On a slightly different note, I heard perhaps the weakest defence of the "no-bailout" position yet today from Tim Congdon of Lombard Street Research. It was down there with Simon Heffer in the lameness stakes. Big props to me old mate "Foley" for finding this one - it was on the World at One, which I don't listen to much (normally having an afternoon nap around then).
Congdon essentially said that the government had stolen the banks from the shareholders. Effectively he accused the govt of creating the crisis to drive down bank share prices and then nationalising once prices fell below a certain threshold. The same accusations were levied at Tony Benn when he was Industry Secretary for the Labour Government in 1974 (not for banks but for other industries). It was b.s. then and it's b.s. now. Shareholders will actually gain a lot from this deal relative to what they would have had in the absence of the deal (which is little or nothing, as the banks would have gone bust, like Lehman Brothers). The Congdon interview will be available for the next few days from BBC iPlayer (World at One, 13 October - about 11 minutes in) but I couldn't find a permanent link on the web at the moment, unfortunately.
However, you can download some equally moronic commentary from Lombard Street's podcast page. There's 9 minutes of doggy-doo from a guy called Jamie Dannhauser (who looks about 17) which I couldn't find a direct link to, but it's called 'UK bank bailout - necessary help or dangerous govt interference?' Just guess which of those options Jamie puts his money on. The analysis is hackneyed 80s Thatcherite pro-deregulation, pro-private sector rubbish - exactly the kind of crap that got us into this mess.
See, that's why the arguments are so easy to win for the left at the moment - any time a right winger tries to argue with you, just point out the current economic crisis and the (Thatcherite and post-Thatcherite) policies that got us there. It's like shooting fish in a barrel at the moment out there. On Channel 4 news today, Labour left-winger John McDonnell totally annihilated an ex-director of Bradford and Bingley over the question of whether there should be democratic control of banking remuneration - because listening to a guy from Bradford and Bingley giving his opinions on the way out of the crisis is like getting advice from George Bush over how to stay popular in politics. They are busted flushes.
It won't always be this easy, but after 25 years when the neo-liberals seemed to be in the ascendancy most of the time, it's nice to watch these guys squirming around a bit.
Showing posts with label credit crunch. Show all posts
Showing posts with label credit crunch. Show all posts
13 October 2008
A day long remembered
As Darth Vader says in Star Wars, "this will be a day long remembered". Most likely, anyway.
It's seen:
Of course, the whole caboodle now hinges on whether the economy can now resume some semblance of 'normality'. Well the Dow Jones has gone back up, but of course you should never place much importance on any single day's trading - come back in six months and see what the indices look like then. The main issue is how severe the oncoming recession turns out to be. If it's just a severe recession - the politicians done well. If it's a severe slump - you can kick their asses.
It's seen:
- the partial nationalisation of most of the UK banking sector (of the big banks, only Barclays and HSBC have escaped - at least for now). Looks like I was right when I suggested this a few days back.
- Paul Krugman awarded the Nobel prize for economics. Good choice.
Of course, the whole caboodle now hinges on whether the economy can now resume some semblance of 'normality'. Well the Dow Jones has gone back up, but of course you should never place much importance on any single day's trading - come back in six months and see what the indices look like then. The main issue is how severe the oncoming recession turns out to be. If it's just a severe recession - the politicians done well. If it's a severe slump - you can kick their asses.
10 October 2008
The nuclear option?
No, I don't mean dropping a bomb on Iceland - although the UK government rapidly seems to be moving towards tougher measures where those pesky Icelanders are concerned. "What do you mean, the country's bankrupt? We need £20 billion of British money now!
I mean what the f*** to do about the paralysis of financial markets. It's obviously very early days since the UK bailout package was announced; slightly longer since the US package was announced. But so far the signs are not good. According to the Telegraph,
If this statis persists into next week, there may be only one option left to the UK government: complete nationalisation of the UK banking system. Following the principle "if you want something done... do it yourself."
The logic is obvious. Capitalism can't function without bank lending. So if the banks won't lend, the government has to do the lending for them. The Bank of England could - theoretically - do this directly, but it doesn't have the infrastructure or the personnel to do that. Private sector banks do. Therefore, private sector banks should - for a period of time - become public sector banks, under direct control of HM Treasury.
Once the crisis has been averted and stock market and housing prices start to rise, the government can sell them off again (properly regulated, of course, to prevent another crazy bubble happening like we've had for the past decade). And the taxpayer will make a big profit.
It seems to me that unless banks start lending in the next few days, this is the only way to go - unless some kind of huge international bail-out is organised, like Paul Krugman suggests. But can that happen? Europe can't even organise its own collective bailout. It's every country for herself out there.
So maybe it's time to stop pissing about and carry out that 1983 Labour Manifesto in full. Michael Foot was right all along... and future generations will thank us for it.
I mean what the f*** to do about the paralysis of financial markets. It's obviously very early days since the UK bailout package was announced; slightly longer since the US package was announced. But so far the signs are not good. According to the Telegraph,
yesterday there were few signs that Mr Brown's bail-out gamble was paying off... there was little evidence that banks were prepared to lend to each other and no British bank has requested any of the £50 billion available.
If this statis persists into next week, there may be only one option left to the UK government: complete nationalisation of the UK banking system. Following the principle "if you want something done... do it yourself."
The logic is obvious. Capitalism can't function without bank lending. So if the banks won't lend, the government has to do the lending for them. The Bank of England could - theoretically - do this directly, but it doesn't have the infrastructure or the personnel to do that. Private sector banks do. Therefore, private sector banks should - for a period of time - become public sector banks, under direct control of HM Treasury.
Once the crisis has been averted and stock market and housing prices start to rise, the government can sell them off again (properly regulated, of course, to prevent another crazy bubble happening like we've had for the past decade). And the taxpayer will make a big profit.
It seems to me that unless banks start lending in the next few days, this is the only way to go - unless some kind of huge international bail-out is organised, like Paul Krugman suggests. But can that happen? Europe can't even organise its own collective bailout. It's every country for herself out there.
So maybe it's time to stop pissing about and carry out that 1983 Labour Manifesto in full. Michael Foot was right all along... and future generations will thank us for it.
09 October 2008
Krugman: big props to Brown (the puppeteer)
Big support for the UK bailout plan from Paul Krugman today. He does refer to it as the 'Brown plan' (together with a great double thumbs-up picture of Gordon), which Alistair Darling probably won't be too happy about. But then, from the picture it's pretty clear who's pulling the strings.
One is reminded of Martin Landau as Bela Legosi in the brilliant Ed Wood:
One is reminded of Martin Landau as Bela Legosi in the brilliant Ed Wood:
"Pull the string! Pull the string!"
07 October 2008
Towards mass nationalisation of the financial sector... welcome, Comrade Treasury.
Great news kids... we're all about to become bank financiers, courtesy of £50bn(? sum as yet unconfirmed) from the UK Government. Partial nationalisation, in other words. At least we're getting 'em pretty cheap... although it'd probably be a better deal for the taxpayer if we waited for them to get to the brink of insolvency and then picked them off one by one. That seems to be the Icelandic strategy at any rate.
The way they've performed under private ownership, it may well make sense to hang on to 'em in the public sector for a while. Or indeed permanently. Just don't let McKinseys and the other management consultants loose on them the way they've been allowed to run riot in the NHS.... aaarrrgh.
Well, we shall have to see whether this latest bail-out fares any better than the US bail-out, which . The rule book is being rewritten at the moment.... and by people who only vaguely speak the language. That is, HM Treasury, who spent the last ten years (and indeed decades before that) arguing for free-market economic policies. Yes folks, HMT is now leading the drive towards a socialist UK - parallelling our friends in the US, where Paulson and Bernanke are leading the revolution.
As I said a few weeks back, Jon Voight was almost right when he said that Obama would introduce socialism in the US - except that George W Bush got there before him.
Today's 1970s LP choice: "Crisis? What Crisis?" by Supertramp. Seemed appropriate somehow.
The way they've performed under private ownership, it may well make sense to hang on to 'em in the public sector for a while. Or indeed permanently. Just don't let McKinseys and the other management consultants loose on them the way they've been allowed to run riot in the NHS.... aaarrrgh.
Well, we shall have to see whether this latest bail-out fares any better than the US bail-out, which . The rule book is being rewritten at the moment.... and by people who only vaguely speak the language. That is, HM Treasury, who spent the last ten years (and indeed decades before that) arguing for free-market economic policies. Yes folks, HMT is now leading the drive towards a socialist UK - parallelling our friends in the US, where Paulson and Bernanke are leading the revolution.
As I said a few weeks back, Jon Voight was almost right when he said that Obama would introduce socialism in the US - except that George W Bush got there before him.
Today's 1970s LP choice: "Crisis? What Crisis?" by Supertramp. Seemed appropriate somehow.
06 October 2008
OK, now the "bailout" has arrived, we can get on with the crash
New lows in the stock market today... a record 1-day percentage fall in the FTSE 100. The BBC headline is instructive: "stocks slide despite reassurances."
Perhaps because the reassurances were coming from the likes of Angela Merkel, Alistair Darling, the government of Iceland, and of course the US Government.
We have got to the stage that William Burroughs in The Naked Lunch called 'that frozen moment when everyone sees what is on the end of every fork.' People have realised that b.s. is b.s. and there is no real reason to believe any economics minister in any government in the developed world.
Jon Snow on Channel 4 News looked to be really enjoying himself (and that's not meant as a negative remark at all - Jon is great.) Just being able to have a steady stream of interviewees in the report footage and in the studio saying, "we haven't a clue when it's going to end." Even the economic collapse of the mid-70s doesn't have anything on this.
More and more financial institutions - and other companies - are having to be rescued by national governments every day. The UK government is now seriously considering partial nationalisation of the entire UK banking system. It's intervention on a level that Tony Benn never got anywhere near in the 70s.
Is it frightening? Yes, certainly. But seeing the Reagan/Thatcher economic model that we've been following for the last 30 years unravelling so quickly and so completely is not an unpleasant experience. The only problem, of course, is what we replace it with. And that now becomes the really big issue for what now looks increasingly like it's going to be an incoming Obama adminstration in the US. (So far there's little evidence they've thought about this - which is very worrying. But that's an issue for another day).
In the EU, who the hell knows what's going to happen. The two different perspectives I've identified from media commentators are:
1. The crisis could fracture the Euro and maybe the EU itself (Larry Elliott says this for instance);
2. The crisis could lead to an expanded EU with greater powers (at the extreme, a federal Europe). For example, it looks like Iceland is now desperate to join... and if the pound collapses, the UK could be forced into the Euro.
So it's the big crash, folks. (Of course stocks may bounce tomorrow, but in the current climate that won't last for long. Casino capitalism is crumbling to dust, and this is the biggest opportunity for the left (and unfortunately for the extreme right) since the 1930s. The only problem is working out exactly what the f*** is going on enough to work out (in turn) what to do about it. Good luck, everybody.
Perhaps because the reassurances were coming from the likes of Angela Merkel, Alistair Darling, the government of Iceland, and of course the US Government.
We have got to the stage that William Burroughs in The Naked Lunch called 'that frozen moment when everyone sees what is on the end of every fork.' People have realised that b.s. is b.s. and there is no real reason to believe any economics minister in any government in the developed world.
Jon Snow on Channel 4 News looked to be really enjoying himself (and that's not meant as a negative remark at all - Jon is great.) Just being able to have a steady stream of interviewees in the report footage and in the studio saying, "we haven't a clue when it's going to end." Even the economic collapse of the mid-70s doesn't have anything on this.
More and more financial institutions - and other companies - are having to be rescued by national governments every day. The UK government is now seriously considering partial nationalisation of the entire UK banking system. It's intervention on a level that Tony Benn never got anywhere near in the 70s.
Is it frightening? Yes, certainly. But seeing the Reagan/Thatcher economic model that we've been following for the last 30 years unravelling so quickly and so completely is not an unpleasant experience. The only problem, of course, is what we replace it with. And that now becomes the really big issue for what now looks increasingly like it's going to be an incoming Obama adminstration in the US. (So far there's little evidence they've thought about this - which is very worrying. But that's an issue for another day).
In the EU, who the hell knows what's going to happen. The two different perspectives I've identified from media commentators are:
1. The crisis could fracture the Euro and maybe the EU itself (Larry Elliott says this for instance);
2. The crisis could lead to an expanded EU with greater powers (at the extreme, a federal Europe). For example, it looks like Iceland is now desperate to join... and if the pound collapses, the UK could be forced into the Euro.
So it's the big crash, folks. (Of course stocks may bounce tomorrow, but in the current climate that won't last for long. Casino capitalism is crumbling to dust, and this is the biggest opportunity for the left (and unfortunately for the extreme right) since the 1930s. The only problem is working out exactly what the f*** is going on enough to work out (in turn) what to do about it. Good luck, everybody.
02 October 2008
More on skid row...
Great article by Thomas Friedman in the New York Times here about why the House of Reps was mental to vote the bail-out down, making pretty much the same points I made but more eloquently!
The Senate passed the bail-out this morning, but it's still anybody's guess whether they'll get it through the House on a second try (Friday morning). And if it doesn't get through, what happens? Do they just keep trying again and again until George Bush runs out of different ways to make the same speech, or the economy collapses so badly that they can't pay anyone in Congress anymore?
Questions, questions.
The Senate passed the bail-out this morning, but it's still anybody's guess whether they'll get it through the House on a second try (Friday morning). And if it doesn't get through, what happens? Do they just keep trying again and again until George Bush runs out of different ways to make the same speech, or the economy collapses so badly that they can't pay anyone in Congress anymore?
Questions, questions.
01 October 2008
saver switching confusion
Headlines from today's news stories
The Beeb: 'No floods' of switching savers
Savers are remaining calm about their savings and not switching banks despite uncertainty in the sector, an industry body has said.
The Telegraph: Savers move billions to safety amid banking panic
Panicked savers are moving billions of pounds from high street banks into accounts that guarantee their deposits.
Confused? Us?
Conclusion: no reporter has a bloody clue, and the media continues to perform at its usual level of competency. (Remember Monday, when all the news channels were telling us the US House of Representatives was certain to pass the bail-out plan - until it didn't? That's why I'm not believing anything they're saying about the Senate. The Telegraph, for what it's worth, thinks that even if it does pass in the Senate, the bail-out plan will fail again in the House.
The Beeb: 'No floods' of switching savers
Savers are remaining calm about their savings and not switching banks despite uncertainty in the sector, an industry body has said.
The Telegraph: Savers move billions to safety amid banking panic
Panicked savers are moving billions of pounds from high street banks into accounts that guarantee their deposits.
Confused? Us?
Conclusion: no reporter has a bloody clue, and the media continues to perform at its usual level of competency. (Remember Monday, when all the news channels were telling us the US House of Representatives was certain to pass the bail-out plan - until it didn't? That's why I'm not believing anything they're saying about the Senate. The Telegraph, for what it's worth, thinks that even if it does pass in the Senate, the bail-out plan will fail again in the House.
29 September 2008
Skid row, here we come...
...not the early 90s heavy metal band, fortunately, but the imminent collapse of the entire US (and perhaps the entire Western developed world) economies.
The US bailout plan has been defeated.
As that was pretty much the only thing holding global stock markets up, stand by for a financial bloodbath. It'll probably unfold as a domino effect over the next few weeks, with bank after bank failing - and dragging various other companies down with it.
What seems to have scuppered the bailout plan is three things:
And I think that unless Barack Obama gets his shit together on the small matter of a fundamental shift in US economic policy before taking office (if he does win), there is a real danger of his presidency running aground big-time on the economy. Four years is normally a fairly long time in the economic cycle, but if we are headed for a 1930s-style depression... maybe not.
That's assuming the pundits are right that we are headed back to the 1930s. I've had my doubts before, but the new crop of data coming out from the UK is so weak that it's getting hard to maintain any faith in the system's ability to right itself without taking a huge hit. For example, mortgage lending has collapsed by 95% in one month. And that was before Lehman/AIG! Jesus Christ, we are f***ed.
Remember the barter economy... start storing those valuable non-perishables now. And a stock of food to eat, if your bank goes under and you can't withdraw any money from the cashpoint. Yes, you've got £35,000 covered by the Deposits Scheme but how long will it take the govt to give that to you? Gotta play it safe at the moment.
We're OK for a few days... got a vegetable patch. Beetroot is gonna be on the menu... a lot.
The US bailout plan has been defeated.
As that was pretty much the only thing holding global stock markets up, stand by for a financial bloodbath. It'll probably unfold as a domino effect over the next few weeks, with bank after bank failing - and dragging various other companies down with it.
What seems to have scuppered the bailout plan is three things:
- hardcore opposition from the right wing of the Republicans. The official line from these guys is that a bailout is inimical to capitalism; we need to let the irresponsible corporations and investors fail, and the responsible ones will prosper. Which would be fine - except that the more banks fail, the worse the situation gets for everyone else. What looked like good investments up until recently suddenly turn bad as asset values fall further and further, asset values are hiked and your debtors default. The idea that capitalism is some kind of atomistic system where my fortunes don't depend on external market conditions, or anyone else's actions, is pure unadulterated bullshit that anyone with a brain, even on the right wing, should be able to see through.
- hardcore opposition from the left wing of the Democrats. These guys don't want to bail out Big Corporate America, and that's a viewpoint it's very easy to have sympathy with. But again, the problem is that Big Corporate America takes a lot of people down with it - in the US and elsewhere - if it goes down. Again, it's all interlinked. Letting the big corporates collapse is the wrong remedy to corporate abuses - we need more effective (and more substantial) taxation and regulation of big capital, both here and in the US.
- the fact that there is an election in 5 weeks and many politicians were worried that their constituents wouldn't forgive them for supporting the bailout. Again, many people are worried about the bailout for the best of reasons, but see 2. above.
And I think that unless Barack Obama gets his shit together on the small matter of a fundamental shift in US economic policy before taking office (if he does win), there is a real danger of his presidency running aground big-time on the economy. Four years is normally a fairly long time in the economic cycle, but if we are headed for a 1930s-style depression... maybe not.
That's assuming the pundits are right that we are headed back to the 1930s. I've had my doubts before, but the new crop of data coming out from the UK is so weak that it's getting hard to maintain any faith in the system's ability to right itself without taking a huge hit. For example, mortgage lending has collapsed by 95% in one month. And that was before Lehman/AIG! Jesus Christ, we are f***ed.
Remember the barter economy... start storing those valuable non-perishables now. And a stock of food to eat, if your bank goes under and you can't withdraw any money from the cashpoint. Yes, you've got £35,000 covered by the Deposits Scheme but how long will it take the govt to give that to you? Gotta play it safe at the moment.
We're OK for a few days... got a vegetable patch. Beetroot is gonna be on the menu... a lot.
26 September 2008
Good news and bad news
Well there is some good news and some bad news.
On the good side it looks like the version of the plan drafted on Thursday does contain provisions for the Government taking equity in the assisted firms and for some additional oversight of the Treasury - see Paul Krugman again.
On the bad side, a lot of rank-and-file Republicans are saying they can't support it as it stands because it involves the Govt playing too large a role in the financial system. (Doh! I thought that was the whole point?)
I thought the bipartisan approach of the last few days was too good to be true - we almost never get it in the UK, and it looks like it's a rare thing in the US as well. What would be most amusing at this juncture would be if the plan failed due to Republican intransigence, and then the crisis really did escalate into a wave of banking failures on the eve of the US election. Given that the more the economy takes centre stage, the more Obama pulls ahead in the polls, if he can blame the Republicans for collapsing the plan, we could be looking at an Obama landslide.
Of course the consequences of a major US slump wouldn't be at all amusing... looking forward to mass unemployment anyone? Probably the BNP is rubbing its hands with glee but the rest of us will be in a bit of a pickle.
Of course, one explanation for the Republicans' intransigence is that they figure the McCain/Palin ticket is a lost cause and they have abandoned hope of winning the Presidential election, instead opting to be the wrecking crew. Trying to make economic conditions as difficult as hell for Obama in the next 4 years so that the electorate will blame him and they can come back with a landslide in 2012.
That is a real concern, actually: the US is gonna need some very tough medicine after the economic lunacy of the Bush years, and the question is whether people are still going to blame the Republicans even after Obama gets in (if he gets in), or direct their anger at the incumbent. The US could still be in a deep slump by 2012, and the prospects for a right wing demagogue - a Huckabee/Palin type, or even worse (Stillson from The Dead Zone) could look real strong. Or am I just being too pessimistic?
On the good side it looks like the version of the plan drafted on Thursday does contain provisions for the Government taking equity in the assisted firms and for some additional oversight of the Treasury - see Paul Krugman again.
On the bad side, a lot of rank-and-file Republicans are saying they can't support it as it stands because it involves the Govt playing too large a role in the financial system. (Doh! I thought that was the whole point?)
I thought the bipartisan approach of the last few days was too good to be true - we almost never get it in the UK, and it looks like it's a rare thing in the US as well. What would be most amusing at this juncture would be if the plan failed due to Republican intransigence, and then the crisis really did escalate into a wave of banking failures on the eve of the US election. Given that the more the economy takes centre stage, the more Obama pulls ahead in the polls, if he can blame the Republicans for collapsing the plan, we could be looking at an Obama landslide.
Of course the consequences of a major US slump wouldn't be at all amusing... looking forward to mass unemployment anyone? Probably the BNP is rubbing its hands with glee but the rest of us will be in a bit of a pickle.
Of course, one explanation for the Republicans' intransigence is that they figure the McCain/Palin ticket is a lost cause and they have abandoned hope of winning the Presidential election, instead opting to be the wrecking crew. Trying to make economic conditions as difficult as hell for Obama in the next 4 years so that the electorate will blame him and they can come back with a landslide in 2012.
That is a real concern, actually: the US is gonna need some very tough medicine after the economic lunacy of the Bush years, and the question is whether people are still going to blame the Republicans even after Obama gets in (if he gets in), or direct their anger at the incumbent. The US could still be in a deep slump by 2012, and the prospects for a right wing demagogue - a Huckabee/Palin type, or even worse (Stillson from The Dead Zone) could look real strong. Or am I just being too pessimistic?
25 September 2008
An incredible gamble with the global financial system
Well, it looks like the US Congress is close to agreeing a $700bn bailout package for the banking system - provided the White House agrees. Given that Bush went on the TV yesterday to say that the US banking system would collapse unless there was a deal, it would look bizarre, to say the least, if he turned the package down. So it's probably going through.
Many politicians in Congress - both Democrat and Republican - were severely critical of the initial Paulson/Bernanke bailout plan, which proposed sweeping powers for the US Treasury to administer the $700bn fund. In particular, the Treasury wanted complete discretion to acquire assets as it saw fit, and very limited oversight - twice-yearly reports to Congress. Also, in the original plan there was no provision for the US Government to take an equity stake in firms that received bailout money - so unless the bailout fund can sell off its book of bad loans at a higher price than it pays the banks for them, the US taxpayer was facing very big losses under the original scheme. The problem is that the lower the price the bailout fund pays for the bad debts, the less effective the bailout is likely to be in boosting confidence. Paul Krugman's blog has a really good explanation of why the numbers don't add up on this original version of the bailout plan.
So what's the difference with the new plan? There are provisions to cap executive remuneration in firms which receive bailout money - which should make the plan more popular with the public - but as far as I can tell based on the limited information available so far, the revised plan doesn't include provisions to take equity stakes in the assisted firms. So far I have been unable to find out what is on offer in terms of additional oversight.
Really, given the rushed manner in which this has been done, how can anybody be sure (or even have a reasonable degree of belief) that this plan is going to work? Undoubtedly there was a strong case for drastic action, but it needs to be credible and effective action rather than something half-baked. This whole thing feels like it's being bounced through with Bush and the US Treasury holding a metaphorical gun to Congress's head - saying "pass this law or we'll blame you for the collapse of the global financial system".
Whilst I'm sure that if there is a deal in the next 24 hours or so it will be trumpeted with a big fanfare, and stock markets will rise for a day or two, as the hangover sets in we may well find that we aren't in a much better position than we were before the plan was hatched. Except that US taxpayers will be several hundred billion dollars worse off.
And what happens after that?
Many politicians in Congress - both Democrat and Republican - were severely critical of the initial Paulson/Bernanke bailout plan, which proposed sweeping powers for the US Treasury to administer the $700bn fund. In particular, the Treasury wanted complete discretion to acquire assets as it saw fit, and very limited oversight - twice-yearly reports to Congress. Also, in the original plan there was no provision for the US Government to take an equity stake in firms that received bailout money - so unless the bailout fund can sell off its book of bad loans at a higher price than it pays the banks for them, the US taxpayer was facing very big losses under the original scheme. The problem is that the lower the price the bailout fund pays for the bad debts, the less effective the bailout is likely to be in boosting confidence. Paul Krugman's blog has a really good explanation of why the numbers don't add up on this original version of the bailout plan.
So what's the difference with the new plan? There are provisions to cap executive remuneration in firms which receive bailout money - which should make the plan more popular with the public - but as far as I can tell based on the limited information available so far, the revised plan doesn't include provisions to take equity stakes in the assisted firms. So far I have been unable to find out what is on offer in terms of additional oversight.
Really, given the rushed manner in which this has been done, how can anybody be sure (or even have a reasonable degree of belief) that this plan is going to work? Undoubtedly there was a strong case for drastic action, but it needs to be credible and effective action rather than something half-baked. This whole thing feels like it's being bounced through with Bush and the US Treasury holding a metaphorical gun to Congress's head - saying "pass this law or we'll blame you for the collapse of the global financial system".
Whilst I'm sure that if there is a deal in the next 24 hours or so it will be trumpeted with a big fanfare, and stock markets will rise for a day or two, as the hangover sets in we may well find that we aren't in a much better position than we were before the plan was hatched. Except that US taxpayers will be several hundred billion dollars worse off.
And what happens after that?
18 September 2008
We're goin' down.
I'm writing this at the end of a 72-hour period which has been the weirdest time I can remember in financial markets.
The merger of Lloyds TSB and HBOS to create a high street uber-bank, with the competition regulations bypassed. AIG bailed out by $85bn of US government funds. $100 bn pumped into the system by central banks to provide extra liquidity. And suggestions that the US government itself may have its credit rating downgraded due to the huge extra liabilities it has taken on.
The whole system seems to be on the verge of collapse, held up by a variety of sticking-plasters pasted on by the increasingly desperate policymakers. Unless confidence returns to the market in the next few days (and is there any particular reason it should do?) it looks to me like the US government will end up nationalising most of the American banks. Paul Krugman's blog has more detail on the US situation, including the remarkable statistic that the interest rate on 3-month Treasury bills has gone negative. Does that even make sense? Why would someone hold an asset with a negative rate of interest? Perhaps because there is a small risk that the US financial system might collapse? But then, wouldn't US Treasury Bills be worthless too? On the face of it, it doesn't make sense. But in any case it looks 'real bad'.
Big news on the Telegraph site (which I'm increasingly turning to as it seems to update more quickly than the BBC) - the FSA has banned short-selling of stocks by hedge funds and other investors. But that's a bit like insulating your house by closing the door while leaving all the windows open. Short selling is only one mechanism by which prices are driven down. Actual selling of stocks by the people who own them can do just the same thing - and presumably can't be outlawed without outlawing all transactions. Russia has indeed done this temporarily by suspending its stock market.
These are insane times. Grab food, clothing and a selection of items to barter; at this rate you're gonna need them.
The merger of Lloyds TSB and HBOS to create a high street uber-bank, with the competition regulations bypassed. AIG bailed out by $85bn of US government funds. $100 bn pumped into the system by central banks to provide extra liquidity. And suggestions that the US government itself may have its credit rating downgraded due to the huge extra liabilities it has taken on.
The whole system seems to be on the verge of collapse, held up by a variety of sticking-plasters pasted on by the increasingly desperate policymakers. Unless confidence returns to the market in the next few days (and is there any particular reason it should do?) it looks to me like the US government will end up nationalising most of the American banks. Paul Krugman's blog has more detail on the US situation, including the remarkable statistic that the interest rate on 3-month Treasury bills has gone negative. Does that even make sense? Why would someone hold an asset with a negative rate of interest? Perhaps because there is a small risk that the US financial system might collapse? But then, wouldn't US Treasury Bills be worthless too? On the face of it, it doesn't make sense. But in any case it looks 'real bad'.
Big news on the Telegraph site (which I'm increasingly turning to as it seems to update more quickly than the BBC) - the FSA has banned short-selling of stocks by hedge funds and other investors. But that's a bit like insulating your house by closing the door while leaving all the windows open. Short selling is only one mechanism by which prices are driven down. Actual selling of stocks by the people who own them can do just the same thing - and presumably can't be outlawed without outlawing all transactions. Russia has indeed done this temporarily by suspending its stock market.
These are insane times. Grab food, clothing and a selection of items to barter; at this rate you're gonna need them.
09 April 2008
...and some more worrying news (or is it?)
Finally some data comes through to back up the 'house price crash' theory... Halifax released data showing a 2.5% month-on-month fall in average prices. Don't all jump out the window at once, folks... the Halifax and Nationwide indices of house prices are notoriously volatile. Nonetheless it would have been pretty extraordinary if there hadn't been some kind of fall in the wake of the credit crunch.
But so what? Prices have been ludicrously inflated for years now. Restoring some kind of sanity to the market would be a blessed relief. We should be more worried about the increase in global food prices than the fall in UK house prices...
But so what? Prices have been ludicrously inflated for years now. Restoring some kind of sanity to the market would be a blessed relief. We should be more worried about the increase in global food prices than the fall in UK house prices...
03 April 2008
The credit crunch: worrying trends...
Flipping through the news to find the latest stories on the credit crunch is revealing a worrying picture. It's like watching a huge explosion in very slow motion - the bomb ticking under the global financial system has already gone off, but most of the fallout hasn't reached the general public yet.
But it is on the way... for example, in the last couple of days, First Direct and the Co-operative Bank have withdrawn mortgage deals from new customers. They say it's because they have been swamped with applications after other lenders have raised interest rates on mortgages for new applicants. Possibly... or it could be that they can't secure adequate financing at reasonable rates to make it economical to take on new business (in which case, expect FD and the Co-op to raise their rates soon too). Whatever, the outcome is that if you want a mortgage you're gonna currently be chasing an ever-shrinking pool of reasonable offers and you may end up having to pay much more than you would have done six or twelve months ago. That is going to hit the housing market very hard... after the crazy inflation of the last decade, we may now be looking at an early-90s style property crash.
At the same time, Wednesday's Evening Standard carried the headline 'Home owners in debt binge.' I eventually managed to find the story even though their website is complete crap, and although it claims to be based on new data released from the Bank of England I'm pretty sure that in actual fact, like most ES stories, it is recycled from something run on the BBC website a few weeks before, suitably distorted and exaggerated. (Quick aside: apart from the Will Self column, which is damn fine coffeeee, the Standard is hopeless rubbish populated by vacuous imbeciles without a writing brain between them. But anyway).
The gist of the story was that credit card debt and bank loans and overdrafts both went up in February according to the Bank of England figures, whereas given the shortage of credit, one would have expected a fall, other things being equal. But of course other things ain't equal... the Standard reckons that consumers are being forced into other lines of credit now that mortgage deals are getting harder and more expensive to come by. To quote, "the fear is that once borrowers have exhausted all sources of credit, many will be forced into insolvency or have to give up their homes." Quite possibly: still, seeing as insolvency only seems to last for about 2 weeks now before people are allowed back on the treadmill (an attempt to promote 'Enterprise Britain' apparently), will anyone care?
All the same, it is worrying. To use a (no doubt inappropriate) analogy, the data coming out at the moment make the UK financial sector look like a dying star running out of its basic fuel - hydrogen (aka mortgages) for fusion reactions, which is then forced to turn to the heavier elements - helium etc (credit cards and overdrafts) to prolong the show for a little while before the whole system finally collapses. We seem to be living on borrowed time. All this begins to make Gordon Brown's chances of re-election in 2010 (as it will almost certainly be, not 2009) slim as hell, although he could yet do a John Major and win in the teeth of everything if Cameron and Osborne contrive to look lame-ass enough.
For me, though, it is now time to do the Smart Thing... start betting heavily on the Tories to win in 2010. If nothing else, it provides a fighting/survival fund to endure what will no doubt be one of the most vicious and retarded periods of govt seen in Blighty since the last Tory accession of 1979. Hunter S Thompson would have died laughing at all this (if he weren't dead already... girl, you know the reason why.)
But it is on the way... for example, in the last couple of days, First Direct and the Co-operative Bank have withdrawn mortgage deals from new customers. They say it's because they have been swamped with applications after other lenders have raised interest rates on mortgages for new applicants. Possibly... or it could be that they can't secure adequate financing at reasonable rates to make it economical to take on new business (in which case, expect FD and the Co-op to raise their rates soon too). Whatever, the outcome is that if you want a mortgage you're gonna currently be chasing an ever-shrinking pool of reasonable offers and you may end up having to pay much more than you would have done six or twelve months ago. That is going to hit the housing market very hard... after the crazy inflation of the last decade, we may now be looking at an early-90s style property crash.
At the same time, Wednesday's Evening Standard carried the headline 'Home owners in debt binge.' I eventually managed to find the story even though their website is complete crap, and although it claims to be based on new data released from the Bank of England I'm pretty sure that in actual fact, like most ES stories, it is recycled from something run on the BBC website a few weeks before, suitably distorted and exaggerated. (Quick aside: apart from the Will Self column, which is damn fine coffeeee, the Standard is hopeless rubbish populated by vacuous imbeciles without a writing brain between them. But anyway).
The gist of the story was that credit card debt and bank loans and overdrafts both went up in February according to the Bank of England figures, whereas given the shortage of credit, one would have expected a fall, other things being equal. But of course other things ain't equal... the Standard reckons that consumers are being forced into other lines of credit now that mortgage deals are getting harder and more expensive to come by. To quote, "the fear is that once borrowers have exhausted all sources of credit, many will be forced into insolvency or have to give up their homes." Quite possibly: still, seeing as insolvency only seems to last for about 2 weeks now before people are allowed back on the treadmill (an attempt to promote 'Enterprise Britain' apparently), will anyone care?
All the same, it is worrying. To use a (no doubt inappropriate) analogy, the data coming out at the moment make the UK financial sector look like a dying star running out of its basic fuel - hydrogen (aka mortgages) for fusion reactions, which is then forced to turn to the heavier elements - helium etc (credit cards and overdrafts) to prolong the show for a little while before the whole system finally collapses. We seem to be living on borrowed time. All this begins to make Gordon Brown's chances of re-election in 2010 (as it will almost certainly be, not 2009) slim as hell, although he could yet do a John Major and win in the teeth of everything if Cameron and Osborne contrive to look lame-ass enough.
For me, though, it is now time to do the Smart Thing... start betting heavily on the Tories to win in 2010. If nothing else, it provides a fighting/survival fund to endure what will no doubt be one of the most vicious and retarded periods of govt seen in Blighty since the last Tory accession of 1979. Hunter S Thompson would have died laughing at all this (if he weren't dead already... girl, you know the reason why.)
20 March 2008
FSA: a pointless (and maybe counterproductive) search
The FSA is investigating whether false rumours are being deliberately spread to undermine the value of shares. They are pointing the finger at "short sellers" - people who sell stocks they don't have (using derivatives based on the stock's current share price) and then buy when the price goes down. Apparently these people are behaving irresponsibly, or unpatriotically, or something like that. (By following the maxim "buy low, sell high", which I thought the whole financial system was based on... but never mind).
This was sparked by the big fall in the price of HBOS (Halifax/Bank of Scotland) shares last week after rumours that the bank was in trouble. But, given that Bear Stearns was insisting it was in fine financial fettle until about 24 hours before it collapsed and had to be bailed out by the US Federal Reserve, can anybody blame financial traders for believing negative rumours? Might it not be more rational to believe bad news about banks than good news in the current climate?
How on earth are the FSA going to identify the people starting the rumours, anyway? Everyone will just say they were going on information they heard elsewhere and the whole thing will go round in a circle. So, short of fining all market participants, there doesn't look like much the FSA can do. Their statement looks like complete hot air to me, and if anything, is likely to spook the markets even more. In the current climate, if someone in authority tells you everything is all right, it almost definitely isn't. As soon as another UK bank gets into Northern Rock - style difficulties - which will probably happen soon - the FSA's stance will be blown right out of the water. Better to say "we are in uncharted waters, and caveat emptor" (or indeed caveat vendor) as far as financial transactions go". But they would prefer to bullshit people... so be it.
Anyone who is buying and selling in the current climate (rather than holding on for a reversion to normal market conditions, which will surely come at some point, even if a few years down the line - and if it doesn't it probably means the whole system has collapsed, in which case why the hell are you still bothering with stocks and shares when we've got a new society to construct - GET OUT ON THE STREETS!!!) is a moron in any case, and deserves what they get. (Or someone who has been very badly financially advised, in which case... SUE.)
This was sparked by the big fall in the price of HBOS (Halifax/Bank of Scotland) shares last week after rumours that the bank was in trouble. But, given that Bear Stearns was insisting it was in fine financial fettle until about 24 hours before it collapsed and had to be bailed out by the US Federal Reserve, can anybody blame financial traders for believing negative rumours? Might it not be more rational to believe bad news about banks than good news in the current climate?
How on earth are the FSA going to identify the people starting the rumours, anyway? Everyone will just say they were going on information they heard elsewhere and the whole thing will go round in a circle. So, short of fining all market participants, there doesn't look like much the FSA can do. Their statement looks like complete hot air to me, and if anything, is likely to spook the markets even more. In the current climate, if someone in authority tells you everything is all right, it almost definitely isn't. As soon as another UK bank gets into Northern Rock - style difficulties - which will probably happen soon - the FSA's stance will be blown right out of the water. Better to say "we are in uncharted waters, and caveat emptor" (or indeed caveat vendor) as far as financial transactions go". But they would prefer to bullshit people... so be it.
Anyone who is buying and selling in the current climate (rather than holding on for a reversion to normal market conditions, which will surely come at some point, even if a few years down the line - and if it doesn't it probably means the whole system has collapsed, in which case why the hell are you still bothering with stocks and shares when we've got a new society to construct - GET OUT ON THE STREETS!!!) is a moron in any case, and deserves what they get. (Or someone who has been very badly financially advised, in which case... SUE.)
17 March 2008
Systemic collapse?
Obviously, the Bear Stearns collapse and fallout is the main headline at the moment. Some reporters are going a bit over the top perhaps... Bear Stearns was a large US investment banks but not the largest. If it had been Citibank or J P Morgan going under then that would have been worthy of some of the hyperbole which has been thrust in the markets' direction over the weekend. And the FTSE 100 is 217 points down in trading today; well, that's not tiny, but neither is it earth-shattering. It's been up and down like a yo-yo recently anyway.
No, at the moment the real news is the unease and suspense gripping the markets; no-one knows how big this credit crunch really is. Certainly the Federal Reserve is behaving like it's very big indeed; cutting interest rates every week, injecting billions and billions of dollars of liquidity into the market. It would be very interesting for someone to do an analysis of who benefits most from these market interventions. Is it encouraging even more reckless speculation? Is the Fed throwing good money after bad? Certainly J P Morgan, who acquired Bear Stearns for about $2, seem to be laughing all the way to the bank. The joys of being just a little more solvent than one's competitors are becoming more and more evident in the current economic situation - to those that hath, more shall be given.
The nagging worry is that the interventions are just delaying the inevitable - a systemic collapse with most of the financial institutions in the US going to the wall, not just one or two. If that happens then it may end up making the early 80s recession look pretty shallow. On the other hand Bear Stearns could be the bottom of the barrel. No-one knows for sure. Fun, innit?
No, at the moment the real news is the unease and suspense gripping the markets; no-one knows how big this credit crunch really is. Certainly the Federal Reserve is behaving like it's very big indeed; cutting interest rates every week, injecting billions and billions of dollars of liquidity into the market. It would be very interesting for someone to do an analysis of who benefits most from these market interventions. Is it encouraging even more reckless speculation? Is the Fed throwing good money after bad? Certainly J P Morgan, who acquired Bear Stearns for about $2, seem to be laughing all the way to the bank. The joys of being just a little more solvent than one's competitors are becoming more and more evident in the current economic situation - to those that hath, more shall be given.
The nagging worry is that the interventions are just delaying the inevitable - a systemic collapse with most of the financial institutions in the US going to the wall, not just one or two. If that happens then it may end up making the early 80s recession look pretty shallow. On the other hand Bear Stearns could be the bottom of the barrel. No-one knows for sure. Fun, innit?
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