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.
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.
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…
He also said the Labour Party was finished. Not a bad speech.
This is a clear breach of the Take Over Code:
2.2 WHEN AN ANNOUNCEMENT IS REQUIRED
An announcement is required:—
… when, following an approach to the offeree company, the offeree company is the subject of rumour and speculation or there is an untoward movement in its share price;
when, before an approach has been made, the offeree company is the subject of rumour and speculation or there is an untoward movement in its share price and there are reasonable grounds for concluding that it is the potential offeror’s actions (whether through inadequate security or otherwise) which have led to the situation
UPDATE : Informed City co-conspirator emails
What is more significant is the fact that at least one city law firm is in the early stages of rounding up plaintiffs among the fund community for an action relating to the price manipulation of HBOS shares this morning.
Peston admitted “over-egging” the price while the panel stood by and the companies made no announcements. No suspension of trading either.
Funds who sustained losses stopping out short positions entered at around 180 – the key level that broke down on volume over the past couple of days, will be placing the blame fairly and squarely with the entirely false idea given cynically to retail punters by the bbc that the price would be set around the 300p level.
This is going to get very interesting indeed.
UPDATE II : Have just been reminded that Peston wrote Brown’s biography Brown’s Britain.
Longlist to Succeed Hague | ConHome
Newmark Nonsense An Excuse to Bash Tabloids | Spiked
Kay Burley’s Top Twitter Zingers | Buzzfeed
Why Tory Tax Cut Pledge is Good News | Allister Heath
ONS Admits Economy Stronger Than It Thought | Speccie
Cameron’s Concessions to UKIP | Nick Wood
#TM4PM: It’s On | Speccie
Path to Defeat Obvious for Both Labour and Tories | Rafael Behr
It’s Boris v May | Sun
Farage is Outflanking the Tories | Guardian
Boris is Right About Grammar Schools | Conservative Women
David Cameron on political promiscuity…
“On May 7 you could go to bed with Nigel Farage and wake up with Ed Miliband. Not one bit of that works for me.”