“a well-capitalised bank that continues to fund its business in a satisfactory way”
Alistair Darling this morning:
Alistair Darling added that without the deal the outlook was “very bleak indeed…We were onto their (HBOS’s) problem for several weeks. It didn’t just suddenly happen…”
So who was lying?
Could someone explain to Mr Cable that the last thing someone short of bank shares wants to happen is an announcement of official support for that bank. That puts the price of the shares up which means the Hedge Fund Managers shorting the shares lose money.
… derivatives severely curtail the ability of regulators to curb leverage and generally get their arms around the risk profiles of banks, insurers and other financial institutions. Similarly, even experienced investors and analysts encounter major problems in analyzing the financial condition of firms that are heavily involved with derivatives contracts. When Charlie and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don’t understand how much risk the institution is running.
The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous they are has already permeated the electricity and gas businesses, in which the eruption of major troubles caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business continues to expand unchecked. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts.
Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.
Six years after his warning those financial weapons of mass destruction have exploded. AIG, Bear Stearns and Lehmans were full of financial geeks, the highest paid mathematicians on the planet, completely lacking in sense. The pre-cursor Long Term Capital collapse showed that even nobel laureates can be idiots.
Derivatives have their place in the financial markets. They are great tools for hedging and re-distributing risk. However when the PhD wielding geeks started designing derivatives that even the Sage of Omaha could not understand, the boards of the investment banks should have asked what was happening down in the dealing rooms. That they didn’t is why they have now collapsed.
When the investment banks were owned by partners who had all their capital in the firm, the partners were keenly incentivised to control risk. When the investment banks became shareholder-owned global behomeths managed by annual bonus incentivised executives, that risk control was lost. Being fired is not as feared as being totally wiped out financially. That is a crucial difference.
Capitalism doesn’t need to be regulated for risk, it needs more capitalists like Warren Buffet who keenly feel the risk and reap the profits and losses that flow from that risk taking.
The show that can’t report the market close correct wants to pass judgement on capitalism tonight.
The FTSE has crashed to new lows and closed at 4912, well below the psychologically important 5000 level. Economic meltdown.
UPDATE : According to Electoral Calculus, this would give the Tories 493 seats, Labour 121 and leave the Lib Dems on 8 seats.
Another BBC Stitch Up? | David Keighley
Divided, Pessimistic Tories Expect Defeat | Alex Wickham
Labour Suspends Rotherham Council Members | Sky
PM Used Terror Crisis to Deflect From Carswell | Rachel Sylvester
Scotland Surges for Freedom | Times
Carswell Left Because Cam Can’t Be Trusted on Reform | ConHome
Top 100 Most UKIP-Friendly Tory Seats | ConHome
Bercow ‘Wounded’ | Speccie
This Goes Further Than Rotherham | Simon Danczuk
Bercow Mocked | Times
Indy Deletes ‘Jewish Lobby’ Headline | MediaGuido
“I stab people in the front, not the back.”
Owen Jones says:
We also need Zil lanes.