Wednesday, October 8, 2008

Osborne : "Fox is a S**t"

Didn’t take Mandy long to get revenge on Osborne for grassing him up about their cosy Corfu taverna gossip. Maguire reports this morning the rumour that Osborne “turned the air blue and ridiculed defence spokesman Liam Fox as a “s**t” in an incredible four-letter tirade.” Is this news?

+++ Mr Bean in Charge of Monetary Stability +++

HM Treasury Press Release

Her Majesty The Queen has been pleased to approve, under the Bank of England Act 1998, the appointment of Charles Bean as a Deputy Governor of the Bank of England for Monetary Stability, for a period of five years.

This explains a lot.

Gordon’s £300 Billion Guarantee : £50 Billion Tier 1 Capital + £200 Billion Inter-Bank Guarantee + £50 Billion Northern Rock

Pretty soon we are going to be talking real money.

Guido has lost track of the repeated Bank of England interventions to try and flood liquidity into the money markets. Those alone could easily be as much as £200 billion or more.

The government bail out, never mind the Bank interventions, is secured against the hard work of Britain’s 28 million taxpayers. The government is risking more than £10,000 for each taxpayer.

UPDATE : The bail-out we are told was finalised at 5 a.m. this morning, the tri-partite authorities meeting in Downing Street was at 5 p.m. last night. Good to know that a £300 billion plan to “guarantee” the economy can be cobbled together in less time than it takes to do a school homework project. Fills Guido full of confidence.

Tuesday, October 7, 2008

Labour to Implement 1983 Manifesto Pledges

It is a quarter century since Labour’s Michael Foot signed manifesto was rejected by the British people. An unelected Prime Minister is now going to impose some of those plans on the British economy. The socialist dreams so roundly rejected in 1983 sound eerily familiar:
… a National Investment Bank to put new resources from private institutions and from the government…. Exercise, through the Bank of England, much closer direct control over bank lending. Agreed development plans will be concluded with the banks and other financial institutions. Create a public bank… set up a Securities Commission to regulate the institutions and markets of the City… Set up a tripartite investment monitoring agency to advise trustees and encourage improvements in investment practices and strategies… We expect the major clearing banks to co operate with us fully on these reforms, in the national interest. However, should they fail to do so, we shall stand ready to take one or more of them into public ownership. This will not in any way affect the integrity of customers’ deposits.

The National Economic Council of the people’s plutocrats is straight out of that unreconstructed dirigiste mindset. This isn’t going to work.

The big lie that we will hear this morning is that taxpayer’s money will be “invested” and the government may even make a profit – like the Swedes did in the nineties. Except the Swedes didn’t make a profit, Swedish taxpayers lost billions. One bank out of over 114 Swedish banks refused the deal. SEB, Sweden’s largest bank controlled by the Wallenberg family, arranged a private sector recapitalisation and returned to profitability within a year. So could the UK banks. British taxpayers are going to get screwed like they have never been screwed before.

Guido’s Plan to Stabilise UK Markets


Gordon, Alastair, Mervyn and FSA boss Lord Adair are meeting at 5pm today to figure out their plan to stabilise markets. The FT is pointing the finger at Pesto for bank shares collapsing today. The banks concerned have denied his story, it appears his report was the result of a briefing about possible plans. There is real anger in the City because of his reporting. Peston has single-handedly inflamed the situation.

Pesto-Wire Causes More Misery

The FT’s Alphaville blog calls him “Pesto-Wire” and mocks him for replacing the official Regulatory News Service. He is a bit of a market menace because his reports are perceived as based on sources in 10 & 11 Downing Street. So he is a market mover. Guido has thousands of readers in the City and this email is typical of the feeling towards him in the Square Mile:


Dear Guido,

The Peston wrote a blog note this morning in which he suggested that the banks had “asked” the chancellor for capital injections. He did so without being able to be clear on the names, terms or size of such a transaction.


Since it is known that he speaks with the authority of Downing Street, UK banks crashed approximately 20 – 30% on the news taking a (tentatively recovering) market with them. The volatility, of course, is much worse than normal because there are no longer any short sales of banking stocks to absorb the risk.


Had the banking stocks been allowed to follow the market and trade naturally, they might well have been able to continue to go to the market for new capital (Lloyds did this on the day of the HBOS announcement with great success). Of course, this government’s need to be constantly seen to be doing something has triumphed and Peston’s attempt to make the chancellor look important has resulted in the largest one hour crash in banking stocks in living memory on the London market.


We have a regulatory announcement system PRECISELY to stop this kind of activity If material talks take place, a company must announce with absolute clarity what is contemplated so that shareholders are able to judge simultaneously and equally the likely impact on the stock.


Once again, the political imperative to make Gordon Brown look involved and competent has put in jeopardy the already fragile UK banking system and the markets upon which it relies.


Had a hedge fund published this kind of speculation while trading in the stocks, they would now find themselves the subject of an FSA investigation.

Quite. See also Who Told Peston?

UPDATE : RBS in a terse statement say “contrary to press speculation, RBS did not make a request to the Government for capital.” Pesto on the World at One basically shrugged his shoulders when Martha said to him “presumably they mean you”. Carnage in the markets, the banking system further destabilised, billions change hands and all Pesto can say is “ooops”.

+++ RBS Down 39% +++

No short-sellers were involved this morning. Yet Gordon and Darling said they were banning short selling to protect financial institutions (Cable, who should know better, cheered this on). Guido and most objective market observers said it was irrelevant. Today’s market action proves the point. QED

What a Mass Bank Bail-Out Does to the Currency

This is what could happen to the pound if the Treasury decides to print cash to bail out collapsing banks. The Icelandic Króna has lost 40% in value in three months. The Icelandic Króna is not the Great British Pound, the UK economy is far larger and hopefully stronger. Little Iceland could go bust and end up begging the IMF, a humiliation suffered by Britain under the last Labour government. Nothing, however, is impossible.

The FT reports some good news; $500 billion in derivatives contracts related to Fannie Mae and Freddie Mac were settled yesterday. Friday, 17 October, sees $400 billion of Lehman Credit Default Swaps (CDS) come due for settlement. If this goes through without mishap, market liquidity could improve as fears of systemic failure recede and the biggest ever stress test for derivatives contracts passes.

If…

Monday, October 6, 2008

PLP Changes Bets

The collapse of the Miliband putsch and reports from the PLP that there is to be an end to hostilities” has made Guido shift his bets. Guido is now backing a May 2010 general election date with the Labour Party led by Gordon Brown. (Incidentally, you can get 12 /1 on Brown leading his party and Cameron not, an outside bet if you feel lucky.)

It seems to Guido that not even a disaster in Glenrothes will divert the Labour Party from its lemming instinct.


Seen Elsewhere

Small State Keynesians, Anti-Corporate Hayekians? | Chris Dillow
Ruffley Shows Why We Need a Proper Recall Bill Now | Alex Wickham
How is Miliband’s ‘New Politics’ Working Out? | Speccie
State Should Send More Poor Children Private | Sam Bowman
£1 Million Cost of Ed Balls’ Ego | Laura Perrins
William Hague’s Sausage Fest | Rochdale Online
Public Doesn’t Prioritise Housing | Mark Pack
Mysterious Case of Ruffley’s Missing Letter | Speccie
All the Single Ladies (And Lords) | Bloomberg
How Ruffley’s Resignation Became Inevitable | ConservativeHome
We Need a Recall Bill Now | Speccie


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Damian McBride writes in the epilogue to his memoir…

“At the time of writing, nine months from the election, I’ve concluded that Labour currently has no positive messages to communicate to anyone about why they should vote for the party, no policies which will persuade them, and is being run in a totally dysfunctional way.”



Rob Wilson says:

Without Predujice

Darling

What time will dinner be ready this evening?

Yours

Rob Wilson MP

In the interests of me I am placing a copy of this email in the public domain.


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