engineering and science undergrads
The list is a long one, but generally the gist is that sitting at computers doing banking, marketing, database administration and whatever else is not going to fix the problem.
We have shipped many hundreds (millions probably) of jobs abroad because we thought that these jobs were too ordinary for us computer powered Brits.
Is it time now to bring these jobs back home?
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Sunlight is the best disinfectant. The issue with short selling comes when transactions are not transparent. The FSA should address this, if it is to restore public confidence in short selling as a legitimate activity.
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Does anyone know what the true value of banking shares is?
No.
Under these circumstances, lifting the ban on short-selling was an open invitation to hedge funds to pile in and make a profit.
It was a very stupid mistake.
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#115
You lend your shares to a shorter because you get a fee and you don't actually have any risk - whatever happens you get your shares back. He's just borrowing them for a while for some speculation and he's paying you for the privilege.
That means you can invest more in the fund you're managing, and also give yourself a bigger bonus. It's a no-lose situation.
Frankly I don't see the problem with shorting stock. Like any other stock transaction you are turning knowledge (or estimates) of future company activity and value into cash. That's what the whole thing's about.
If I think a company and it's directors are stupid, unethical and overvalued, why shouldn't I invest my money in gambling on them tanking?
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Guys, Guys, Guys.
Anything goes in casino capitalism. Those demanding the banning of any particular strategy or group of players (short-selling, hedge funds etc) by regulation merely wish to return to a less odious, rigged version of the casino where the usual players can rake in the usual profits.
"Political economy came into being as a natural result of the expansion of trade, and with its appearance elementary, unscientific huckstering was replaced by a developed system of licensed fraud, an entire science of enrichment"
Engels, Outlines of Political Economy (1844)
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The maths of short selling do not add up. The lender loses client money as the share value falls and the hedgefund pockets it. They then give back the lower value asset + small fee. The lending institution pockets the fee. The investor in the unit trust fund etc makes a loss. hedgefund wins, institution wins, small investor loses as usual.
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Robert,
For me the most important news this week came in a Times article on monday where they declared that upwards of of RBS' loans, £1.7 B, are to foreign nationals and foreign business entities.
Furthermore they added sveral other UK banks have similar exposure.
I conclude that the government's £250 toxic debt insurance scheme is likely to be heavily weighted to these debts and the money resulting from the insurance is also likely to go overseas, as it is in the public domain that UK banks borrowed heavily from foreign nationals etc.
It is likely that although they will get their capital returned arew they going to reinvest the money in a country with a rapidly depreciating currency as such exposed structural economic weakness?
I believe prudent investors will more likely side with J. Rogers and shun UK investments for the forseeable future.
Another snippet of serious interest is the UK's continued objection to join a growing group of nations including the US to clamp down hard on Tax Havens.
Can this reluctance be anything to do with all the off balance sheet business entities that are related to the UK Financial Industry (plus family trust etc. that give many wealthy UK so called citizens of making Tax an optional extra).
This reluctance to doing nothing to an obvious cancer leaves me to the conclusion that unsurprisingly the powers in place are not serious in having a trully effective and trnsparent and accountable Financial industry.
There is just too much vested interest and dirty laundry.
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#116 glenafon
I partly agree, I dont think the process can be stopped either but to use the house burning down analogy again.
We seem to be all mesmerised by watching the process of it burning down, when what we should be doing is thinking about where we are going to live tomorrow and trying to pull as much out of the flames as possible which we could use to help us build a new shelter. A shelter we will need once the heat from the flames have died down and the next day arrives.
There is a difference, you can not stop it, I agree, that does not mean you should not salvage what is still useful from the flames to prepare for the next phase. We seem to be just watching the whole lot go up without grabbing the tools from the flames we will need to built the next house, the only things we have pulled from the fire is the arsonist who kicked it off (the banks!).
First of all you need to figure out what should be saved except the banks, you can not eat printed money or build shelters from it or heat your homes with it or sell it in itself in exchange for overseas goods you dont have at home.
It is that that bothers me.
Jericoa
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One should only ever borrow to make money. The daft thing is, one could argue that short selling represents just that!
It is the rest of the public who borrow for loss-making ventures such as car purchases along with credit and store cards that really put the banks in further trouble.
I would argue that anyone borrowing now who is not actually rich has less intention of re-paying that debt than before the "credit crunch" began.
The recession that released data today confirms represents a general tightening of money by a large number of people.
No one said how many people have already tightened their belts, but my guess is we are not even half-done yet!
I hear no critisism of the public on their part in the credit crunch - instead we hear it is all Gordon Brown's fault (he just didn't see it coming), The Bank's fault (they only aided and abetted the public) or short sellers (they are the only ones acting properly by adapting to the new reality).
I'd be more concerned about the short-selling of the pound which affects everyone on these islands! Ordinary people cannot move their money offshore either, so the government could have acted here. Problem is, if one renders the currency markets illiquid, then there would be a good chance that we would lose our status as Forex capital of the world - Still perhaps the UK's greatest "invisible cash cow".
The solution to all this lies in the public, and no one else. If anyone loses their job, the opportunity should be taken to get one's debt liquidated. Unemployed people do not pay off many pence-in-the-pound to settle their debts. If one is unemployed for say, a year from what used to be a £25k job, and in the process they get £50k of debt written off, then that year off work becomes a paid sabbatical. For those who do not lose their jobs, I recommended weaning oneself off all credit except mortgages on property for the purpose of actually buying property.
These options are open to all - It is merely a matter of will now as to who takes advantage of such opportunity to right their own vessel of life.
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35,
Pure class :-)
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great. Some very interesting and informative comments about the role of short selling.
I still find it hilarious though to see the usual suspects post their usual rants that Gordon Brown is responsible for everything to do with the global banking crisis. Really he is not that powerful, shurely. And don’t these people think that those individuals and institutions that lent/borrowed excessively or who traded falsely (such as with short selling), should also carry some responsibility? What happened to personal responsibility?
Ove rthe years, the global economy and financial markets have increasingly shown features of a casino. More speculation disguised as productive activity.To some extent, this casino capitalism has been the price that we have paid for liberalising economies. Short selling, esp in present times is just one aspect. These forces are bigger than any one person, including Gordon Brown and started to be unleashed in the UK in 1979.
I believe the main responsibility (some 60%) for this global mess rests with the bankers who created and traded in false markets and those who traded recklessly with our money. Their motive for absuing the liberalised environment seemed to be to extract for themselves enormous amounts of money from shareholders and policyholders in the form of bonuses for themselves. Contrast their riches with the relatively small amounts that have been paid to policyholders of endowment policies and the relatively low increases in wages for the rest,esp those near the lower end.
Individual private borrowers who gambled recklessly and speculatively on rising asset values, especially houses should also take personal responsibility. Similarly, those depositors who chased high interest rates in offshore financial centres (Iceland). No one forced them.
And now the run of luck in the casino has ended. Enormous liabilities have been transferred to the public sector simply because there is no alternative (TINA).
Yes, regulators (20%), gov’ts (10%) and others (5%), including the media and opposition politicians also have some responsibility. But as noted above at least 60% of the responsibility for the problems we face is down to the speculators and that includes those who engaged in selling short.
...I think that is decently balanced...
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Why do shareholders lend shares to short sellers?
It is because they believe the share price will fall.
By lending them to a short seller for a commission they can in part protect themselves from the expected fall.
Most shareholders are in it for the long term they still end up with the same holding but make commission on lending them to shorters.
The value of the share is only relevant the day the share is bought or sold.
In effect by lending shares to shorters institutions or private stock holders can earn money from they long term holdings taking advantage of short term price movements.
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#121
I don't blame the asset stripping, loansharking, market-manipulating hedgefunds for anything. After all they are actually charities; benign philanthropists dedicated to leaving the world a better place than the found it.
It's a free market. But don't wreck my country.
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Those people blaming the FSA for a failure to assert their authority need to bear in mind the total lack of political will, and indeed outright hostility from the then PM Blair that they had to deal with until about 6 months ago. Also remember that only a year ago Tory 'think' tanks were calling for even less regulation of financial services.
Look at this from The Times, June 7, 2005:
"CITY firms seized on Tony Blair’s attack on the Financial Services Authority (FSA) yesterday, saying he reflected their concerns about the regulator’s heavy-handed approach.
Angela Knight, chief executive of the stockbrokers’ trade body APCIMS, said: 'His words have resonated across the City. It has been seen as him shooting a very big cannonball across the bows of the FSA'.”
This is what Blair said in his 2005 speech: "Something is seriously awry . . . when the Financial Services Authority that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone . . ."
Now this near-sighted war monger is a peace envoy, we are left with an incompetent hereditary leader incapable of self reflection, opposed by a squad of braying imbeciles who until 6 months ago adhered to the new labour dogma of 'no regulation' because all their mates are bankers.
Short selling is a red herring. When my friend first explained it to me I thought it was disgusting. Profiting from other peoples misfortunes. But that is the market, it is morally neutral. For some reason short selling seems to illicit a gut reaction and that makes it an easy target for politicians. And they need one.
Politicians of all colours got us into this mess, reshuffling the same people in the same system will bring about no change. In America a change of administration can bring about a real change of approach and ideology, here it is accepted that it will be more of the same but with different coloured ties. Why do we accept it?
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The reason Evan Davis let GB off the hook is simple - these were the agreed questions that he was allowed to ask - the questions we want answers to were 'ruled' out, literally!
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The FSA are crackers or have an eye on their next positions, for lifting the short selling ban.
Sir Howard Davies distinguished former chairman of the FSA became chairman of the one of the biggest shortselling hedge funds in Northern Rock.
They should have anticipated that lifting the ban would also prompt many long only investors to sell in fear of the short sellers, which indeed it has.
This argument about liquidity is nonsense - during the ban, bank shares were bought and sold with ease and with no abnormal spreads, demonstrating that short selling serves no useful purpose other than to line the pockets of people who have a vested interest in promoting bad rumours.
These rumours circulate the world and have a far greater impact on the UK economy that just the banks - look at investment guru Rogers comments - we have the banks and oil, both of which are disappearing so why invest in the UK.
I also doubt whether the reporting systems the FSA has is place give a true reflection of the total volume of short selling as only certain levels are meant to be reported - what happens if you repeatedly short sell and settle just below the reporting levels?
Many of the commentators supporting short selling have vested interests.
I was amused to see somebody from CMC Markets, when asked his opinion on the ban on Channel 4 news, as though he were an independent analyst, advocating with great gravitas and aplomb, that it should not be reinstated.
What a joke - Channel 4 might as well have asked a turkey what it thinks of Christmas.
I believe Turner and Hants should be sacked without compensation and the ban reintroduced immediately, also requiring all short positions to be closed.
We will see bank share prices rise immediately and the taxpayer recover some of the £25 billion or it has lost so far in the last two months on its buying of bank shares.
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Short-selling is only the tip of the aisberg. There are more fundamental problems with the stock market (and the global economy that is linked to that). The problem is GAMBLING. Global economy based on gambling. Make investment separate from speculation, stock market separate from casinos. Simply build in a delay, if one buys shares in a company today, they must wait for their investment to produce some yield. This is the healthy investment, anything else is just speculation and gambling.
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Another factor is that if a big Institution has incurred a big loss due to a bad investment, they may be forced to sell holdings in solid investments to recover capital to pay back their debts.
Cash can also be realised out of necessity.
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The falls in RBS and Lloyds can be explained by investors trying to get out at any price to avoid the total loss that nationalisation would incur.
The fall in Barclays could also in part be because HMG has now watered down the preference shares in RBS and HBOS so that the Barclays UAE deal looks even more of a millstone for Barclays than before.
At any rate, confidence in the banks is close to zero, falling sterling will mean that any offshore losses will result in bigger losses than before and yet HMG still believes the price drop is due to shorting?????
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"The euphoric buying of assets by manic investors can be highly dangerous - so it can be very helpful that the market contains short sellers expressing a contrary, negative view."
So that explains why short sellers are useful in a roaring bull market then. What about a declining market?
Aren't shorters more likely to follow movements in the market (i.e. to short declining stocks) than to "take a contrary view" by shorting rising stocks? In which case, they would exacerbate any falls, and destabilise the market.
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Am I naive in thinking most contributors to this blog are like a herd of PR profile hungry analysts or the Ernst and Young ITEM club? -each looking for the most incisive comment that hasn't been considered before?
Relax, take a step back. So the GDP has reduced by 2.0%(over 2 or 3 quarters)? - so what? That just takes us back to the same level of production as at the beginning of 2007. Why should that be such a problem? Everyone knows now that the economic acticvity was unsustainable at that time?
Again, market over-reaction has got us in this mess.
Gordo's actions may save the day - no-one knows as it hasn't been tried before. If it was a case of not doing anything (as has been done before) then we all know the result of that.
An election will not change anything. Govt can only influence at best - nothing will ever change as the Tories rely on the City as well.
Gordo's got the right idea with the Cabinet On Tour gig - take government out of London - there may at least be savings in expense claims if the "British" MP's based in Scotland only have to take the train to Manchester 5 times a week - or however many times they say they make the journey.
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it's rubbish to maintain that shorting maintains liquidity and enables an orderly market. the only ones who think this are shorters.
i own lots of bank shares and my pension fund lends out shares in those same banks so that they can be available for shorting! either that or they are selling down their holdings because they hear that they are being shorted or about to be shorted and want to minimise their losses. result? panic in private investors as well. everybody loses except the shorters. orderly market? what a load of b++locks!
that is just bloody madness and makes me determined to get out of the markets when it seem i can do so with minimum loss.
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#131: "The maths of short selling do not add up. The lender loses client money as the share value falls and the hedgefund pockets it. They then give back the lower value asset + small fee. The lending institution pockets the fee. The investor in the unit trust fund etc makes a loss. hedgefund wins, institution wins, small investor loses as usual.
That's what I thought at first, but then no, the investor in the unit trust only makes a loss if the shares are sold. If they are seen as a long-term bet then the lending institution would see it as a way of making short-term gains and still realizing a long-term profit.
However, I have no idea how much of the fee goes into the fund, and how much to the fund manager. This is obviously a key determinate as to what extent the investor's and fund manager's interests align.
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It was crazy to lift the ban on short selling at this stage.
At the moment everything is about perception and if it was even percieved that short sellers were back in the market driving down share prices any confidence left will have disintegrated.
As this PM says he will do everything in his power to do whatever it takes why did he not stop it when he knew the drastic announcements he was about to make.
Well 'Whatever it takes' should being able to accept that he is not the man to take us any further in this crisis and stand down now before he makes things much much worse.
There can never be any return of confidence while he still sees himself in charge.
I actually heard one interviwer asking Cameron that referring to the seventies
would lower confidence.
Has someone not told him there is already none left.
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The long and the short of it nowadays, is that New Labour Spin ..... and that is unquestionably Deceit and a Gross Self Serving Mismanagement of the Power of an Abusive Democratic System ..... is soon to bury the Puppets in a Catalogue of Crimes? ..... for Change has arrived ..... http://politechbot.com/docs/obama/memorandum.foia.012109.txt
And IT aint carrying the can and laundering their tales to save their tails?
So don't be cowed, Robert, into going lightly on the System which is rotten to its Core. Thirty pieces of silver gets you nowhere fast.
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18 , made me laugh out load,
maybe he was going to give him an OBE first
as I pointed out on the other blog
The BBC has turned into TASS/PRAVDA etc
This should have been a right royal grilling
my lurcher could have doen better
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GrimUPNorth77
I presume I would be one of your 'reckless idiots'? I have a mortgage and not much equity - now! However my husband and I only borrowed three times joint salary - with a good deposit.
First night in the house (mid december) smelt gas - boiler was condemned. We went back to solicitor re survey - but no joy. Did not have the money to replace boiler, pipes and all radiators as was needed so borrowed another ten grand against house. Not to buy flat screen televisions - dont own one - but to ensure heating and hot water.
Dont have any other debts - no car loans, finance or credit cards. Am in the unfortunate position of buying my house late 95. So now am in position where could end up with no equity so cannot sell but also had to take a pay cut so if when my fixed rate is up i have to go onto a much higher rate (my god by 2010 who knows what will be happening) I could lose my home. If i do not lose my job first and lose it sooner.
I am sick of savers going on about borrowers and vice versa. Why cant we all have empathy for each other - we are all in an awful mess. It is terrible if your life savings are dwindling away to nothing and it is terrible if you are at risk of losing your home because through no fault of your own there is a downturn.
Perhaps if all us 'borrowers' and all the 'savers' stopped arguing about who is the poorest of us all we could band together and actually get something done!
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Sooo, let me think...
1) Insider dealing is illegal, but short selling which is insider dealing with knobs on is brought back, having been recognised as Evil and duly proscribed. Is this because a chunk of the City makes it's money that way?
2) If so, how is the FSA doing it's job?
3) Is this the same FSA whose boss just said that the whole system needs rethinking? That must include the Evil which is short selling, right?
4) Expecting short sellers to not circulate rumours is unutterably naive
5) The FSA may claim to be independant, but is paid for by us and so ultimately should look to protect the interests of we the parishioners. That, newsflash, is why it exists. I fear it is leaning over to help EC2.
6) As to rumour mills, there has been qyuite long enough since the initial ban on shorts to undermine confidence in the banks. I think those with eyes to see can recognise this has been achieved. The nexus between the lifting of the ban and the drop in prices is too strong ot ignore. Even if they didn't actually short the banks, I wouldn't be surprised if as an alternative way of making money they'd taken some very bullish options.
7) Re 6 above, remember - investors are sheep.
8) Who has these nice cheap shares now, given they are likely to rise markedly when the economy starts to flatten out then recover? I think we should be told.
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Is there an opposite of short selling.... whereby I borrow someones Barclays shares – 50p (were 200p 3 months ago) – sell them, then buy them back when the share price goes up - I pay them a fee and get to keep the loss for myself.........
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88
Simple really.
It is not their money they are palying with.
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Adair Turner FSA Chairman
2000-2006 Vice President Merrill Lynch Europe
FSA Website
Merrill Lynch is no more. It was a zombie investment bank brought low first by speculating in sub-prime and then by first tranche credit default swops (toxic AAA rated assets). Forced into shotgun marriage with Bank of America to save it by US Fed. Now destroying the Bank of America with its massive previously virtual but now very real liabilities.
Bit like Lloyds and HBoS
Poacher turned gamekeeper, perhaps.
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How can short selling be to blame if it is legal to do?
It's looking like its going to go belly up regardless of short selling or not BECUASE there is NO confidence in the Government's ability to control this (they are for a FACT making this worse and Brown's continual denial lies make him look inadequate and stupid.
TIMES UP, NOW for a temporary coalition government to get a grip on this pronto before it is too late and Brown etal are allowed to become the dictator that they have always dreamed of becoming.
WHO IS PULLING THE STRINGS - THE GAMES UP.
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#19 "and the call ... are more tedious".
Well as Chancellor and PM GB is reponsibile for the economic policy for the last 12 years (if there was one)
His failure in no order and there are more are
1) IR35 (that was just a sop to the back benchers)
2) Minimum wage (that was just another sop to the back benchers)
3) Destruction of the education standards in the UK
4) NO Industrial policy at all abdicated this to the £££s' coming in from the city
5) Failing to take any sort of notice of any economic indicator that there was trouble ahead
6) Casino are a means of regeneration more institutionalised befief that gamble in the way forward.
7) Letting millions believe that they could have a life style on benifits. There are some that deserve support but is not the %million or so and that figure comes from the size of the DSS bugget and therefore the size of governement spending.
Some say itwas buying votes with tax payers monies
8) forced adoption and the whole family Courts Fiasco which has comsumed £billions and I mean Billions
9) CGT changes that might well have started this mess of.
10) 10% tax fiasco
11) sowing the idea that yuo can borrow boorow just like the governement has done. The people just followed GB on the borrowing front and forgot just like GB that you have to pay it back at some point by earning it in the first place.
get the message he is incompetant, we need an election
It has hall be a load of spin at top spead
The people were fooled with smoke and mirrors but maybe they are wacking up from the debt party
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One more point (sorry) :-
total absence of any sign of due diligence by the banks, or by G Broon.
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#146
"Am I naive in thinking most contributors to this blog are like a herd of PR profile hungry analysts or the Ernst and Young ITEM club? -each looking for the most incisive comment that hasn't been considered before?"
Are you sure naive was the word you were looking for? Would cynical not have been more apt? Presumably your comment was designed to be a non-incisive statement of the obvious?
"Relax, take a step back. So the GDP has reduced by 2.0%(over 2 or 3 quarters)? - so what? That just takes us back to the same level of production as at the beginning of 2007. Why should that be such a problem?"
The cost can be measured in human suffering, unemployment, homelessness. That is a problem.
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#152
You are not the problem. Far from it. There is no conflict between savers and decent borrowers. Savers need good, reliable borrowers to provide interest. Savers hate it when the financial system stitches us both up. A saver doesn't want you to default but carry on building your life. Most savers were once mortgageholders too. That is what mutual building societies were all about.
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#7
Agree Evan is generally great, his interviewee is allegedly a powerful bully who likes to go for journalists. Best lob at him was ITN journalist of late, and exposed much of underlying character in the very threatening response.
General thesis that 'shorters' are clearly not to blame is important and well made. . To some extent 'shorters' are the cleaners of the system I guess.
But surely (based on one Today interview) the person who also needs a rigorous pummeling just now is the pompous knowall in 'charge' of the FSA.
As per a previous blog, he came over as a very mediocre time server.....we really don't need this guy.
Which comes back to a point often repeated in the blogs - we need accountability. Lack of accountability is a profoundly invasive disease in this government where gift of the gab passes for erudition, and apologies and excuses abound where lies don't. TB and GB very alike but TB had boyish charm and style
Blame is more clearly
a) Wonderfully arcane financial instruments coming from a Nobel Prizewinning background - brilliant but abused. Bit like our governments' attempts to show expertise in computer systems....
b) Some well meaning but poorly considered attempts to emancipate housing for the poor in the USA
c) Bank greed and irresponsibility - undoubted KEY
d) Lack of action when guilt or reckless practice is discovered (Enron's US culpables a classic example). Gamekeeper financed by poachers in UK.
e) Some reliance on Official Secrets Act and Terrorism legislation to cover up administration errors
f) A hopeless government which was (and probably still is)prepared to do anything to cement an alliance with 'business' and was headed by a bogus manipulative Chancellor.
The internet has really revolutionised our access to knowledge (does the government realise this?) so you can't get away with old lies.
The danger is, of course, that verbalisation of protest in blogs gets us nowhere eventually. We just let off steam. The informed country need to start to build up a really good internet pressure groups. Paths to action are needed.
That said, keep it up Evan, but don't give up your day job for motorcycling (not good technique, our local informed bikers were very rude AND watched your programme).
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133 jericoa
'It is easier to resist at the begining than at the end' - leonardo da vinci
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Okay, as just about every one in the world is expecting the Pound to fall further against the Euro and the Dollar, how do I go about raising a short position on good old sterling? I might as well make money from the inevitable. Come to think of it, why doesn't HMG take a short position on the pound? Can they do that, and hedge themselves?
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Bank shares correctly are the net present value of future "expected" dividends. Expectations can be hugely volatile.
Members of parliament should be emotionally wiser than to react to these swings of expectations .
This is the market functioning correctly,which thus can sometimes be painful.
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I don't know why anybody is surprised or upset at what the politicians (in this case GB) are saying. They are not talking to people like those who comment on this blog, ie those who understand at least something and in many cases a lot about what is going on in the markets. They are talking to the vast numbers that they need to vote for them, who dont understand, who want somebody who is going to 'fix it' so they can go on have cheap everthing for ever. In short, to give them that warm cuddly feeling that although it will be a bit tough for a while the cavalry is on its way and everthing will return to what they think of as normal. So thats what they get told. Allthough GB may not understand, if he does he surely knows that telling the truth is never going to get him re-elected. What would you do?
btw re Barclays
Price now below 50. Given what was said by Barclays recently about their 2008 profit levels they should be able to buy back all their shares from this years profits without making too much of a dent in them. Then what we have to talk about?
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I must agree with #78 guycroft and #100 jericoa and many other regulars here in saying that today's contribution from Peston is as much value as a RBS share
why are you still going on about short selling; we had already discussed this issue to death here amongst ourselves earlier in the week
mrsajb has done us all a service by finding the far better paul mason newsnight blog and his report yesterday:
http://www.bbc.co.uk/blogs/newsnight/paulmason/
also must say that #139 ultratron pretty much hits the nail on the head and has done some good investigative stuff that overlaps with paul mason's report
shame that Peston can't do a bit of proper journalism; if we needed a man with a broom to follow behind the trail of elephant droppings we could pop up to Regents Park zoo
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I've 2 comments to make:
Firstly, we can apportion a great deal of blame on traders. Electronic instant trading and the introduction of an arsenal of financial trading instruments are responsible for modern day volatility;
Secondly, and far more serious, is that earlier this week Lord Turner, Chairman of the FSA, calmly proclaimed that central banks, banks themselves, financial institutions and REGULATORS around the world must all share the blame for what has happened because “they did not foresee the risk”. Well, I’m an IFA if I don’t “foresee the risk” when dealing with clients I can suffer £000s in complaint compensation. So Lord Turner, who should the nation write to complain about the FSA’s handling of its obligations?
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152 Princesschipchop
You are indeed one of those 'reckless' borrowers. You just confirmed Grimupnorth's contention, that people have debt to their eyeballs that they cannot afford.
1) You borrowed and blew your entire deposit in a bid to get absolute maximum bang for your buck when you purchased
2) It speaks volumes that you don't have a few grand to spare, why live so close to teh edge?
3) You think it is NORMAL to borrow a FURTHER 10k that you DON'T have. You could have saved it up.
4) you bought in 2005?, 10 years into a housing boom. Why? Several people including me could have bought in 2005 but chose to rent, knowing Merv's last drop in rates in the face of RUNAWAY inflation was the last gasp of the housing market.
5) Why is your boiler repair much better than children's school fees for e.g. or new carpets? It is still living beyond yoru means
6) You are already talking about selling, which means you are a misguided property speculator? If you are arguing on a 'home' sort of basis for heating, etc. its one thing. But if you want to sell in 3 years, its clearly not a purchase meant to live in, but one to move 'up' the rung of the 'ladder'.
Meanwhile, thanks to your ilk, interest rates have collapsed to ruinous levels, pensioners are paying for your cheaper monthly mortgage and surviving on bread. Is that fair?
Whilst most of the criticism directed at bankers is fair, please remember that the assets side of their balance sheer which is deteriorating fast is nothing but a reflection of its customers - near-bankrupt homeowners like yourself and bubble-era companies that can't survive without credit.
The ONLY thing I can agree with if your final statement suggesting that all should come together. However, with mortgage holidays for homeowners, massive reduction in monthly mortgage payments and the insistence of loonie Brown to LEND more to all, how do you possibly expect those that have saved to empathise?
Our collective lunacy as a country addicted to credit is leading us to the IMF. Together.
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One thing this crisis has done - make people have adamant opinions on things they know absolutely nothing about!!!!
Short selling makes for an efficient market - less volatility – efficient price determination
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The early comment that "It's confidence..simple" is right of course.
I think in there is another aspect to it... that the way shareholders have been treated in N Rock, HBOS -into-Lloyds... B&B (even the 'shareholders' of the mutuals forced into Nationwide a few months back..the depositors.
I just mean the culmulative effects of both the overt treatment of shareholders (as opposed to depositors), the damage the Govt do in any run-up period to action---when political leaks and so forth fly around and finally the guantanamo-like total suspension of Company law when " we need to"......
All this means that the risk in holding any bank shares is just not worth it... then the share price falls make inevitable the nationalisation or partial nationalisation...
In a different sphere..the grab of Icelandic assets at the start of their bank implosion has sent out another message to foreign investors that they haven't been slow to understand....
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Slightly off piste but
You're all intelligent guys and gels and by enlarge you have Gordy (crash) to his friends banged to rights so what happens now my friends ?- how do we get rid of him ?
I think not so easy
Turkeys don't vote for christmas and who are the turkeys ?
1 - Public sector workers
2 - "I've voted labour all my life" folk
3 - benefits recipients
4 - Criminals "Tough on crime - tough on the causes of crime" Yeah right !
5 - people employed by quangos
6 - Consultants to the government
7 - I T companies who can never seem to finish a job and make it work
8 - Northern Rock employees
9 - Hedge fund managers
10 - Anyone to do with Health and safety and political correctness
11 - Speed camera manufacturers
OK I'm done, my rant is over but I think you get the message
When he eventually goes to the country - it aint going to be a pushover oh no siree particularly with Dizzy Dave and Gorgeous George ineffectively pratting around.
Thank god they brought back Ken at least he tells it as it is and is believed by the masses.
I personally hope Trotski New Labour get back in at least they wont be able to blame the next five years of misery on the Tories
Happy Days !!
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#152 - I think you maybe bought your house late 2005 not '95 as you state - or perhaps the sequence of house price rises was different down south where you possibly live?
I bought a lovely semi up North in mid '95 for £65K with a mortgage of £50k (3 times my salary at the time but we did not think we should include my wifes as this seemed to overstretch us on the repayments) - mortgage now still £45k as borrowed £15k to extend a couple of years ago (rather than move - I try to live life simply) - house value probably still c £160k but in twelve months I would hope this has dropped to about £120k as this will be good news for my daughters who will soon need to try and get on the housing ladder themselves.
You do not sound like a reckless idiot - you sound like someone who has been unlucky but also badly advised and a victim of the lax lending by banks - 3 times your combined salary to leave you with no savings is reckless and unaffordable IMO - but because the banks were giving everyone this kind of credit the house prices were unrealistic and the vicious bubble grew and grew.
The frustration for the prudent amongst us is that if we lose our job because the economy collapses then all our prudence will have been wasted due to the impact of all the people who lived for today and worried about paying tomorrow.
The spenders have had their fun and now spenders and savers alike are suffering - hence the 'friction'.
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Short selling drives share prices down,so how can it be ever called an investment. if the only idea of it is to hurt companies it should never be allowed. It is not buying and selling shares for long term investment.
Short selling is only good if you have inside knowledge, so real investers are the only loosers.
Please leave the real economy alone, if you want to gamble go to the bookies, but then it not a sure bet is it???
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# 34 truths33k3r
& everyone else calling for Brown to step down etc.
My politics arn't the issue here. ( Lib-Dem in Teignbridge since you bring it up.)
My point was more along the lines of how much effect do you think you're having here?
Calling for a change of government on an economics blog is probably slightly less effective at getting a new government than voting Monster Raving Loony at the next General Election.
Even if this countries economy was in as bad a state as say Zimbabwe I really doubt Gordn Brown would step down just because you and a few dozen other people call for it in a discussion about short selling.
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Short selling is just the scapegoat.
It exists so that traders can make a profit in a falling market, or with a falling share price. If it didn't exist it would be impossible for a shareholder to sell shares when the market, or the share price, was falling because the broker they instruct wouldn't have anyone willing to buy the shares.
The reason the government want to blame short selling is because it is convenient. The majority of the population do not understand how or why it works, so it can take the flak.
Otherwise the government have to admit the banks are insolvent, which the majority of the population do understand. This would cause a run on the banks. Although the government have guaranteed the deposits in the banks they cannot afford a run on any of them as the guarantee holds true as long as we keep our money in the banks, if we all try and pull our money out at once the country would be bankrupt.
It's also a lot easier than admitting you failed to regulate the banks during the good times.
I also heard Crash on Today this morning...has the man no shame!
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@163 glanafon
An excellent citation thankyou.
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Message 146 slowleftarmround
What a callous message!
Why worry that the economy has shrunk by 2%?
That 2% is almost a million people out of work. Have you ever been put out on the cobbles? I can tell you it is one of the real hard experiences you can get in life. I hope you get to try it. I reckon being repossessed is a good deal worse but thankfully I haven't been there.
Yes we knew this bust was coming but the government did nothing about it. They just sat there and told us we were experiencing the longest period of sustained economic growth in two hundred years and weren't they clever. Rubbish! It was a bubble made bigger by their ignorance.
An election would help us to get rid of this sick joke that we have for a government. Even now with the brokers men kicking at the door they come up with an new initiative ever other day which will cost even more taxpayer funds to implement. They just have no idea what is going on!
Lastly these journeys around the UK by the Cabinet are just another example of the sort of initiatives I mean. A nice jolly around the provinces staying at nice hotels talking to the party faithful all at the taxpayers expense. Why don't they go down the local Job Centre and talk to the people in the queue.
That is the reality which is going to apply to more and more British people over the next twelve months. It is a disgrace. This government is a disgrace and its supporters should be ashamed!
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#163 Glenafon
I dont think it is resisting it is simply a matter of not throwing the baby out with the bathwater. Thats just common sense
I am half expecting you to quote Einstein back at me this time '' common sense is just a ....etc etc.''
Jericoa
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I agree with #78. Why are we even talking about banks today? The economic story is the extent of the collapse and the critique of the Government's policy by David Cameron which Crash called "ridiculous" this morning. Who is right? In the Indie today Hamish MacCrae seems to agree with DC and has the graphs to prove it.
He points out that the peak of New Deal interventionism was 6% of GDP in the US (lower here). We are at 8% and climbing.
If we continue with current policies this country will go bankrupt. We must take steps now to prevent that. Cut spending and public sector wages, increase taxes, try to avoid further commitments of credit by the Government. Sack Crash, sack Crash sack Crash...before it is too late.
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#149 virtualsilverlady
You are correct in that the current game is all about perception. The great and the good are all telling you to have confidence - but what they know, and resolutely refuse to tell you is that substantial parts of the banking system is irredeemably insolvent. No amount of perception management in the world can change that fact.
Consequently all those that take heed of this endless diatribe of spin, dissembling and sophistry are liable to make their own personal situation worse.
Short sellers have been trying to tell you something - something called the truth.
It does not matter whether this truth causes confidence to disintegrate since it is the truth and if you close your eyes it will not go away.
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Another reason for lending to short sellers:
suppose you closely follow one big company, you own lots of the stock and you would like to increase your position.
Lend some of your holdings to short sellers - watch them drive the price down and then buy more on the dip.
If you are right and the fundamentals are good the stock will recover and you will have got a fee from the short seller plus increased your own holding at less cost.
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#167 somali pirate
Don't be too hard on Peston, he at least provides a platform for feedback that is an order of magnitude than some others I could mention...
Agree with you and thanks to MrsAJB for pointing the way of the Paul Mason piece.
Re #139 Ultratron and the Times article, follow the paper trail to the Hampton Report.
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Does anyone know why HMRC have decided to stopped paying interest on tax refunds?
This sort of decision only makes the system even more unfair.
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WE DO NOT NEED SHORT SELLING TO DEPRESS SHARE-PRICES.....
Al Darling depresses share prices everytime he opens his mouth.......
Do the needful Gordon.....
GET Ed IN
and
KICK Disaster Ali-Pants OUT!
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#153 Siriuswonderblast
Exactly who (other than you) has recognised short selling as "evil"? Who has proscribed it on the specific grounds that it is "evil"?
How do you define "evil" and how does this "evilness" manifest itself?
We are heading into dark days and the early abandonment of reason and logic does not bode well for the future.
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#166
Beat me to it!
Barclays management should be buying their own company's shares like there was no tomorrow!
Because maybe there won't be?
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I've said it before and I'll say it again.
Futures were first introduced to bring stability and certainty to commodity markets. It is perfectly acceptable for a farmer to lock into a future price as it is for a wholesaler.
The problem started when this method was simply applied to any market.
This then brought the speculators - which have the opposite effect - price volatility.
It's naked shorting that creates the real issues (where you cannot take delivery of, or cannot supply the underlying).
The problem is that whilst the gains are limited, the losses can be infinite. If someone ends up on the wrong side of a position then they can end up owing more than they have in assets - and they go bust - but the money woed will never be repaid.
However the 'assumed value' that the short provided will have been spent, passed on and be further into the system.
.....now is it any wonder that the asset revaluation that's happening at the moment is so extreme? We've had 10 years of inflating it, now it's got a whole in it and it's going down fast.
Think about it logically for a minute, it's another example of how the economy gets over-inflated and results in a bigger boom and a bigger bust.
This was discovered over 100 years ago and rather than implement measures to calm the over-inflation, Governments across the world have allowed banks to create even more ellaborate ways of making the problem WORSE!
CDS's, Futures, Options, CFD's and swaps - are all examples of economic inflators. LTCM learnt this in the 90's - but due to the bailout by some major banks this was all swept under the carpet.
Bankers know nothing about insurance, that's why the offer default insurance at the wrong rate.
A normal insurer can rely on the huge improbability of 10 hurricanes hitting the UK at once - however bankers made the same assumption and were completely wrong as all the markets turned bad simultaneously.
You wait until the CDS's start falling over - there isn't a bank, or Government that can underwrite the trillions of dollars of liability. All that value will be lost (although it never actually existed as anything other than a promise)
All the insurers know that even if the worst happened that they (and their industry collectively) could stump up the cash, or failing that the Government could assist - as with the Hurricane that hit New Orleans.
The cost of rebuilding Britain is a finite amount - however the cost of insuring against credit risk is infinite.
.....and there lies the problem, good mathematics but poor understanding of the more abstract ideas of finite and infinite.
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169. courteousnewcitizen:
"152 Princesschipchop
You are indeed one of those 'reckless' borrowers. You just confirmed Grimupnorth's contention, that people have debt to their eyeballs that they cannot afford."
Every point that you make is absolutely right, though this person is by no means the worst example. I have read that, amongst those who have non-mortgage consumer debt, the average sum outstanding at end-2008 was GBP 21k. If true, this is really scary.
To me, this situation is (a) scary for the economy and individual misery, (b) evidence of a systemic problem, and (c) a symptom of a much deeper malaise.
On (a), it seems to me that debt leverage is being under-reported where consideration of recession consequences is concerned. If a person has negative equity but can keep up mortgage payments, well, not great, but at least they keep a roof over their heads and maybe, just maybe, the house price might recover one day. But, if they cannot keep up the payments on debts for tvs, cars and holidays, they are facing potential disaster. I think the numbers with this problem are probably huge. It needs to be discussed. Measures need to be taken to prepare for this hitting the fan. We could see a rise in relationship breakups, depression, suicides and, of course, crime.
On (b), there has been systemic failure in terms of lending to people who could not afford it realistically, even before the spectre of unemployment came along. Almost every day, it seemed, brought a shedload of junk mail offering 'cheap' and 'easy' consumer credit. This represented a failure of regulation. ONLY licensed and regulated banks should ever have been allowed to offer loans or credit (in which I include retail credit cards). We have all criticised bankers, traders, hedgers, etc., and rightly; but loan sharks (however seemingly 'respectable') are the worst of the lot. Why is nothing being DONE to stop this?
As for (c), the deeper malaise is excessive materialism. We need an educational programme to teach people:
- that 'quality of life' is more important than 'standard of living';
- that it is 'who you are' and not 'what you own' that matters;
- that you should not feel bad because you do not own something that your neighbour owns;
- that 'betterment' is not solely, or even primarily, material;
- and that peace of mind - which is priceless, and cannot be bought - is the REAL price that you pay when you buy something that you cannot afford.
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Some good descriptions of short sellers there, but as the article stated there isn't a great deal of short selling occurring.
So maybe that tangent is a bit of a red herring.
If Crash and Bankrupt Ali don't think their policies are responsible then maybe they should have a completely independent enquiry into the whole matter.
I'll volunteer for the chair of the quango.
Alternatively they could just admit they were wrong
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179 jericoa
Your objectives are fair enough, good in fact. re quote lol -
Leonardo will do, at least I think it was him,
-'There are those who see, there are those who see when shown, and there are those who do not see.'
The majority appear to be in the latter category as demonstrated by the last five years. The full stresses are not here yet. In times of stress the animal instincts come to the fore. The impact of recession is arbitary and the short term future is split between those who are sacrificed by the mechanism or survive with some pain but generally intact. Future policy will be shaped by the response to majority, it depends how scared the majority are that is all.
Targets have to be acheivable to mean anything. I would suggest survival is the best focus. If that is achieved everything else is secondary. A baying mob for Labour is due, whether they are right or wrong, so policy will change in due course.
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Anyone seen Will Hutton's report UK looks like 'Iceland-on-Thames' On the one hand, he whitewashes the government: far too kind, on the other hand some valid points.
On I absolutely agree with is when he says "I've always thought that the City of London was a vastly overrated success story"
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I have long argued that there could and should be a 2 tier financial system,
One for Mortgages and other long term investments that would benefit individuals and businesses, therby increasing our own infastructure and make us not so reliant on Brown's 'global' excuses.
The other for saves, Investors and inter bank dealers,
There are systems in place where this would work with a little thought.
That way the whole country would benefit, The banks , City dealers , finance houses and monetary exchanges would attract additional funds/financail and investment resources into the UK economy.
James.
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I have to agree that it is the Banks who are at fault and not the short sellers.
Around the planet UK banks are a joke. Buy shares in a UK bank? As a share investment they are at present a bit better than a flutter on the 3:30 at Kempton Park but not a suitable investment for widows and orphans.
Anything that looks out of the ordinary is going to send investors running for cover. Investors will take the attitude of wait 12 months and see - if the bank is right - fine we might start buying shares in them again.
Wonder how the South Sea Trading company shares are doing?
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Short-selling is a convenient excuse for what's happening to the markets. Whilst the shorting ban was IN PLACE, the financial sector of the markets lost 55% of their value...why? - because people dumped their stock knowing the company was of little worth. What's the difference? In normal times these people could have hedged their risk by shorting the market, this time they just had to take a massive hit. Well done. Let's find something else to blame for this recession. Maybe the fact that the banks took on too much bad debt which made their stock worthless. End of.
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Shortselling
I do not agree,that we need short selling, for an ordillary market. I think the F S A , has got it wrong, especially in these turbulant markets.
But, lets look at it from another perspective. Who in their right mind would lend their shares to a hedge fund, for short selling, who have only one intention, of driving down the value of those shares.
If any pension fund, managed fund etc trustee is doing this, they should be dissmised.But the hedge fund pays 3%, only because they think they can drive the price down more than 3%. The sooner the F S A tell fund trustees that they will be personally liable for all losses to the fund on shares they have lent out for short selling, the activity would soon end. Soon there would only be a very short supply of shares to shortsell.
This activity might have been going on for years. (Market practices). But that does not make it right or , is it even legal
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Ref my 88 earlier.
Many thanks to 108, 115, 137 et al for lightening my darkness.
Think we've established that if my mate Kev the Shortseller wants to borrow shares which I actually own, in my own name and bought with my own money then no, the arithmetic cannot possibly add up. Unless my share of the commission outweighs my capital loss on the deal, then it is not worthwhile. If it does, it's not worth Kev's while
On the other hand, if Kev goes to the Fund Manager at Whizzbang Investments and borrows shares which Whizzbang bought with monies which I and others recently invested with them then I'm not a lot wiser. Next month I'll get the usual mealy-mouthed letter from Whizzbang about difficult trading conditions and how my investment is now worth 9K.
Granted, as many have said, investors are supposed to be in for the long haul. If one of my favoured shares is down ten pence today I'm not going to throw myself under a bus because I believe eventually they'll bounce back and so long as they do so before I am ready to tend my roses then all will be well. My concern is with those shares like Barclays, HBOS, B&B etc which are being put into terminal decline by, amongst other things, short-selling. Did Whizzbang risk a punt on these as well?
If they did, and have then been complicit in driving down the price by lending shares to short sellers, all the while pocketing their share of commission for themselves and other investments then we have a very unsavoury situation indeed. This would not be a short-term "on paper" loss - it would be a permanent or very long term loss.
But of course, it's not just Whizzbang who are sending out the "difficult trading conditions" platitudes. These are emanating from some well known high street names as well.
Hardly surprising, then, if all confidence in third party investments goes through the floor and people start putting their savings under the bed. On the face of it, a couple of accumulators down at the local bookies looks like the more honest option.
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#175
1. There's quite a following not posting, so keep it up, two men sharpen each other, to quote the good book!
2. Don't forget, folks, that people are suffering out there. We need more ideas, not of the "chin up and think of England" variety, we get enough of that from GB, but how to find the bottom and what to do once we get there. I'm certain I'm not the only idiot with ideas on that, but we don't want to overshoot to zero either.
3. Rahere's not bothered about elections, it's quite clear Labour will do the Conservatives a huge favour and ride it all the way down now, but Rahere can see the alternatives and shudders. Whyever else do you think I've been posting Apocalypse Now?
#153
The Conservatives' Tony-Eyes poster's not looking that short of prescience now, is it? What I pointed out to AC is that there's hard track record backing something he said which goes a very, very long way in that direction, and I'm talking what's commonly accepted as active malevolence to society as a whole, but let that run for the moment, we haven't decided what to say, how and when yet, AC's got to checkabout a thousand years of history and an area he'll have real difficulties in getting his head round, for all that it's also cutting edge Imperial College studies as well, before we even begin on that track.
The problem for you is that your definition of reason has its bounds, and pre-scientific rationality was a different kind of reason with different bounds. It grew from the earlier mediaeval paradigm, true, but it's a mistake to think that the older quadrivium model was totally lacking in logic, it was based on the trivium of grammar, rhetoric and logic which you use here as common currency without realising it.
In fact in the current circumstances we're short of the tools they used then to some extent, and we're going to need a contrast to the brutality of hard fact if we're ever going to rebuild, not so much confidence, as human trust. We need more girls on the blog to start that working, I feel.
That can be quite a subject, so let's keep it for future posts - if people want to develop it, please ask, but in the mean time, let me give a sampler.
The microfinance models of self-help banking in India are one likely way out of the mess. The problem they faced was remarkablty similar, lack of trust between alpha males. The solution they found was to return to open markets, but womaned to the greater part, as they're building their society and that takes the feminine touch as well as male dynamicism. Guys, you'll hate this, but perhaps Sheila's Wheels will be the future.
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We have ALL benefited hugely from the growth in the UK banking system in recent years viz:
1. The tens of billions paid by UK banks in taxes to the Treasury which has contributed significantly to paying for lots of schools 'n hospitals
2. The hundreds of thousands of people employed in largely well paid jobs
3. The highly competitive nature of the UK banking market with many players offering a wide range of low cost products - if you don't believe this go and study how much it costs for day to day banking services in other countries
4. The massive dividends paid by the banks to shareholders many of which are pension funds which most of have money invested in
We all therefore have a stake in ensuring a stable, profitable well regulated commercially owned banking sector in this country.
How lifting the ban on short selling at this sensitive time was supposed to help achieve a step forward I do not know. Things seems to have stablised in the banking sector until last Friday and the lifting of the ban - what a coincidence !
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186 armagediontimes
.....early abandonment of reason and logic does not bode well for the future...
Sorry I thought the abandonment was some considerable time ago. PS The times are not dark everywhere.
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A Story for our Time
Once upon a time, a tyrannical King governed a country. After yet another of his projects ended in disaster, resulting in higher taxes and more hardship for the long suffering population, a wise man let it be known that he was a master chef. When sufficient interest was aroused he announced a spectacular feast for which he would prepare the most delicious new food. The King and Queen and all of their courtiers and advisers were invited.
Much effort went into the preparations. Many were the people consulted. Great was the enthusiasm as the master chef devised numerous exotic dishes for the occasion. No expense was spared. Excitement mounted.
On the appointed day, full of anticipation, the various dignitaries assembled. When the King and Queen were finally seated the food was presented with great style.
But every dish proved to be disgusting.
“Abominable!” shouted the King. “Awful!” screeched the Queen.
“What is this poisonous mess you are asking us to eat?” cried the outraged guests. “You’re making us all sick!”
“But these are my latest recipes!” the wise man said. “I made them up as I went along, putting in at random anything that came to hand – if it seemed like a good idea.”
“That’s absurd!” the King and all his advisors cried out at once.
“That’s no way to prepare a meal.”
“I agree,” said the wise man, before making a hasty exit, “But I thought it would be interesting, nonetheless, to try out recipes based on your way of doing things.”
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Political capital being made about Brown?
http://news.bbc.co.uk/1/hi/uk_politics/7845608.stm
Would be interesting if Robert could get some answers about yachts and home funding from certain figures.
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The posts condemning short selling are deeply flawed - and I suspect they are driven by investment losses incurred by the posters - looking for someone to blame for their own shortfalls.
All short sellers are doing, is valuing the shares at a lower price than the rest of the market. This is a perfectly legitimate activity.
Other parts of the financial industry have been equally guilty of issuing rumours and innuendo to boost share prices for years ('Oil Company about to discover new deposits' etc)
If you have lost money on investing in bank shares I have no sympathy.
The key rules rule of investing is to never invest in something you don't understand - so unless you understood the move of banks away from their traditional business model you should have steered clear.
After all - if you'd invested in a simple investment such as Building Society deposit accounts - you'd have had a very modest rate of return - but you wouldn’t have lost a penny during the recent downturn.
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187
The Barclays exec can't pile in & buy, as they are in the closed period before the results are announced - it is illegal for them to deal during this period
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Short selling ? Is this what German, French, Italian, and Swiss media are doing to Brown's claim that he is being buffeted by Global events ?
PLEASE PLEASE EVERYONE read BBC's Paul Mason Blog : simply type in 'Paul Mason' in the BBC's search engine at the top of this page.
***I promise you, you'll not regret it !***
Even a Top Ranking Civil Servant is now being obliquely slated by the BBC. Gus O'Donnell... I believe is currently the Chief Secretary to the Cabinet but was previously Permanent to the Treasury.
The BBC...at last some teeth.
Why do its journalists give Brown such an easy ride ? They let him hide behind vague words such as 'Global'.
Mr Brown is a good percentage responsible for the Global Crisis. Period. (Together with a few others in USA, Iceland, and Ireland - Greenspan comes to mind)
Together with Ed Balls and Gus O'Donnell , they devised the Tripartite Regulatory System in the late 90s..
SEE PAUL MASON's BLOG.
Have a great weekend everyone.
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185) onward-ho
'Do the needful Gordon.....
GET Ed IN
and
KICK Disaster Ali-Pants OUT! '
I agree Mr Ed the talking horse would actually be a major improvement for Gordon’s crack (or is that cracked) team.
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# 169. courteousnewcitizen and #189 friendlycard
You wrote "152 Princesschipchop - You are indeed one of those 'reckless' borrowers"
What tosh! You should both change your names - I suggest 'condemnationalnewcitizen' and 'unfriendlycard' and get jobs as circuit judges. Then you could really show them all! Perhaps you are already because that's the extent of mercy given the poor individuals being dispossessed.
People who borrowed within their means (as they perceived them to be before the crash) did so in good faith. Good faith being faith that the Guvt would maintain economic stability as promised and declared by Brown.
If you aren't born into to money, and given that for decades every Guvt has 'put upon' the British people more and more and degraded the quality of life so much, how else do you generate some small standard of living but by borrowing? You have a problem with that??
Crikey, the concept can hardly be described as new and behind every loan agreement is/was an expert in a bank (or whatever) making sound judgement about the size and purpose of the loan and the ability of the person to repay it.
That anyone will now point the 'reckless' finger in those cases incenses me, it really does.
One CANNOT expect people to have a blind clue how they are supposed to run their own family finances if even the British Guvt cannot hold to their undertakings. In this case the entire economic substrate has been stripped away which is why I have repeatedly campaigned where I can against the disgraceful trainwreck of repossession and foreclosure against folk and firms who are falling behind. The whole blasted country is falling behind for goodness sake.
And as if that was not bad enough the Prime Minister is now encouraging firms and people to borrow. Borrow - and when you get behind - the state will hang you out to dry.
And if for one moment Brown, for all his faults, believed that what you say about 'reckless borrowers' - mostly just just trying to get on in life and improve their lot - was true you can be SURE he would be repeating it over and over. So what exactly gives you two the right to say things like that?
Good Grief.
GC
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Lending to short sellers does add up if you are a tracker fund manager. You are only being paid to balance the fund against market capitalistions not for wise investment decisions so if a lent share is returned to you at a lower value it's not your problem so long as you are still tracking the market. And you get a fee from the short seller too.
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I blame the scapegoats!!
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189 Friendly Card
you ARE British aren't you? your post suggests not, rather you are from a land of greater enlightenment, wherever that may be.
And whilst we whine about our bankers, our politicians, our regulators, our estate agents, etc. etc., may I suggest that the uk's democracy is in fact in rude health. These people are an ACCURATE reflection of ourselves.
I used to never cease to marvel at the British sense of fairness, justice, tolerance and humaneness. Was it all simply fake smiles on the back of rising house prices and consumption based on funny money?
I am amazed how our worst traits are now on display, a something-for-nothing culture, materialistic without the means, property-speculating, debt-ridden, lazy/incompetent with a warped benefits system that actually fails the poor and a scandalous business/regulatory environment that sees the poor subsidize the rich every decade or so!!. Quite an education for a young person like me.
It has been saddening to see the proverbials line up on the kerb jostling for position, banks, car companies, mortgage-holders, other borrowers, public sector workers, chief executives, etc. etc. whilst Gordon and Ali drive by. They all know fully well that printed money handouts will result in inflation/taxation that will further impoverish those at the bottom and pensioners, but do they care?
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Q. WHAT is the MOST scary thing about THIS recession?
A. The REALISATION by the PUBLIC that the GOVERNMENT and all their REGULATORY BODIES do not seem TO KNOW WHAT THEY ARE DOING.
"we are in uncharted waters" = "we are guessing"
"it's a global storm" = "we didn't see it coming and we don't know how bad it's going to be"
"The UK is well placed to ride out this financial storm" = "we still don't know how bad it's going to be, but we don't want you knowing that"
"we need another bailout" = "Our last guess didn't work, so we'll try it again and again until it does, or until something else changes"
"We have to join the Euro in order to save the Economy" = "We're desperate now"
"What is a CDO / SIV" = "What is a CDO / SIV?"
(BoE August 2007)
How does it feel to know that we PAY huge SUMS OF MONEY for the advice of these SO CALLED EXPERTS when it's clear that they KNOW NOTHING.
There was a lady on the BBC this morning - apparently an EXPERT from OXFORD in economics.
She was asked "when will the recession end?"
The answer was anything between next week and 2013.
I asked my cat the same question and he actually said it could be longer than 2013 because the recovery is reliant on people's confidence and not on a mathematical formula that can be learnt and re-gurgitated on demand.
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picking up the thread from
re GrimUPNorth77
#152 and #173
#152 writes: "I am sick of savers going on about borrowers and vice versa. Why cant we all have empathy for each other - we are all in an awful mess..."
I do have emphathy for those who have inadvertedly overstreched themselves.
But I have no sympathy for the Labour politicians who have allowed this situation to arise, patting their shoulders all the time for the 'growth' they allegedly fostered over 10 years, and who are still in denial about the debt bubble they have in reality created.
And what makes me furious is this:
We've held off buying a house because it was clear to me since 2005/6 that real estate was over-valued, and that a correction had to come sooner or later. Now the correction is here, and after years and years of waiting I would like to finally buy a semi-decent home for my small family.
And what does the gov't do? They try to prop up the property market with any means available, including the printing of money. Now I have to worry that the deposit we've saved for will be devalued, and that a nice home will stay out of reach.
Will those who have over-extended themselves in recent years be left off the hook to win votes with the effect that prices stay at the inflated levels of the past.
I keep saying it: just look at the house quality/prices on the continent and you'll see that the UK is hopelessly overpriced. And please don't talk to me about limited supply. That is only because overly restrictive planning laws (contributing to the bubble). Moreover, when all the migrant workers have gone home there will be plenty of spare housing capacity. I really don't mind about plus or minus £10k pn house prices but it should be possible to get a half-decent house for a family with two good incomes. Will I have to emigrate to live in decency? Fortunately, not all my savings are in GBP.
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197. Fingertapper:
Very well put if I may say so.
The short selling conundrum is tricky:
Q. Can it be right to sell something that you don't own?
A. Yes so long as you've borrowed it from somebody who does own it
Q. Yes, but what if he doesn't really own it either, but is custodian for the real owner, and the real owner hasn't been told?
A. See what you mean, Batman........holy fiddles!
Personally I would put a stop to it, for one single reason. Markets are not casinos; they should reflect the value-opinions of sellers (who are owners); and buyers (who have decided to become owners); and no-one else.
Croupiers need not apply.
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199 markl64
'We all therefore have a stake in ensuring a stable, profitable well regulated commercially owned banking sector in this country.'
This would appear to be correct - the taxpayer does indeed appear to have money, ie a stake, in this activity whether they want to or not. It is part of the bail out or rescue plan.
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201. Starkravin wrote:
"A Story for our Time"
Brilliant!
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in horse racing there is an equivelant to short selling, where an individual will operate like the bookmaker and take bets from people on a particular race. The individual claims that horse x won't win the race (its usually the favourite, in order to attract a higher demand for the bet) if he is correct then he will keep all of the stake, if he is wrong then he is in a lot of trouble.
Obviously the individual has had sufficient information on both horse x and the rest of the field in order for him to offer such a bet and take such a risk.
If we relate that to short selling we can see a correlation in as much as those short sellers have got the sufficient info required in order to take on this risk of betting on barclays share pric to drop.
However it seems that these short sellers are undertaking a lot less risk because the confidence in the shares of the banks is so low that it is almost a "racing certainty" that the price will diminish....in addition the fall of shares at HBOS and Northern Rock are a great form guide as to what will happen at barclay's in the 4.35 at FTSE
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Robert,
Reading the many informative posts it is becoming clear to me that investors and the public at large have absolutely no confidence in Crash Gordon and his chums.
No-one in New Labour has the Ed Balls to challenge his leadership and I'm afraid to say (as a Labour voter at the last election)the left wing biases of the BBC are preventing a balanced view of this man's incompetence being broadcast.
When he was Chancellor for 10 years, he was so quick to tell us how his management of the economy led to growth with no credit given to global factors...it all goes wrong and all of a sudden it's a global problem. Has any one individual ever shown so much contempt for the intelligence of the Britsh public?
Is it not about time the BBC played it's role in promoting a proper debate on the best way to lead us out of this crisis and the Leadership required to do so?
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for those wonder why Varley is not buying barclays shares.
You will see that all the british banks executives buy shares at these prices as soon as the results are declared. That is if the prices last that long.
Close period
Resource type: Glossary item
Status: Maintained
Under the Model Code of the Listing Rules , a period of time during which persons discharging managerial responsibilities of a listed company are prohibited from dealing in the company’s securities. The close periods are:
The period of 60 days immediately preceding a preliminary announcement of the company’s annual results or, if shorter, the period from the relevant financial year end up to and including the time of the announcement; or
The period of 60 days immediately preceding the publication of its annual financial report or if shorter the period from the end of the relevant financial year up to and including the time of such publication; and
If the company reports on a half-yearly basis, the period from the relevant financial period end up to and including the time of such publication; and
If the company reports on a quarterly basis the period of 30 days immediately preceding the announcement of the quarterly results or, if shorter, the period from the relevant financial period end up to and including the time of the announcement.
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I lend money to an 'entrepreneur' who gives me his shares as collaterol. I don't own the shares but I might if the value of the collaterol dropped sufficiently
Can someone tell me whether I could I 'lend' these shares to a third party?
If I could, I might then lend them to a financial services chum that needs to pocket the difference between buying and selling values to generate cash to repay $50,000,000 to RBS before April 2009?
I might do this several times. In the meantime, the market gets spooked and sells helping me to acquire the collaterol and my chum who needs cash
Then, eventually, I might buy some of these shares at the lower price on the basis that they look pretty good value.
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One minor point.
To sell (short or from a real position) you need a buyer.
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211. TheresOnly1Soupey
Spot on mate. Except your cat is an incredible optimist....
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guycroft wrote
"People who borrowed within their means (as they perceived them to be before the crash) did so in good faith. Good faith being faith that the Guvt would maintain economic stability as promised and declared by Brown."
I presume you're talking about people under the age of 25 as no-one over that age should have believed the claim of economic stability after it failed the LAST time in 1988 - 1990.
....and I also presume these are borrowers who didn't attend history or methematics classes at school....
The current financial systems is (blunty) "A tax on the financially incompetent".
The ONLY way to stop this happening in the future is for credit worthyness to be graded on whether the borrower can understand what an APR is, what getting into debt really means and the fact that inflation ensures that no matter how fast you think you're running - the inflation treadmill is making sure you stay in exactly the same place!
God help all those who thought maths was boring at school - now they're regretting not paying attention.
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There is no point in continuing to short shares and stocks. For if you do you will have created imported hyper inflation and make those profits worthless.
The point of short selling sterling is to make the UK more competitive. However no-one has actualy said at what level UK Manufacturing can become internationally competitive.
Short selling the banks is another matter. For the banks arguably ran out of wholesale money to lend at the start of the century and used the initial profits gained from the 'Toxic' Bond markets to fund their leving from then until Mid 2007 when the bond market hit the wall.
Also the banks bought so many bonds and lent them to people they should never have lent to in the first place, that the level of defaults ended up being more than the profit margins on the settlement value of these bonds, that the banks already minimilised capital was used to cover these losses.
So thats where the original depositors money went and why most Bank shares are technically worthless and subject to short selling.
However if the governments cash bail outs work, then the government will eventually get their money back, the banks will become more profitable and be able to issue new shares to shore up their capital bases and de-nationalise.
So look out for more SID cheap based public share offerings from HMG further down the line.
However for these offerings to be successfull they need to be underwritten and be attractive to buyers and that is the point. As for every sale there has to be a buyer and all marketable currencies, commodities and shares have to have reach a point where it more proiftable to 'put' money in to market and buy.
The question is where that level is and the economic consequenses of reaching that level will be. What is certain is that when we reach that leve the market is going to be substantailly oversold in every rhing and can only go one way (i.e. up).
So it is currently 60:40 that Crash Gordon could be fighting the next general election off the back of oversold and recovering markets, which will lead to him claiming that he has once agin saved us from ruin.
The problem is that many people will believe him and after the election the inflationary consequences of all this quantative easing and pump priming willl hit.
However that is the next chapter is this economic soap.
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#200 Glanafon.
Thanks for your various homilies, but I intend to resist right to the end.
I am heartened to know that times are not dark everywhere (for the moment the sun continues to shine on me as well). However a great storm is coming and we will all be engulfed.
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207. guycroft wrote:
"# 169. courteousnewcitizen and #189 friendlycard"
I cannot answer for courteousnewcitizen, but would say that my #189 was all about expressing concern.
I think I was blaming, not poster 152 and similar (who are principally victims), but:
- A society that is not preparing to deal with the consequences of personal indebtness now the downturn is biting
- A system that allowed unregulated lenders to throw junkmail-shedloads of tempting 'borrow now, pay never-never' offers at people
- A mindset which encourages purely material values
And, I could add
- A media which feeds the materialist culture by constantly going on about celebs.
- A system which penalises the prudent (i.e. savers) as soon as the going gets tough.
Huge swathes of our society - government, businesses, individuals - have borrowed far too much, and irresponsible borrowing is made possible by irresponsible lending. That has put us where we are today.
What I would like to see is:
- Controls on mortgage lending (3x proven income, 85% LTV)
- NO lending (in any form) other than by responsibly regulated entities
- More emphasis on non-materialist values
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"There is an argument that the FSA should have . . . . delayed the lifting of the ban until a bit more common-sense returned to the market."
FSA and common-sense in the same sentence ! !
Common-sense and market in the same sentence ! !
Robert, have you just invented the Tandem-Oxymoron ? ?
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Short-selling.
A play in 2 acts
Act One
Shady character meets timid lady.
SC Hello darlin', beautiful motor
Wanna make some dosh.
No risk at all dearie.
TL Oooh, no risk, are you sure?
What do I have to do?
SC Lend me your car for a few weeks, and I'll give you £500.
TL Eh? Its worth £30,000, what if you damage it?
SC £30k, I know. Trust me, back as good as new.
TL Payment up front?
SC Deal!
Act 2 -one month later.
SC One car, perfect nick, returned to you darlin'
TL Well, it looks the same, no scratches, nicks, or nothing.
SC I told you you could trust me....
TL I know, well you give me a call if you want to do the same in the future. Nice to do
business with you, I'm very relieved, my beautiful £30,000 car.
SC Oh, one thing lady, it's still a beautiful car,
TL Yes?
SC but it's only going to get £10k on the open market now,
bottom just fell out of the market......
TL How the ….?
SC Well it might pick up again sometime in the future, don’t hold your breath though
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210. courteousnewcitizen:
"189 Friendly Card
you ARE British aren't you? your post suggests not, rather you are from a land of greater enlightenment, wherever that may be."
Thanks. Well, I AM British (and generally proud of it, though less so of late).
In #189, I was aiming to explain some beliefs that my parents gave me - that there is more to life than the material, and so on. I don't always live up to these values, alas, but I never forget to be grateful for them.
I think my parents got these values from their parents, who in turned learned them the hard way, in the Depression and the Second World War.
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Would you say that the benefits of short selling come as a result of gambling with other peoples money/savings without either their knowledge, and possibly their understanding (in the case of pension funds and the like).
If so.......one might like to suggest that it should be made illegal.
Having watched a couple of 'million dollar trader' episodes, it has given me a greater understanding of the kind of people involved & responsible for this mess.
It's like looking at rabbits permanantly caught in the oncoming lights of a truck.
And my suspicions are that it is the government who are driving the truck, whilst encouraging the rabbits to cross the road........
Complete madness.
Anybody who disagrees, may I suggest counciling.
Gambling will mess you up....I'm off for a ciggy.
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106
Firstly, to buy is to go long and to sell is to go short.
When people refer to short sellers, they are talking about people who do not own the stock, often referred to as the underlying. These are sometimes called naked sellers, this in my views is incorrect nomenclature taken from the derivatives markets. However, to cover their nakedness they must borrow the shares to allow them to settle. All stock market transactions are supposed to be DVP, delivery versus payment, i.e. money and shares transfer hands, almost invariably done electronically.
To make matters more complex you can create synthetic shorts through the derivatives markets so the price can be forced down without any of the underlying changing hands.
So, to your questions
1 Yes
2 No because the fund manager will have a suitable contract in place, defining how the fund is to be run, and unless as trustee you have been inadequate in you due diligence in selecting your fund manager they will be OK.
3 I am not sure what you mean here, but guessing, if you are the fund manager and believe the stock will go down you could sell. However, as a passive manager or tracker you might not have the choice, as an active or value manager you might well sell.
4 See earlier comment on naked sales, in the USA I would need to have another look, it is a long time since I worked on Wall Street.
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Im a short 5 foot 4 inches , if I sell myself and then buy myself back later do you think I'll make a profit.....
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#203 robrob 2002
Whilst I agree in principle, the argument you make is not quite reflective of the actual situation.
I don´t want to invest in things that I don´t understand, and would be quite happy with my money in a building society.
Unfortunately when it comes to pensions - depositing your pension contribution into a building society is not that straightforward.
A lot of people join company pension schemes - they don´t tend to get to negotiate or otherwise determine how the money is invested. Employers (in my experience at least) will make a contribution BUT only if the employee also contributes. The whole thing is wrapped in alleged tax advantages, and everyone knows that it is "prudent to make provision for their old age"
Who knows where this money goes? Who knows how many middle men are extracting fees all along a chain of unlknown length.
Thanks to personal pensions a lot of people will end up with investments in things that they don´t understand.
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#199 "We have ALL benefited hugely from the growth in the UK banking system in recent years". Well, I certainly haven't.
The problem with the banking system, and indeed with much of the rest of the financial sector is that it pays itself a lot of money, but creates very little real added value. So in effect it acts like a form of tax on society - the fact that a sizeable proportion of that gets passed on to the Government doesn't really change that.
I'm tempted to compare the banks with say the Sicilian Mafia, skimming off 10% of GDP in protection rackets etc. Even if the Mafia were to be good boys and pay their taxes, the Sicilian people would still be a lot better off without them.
At a rough guess I would say that the actual value added (providing current accounts, savings and loans etc) of the banking sector is maybe 25% of what they have been paying themselves. The rest of us would be better off if the sector was trimmed back appropriately.
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Far too much emphasis is placed on the stock market in relation to what is actually happening with the countries economic situation.
The stock markets are now just like the Lottery, a device for removing money from the stupid.
The banks won't be allowed to fail so for a greater part of the population their share prices are of little interest.
For anyone to gain from the stock market someone else has to lose, those of course mostly ordinary folk with pensions it seems, easy targets.
Most folk are unaffected by the downturn and a good number of us have benifited, sure a small percentage have lost work and a similar small percentage are in trouble with too much debt, the debt problem was on the cards downturn or not.
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Over the past few days, i have been keeping an eye via Bloomberg and Reuters on the US policy towards the $.
It would appear that Obama supports a strong dollar and that the rest of the financial services industry is betting their shirt on him succeeding. However, Wall St. are demanding that he do it without manipulating the market. it would therefore appear that two conflicting philosophies are meeting head on.
Without manipulating the market, the future for the $ looks as bad as that for the £. All of the market fundamentals are against a strong $. Plus this is the first time that the US has ever had to face a slump without the capacity to sustain itself i.e. it cannot produce the necessities for its own existance.
They appear to be relying on the level of foreign fund holding to keep them afloat. However, as the depression hits harder many foreign countries will have to sell their $ holdings for use at home. Further, they demand that China will have to re-value its currency whilst maintaining or even increasing its $ holdings. This seems to fly in the face of common sense.
The US analysts appear to forget that China is still a control economy. Internally at least, it does not view the world market economy in the same way. The US has never faced a situation before whereby they are actually in the grip of what is still a Communist country.
Add to the above the continuing failure of the US financial institutions and systems and the strength of the $ would appear to be out of their hands. If the World think your economy is failing - and the indicators would support that idea - then their confidence falls and therefore the value that they put on your economy.
'Too Big To Fail' could on this occasion more of a hinderance than a help.
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202
Given the cost of the typical question, the Lib Dem guy could be better occupied NOT asking when GB last saw TB or travelled by train simple to answer though the question might be.
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What seems amazing to me is how often you read quotes from some expert at merril or Morgan or some hedge fund predicting extreme consequences in this or that market, e.g.falling pound, rising oil prices, banking nightmares when it seems totally obvious that they must have some interest in the trend in question ... Bet jim rogers was short on the pound earlier this week, for example. not amazing that they give the quotes but amazing that journos print them or are allowed to print them. happened all the time during the oil shock last summer - "oil to hit 200 by christmas" says commodities trader... Hmmmm....
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#216 ashearer wrote:
"Obviously the individual has had sufficient information on both horse x and the rest of the field in order for him to offer such a bet and take such a risk."
Yeah right - what actually happens is the individual THINKS he has sufficient information to make the bet.
However he cannot have enough information - otherwise there would be no bookies.
Your racing analagy is a very good one though - because there is a difference in hedgers and speculators.
Man A in the bookies bets on a horse he thinks might win / lose with what knowledge he has - Speculator
Man B owns a horse in the race, he expects to win but bets against his own horse to make sure it's a win / win situation (assuming he wins prize money)
The crucial difference with short selling is that if either man A or B lose their bet - they simply loose their stake.
However in the financial world the losses are limitless and therefore William Hill would have gone bust years ago through the limitless bad debts that would have had to been written down as the punters would not be able to pay up.
Back in the current economy - the big banks used to perform the William Hill function - they failed - and now the Government has just stepped in it's place......whoops..
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#188 TheresOnly1Soupey
I was quite impressed with the reasoning until I got to the bit about the Govt. helping to rebuild New Orleans.
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##221 Thortonheathen.
Yeah - cat's always are, but you shouldn't try asking a dog.
All dogs are pessimist and alarmist and shouldn't be regarded as experts on the Economy.
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I have learnt a fair bit on these blogs and have prospered from my new found knowledge,
But it is getting a bit repetitive and stale.
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GB on the Today programme...
"we have low public debt......global
we are the only country that made tax rises at the right time....global
we have had ten years of growth, .....global financial crisis.....precise measures......every other country ......blah blah.... people are better off.... we can deal with it.......blah blah....FSA one of the best regulators in the world.........global global global....blah blah blah..........we have mechanisms in place....it was a market failure.......blah blah....not hanging my head..........global financial problem.....global financial failure......took steps to deal with banking.....we have a plan for recovery..........global!
I believe it is called being in denial!
However why do the journalists give these guys such and easy ride? its not just BBC , jeff randall on sky let AD waffle on about nothing, evan davis today let GB waffle on! For the country's sake wont you journalists go in for the kill and get these guys to admit the truth!
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231
This is potentially brilliant although I suspect that you would have to be shorter when you bought yourself back to make any profit
You could try standing in a shallow trench
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it is funny that the system can correctly display $ (dollar) but CANNOT display £ (pound) _ can't think of an explanation
!"£$%^&*()@~
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#225 friendlycard.
I concur with your thoughts.
However I like many people cannot decide who is to blame.
The banks say that people should be clever enough not to be caught out by their scams.
The people say they should not receive these scams from insititutions that are constantly banging on about how trustworthy they are.
The ONLY person who is apparently free of blame is Gordon - or rather whichever bunch of jokers are in power at the time.
Even though the poor education of the people in core subjects like maths is down to successive years of choosing financial progression over social progression by various Governments - and of course the lax regulation that allows banks to set up ponzi schemes that are rubber stamped as 'safe' by the same said Government.
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240. TheresOnly1Soupey
That's why there's piles of doggy-do everywhere these days, we are taking over.
"Woof woof!" - Snarl Marx (2009)
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You guys blaming borrowers and preaching the New World Order of prudence for those good at maths, get off your high horses.
Your arrogance is matched only the emptiness of your assertions. It's all irrelevant now. In the past. Overtaken by bigger events. Because like it or not for better or worse we're all in this together now.
A few less homilies, smarty pants. Note everyone has your Mensa level of intelligence and gift of second sight.
GC
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just clicked the BBC news homepage
News
None
More top stories
None
Hope radio 4 is on air, we do not want thermo nuclear war now do we?
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241. At 4:57pm on 23 Jan 2009, houseallwayswins wrote:
'I have learnt a fair bit on these blogs and have prospered from my new found knowledge,
But it is getting a bit repetitive and stale.'
I take it that you are referring to the Bloggers, The Blog, and Mr Brown and Mr Darling.
We have to live with 'stale'...get use to it !
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#239 - armageddontimes.
...do you mean because they didn't.
Well as with all good explanations it was based on Theory.
There was a time when Governments re-built after disasters, but as New Orleans and Hull have proven - this is......
NO LONGER ECONOMICALLY VIABLE.
Maybe some bright idiot in Government will suggest PPP initiatives as the solution.
"This clean up was brought to you by Domestos - kills all known bacterial infections caused by flooding - DEAD"
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In a time long ago, when life expectancy was shorter, there was a wondrous thing called final salary pension schemes.
Then, in a trice, the big brown chancellor said I'll blow the house down and he took 5 billion a year from the people's pension schemes by making them pay tax on the dividends they earned from their shareholdings. And perhaps he was blind but the people had started to live longer and needed the pension money to live on for longer.
And the big brown chancellor spent the money on computer systems that never worked and alleviating child poverty cos there were children without mobile phones and nike trainers and all manner of grand PFI and PPP schemes that were off balance sheet
But the final salary schemes of those that didn't work for government withered and died and LO in their place came the defined contribution schemes and these schemes invested in funds.
And the rains came and funds grew and multiplied and invested in one another and all was well in the world. And a few invested in the shares of companies but the taxed dividends weren't enough to provide a return so to 'make' money for the prospective pensioners they had to buy and sell the shares more than they did before. And the fund managers prospered and invested in houses and land and big cars. And they spent money on sponsoring their favourite sports.
But the drought came. And Lo, the funds and the shares shrivelled. And the big brown minister and his comical chancellor said we can make the rains come. The green shoots will grow up again. And they beat the drums and emptied the stores and they just took the shrivelled remains of some of the shares and the people said 'could they do that again'?
And lo, the funds took fright and sold everything that they thought the big brown minister might take before he took it and the defined contributions kept coming........
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#232 armegediontimes
Yes, I acknowledge that a lot of people hold bank shares as part of other investment vehicles such as their pensions and ISAs etc.
However - I think my principle still applies.
Even if your employer, the government and a financial salesperson are recommending a share based investment - you need to understand it - or at least understand the risk of losing your money.
BTW - my post wasn’t based on schadenfreude.
I've lost a few quid myself on the markets - but unlike most contributors - I do include myself on the list of guilty parties ;-)
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Re: 221 + 240 Cats and Dogs
240 Dogs are like men: stupid and loyal to their master
221 Cats are like women: will snuggle up to anyone who's gives cream
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224. armagediontimes
..I intend to resist right to the end..
The nilihist tendency is out again. I thought you had loosened up a bit. There is no end, just readjustment, followed by muted growth, which might take a form not expected by the establishment. It is healthy. You underestimate the resilience of people. This landscape is not new to me, is it new to you.
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A bit of joined up thinking would be really good....
On the BBC article about potential purchasers for Liverpool Football Club there is the comment that the club will shortly have to re-finance its 350,000,000 loans provided by RBS and Wachovia
Think of the interest payments on this especially if the loan is tied to LIBOR+
Perhaps HMG can just take over the club and rebrand it
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Has anyone actually got the numbers for how much short selling was going on (% wise) before it got suspended?
My impression was that it was quite low (mainly from city pros quoting single digit % figures on The Motley Fool site).
Let's face it, in a volatile market you've as much chance of getting spanked by shorting as going long. (Witness what happened on the programme Traders with their naked shorts!)
As for Darlings surprise at the reintroduction of shorting by the FSA...erm they announced they would look at it after Jan 14th at the time of suspension. Many people had it in their diaries!
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253 Kikidread
My dogs are metaphorical, as in Alice in Wonderland.. though maybe that should be a metaphor for Britannia adrift in the Global Marketplace.
Now, go roll another kuchie and give us some more topical versifying
254 Glanafon
You're starting to remind me of the Pink Floyd film "Valley Obscured by Clouds" where the hippies crawl to the ledge and look out on impenetrable rainforest and mistake it for Eden (the biblical one, not the eco-dome, though they actually may be onto something down in Cornwall).
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When PESTO speaks he has the worst case of irritable vowel syndrome since Loyd Grossman first appeared on television.
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Robert either you want a market or you don't . With every market there are winners and losers and markets thrive on rumour.
The reason the government and the regulator hate rumours is because like journalists they can never find the source of them.
Dont forget there is no smoke without fire and all the bank rumours appear to have been spot on.
What is worrying is that since yoour Northern Roock exposure you have been so easy on the banks, government and regulators you have done us all a disservice.
Banks have tanked because they have too much off balance sheet worthless rubbish.
Government has failed because it is putting politics before necessity.
The regulator has failed because it has a high staff turnover and is run by people who try to look clever but in reality havent a clue.
The press were the main opposition until Cameron refocused, but you need to ask the right questions.
Why is it left to comedians to make all the salient points, are your hands being tied behind your back and how many people still remember you broke the Northern Rock story.
If you want to be top dollar then get like Paxman and Humphreys and stop grovelling to incompetents.
How can the BBC say it is really going to
put across a balanced perspective when it is more and more sucking up to those who are leading it up teh garden path and will soon be out of office.
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237 tomasz
spot on, and what about "UK in need of IMF bail out'' says Opposition leader of party funded by short sellers??
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Just a point made to Alexander Curzon
Do you really think the Tories would be doing any better at the moment?
Im no fan of GB/New Labour but at least they are trying, and frankly Cameron and Ossie dont seem to have a clue.
Just shouting abusively negative comments doesnt help matters.
The ban on short selling ends and the same parasites get their noses back in the troughs as soon as they can, blow what happens to the rest of the country. I would try directing your ire at some of them as they have contributed to this mess with their unquenchable greed.
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perhaps
markets is as markets does
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#233 Tax and Mafia - good comparisons!
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253 kiki
So which do you favour cat or dog. PS allergy to both possible
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just thought I'd point out to posters that there is a programme on BBC at 9pm Saturday night about the 1929 depression and its causes etc - might be interesting to you all.
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Two turns of phrase come to mind :
When in doubt dont, and if you dont like the heat in the kitchen get out.
Transparency is making life better and no one is obliged to believe or act on them.
The point is everyone wants to believe because they are sick and tired of self centered politicians, greedy banks, useless regulators so obviously rumpours mean more than they should.
A small recommendation for any right minded person, Labour havent a clue, experienced bankers are no more experienced than your little pinky and financial regulators have brought the word incompetence to new heights.
So trust no one and feel safe confident in your own untainted judgement. You will sleep well and start to feel a load betterand if you cant do that leave the the country for safety because under Labour it is tanking quicker than we can say goddnight.
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Times Of No Money .
http://www.freaknet.org.uk/pages01/p02/gl05.html
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264
I love cat's, but you can't live with with them and can't live without them and they will break your heart and take your family jewels
http://www.freaknet.org.uk/pages01/p02/gl06.html
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Ah... the non-debate of long vs. short, which can only be contrived in a society completely bereft of financial education, reignited to take the public's mind off that new elephant in the room, Barclays. This whole story has been ignorant pub talk from the beginning, and how shameful that politicians have exploited this lack of understanding for political capital instead of setting the record straight.
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Guycroft,
yours is what I would call 'communist' concern at the misfortunes of your fellow-citizens. By your reasoning, housebuyers' 'good faith' is little different from 'they are stupid and know not what they do' sort of contempt. Therefore, it is up to the GOVT. to sort it out for them. whatever happened to individual responsibility?
But let's just look at your warped point of view a little further. Why does your 'concern' for these hapless homeowners not extend to renters who have paid these buyers' mortgages whilst scratching around for years for a deposit for YEARS and through the LONGEST bubble in memory?
Why are u not concerned about pensioners who are living on fresh air and cold water so that these ridiculous interest rates can be used to pay LOWER MONTHLY MORTGAGES?
How will the house price correction ever happen if you were running the country?
If this required MENSA levels of intelligence, then I shudder to think about the general IQ that you believe people actually possess. LET'S BE VERY CLEAR ON SOMETHING: Many complain that the govt. did little to stop the bubble in housing, and they are correct, HOWEVER homeowners were HARDLY complaining about their alleged 'WEALTH' increasing day by day. Like I said eaerlier, the politicians' duty is to represent the people and this they did admirably by letting the buble go on and on whilst the population binged on un-earned money. if the population does not LEARN in this manner through these RUDE shocks, how will the KNOW and ELECT better?????????
Oh I forgot, they are too stupid to take ANY responsibility as fully grown adults, correct?
Your thinking will destroy all principles of economic interaction, there will remain no basis to judge the rationality of any economic decision, and despite your good intentions, a centrally planned authoritative system will be your only alternative to a democracy where people are shielded from being 'too stupid to know better'
Good grief
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Things will only get better…!!
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The trouble is, UK bank shares are so vulnerable to shorting activity because HMG has outlawed dividends for RBS and LBG, and critically weakened Barclays, with-the-drive by shooting last October. A critical defense against shorting activity is the NPV of an investment. If banks don't even have the POTENTIAL to pay dividends through the cycle this makes them sitting ducks. And it seems Broon's policy of bank persecution of last October, is causing a massive shock to the currency through threatened or real political risk.
What a mess.
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People should realise all investments are a risky exposure and should realise money at the right time (profit taking) instead of sitting on paper stocks with a very big valuation for too long.
(i.e. they become greedy for mo' money money money)
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257 thornton
rofl your the one with heathen in your name : )
Do you really think civilisation will stop.
The slide is still on. It will be bigger than they are saying. Look at the facts. However those people we deal with (both here and abroad) are largely unaffected. They avoid debt, even when they are offered it. They are from a very wide span of socio economic groups but have the same mindset. The unemployed do not spend a lot. The heavily indebted will not spend a lot. Those that spend are those that are slow to spend ie careful. The majority of people will stay in work. There will be an economy. It will not carry the number in comfort that has been the case. The focus is relentlessly on the outcomes from events that occurred months ago. They are essentially historical events. Anyway if it comes to it an economic rainforest as you descibe it looks better than being on top of an active volcano with an economic pyroclastic flow which is where some are. ; )
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#254 glanafon
Nihilists don´t resist they capitulate, as they consider resistance to be futile.
We are only standing on the threshold - lots more things to collapse yet.
People are resiliant - but a lot of things and skills they need to assist them in their resiliance has been stripped from them over generations. These skills cannot be replaced overnight.
There will also be no ready realisation of this - the entitlement culture will not fade gently into that dark good night.
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Peston has done more damage to the UK economy and UK wealth, than terrorists or foreign aggressors. He sunk Northern Rock after an unsound disclosure. He is now sinking our major banks by constant harping on about nationalisation, I mean expripriation of our banks. I just wish Mr Peston would start looking at the FX values; the UK is getting a reputation as a bad political risk, as an unsafe place to invest, and why should foreigners invest? We offer a 1% return and a declining currency. The Tories are now quoting " confidence", finally. I do wish Mr Peston could be send on sabbatical, and if the moderator is reading this, could you please forward this request to the head of the BBC
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I don't remotely see how short selling is "efficient" in the current circumstances. It can only take bank prices down and I don't see how that can be a good thing when they are struggling survival. Anyone with a knowledge of systems theory can see that it could create a vicious downward spiral. The fear of that could certainly of contributed to the problems. It is almost pointless to try and explain to the financial community that it is selfish and immoral to try and destabalise the systems that they depend on as much as anyone. I am not overjoyed that hedgies have made "only a few million" at my expense. I think Robert needs a sabatical in the real world.
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268 kiki
Jewel loss sounds painful. Reminds me of kamikazi sheep for some reason. In Wales on the uplands they all sleep on the road, kamikazi like, if you are driving. Couldnt understand it at first but it is because the ground is so wet. The rain here is something else.
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#265
What's quite interesting about that period in the US is that only about 5% of individuals paid federal income tax (have no idea what it might have been in the UK nor what state and local taxes might have been)
Likewise federal government spent less - no medicaid prescription drug benefits or medicare and the USA was pretty much isolated from the world.
Also, there was a much lower proportion of home or share ownership and there had been a long history or monopolistic supply and company ownership.
Hoover was criticised for his response to the crash of 1929 and the depression that followed this but federal government was a smaller, leaner animal with fewer actual and perceived responsibilities and much less need for revenue than now. There was less co-dependency between citizen and government. I'm not saying the lack of federal response was correct - but expectation of and by government was different and any discussion of this period should reflect this.
The outcome of this period was substantially increased regulation. One aspect of this regulation was the Glass Steagal Act which separated investment and commercial banking. This act was repealed in late 1999
All the big banks lobbied for its repeal but in the vanguard was Citigroup
To quote from Wiki
The repeal enabled commercial lenders such as Citigroup, which was in 1999 then the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities
So, whether or not other aspects of the crash and depression are similar and The Great Crash by JK Galbraith is illuminating on this matter, there is a direct link from then to now both in banking and finance and governmental role in society and government's need for revenue
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Some more thoughts Guycroft,
If repossessions are suspended, debts are postponed / written-off and generally excesses are paid for by inflation/taxation read savers/pensioners, what sort of MESSAGE does that give out to present and future generations?
Have you not had a few unkind words for bankers on this blog? Well, for bankers, the message will be not to worry because their stupid lending will be reimbrused by the taxpayer.
To borrowers, the message will be, hell with everything else, borrow and spend as much as you possibly can because the savers and taxpayers will rescue you.
To savers, the message will be - YOU POOR FOOLS! don't ever do it again (save)
Interesting world this. I'm sorry but despite your good intentions, your position is UNTENABLE
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Sorry glanafon but you're grasping at straws when viewed on a national level.
With the paupacy of our political leadership (all parties), lack of respect for anybody in authority and the failure of our business leaders, there is nothing and nobody to oppose the recruitment of the disadvantaged, disillusioned and angry by the far right.
We desperately need action that people can see and have hope in for the future.
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RP,
This is the first decent explanation we've seen in this crisis that explains how short selling is actually a perfectly legitimate and beneficial activity.
It's a pity you spoiled it by emotive language such as being "revolted" at Lansdowne making money. How about mentioning the terms that Barclays' Arab investors got in terms of future "freebies" if Barclays has to seek additonal capital? That wasn't disclosed at the time, and probably goes a long way to explain the fall in Barclays' share price this week. It's more important than Lansdowne's short position or the GBP 12 million they made on it.
I'm also struck by your comment: "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." I can only say that such fund managers (I'm assuming it's fund managers you talked to: nobody of any substance handles their own investments) are far more of an embarrassment. They should simply know better.
When this crisis eventually passes, and there is time to analyse the various trading flows, I suspect we'll find something similar to that in respect of the bear market of 2000-2002, where we also saw stock markets fall by over 40%. In that case, the level of short selling during the bear market was almost identical to that of the bull market that preceded it. Past evidence shows that short selling does not bring down markets, or indeed even sectors such as the banks. There just isn't enough shorting volume to do that. Shorters can impact the price of individual securities and, in so doing, they probably do everyone a favour (by bursting bubbles earlier).
Bank shares have collapsed and collapsed and collapsed again due to the banks' failure to reassure markets that all the bad news is now accounted for. Its not just here, the US banks are equally culpable, for insatnce, and their shares have been bombed as well. Vast amounts of bank shares have been dumped (in a panic or otherwise) onto a market where there are simply no buyers. Short sellers are like those flies and things that ride the back of the elephant: a bit of an irritant, but nothing of significance in explaining why the elephant is charging around madly.
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@276
I appreciate everyone is entitled to an opinion but RP is definitely not to blame for collapse of Northern Rock or any other aspect of this crisis and quite frankly I would rather have RP informing on the state of affairs of our economics than listen to the repetitive bytes from our Government who treat us like idiots.
There is plenty of evidence starting to filter through now to identify the culprits.
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276. Citymouse
Yes
and his irresponsible blogging also caused Global Warming to accelerate and triggered the Israeli invasion of Gaza and, and....
there are fairies at the botttom of my garden too.
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275 armagediontimes
'We are only standing on the threshold - lots more things to collapse yet.'
Agree. I dont think HMG have a clue what they are looking at. They are behind the curve all the time. It is a classic case of slip against projections, 2x all the time against milestones. Take the bubble away from the flat growth and you have underlying decline. Pop the bubble and you drop down. You cannot get back up there without another bubble. Still on decline curve with extra debt problem. Plus shock damage. Every month the official projections on depth and recovery move significantly. Yet they still talk it up. Think it is either they are stupid or scared.
'People are resiliant - but a lot of things and skills they need to assist them in their resiliance has been stripped from them over generations. These skills cannot be replaced overnight.'
You are talking of different values being placed on some skills that is all. Necessity will provide locomotion. The mind will be concentrated.
'There will also be no ready realisation of this - the entitlement culture will not fade gently into that dark good night.'
Actually it could very easily. If there is not the money then there is not the money. It is very easy to reduce benefits particularly if it involves a minority population. Being out of work will be a full time job. Healthcare fat man slim. It is velvet gloves on a iron hand at present. Problems remove velvet gloves.
If the services cannot be paid for then their is a shortage. It is the same about arguments about the entitlement to somebody elses heart for surgery. Why am I not entitled to a replacement heart, mine is packing up. I am not happy that prescriptive evaluation criteria are being used and I am not at the front of the queue. Answer - Because there simply are not enough of them, demand has outstripped supply and we have to make a judgement where they go. I am surprised that when you believe mechanisms work negatively on demand that you do not seem to think they can work 'negatively' on regulation of supply to ensure balance however it is disliked.
I am afraid it comes back to where you are relative to the storm.
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http://www.bbc.co.uk/blogs/newsnight/fromthewebteam/
This is the web team blog link for Newsnight tonight where Paul Mason is doing a piece on best and worse case scenario for UK and Alistair Darling doing an interview.
Worth a visit
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Shorts?
Not in this weather
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#276 Citymouse
What a pathetic and desperate attack.
Peston did not sink NR on his own. The directors and their business model did a very good job on their own.
If you look at the FX values you will find that they are more inclined to be led by comment from Bloomberg, Reuters, etc. than by Peston.
If you want to be an ostrich so be it but do some research before you start to strut!!!!!
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I've got to say that overall the Footsie looks overpriced to me. It seems to be resilient at the 4000 level, but surely this can't last bearing in mind the uncertainty surrounding the length and depth of the recession. If I was a trader at the moment I'd certainly be looking at nothing else but short selling.
Mr No More Boom or Bust was attempting to trade a short deep recession for a longer shallow recession for the good of the Labour party at the next election. Like most of his policies though this is failing dramatically and we can wave goodbye to the short deep recession and hello to the long deep depression.
I love the way any labour MP and GB in particular use the word 'Global' so much now. GB managed to use it 3 times in one sentence today which was particularly impressive. Don't recall 'Global' being mentioned too often a few years ago.
By the way it's a change to finally see the new BBC recession graphic. I bet that's been waiting in the pipeline for the last couple of months. Ironically it doesn't seem nearly as bad as the cliff face that was used for Downturn.
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Expert users need wisdom, knowledge and understanding,
instead of relying on automated dumbing-down systems with automatic cash reconciliations, confirmations etc.
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#225 I totally agree, although I am greatly sympathetic to Guy Croft's points as well.
Many people had very little choice but to buy property at the wrong time at inflated prices. They did believe government hype about stability. After all, the main opposition had very little to say on the economy at the time. Also, in the era of post- flogging off council houses, people were encouraged to become owner occupiers, but not warned about the cost of maintaining a property. There will always be some unpleasant surprise unfortunately.
I do have rather less sympathy for people who borrowed to have expensive holidays, unnecessary new kitchens, etc. There are some families whose attitude is "what can we afford?", but others whose attitude is "must have". I'm sure we all know examples of both - and much of it is upbringing and family ethos.
Two thirds of my furniture is second hand. Half of that was bought by my parents - some more than 50 years ago. It was all bought as used and second hand, not as antique. The people it came from had typically bought more "modern" fashionable stuff, often on hire purchase. Most of the more modern stuff has been trashed years ago, but my old stuff has survived and is very serviceable. Some of it is even fashionable again.
Funny old world!
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278. glanafon
".. Reminds me of kamikazi sheep for some reason. In Wales on the uplands they all sleep on the road, kamikazi like, if you are driving".
+
you sound like an old broom that knows all the corners
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Apart from a small fee, what do the institutional shareholders gain by lending their shares to short-sellers? I assume they must know that they are going to be shorted and will therefore be worth less when they get them back -- as will the balance of their holding in the shorted stock.
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Robert
Your quote:
'When these creditors and depositors withdrew their funds, banks came perilously close to collapse, which transformed the rumours into self-fulfilling propositions.'
I am unable to find any reported data/figures on the withdrawals and dates of money flows - this must be confidential to the Banks - 11 Dowing Street, FSA, B of E.
A Turner gave the impression on C4 interview that in October 2008 the Government, FSA knew the scale of the expected overall UK plc bail out.
Point is are the withdrawals made by overseas investors and the current state of play is the real UK economy and banking system without foreign money in the City of London.
If so, is the current state of play our real UK economy and the government/FSA, Treasury, Bof E should have anticipated this as a major risk i.e. over-reliance on foreign investment without now blaming short traders entirely for the lions share of the problems.
Saying same thing as you I think but with different slant on possible huge cash transfers going over seas - Was this the achilles heel that brought the UK system crashing - not a question of having too much or too little regulation - too simplistic.
More of a matter of having appropriate regulations, diligence and appropriate safeguards against rapid cash flows overseas.
Arguably, this has drastically increased the amount of debt G Brown is having to raise and should have been foreseen.
We should perhaps follow the French economic model and be more protective of our assets and the way we allow foreign interference in our economy. The french achieve all this and get the benefits of euro stability as well.
The problem has not not away - and does not seem to be addressed, explained or quantified and I think Joe Public needs to know enough to understand what happened and what is really going on.
I still say G Brown is keeping a lid on all this - someone must have known in government, FSA, BoE when the cash started moving as assumed to be in massive quantities - why didn't one or all of these institutions act and put the brakes on and reduce the damage to our economy?
No one had/has their finger on the pulse.
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#282 "how short selling is actually a perfectly legitimate and beneficial activity"
M'lady doth protest too much methinks. Legal is one thing; legitimate is debatable. Shorting can act as a corrective in a casino market. It can also be a weapon used by the strong to destroy the weak and the big to bully the small. But it is undoubtedly a weapon - of financial war. There have been a number of companies over the years I thought deserved it, because of the poor service they gave their customers.
However, whether we want a system which allows and encourages financial war is another matter. To me, the entire financial /stock/commodity market system seem largely parasitic and unproductive: it should be completely reformed and severely curtailed.
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270. courteousnewcitizen
Repo - which is an issue with guycroft - actually has very little to do with correcting house price levels. The numbers are small, 75,000 projected for 2009, against 500,000 projected to be in arrears. Maybe 2 million to end up in negative equity. No help if you are one of any of them. The issue is that lending was made on an unrealistic basis to some householders, and whilst they (the householder) individually have responsibility for that, they solely will pay the price. The bank will not pay anything because it is protected by the insurance policy paid for by the householder. The issue is that banks, some of them but not all, have to all intents and purposes made sales with an element of misrepresentation. Why have commissions been reported as 1 percent on sub prime instead of 0.5 percent on prime. Eager for the sub prime, why? Further the fact all has not been clean is indicated by the fact that regulation and practice are to change or have already changed. If the matter was sound it would not change would it. So to return to the householder who borrowed in good faith. They pay and the bank escapes.
As for low interest rates very few other than depositors are seeing them. That is hardly the fault of borrowers is it. In fact most borrowers are stuck with borrowing for the moment.
Somebody who is saving for a house should thank their lucky stars they did not proceed, do you not think, or they would on paper be bust. So how are they a victim.
Its all a bit difficult.
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Thoughts on the Modern Financial System
I have no specific expertise in financial matters or the activities of the stock market, but I have recently spent considerable time trying to get a handle on our current dire situation. Today’s announcement that we are officially in recession is about as relevant as someone announcing that they have forgotten their parachute after they have already jumped. The writing has been on the wall for many months, during which time all I have seen is a battle of words from those who are supposed to have awareness, either trying to lay the blame on somebody else, or deflect the blame from themselves, but, when it comes to suggesting well argued strategic approaches to lay some foundation for recovery, I have looked in vain.
Politicians on all sides seem to want to find a magic fix that will “kick-start” the economy and allow lending and borrowing to resume at a level which will prevent the UK GDP from falling too much before it resumes its former era of growth. Even Barack Obama seemed to talk the same language in his inaugural address and the leaders of other developed countries also appear to be following along with variable enthusiasm. So if everybody who is anybody agrees that the solution to our problems is to get back on the same horse, having watered and fed it, they cannot all be wrong,...or can they?
At this point I begin to feel like the little boy in the Hans Christian Anderson tale, who had the temerity to speak out and say the immortal words “the King’s got no clothes”, so let me explain my position. Like everybody else I agree that banks provide a valuable service which removes a huge amount of hassle, and our daily lives would become pretty unbearable without this service. The idea that banks can usefully use the deposits from customers to generate sufficient revenue to make it a rewarding activity is perfectly ok with me, but where I think things have gone wrong is that when banks started to call themselves financial services they realised that they had the possibility of vastly increasing their earnings, by stretching the so called fractional reserve banking (FRB) system to its limits The problem is that in order to take full advantage of the possibilities, they need to be able to persuade more and more people to borrow money, which explains the epidemic of offers of loans with which we were all deluged for years.
The other seriously flawed feature of FRB is that it is mathematically and theoretically unsustainable in the long run, since it always needs to find more borrowers to take out ever more loans to stay afloat. It is, in essence, a sophisticated pyramid scheme and it is a system which is therefore doomed to failure, however exciting and successful it may seem to be at any time. It might always appear to be doing a good job when it is funding a growing bubble and our current plight must be due to the fact that there were actually several bubbles growing at the same time; rampant consumerism which created demands for anything new and spawned mini-bubbles in clothing, flat screens, mobile phones, even cars, and the housing bubble, which persuaded people that they needed to jump on the merry-go-round before it was too late to get on. The FRB system and growing bubbles are self supporting.
All of this was food and drink to the financial services, who needed borrowers to survive and thrive, and they were encouraged to try to make themselves even more profitable by embarking on even more risky and now discredited activities, apparently backed up by whiz kid mathematicians.
Looking at the wreckage we are faced with today I think we should take a view that Joe Public is having to bear the consequences of a grandiose experiment which went terribly wrong, and during which there was a silent role reversal, in which we were wholly compliant, because we thought they were doing us a favour by making borrowing so easy. The banks, which used to supply a valuable service to the rest of us, before the crash, had become our masters. A medical analogy, which I don’t think is too far off-target is that the growth of financial services is a bit like a huge tumour which started off as part of our liver and was allowed to flourish at the expense of its host. The continued weight gain would be the equivalent of our GDP apparently continuing to grow during the “good” years. I could extend the analogy to the treatment phase, and suggest that the success of any treatment would be measured by the shrinkage of the tumour, and certainly not to look after its welfare.
I really wish I had all the answers to finding a cure for our ills, but it would be encouraging to think that some of our finest financial brains would stop trying to become billionaires at our expense and show a bit of patriotism towards helping us poor mortals in our hour of need. The gratitude from the British people would more than compensate for metaphorically being hung drawn and quartered when it all finally goes wrong in spades. One thing I am certain of is that fiddling about with rules and regulations to control the current FRB system, with its dependence on increased expansion of debt for its survival will not provide a cure. To think otherwise is wishful thinking.
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291. sashaclarkson:
Good points. I really hope that, in this recession (depression?), 'quality of life' will regain some of the ground that it has lost to 'standard of living' over the years. If so, it will not have been wholly in vain.
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Remind me? Did FDR not outlaw short selling in 1933 because of its corrosive effect on the US economy?
Short selling only lifted in UK relatively recently. Why?
As #196 notes, who in their right mind will lend stock to someone intent upon driving down its price? Whether the stock-owner gets 3% or more the effect is that the stock will have lost over 3% of its value. Must be great comfort for beneficiaries of trusts, etc. to know they have trustees with so craven a disposition.
Short selling should be banned in all markets unless every short position must be declared formally as it is taken. Can't see anyone agreeing to that because subversion is the name of that game
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#285 glanafon
The real problems have yet to be seen - in the end a lot of these banks will have to collapse, nothing can save them, but everything will be deployed in this vain and futile attempt.
This diverts resources away from other things - like infrastructure, and further impoverishes a large swathe of the population.
The eventual collapse will trigger consequential collapses in other economic sectors. Some of them (say car manufacturing) are predictable. Others less so.
Given the long lead time, neglecting infrastructure is an important oversight, and it is now fairly clear that the UK is highly likely to experience electrical power shortages. No idea what you do, but I´d be surprised if you can do it in the dark.
Why do you assume that supermarkets will survive (as you must for your argument to be robust). Maybe they will but there are some serious questions as to how they deal with their suppliers and whether, in the soon to be revealed economic environment, this will result in a "supplier genocide"
What happens if they do fail? - Where do people get their food from? This is the real entitlement culture - the entitlement to buy food from a shop without any obligation (or probably knowledge and land) to grow it.
What happens when the currency collapses? Don´t know but nothing good.
No-one trusts politicians, and as times get worse as they surely must, then any residual trust will vaporise.
These are exactly the conditions that give rise to xenophobes, despotic loonies and all kinds of nutters - promising all kinds of things. Maybe the problem is short sellers, no problem, lets just take them outside and shoot them. Maybe the problem is you, or maybe the problem is me - again no problem let´s just take me outside and shoot me.
No thank you - I intend to resist to the end
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#276 "Oblate spheroids!"*
"I do wish Mr Peston could be send on sabbatical, and if the moderator is reading this, could you please forward this request to the head of the BBC"
As implied by others, I'm sure the moderator will observe that you've been outvoted.
* ;-)
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281. foredeckdave
''Sorry glanafon but you're grasping at straws when viewed on a national level........
....We desperately need action that people can see and have hope in for the future.''
Ha Ha dave and I'm graspin at straws. There is no action mate. The armoury is nearly empty.
By the way I have been meaning to compliment you for some time. Your writin and presentation of argument have really come on something. Even if I dont always agree. Is your more fluid writing fluid assisted, if so I might try it.
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292.kikidread wrote:
'you sound like an old broom that knows all the corners'
Well no, I now have to go and clear a load of cat gifs off my screen. So I do not know all the corners.
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296 glanafon
those saving for a house are not immediate victims i agree. But their pain is spread over manyyears of paying rents whilst house prices went skyward. Repo is a sudden shock for borrowers, but the pain / frustration is evident from many posters on this blog who rent.
It is simply the unfairness of having one lot of citizens pay for the other.
And I hardly want to see propler turfed out, but the idea that adults/individuals/voters should simply be shielded from the consequences of their actions is something I cannot stomach in a grown-up democracy with commercial rules governing economic interaction between citizens/institutions. This is my principal problem with guycroft's love-thy-neighbour views. And its not up the govt to provide for house prices rising 10% per year in any case. If nough people had beter sense (which they now hopefully have) the bubble would NOT have gotten out of hand.
Lastly, may i add that my original reply no. 169 was to princesschipchop 152 who was NOT being repossessed, who allegedly only borrowed 'extra' for a boiler and who was upset that this housing bubble that impoverishes the nation was not 'continuing upwards' at very low interest rates, because the opposite makes it hard for her to SELL and cash in her 'equity'.
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Short selling is a bit like 'bed and breakfast' to taked advantage of Corporate Gains Tax exemption, which was made illegal, but on a much vaster scale.
There is a difference however. The shorters act on such a scale to the extent that the share is bound to fall. The 'lender of the shares' has nothing to lose. Once the share price starts to collapse then the shorter can sell shares they do not have. There is no risk at all until this point - merely some lenders fee if no trades take place.
It may be legal but in todays market it must be like taking candy from the taxpayer baby.
And it should be stopped, permanently!!!!
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Oh Robert you know someone is telling porkies this time - please don't be naive. Our beloved Gov't makes loads of money out of hedgies and political parties receive sizeable donations from them. How much easier to allow shorties to trash long suffering private portfolio holders - they will not be paying CGT this year or receiving any div's from most banks. Anyone with real trading experience watching a good platform last Monday or Tuesday could see what was going on.
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#276
Ok nice moderator, pleae be sure and pass on all the praise Robert receives from the public at the same time.
We are not all city types and need someone to explain, in clear English what all this mumbo means.
If Robert is to blame for anything, then he can be blamed for telling the public what is happening to our economy.
How can someone be blamed for telling it as it is in a democracy?
Robert, you are a star.
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For the last time, Robert Peston has no impact on the markets. Northern Rock was his one and only scoop. Everything since has been interpretation of slow-burning stories, the occasional discussion reported on newswires one or two days previously, and the occasional public service announcement he might have been obligated to make in the aftermath of that mess. Seldom has anything emerged from his copy that surprised me with its novelty or insight. When it does, I say so.
Here are the ONLY things that matter in the end:
1. Are borrowers able and inclined to make repayments?
2. If not, is the collateral worth what lenders loaned against it?
3. Was the transaction based on full disclosure and understanding by all parties?
That's it, full stop.
What Robert Peston, Crash Gordon, Ali D, you or I think about the economy is immaterial to whether a loan or the wider economy performs, provided the answers to the last two questions are both "yes".
The reason we have a problem is there is a sneaky "no" or at least a "well, um, it is most embarrassing, but..." in there somewhere. And that is no reason to demand self-censorship.
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300 armagediontimes
You need to perk up a bit, you are letting it get to you. Never a good idea. If it got that bad I would simply go elsewhere. Or work something out here. We only need limited electricity. No mains, then generator, no fuel, then brew alchol and distill for fuel.
As far as the long list of problems go. There are always solutions. There always are. Energy - Fine tell everybody to use LED lighting it is much more effective. Limit energy use. Delinquent grocer, fine put a couple of army bods in each store. Nobody to plant and pick veg. Thought there were unemployed around. Dont like stuff not being flown in from the other side of the planet. Have some pottage. It is expectations that are crashing.
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294
Information over load is the basic problem at the regulator.
Every day, every week, every month, every quarter they get reports on almost ALL activity undertaken by the banks and the houses. Consolidating the data will be a nightmare, then they have to analyse it; fat chance, paralysis by analysis. As I believe one of the computer companies used to say, think smarter. That is the one thing they do not do.
ALL the relevant information would have been available under the large exposure reporting requirements had they the wit to see it and interpret it.
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every time GB or one of his ministers open their mouths they go on about the UK having the lowest debt in the developed world... presuming they do not count pfi and public sector pension liabilities in the calculation but that given, can someone once and for all confirm the statement or blow it out of the water...!
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I see the Olympic costs are rising and the goverment is doing what it does best.
THROWS OUR MONEY AT THE PROBLEM
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glanafon;
"Is your more fluid writing fluid assisted, if so I might try it."
Not normally but I think you can tell when it is - that's when I degenerate and start calling people names!!!
however, the odd pint of cider does help to bring about a sense of calmer reality
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#311:
It's OK, the market sees the lie and prices in an estimate of the truth. Until ministers introduce greater transparency, they cannot really complain about the consequences of errors in the estimate, can they?
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@311
http://www.bbc.co.uk/blogs/newsnight/fromthewebteam/
If you connect to the above link. Ali D is being interviewed tonight. You might want to pose this question on there in the hope it gets picked up
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I also caught Gordon Brown on the Today programme and was appalled.
Evan Davies was simply pathetic in his questioning, and must have made all those listening furious.
GB is ruining the country without us having any say in the matter. However we should be able to rely on the BBC to at least bring him to task if he is interviewed.
Instead of which Evan allowed him to dodge every question and seemed almost sycophantic. He was simply too lightweight for the job.
He should have simply refused to put further questions until Brown answered properly.
Brown managed to get away with talking rubbish while answering a completely different question than the one asked every time.
Shame on the BBC for letting us down like this.
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308 werringtonsilent
'For the last time..'
I think not but keep it up.
Other yes yes bit. If yes yes would be write large n we know it.
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316 et al
GB is a professional liar.
How do expect anyone with even a modicum of truth in their nature to be able to get any straight answer?
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310 sosraboc
The regulator is a policing function surely.
The police usually get buried in paperwork and have to follow procedures, no short cuts. When does anybody describe the police as outstandingly bright, or is that unkind.
The police are usually reactive not proactive.
The whole thing is dependent on self regulation by the financial guys. That is implicit in the concept of paperwork being prepared for the regulator. There are regulation failures in other sectors, not with this sort of impact but the same problem.
The assumption is that the financial guys will not self harm. That the policing is very similar to the audit function, ie paid for by the financial guy, even if indirectly and simply checking. A Brown concept I believe. All part of the 'hands off', Son of Thatcher approach.
I dont doubt it could be interperted but that was not the directive, knowing the sort of mentality likely it would be follow the prescription. Tell me I am wrong. If there were problems there were at the top and they seem very comfortable that they have executed their brief to the letter.
Olympics - Ken Livingstone has said quite openly that he was not interested in the why or way he simply wanted to get HMG tied in to putting huge amounts of cash into London and the Olympics fitted the bill. It comes back to agendas. Think there will have to be more money thrown at it. At least there will be some hardware left at the end. London has always gone its own way. The M25 is as far out as it is to avoid the old GLC boundaries. Otherwise it would be one of the few modern major cities without a motorway ring road.
There does not seem to be any joined up thinking.
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318 sosraboc
You are another one a bit down tonight.
'Democracy means simply the bludgeoning of the people by the people for the people' Oscar Wilde Whats new, its all been said before.
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Nothing wrong with short selling, or any other type of free market trading as we all know. No law or regulation against it or any other free market trading, as we all know. No expert in these things but thought opinion was that there was a distinct lack of regulation, which compounded the problem and resulted in a credit crunch. Also thought that was what the financial sector wanted and got, little or no regulation. Seems the FSA thinks its business as usual then, other than if it all goes pear shaped the tax payer can bail us out once again.
However you look at this you get conflicting information, although I am not an expert in the financial markets it appears that being an expert gives people like me little confidence that they actualy know what they are doing. From my understanding of short selling it is far to open to abuse, and is just as likely to be influenced by rumour as it is to an expert understanding of the markets. Its gambling with other peoples money, if you win you get to pocket shed loads of money, if you loose no matter it was some one elses money anyway. I can not help but think, is that not what the banks did, Madoff rings a bell as well. I am sure an over simplification of this type of trading, but then as Madoff proved, it does not have to be complecated to be a scam, just badly regulated by incompetent regulators.
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Did I hear correctly this morning on Flash Gordons interview on Radio 4. Where he said that Northern Rock had already repaid 13.5 Billion to the government of the outstanding debt- How is that possible???
Also how come staff are to be paid bonus.- In my life if I performed badly I would be lucky to hold fown my job!
Dickwright
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316 and 318 are right. Why are the BBC letting GB get away with so many porky pies.
I personally think that HMG know a lot more than they are letting on and underneath the surface lies an enormous amount of non recoverable debt within our banking system.
That is why GB and AD are looking 10 years older than they did six weeks ago.
If RBS have a 20% drop in their so called assets then GB and AD have to find an additional 400bn from tax payers.
We do not have 400bn so where will it come from??.
Sorry, I just cannot afford any more from my State pension.
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What does the following mean?
How much have barclays lost and where?
What is predicted for this quarter?
How much have it's competitors RBS, LLOY, HSBC faired in the same period?
On 31st October Barclays announced
The Board estimates that, taking into account the proceeds of the Capital Raising, on a pro
forma basis (assuming issue and conversion of £4.3 billion of Mandatorily Convertible Notes)
Barclays would have reported a tier one ratio of 11.3% and an equity tier one ratio of 7.6% as
at 30th June 2008. This excludes the impact of any future exercise of the Warrants.
On Jan 16th Barclays announced
Barclays expects to report a year-end equity tier one capital ratio and tier one capital ratio, on a pro forma basis reflecting the conversion of the Mandatorily Convertible Notes, of approximately 6.5% and 9.5% respectively.
What does this mean?
How much have barclays lost and where?
What is predicted for this quater?
How much have it's competitors RBS, LLOY, HSBC faired in the same period.?
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I've just watched Will Hutton on "this week" where were you Robert for balance?
He was certainly saying much scarier stuff than you are admitting to
I certainly think that Andrew Neil has managed to surround himself with people other than "yes" men and because of his own "quirkiness" is able to actually get a different perspective which appears to uncover much more of the truth
Whether you actually want that kind of perspective is subjective
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Gordon Brown will bask in whatever he can find to bask in; as long as someone else suffers, he won't mind...
The danger with short selling is that it is an opportunity for selling your own book - spreading rumours the way you want the market to run. That applies to long positions as well - but unfortunately, bad news travels better, and has a longer sell-by date, than good.
That stacks the balance in favour of the short sellers. The best weapon that companies have against it is to be good, honest and open. Put another way. the threat of short selling is a strong, but valuable discipline.
Banning it would reset the balance in favour of those who want to hide their shortcomings.
Leave it be.
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#297. angloscotty wrote:
First just a note on presentation. One long paragraph - I found your contribution difficult to read due to its lack of space between paragraphs.
In your criticism of the unsustainability of the nature of the banking system did I miss your analysis of the consequence of moving to any other system, particularly during a crisis of confidence? Is this a good time to change the nature of the system?
The free market has given us the present (flawed) system. I don't like any of the other systems of economic management, not for doctrinaire reasons, but for reasons of utility - perhaps a centrally planned economy appeals, but I am afraid that like many people I am also quite well aware that I would make a bad dictator - and anyone else a far worse one!
Free markets with openness and limitations and harsh consequence for corruption see to me to a be a least worse method of running things, perhaps you think otherwise?
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319 Glanafon
You make the point that the police are reactive, the Regulators’ job as I see it is to interpret the data and extrapolate. They should have the courage to challenge the market on the basis of the results of their research; if the market cannot convince then the Regulator should say stop and hang the consequences. This concept should have applied to the senior management of the banks.
Part of the problem is that the regulator/management/government is NOT prepared to challenge the orthodoxy. Hence, a lot of my earlier posts on risk management and the confusion over event and risk. Risk is the function of impact and probability, the government and the regulators forget/ignore this/
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Olympics
The problem here is the reflected glory for the politicians administrators and other hangers on.
The view is it is the OLYMPICS for heavens sake. Financial rationale must be ignored.
But THINK Very few games leave a real legacy. Barcelona perhaps but others? No.
We need to get a grip on the costs and bring it back to what it is: a few top athletes competing, nothing more nothing less.
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Just finished watching Newsnight. That was the most pathetic analysis of the likely outcomes of the present recession that I think could have been possible. I expected to hear nothing valuable from Alister Darling. However, the panelist put together were so smug that I could hardly accept that their views had any value.
When these people say "we must accept the pain" they are not talking about banks and commercial organisations they are actually talking about you and me. There was absolutely no credence given to social effects of this pain.
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What a waste of air time. AD looked like a rabbit caught in the headlights. Lots of spluttering. What have we learned? It's going to be bad and he has no idea the true amount of debt in Banks.
Newsnight really need to read these blogs, round up the questions and let Paxman loose on them.
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#331
I quite agree Time to bring in Paxman and also bring in a few Bloggers!
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Personally I blame this whole debacle on the Laissez Faire approach by HM Govt and the Regulatory Bodies oh and good old fashioned GREEEED! Gordon Gecko Got it wrong Greed isn't always Good.
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so the ordinary workers must now pay through their pensions because the companies in the 90's who enjoyed contribution holidays and paid the money to their shareholders cannot afford final salary schemes.
their non-paymentwas at least TWICE the money GB took out of the pension funds as they gave huge divedends !
yet another case of the rich escaping withn the swag of the poor !
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yes AD really inspires confidence as a man who knows what he is doing, and he has everything under control!
Honestly this man would have difficulty managing a stall at a boot sale never mind the UK economy....he really hasnt a clue. obviously no due diligence was carried out before the billions were given to the banks. The first tranche of £37 billion just disappeared, the vat cut failed (as everyone said it would) why should plan B work....it is no different from plan A just more taxpayers money being tipped into the black hole.
This problem will not be solved until you treat the cause instead of the symptoms....set up the "bad" bank now.....why wait any longer you just know they are going to have to do it in the end!
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Can I just say, I'm loving the way so many people on this blog have adopted the nickname 'Crash Gordon'! It's so poetic, given all the lame rhetoric with which he made his (previous) reputation.
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Mr Darling looks more worried every time I see him. Bashed neeps ... not just for Burns night, I fear.
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PROBLEM --- Financiers and Economists
SOLUTION --- START MAKING SOMETHING REAL
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The more I hear from the politicians, economists, banking and city experts, the more I realise that these people haven't got a clue what is really going on. They are so far removed from everyday life that they can no longer tell fact from fiction.
I used to hate it when my Mum said "you can't put an old head on young shoulders". However, those of us who have already lived through a number of recessions can tell you that this one has a very different smell.
I have no idea how this is going to pan-out. But, I do have fears (many of which I have posted) and I am sure that we are not going to get over this with a little belt tightening in a year or 18 months.
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Just a small vignette:
I am an investor in a small business, for the moment I have some cash.
This business had a GBP1,000 overdraft facility - historically not used, business, cash generative, self financing and positive cash flow. Renewal time comes, bank now wants GBP100 arrangement fee.
That is a 10% fee for something that is not needed - However just in case and to avoid being ripped off in case of small error may as well fund the account myself. Foregone income per GBP 1,000 around GBP 30. Bank overcharging by over 300% .
Send message to bank telling them to go away. Bank send message saying please phone us -we can negotiate. Are these people crazy? Why would I spend moeny phoning a legalised mugger.
Meltdown is coming!!!
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295. sashaclarkson
"Legal is one thing; legitimate is debatable."
Sasha,
I really don't understand why people have a hang up about profiting from short selling. How is it actually any different from holding a long position in a security and selling it? Economically, the effect is exactly the same, ie if I have 100 shares in X and sell them, the market impact is the same as having zero shares and going short 100. The only difference is that with a short position, the seller has to close the position relatively quickly, as they will be paying a funding cost to maintain it (ie the fee for borrowing stock to settle the short trade).
Short selling is a mechanism for allowing investors to profit from exploiting market inefficiencies that have resulted in inflated valuations. It is no different from fund managers who research stocks to find those that are undervalued on the basis of equivalent market inefficiencies. Nobody seems to have a problem with the latter, so what's the problem with the former?
Short sellers have not been the problem in recent markets. They have simply bet that the wider market was under-estimating the likelihood of write-offs and its impact on banks' solvency. They have been proved right as, for about the sixth time now, banks have reported worse than forecast loss provisions. And that's the reason why bank share prices continue to fall, and to fall sharply: the combination of disappointing financial reports combined with decreasing faith in banks' management.
Incidentally, banning short selling might sound superficially attractive, but I can assure you it's very easy to get round. There are plenty of markets that do, or did, not allow short selling. Trust me, it's very easy to create a synthetic alternative that delivers the same economic position. Interestingly, the profits from shorting appear to be higher in those markets where it is banned, based on the fact that stock lenders get higher fees for making stock available from such markets. If the lenders get paid more, it follows that the borrowers are likely to be earning more.
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Further to last Friday's Sir Philip Hampton page.
You will recall that I pointed out the peculiarity that the "safe pair of hands", whose 2004 Report on the Regulation system would be used to justify the Regulatory Sanctions and Enforcement Act 2008, Part 4 of which slipped the Regulators a Mickey Finn, that this safe pair of hands should firstly become Chairman of UK Financial Investments Limited, the lifeboat meant for the banks, before also becoming Chairman of RBS, in otherwords chief beneficiary of his own largesse.
It now transpires, thanks to Paul Mason, that there was an interesting overlap of dates. GB had already ordered the chloroform BEFORE TB put the FSA on warning in the 2005 IPPR Risk and the State lecture. This therefore completes the proof that this deregulation was not reactive, but PREMEDITATED.
Sorry about shouting, but those of you more concerned with the ability to express yourselves than accurate analysis missed the point, it means this Government is 100% responsible for the chaos with premeditation - the only remaining question is whether it has a defence under diminished responsibility. OK, the Regulators are a chocolate teapot and deserve to be dismissed for serious misconduct, but we now know exactly where the fault lies.
This becomes highly relevant when we consider the statements made by the Junior Minister in the Justice Department, Michael Wills, in a speech made at the National Elections Conference this Monday:
Examination of the "Impact assessment - reform of the Electoral Commission" reveals "It is intended that the Commission should focus on its regulatory role ". This, we know from the above, has been dismounted, however.
Examination of the "Impact Assessment - Transparency of donations" reveals "we have revised the proposals in the Bill from option 2 [sources of donations over £200 to be declared - Rahere] to option 3 [sources of donations of over £5000 to registered parties and over £1000 to accounting units of registered parties, ie local parties, to be declared. No limit on donations to candidates - Rahere], as this will ensure that a more appropriate balance is struck between transparency and bureaucratic burden ." Once again we see the laws on financing a General Election is being whittled down by the Hampton criteria.
Now, that reference to the Gould Report's interesting. The Scottish Parliamentary elections in 2007 saw 140000 ballot papers rejected because the voters were confused by the ballot papers which were for two different votes. Gould Report recommended two separate elections should not henceforth be held simultaneously. Therefore, decoding Mr Mills' somewhat opaque comments suggests what he would have said if he dared is, "Although the reformed Election Act will just miss the European Elections on 4th June, it should be enacted in time for the next elections shortly afterwards."
I wonder what he means?
As a further enhancement on my point about the interesting juxtaposition between Will Straw, a member of the team who prepared the Hampton Report, and Jack Straw, the Cabinet Office Ministerial Responsibilities list has the said Secretary of State as being responsible for overall strategy, constitutional renewal and party funding. He shares responsibility for constitutional reform and party funding with Mr Wills, so one can hardly think this was a slip of the tongue.
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#319 glanafon You should read some of the books written by the police. "Wasting Police Time" and "Diary of an on call Girl" are both recommendable.
I´ve had the police on the phone - someone stole my cheque book and strarted writing cheques for insane amounts made payable to implausible people. Not clever, not likely to work.
Police desperate for statements -please sign this sir.
I´m not in the UK
No problem we will e-mail it to you, please sign each page in 4 places, 2 of which we have marked with an "X¨ 2 of which you need to guess, because the system will not allow us to mark with an "X".
OK - no problem.
Ah sir forgot to mention we have another form that you need to sign confirming that the first form contains your true signature.
OK
Unfortunately we only have this form on a corrupt disc that you will not be able to open, will that be a problem for you.
Well if I can´t open it I can´t sign it.
Could you pop into any police station in Kent.
No, I´m a thousand miles from Kent.
OK we´ll just keep sending you e-mails with attachments that you cannot open.
Why?
Well that way we´ll have a record that we are tryng to be proactive.
Meltdown is coming
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What I don't understand, and maybe someone can help me with this, is how AD and GB can be so slippery. Can noone pin them down and back them into a corner so they answer some straightforward questions? Here was I thinking that we were living in a democratic society - wasn't that what we fought these spurious wars for? Heck, we pay their wages. The very least they can do is be straight with us (and no I'm not naive I know it will never happen but it is so wrong).
Addendum Correction
The very least they can do is allow us to elect our own Prime Minister not have one foisted upon us. One who deliberately chose not to have an election. Democracy?
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299. Tantivvy
"who in their right mind will lend stock to someone intent upon driving down its price?"
Firstly, there are many reasons why people borrow stock. Short selling is one, but often not the main reason in many markets. Secondly, you're assuming that short selling does lower share prices. Many of us would dispute that it does. Even if it does, it affects specific securities, and most stock lenders are more bothered about overall portfolio performance. Finally, lenders may well actually be happy if particular shares underperform the wider market (ie fall or go up less than the market generally). They may well have positioned their portfolio to benefit from precisely this, ie underweighted securities they feel are overvalued. What's the benefit of this? Well most fund managers are measured against a benchmark. Where a stock is underweighted and does underperform, this adds to the manager's outperformance of the benchmark, making them look good. So, even if you're right and short selling pushes prices down, it may well be that the interests of the short seller, and the fund manager that lent the shares, are pretty much aligned.
"every short position must be declared formally as it is taken."
All share trades have to be reported as and when they're effected (virtually all have to be reported and are publicised within minutes). Admittedly, in normal circumstances those that are short sells are not specifically highlighted, though at present the requirement to report short sales of about 30-35 financial services stocks to FSA remains in place. There's no real benefit to reporting short sales specifically. A sale is a sale is a sale. Whether it's someone reducing or disposing of a long holding, or opening a short position, has the same economic effect.
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@ rahere 342
Great blog! Combined with Paul Mason, it would appear that things are starting to unravel for our government.
The only problem is finding a vehicle to make this available for the wider public.
I was pretty convinced this morning where the fault lay after dwelling on Paul Mason's blog overnight. Combined with yours, I do believe there isn't much doubt.
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I'd like to see Jim Rogers allowed to question Gordon the Golem and his streetwalker Darling - they would get short shift (not nodding subservience, which is what they get from the BBC and other media in the UK) from someone who has actually created something in his life. All the golem and Darling are is politicians. They've never done anything constructive their whole lives.
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#335 jolo13 wrote:
"AD really inspires confidence as a man who knows what he is doing, and he has everything under control!
Honestly this man would have difficulty managing a stall at a boot sale never mind the UK economy....he really hasnt a clue."
Alistair 'Ali D' Darling is not new to failure; his brief stint as Minister for Energy was limp and ineffectual, distinguished only by providing us with a brief respite from the tenure of Malcolm Wicks, a man so manifestly unqualified for any post in the sector that the journalist David Strahan was compelled to devote a whole chapter of his book to correcting Wicks' understanding of his brief.
That said, Darling could have lived out a long career as the most obscure of the Cabinet Ministers, had he turned down the Treasury on the eve of a global debt meltdown so many people could see coming. This crisis would have been a great opportunity for a man with ideas and an independent hand to prove himself, but from the moment Blair stood down, it was obvious Brown's successor would be micromanaged. The man is out of his depth in a position that is not his own. Like many people stuck playing second fiddle, he will probably come to regret not leaving sooner.
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#322
The average lifetime of a mortgage portfolio is actually quite short - it would be about 11 years if everyone held on till the end, given the balance between 20- and 25-year plans, but few people do so, chopping and changing as their lives develop, into marriage, divorce, new jobs elsewhere, deaths, the full rich variety of real life out there, and that reduces the average life to about five years. So about 15% of the portfolio will mature in any year, and it's usually reinvested in fresh mortgages. However, Northern Rock wasn't issuing any fresh mortgages, although it's started in a small way since, and it's nearly a year since it was taken into public ownership. In this particular case, there's an added motivation for borrowers to move elsewhere, as they have been under considerable pressure to make alternative arrangements as soon as possible - they have been one of the most vindictive pursuers of defaulters, for example.
Turning to the specific, according to Northern Rock's quarterly trading statements, its debt stood at 28.5 billion at 31.12.07, 21 billion at 30.6.08, and 18.6 billion at 30.9.08. I've removed their variable liquidity balances which they offset, in contravention of the IAS, which leaves me wondering about the quality of their auditors Pricewaterhouse Coopers, in passing - a liquidity deposit has a completely different function from the financing advance, and I'd love to see their justification for that offset!
They've therefore paid off about 3.5 billion a quarter, making 14 billion in the year, which is broadly in line with Crash's 13.5 billion.
This was funded from their mortgage portfolio, as I explained. As at 31.12.2007, that stood at 99.3 billion, and according to the model above, one might therefore expect expect anything between 10 and 15 billion to mature in the year, less amounts issued in new deposits, lost in defaulting bad debts and operating costs and other depreciation, which is therefore broadly consistent with the above. This is, of course, a cashflow calculation, and omits the less tangible losses which will none the less become important in the long term. What I'd be particularly interested in is anticipating the extraordinary writeoffs of compound hedging instruments, which were 1369.7 million in 2007. Given that was on a portfolio standing at 2241 million, they should have reaced earlier.
One slightly amusing comment in their 2007 accounts is that they sold nearly 1.5billion of its commercial loan portfolio to Lehmans for repackaging. That might yet come to haunt them, if the forcible unpackaging of these is imposed by the US Courts, an interesting hypothesis in the long term as we might yet get significant amounts of swamp and desert back.
As one of the first accountants to have created the underlying theory for the principles of derivative pricing, I observe that they use current option pricing models, which are mathematically not a zero-sum game, casting doubt on the objectivity of the statements. Futhermore, some of the portfolio is not matched, which casts great doubt on the prudency of the offsets - these should only be offset when hedging a true position. It also casts doubt on their comment that all derivative transactions are for economic hedging purposes, although there are a number of reasons why this can be (the crystallisation of the underlying risk exposure before the hedge matures, for example). This in particular applies to a number of CDOs, which they specifically mention as being of concern, but which they still offset on the basis of the intention to do so at settlement, which fails to take the risk of default into account. We really must get to grips with this concept of risk in the balance sheets, it's just not taken seriously enough to comply with prudency. Ye Gods, I'm back at work at 3 o'clock on Saturday morning, I've got to get a life!
The relevance of this is as a scale to see how fast the rest of the banks might repay the Tranche 1 investments, if we can get an overall handle on that.
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Re my 342
It's better yet, just that the Beeb's HTML is missing quite a bit. The socking great gap in the middle was a quote from that speech, as follows:
We expect to complete the remaining Commons stages of the Political Parties and Elections Bill by the end of next month, after which it will be considered by the Lords. We are hopeful that the Bill will receive Royal Assent in the early summer.
I know that there are elements in the Bill that will interest you particularly as they affect the management of the electoral process. There's provision for canvass forms received back to be treated as rolling registration forms where an election is called during the canvass period. This responds to issues raised by speculation of a general election in autumn 2007 when it was questioned what would happen if people thought they had changed their registration details by returning a canvass form. Clearly that would be unhelpful and confusing for electors and potentially cause more work at a time when your teams can least accommodate it. This provision would go towards addressing that and avoiding any need to send out rolling registration forms where a canvass form reflected changes – as is the guidance from the Commission under current legislation.
...
Whilst the Bill is unlikely to be in place in sufficient time for the [4th - Rahere] June elections (and conscious of what the Gould report said), for the purpose of the European elections this year, we have dealt with the issue for England and Scotland in other legislation.
Of course, constituencies will have to be the basis for the next general election - whenever that is - and Ministry of Justice officials are working to reduce the risk of postal vote checking issues where it cannot be avoided.
...
We have worked to complete regulations as early as possible with an aim to meet the six-month deadline - we have narrowly missed that but I understand that the regulations should be debated and pass into law towards the end of this month, and they have benefited from the input of administrators as we have developed them.
Many of you will also be aware that we are looking to a new system for the funding of elections, where they are funded from the consolidated fund. The aim of this is to gain a more effective view of the cost of elections and to ensure that you are provided with the flexibility to manage the budget appropriately.
...
The European elections in June won't be the only thing you are thinking about for the future - we do not know when the Prime Minister may choose to call a general election and that is another challenge for which we need to prepare. As you know, all elections require significant planning and preparation.
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#22. you have any actual proof that these banks have carried large losses on CDSes? Or you trying to impress with large words?
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#341. the reason people have a problem with short selling i suspect is because driving asset prices down is "bad" where as driving them up is "good" as the average retail punter will be long on a stock.
As for the banning of short selling being meaningless - think CFDs. It's a kneejerk populist move from a kneejerk populist government.
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#340, there is probably as much effort involved in setting up a 1,000GBP OD as a 30,000GBP OD. Hence the fee.
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#148, flaw in the argument is the phrase "the price then goes down", it doesn't usually just like when you buy it doesn't go up. Also the fee is extra income the fund manager or custodian makes from assets that would otherwise be sitting on the book. If the fee is higher than any decline they still are net positive. Thats assuming they don't want the price to go down as someone here pointed out.
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#169, thats a little unfair. I had a similar experience with a place i bought where the boiler failed within months and i had to replace it. It is not discretionary spending to have heating in the middle of winter or do you take cold showers in December? I also found out the survey was a waste of time too.
3 years is not a short time to be in a first time home and hardly "speculation" and given the bubble had another two years to run after purchase not entirely unreasonable. I took another view in 2005 and missed out on the extra cash, so 13 short months ago I would have been the one who looked like an idiot.
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#233, you haven't benefited? I assume then that you have no savings and no debts, never got paid a salary or benefits and use no public services whatsoever including the BBC....
as for acting like a tax, i think you'll find around 30% of corporation tax receipts were from banks in recent years.
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POST 3
"Anyone read Alice in Wonderland recently."
You mean All lies in blunderland
where Pollytitians and Whizz kidders can believe 6 impossible things before having the two brake fast if they really try .
The only thing left in their vaults is a picture of the Dorian Gray v train coming off the tracks
Now that the governmint are in charge of the banks they can insure their closed loop financial delusions to infinity and beyond and disapear up their own derivatives
Banks are in buisness to make money [both litterally and metaphorically] if they can turn the sitee into a caaassino royale BOS and make more money from cds and capitalising short sellers [trying to buy a VW]then why should they get involved in making things or investing capital in declining but productive assets ,in a period of deflation in their winter of discointent with waltz st?
In view of the banks responce to Great Gordons taxipayerr [Financial Uk'd Investments] ,GG may as well have put the money into William Hill via an eachway bet on "clingon enterprise"in the 4.30 at Kempton [ 100 to 1 but so was foinavon]
AS labour said " things can only get bet ...err...."[ha]
One increasingly gets the impression that GG has recently backdated a bet on a horse that came foourth in last years Grand national [slim pickings ] when he thought he was backing "comply or die"[which came first .]
Why can the Bank of England not open its own high street branches and purchase clientele lists from failed banks ?
And let the zoomby banks join the wrecksqueuer colapse ,prefferably into their own vaccuAAA's holes
Does the government not wish to [externally] take over banks because they will have no one to blame for their turbo charged spendaholicism and the coming bends in their road to ruin ?
The operation to remove Toxic Lehmanaids failed to kill the cancer which mestasized throughout the world banking AAA cystem
They now require CHE MO[cheepmoney] therraaapy while they con vat less arround their caaa'sino's
We should get rid of the Racket scientist pseudo egonomic theorists that only wish to get their Gray V train back on track to VAAAlhAAAlAAA and replace them with
Aids scientists [Automaticaly Induced Debt Sindrome]
CJD specialists
Electrical grid breakdown /recovery experts
Electronic negative feedback loop engineers
Who can without prejudice model a way forward
Soon things will be so bad ,even badder than bad and badder still, till they get worse and then some[lol] and then Labour well rehash "Things can only get barterr before they get bet... err "and get battered by the embitterred and butterred on both sides by the ba....
Lets just hope their is no return to Gordon and bust.
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UK external debt was 10 trillion in July. See World Bank statistics database (http://www.jedh.org/jedh_dbase.html). I have not misplaced any zeros.
Evan Davis commented on the story (http://news.bbc.co.uk/2/hi/business/3932509.stm) when the debt was just 1 trillion. His comments then are interesting in light of how things are turning out.
Given that our government is responsible for only a small percentage of this debt, it is a wonder that the world and its dog is not selling anything UK short.
Perhaps they are following Evan Davis in believing debt is fine if you have assets to cover. Back then it was our homes providing the economic shelter. Now it is presumably the bloated loan books (aka assets sic) of our banks. I am sure these will prove safe as houses.
PS don’t think about the impact of the currency fall if you are of a nervous disposition.
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PPS Iceland seem to have stopped publishing their external debt in 2002.
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And STILL it goes on-whose fault it is etc etc!
Sorry everone, but everything said ( apart from detailed explanations and examinations of shorting) has been said over and over ad infinitum since October-I'm as guilty as everyone else!
Today, apart from my usual very hectic day, I wrote to my local MP (3rd time lucky?), 10 and 11 Downing St (again, 3rd time lucky), cooked a great meal from fridge bits, conducted an orchestra, sang a few songs, finally getting back on the blog now. Oh, and drafted an email to David Cameron to edit over the weekend.
I'm pig-sick of the roundabout now.
Like many others, I'm sure, I want to see constructive action not rhetoric.
Believe me, I would willingly step in and do a sort out. I have no political leanings, no financial connections, no big bonus, just a love of my country. Maybe pathetic, but I'm furious at the way we've all been sold up the river as if we are all totally irrelevant!
Also, maybe, I have an overdeveloped sense of justice and fairplay? Or maybe, just maybe, I am simply proud to be British.
I, along with others, have made many suggestions since the crash on how this could all be rectified, though now it's a case of stabilisation and crisis management.
Blame and retribution can and should come later. Let's fix the economy, then let heads roll, or even at the same time.
None of the politicians seem fit for purpose-surely we have a modern Cromwell somewhere in our midst? Apolitical with a determination to protect the nation from corruption and greed?
Surely there's some law by which such a person could be put in a position to do some good? I'm sure there must be an ancient law still standing that could be invoked?
IMHO, not one of our politicians can do what needs to be done-associations with banking and stock broking run too deep for them to be totally objective?
A modern day Cromwell would make many enemies, but at least we'd have a country to be proud of!
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Bet that last post gets bounced!
Night all!
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I have read over 200 comments so far condemning short sellers.So far I am confused.Can I pose a question at this late stage after the subject seems to have been battered to death as follows. 'Who drove down the price of oil from $147 to £40 a barrel? Was it the long term investors or the Short Sellers?I cannot believe the oil price fall is down to pure supply and demand economics, and nothing to do with short sellers or speculators betting the oil price would fall.So if my logic is uncontested then thankyou short sellers from every motorist filling up at the petrol pumps today.
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360 TigerjayJ
Of course we all want a solution and I agree with you endless ranting, which is just because we are all angry, will not solve the problem.
Whilst it may not be the way to get out of the immediate mess; if we want a solution we need to go back to the root of the problem.
The problem is the way that our "Democracy" has evolved.
We have arrived at the point where all law making and the administration of that law rests in the centre with one person.
That person has little or no check on his power because of the patronage he wields and because the party system means that MPs are beholden to the party, and therefor the leader, for their seats rather than the electorate.
The rest of the problem is that the person who gets to the top and thus wields this power tends to be a zealot. No one else would dedicate the effort required to get there.
You are right to look for a Cromwell as the situation we have is that the Prime Minister is able to act very much as Charles 1st did. After all the Prime Minister is "The Crown in Parliament"
In order to solve this problem we need to make the MPs beholden to their constituents rather than the party. This can be done by insituting local primary elections at constituency level where local people choose the candidates who will go forward for election as their MP.
We also need to have all cabinet posts ratified by Parliament as well as elevation to the Lords. This would reduce, but not remove, the PMs patronage to an acceptable level.
The effect of all this would mean that we would have a house that was able to speak it's mind and guide the government in the right direction rather than the set of rubber stamps, that we have at present, who simply bend to the will of one man.
The end result would be sensible,well argued solutions rather than populist panic.
For a more detailed argument see "Freedom or Equality" on
http://johns-blog.typepad.com/johns_weblog/page/2/
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# 360 and 361 Tigerjayj
I'm with your sentiments: pig sick of our incompetent political elite (ha!).
Now take a look at the link below to see where (I believe) we're heading. And still, Gordon Brown drones on about his economic brilliance (and, it seems, the majority of British citizens swallow it??!!), whilst David Cameron trots out the usual, tame drivel. Evan Davies's interview with Brown on yesterday's Today Programme was dismal; where was Humphrys?
It's positively alarming the way we're sleepwalking into what apppears to be the mother of all economic disasters, with all of the social consequences that will follow.
http://tinyurl.com/cyd5ur
In the above link, note the comment:
"Albert Edwards, a strategist at Société Générale, likened the British economy to a Ponzi scheme — a fraudulent debt mountain like that allegedly used by the New York hedge fund manager Bernard Madoff.
'What I find amazing is that people aren’t really nailing Gordon Brown and [Bank of England Governor] Mervyn King for this,' he said. 'At least in the US they had the excuse of the arrival of sub-prime — a new sector of the market. We [the UK] didn’t really have anything similar but we ended up with a bigger national Ponzi scheme than the US'."
So, David Cameron, why aren't we nailing Gordon Brown? Probably because the Tories spent so long trying to look and sound like the Labour Party (including signing up to Labour's idiotic spending plans) that anything the Tories say these days sounds incredible, insincere and rather like they're making it up as they go along. Sound familiar?
What a mess, eh? Guess who's going to be paying for this over the next decade or generation? Yep, once again, it's you and me: the ordinary guys. And with our Parliament now a joke (operating primarily to keep 650 people on the John Lewis List), we stand little chance of nailing anyone.
How did we allow our (once?) great nation to descend to this? I don't have an easy answer, but oh boy, I'm certain that Supreme Leader Brown's hands are covered in blood. Shame he never looks at them himself, such is his arrogance.
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re Barclays
Two weeks ago the share price stood at 185. Now its 50p. I've heard loads of comment for and against shorting. Loads of people saying shorters just profiting from the real belief out there that Barclays (despite what they say - more later) has loads of toxic debt that will require writing off. They tell me this is the problem, not the shorters.
In that case, has the market only figured out that Barclays may have toxic debt over the last two weeks?
What did the market think three weeks ago? How much toxic debt did Barclays have then? Obviously minimal to none - the market was pushing up the sp. In that case, Barclays has made a serious number of bad lending decisions over the last fortnight!
Or is the market playing games? And if so, are the shorters involved - big time?
In three weeks Barclays is due to release their results. An interim statement last Friday indicated things were well. Followed up by useful interviews by Varley.
Now, if the results match the interim statement, and Varley's views what will the market do? If it doesn't soar, then the market is saying that it knows more about Barclays' bad debt than the auditors and accountants.
Well in that case the market has certainly learn't a lot in two weeks about toxic debt - and was pretty clueless before that!
Of course, if the results don't match the interim statement, then Varley will presumably have several impossible questions to answer. I suspect the market doesn't disbelieve him.
A lot of games are going on. Lets hope common sense prevails very soon, this kind of practice just when poeple are losing their jobs all over, and the country is facing a bad recession, is abhorrant.
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#351
Northern Rock's 2007 balance sheet showed 1.3bn losses on hedging instruments, but that was pretty much offset by selling about the same amount of mortgages to Lehmans to package onwards. They then had something over 2 billion left in hand, although their accounting practices leave much to be desired, as this is a net 2 billion and there's a deal of unmatched speculative hedging in there which decent auditing would have forced them to gross up, on the basis that the liability risk did not match the asset risk, which is what the chaos is all about - the short-term borrowing to fund it did not match the long-term assets, the underlying position was the 26bn they borrowed. Thus far they've recovered about half of it, but the rest will drag in somewhat more slowly -they may soon (midsummer, just pre-election) be back in a position to be viable, however, depending on market conditions to accept them again.
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This crisis was caused not because of market forces and free enterprise, it was caused by interfering with them.
Let the debtors go to the wall; it is the only way.
Punishing the creditors is madness.
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