+++ Despite Central Banks FTSE Closes at New Low +++

Despite a $180 billion coordinated global liquidity flood by central banks the FTSE still closed lower at 4,880. Huge blue chip U.S. investment bank Morgan Stanley is rumoured to be in trouble and is losing clients worried about the security of their deposits. A Chinese investment fund is a rumoured buyer…

Perils of Tripartite Regulation

A co-conspirator points out just how brilliantly the tripartite authorities (HM Treasury, Bank of England and the Financial Services Authority) are doing joint up regulation.
Commenting on the soundness of HBOS the FSA yesterday morning said it was:

“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?

The architecture of City regulation is a mess. The FSA is despised and nobody in the City respects it. The Bank of England has been undermined deliberately by Gordon because it was a threat to his authority. The FSA should change remit and look after exclusively retail customer’s interests and the Bank should keep an eye on the City and re-take control of the Debt Management Office. The Treasury and the Bank should swap staff regularly and be on friendly terms, with the Treasury executing political influence through the Bank. The Bank is closer to the markets than the Treasury and so it should be to inspire confidence in the City…

Newsnight Messed Up the Market Report Yet Again

Are they just doing this to wind Guido up? The Dow closed up some 1700% yesterday according to Newsnight. Do they use a monkey or a random number generator for their market reports? Every other night they screw up this simple report. They should just give up because wrong information is worse than no information. The Dow actually closed at 10,609.66 according to Sky News – a credible, reliable news source.

Cable Shows His Ignorance Again

The over-rated Vince Cable said yesterday that hedge fund managers have made money out of shorting bank shares because taxpayers and governments underwrite the banks. John Redwood (who incidentally is the only politician worth reading on financial matters) calls him on this piece of populist idiocy:

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.

Doh!

The Greatest Capitalist versus the Geeks of Capitalism

As the enemies of capitalism declare the death of the greatest and most productive form of organisation that humanity has ever achieved, it seems appropriate to quote what Warren Buffet, the greatest capitalist of our age, warned about mortgage derivatives in his annual Berkshire Hathaway letter of 2002:
… 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.

+++ TORIES BREAK THROUGH TO 52% ++++++ FTSE CLOSES BELOW 5000 +++

MORI tomorrow will have a poll putting the Tories on 52%, Labour on 24% and the Lib Dems on 12%. Total political meltdown.

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.

HBOS Collapse : Jonah Brown Was There Again

The refurbished Bank of Scotland head office on “The Mound”, was formally opened by the Chancellor, Gordon Brown, at a gala reception on September 7, 2006.

Comrade Mason Replies

After the kerfuffle about the mixed up market report last night this (presumably genuine) communication from Newsnight’s business reporter and trade union leader has come in:
Guido – I should probably have said the value of its shares fell 48% in after market pricing, or some similar gobbledygook. As your other commenters point out the issue of whether there is a futures “market” is philosophically moot. Unfortunately the words “futures market” were in a piece of paper printed off into my hands literally as the 5-strong team of makeup women and masseurs was prepping me for my live appearance and seconds before we went on air. The words “futures market” entered my brain while I was puzzling whether the 48% fall really mattered in such an illiquid market. But hey, guys: if you think I sound like a hysterical Trot, you should listen to McCain!

Fair enough. Guido is in no position to criticise someone for screwing up live on Newsnight…

Incidentally, that last sentence is an interesting point, Guido will only note that the lead piece on the show tonight is scheduled to be “Does capitalism still work?” Producers with a sense of humour…

Clegg Speech : Tax Cuts and Social Justice

He also said the Labour Party was finished. Not a bad speech.

[…]

+ READ MORE +

+++ HBOS Collapses 38% +++

UPDATE : Rumours circulating that Lloyds are looking to buy HBOS on the cheap. HBOS slumped 51% at one point, now bounced to off 19%. FSA has released a statement saying HBOS is well capitalised…
UPDATE II : Robert Peston’s

[…]

+ READ MORE +

+++ FTSE Drops Despite AIG $85 Billion Bail-Out +++

FTSE looks set to fall below the psychologically important 5000 level….

[…]

+ READ MORE +

Pensions Plundered, Stocks Slumping, Gordon’s Dead-Hand

Some commentators (who should know better) warn that in these times of economic turbulence we should keep Gordon at the helm. It is a desperate line seized on and spun by his few remaining supporters. Who, they ask, knows the

[…]

+ READ MORE +



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