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?
So it isn’t hard to see that kind of market capitulation happening. In the tech bust of 1999-2000 many stocks fell 90%. Some bank stocks have already dropped 90%. There is nothing government can do to alter the reality and this has to play out. Tokyo had near zero interest rates for the best part of a decade (sorry Vince that was no panacea). The liquidity problem is/was a precursor to the solvency problem. Governments can flood markets with liquidity but that can’t fix insolvency. This is going to be painful.
Politicians who claim to have solutions to the credit crunch are infantalising the electorate. The best they can do is ameliorate the problems. They can’t alter the underlying reality. Over-priced assets are crashing and bringing down the banks – not all – some like HSBC are relatively unscathed. There are pluses as well, if you are in your twenties you will have a better chance of getting on the property ladder now…
Hat-tip : LFAT
The euro jumped nearly 2.5% or some 300 pips, biggest move ever. Took profit on that and switched to shorting the dollar against sterling on the possibly irrational idea that other speculators will start to eye a $2 pound and the move against the dollar was not as violent as it was vis-a-vis the euro. The position is a little underwater.
Just to prove what an evil speculator Guido is he shorted the FTSE hard. Am still running the short and marked to market am up some 21.5% overall on the day. A profit or loss of that magnitude in a day signals too much leverage in too volatile a market. Strangely traders never mind violent P&L swings when they are to the plus side. Friday’s broad stock market gains evaporated, oil hit $125 a barrel. Tomorrow can’t be this volatile, can it?
The FT’s Alphaville blog (“The Site That Supports our Shorts”) highlights a Downing Street petition to criminalise consenting behaviour between capitalists. They want to criminalise short selling. Some trade union boss told the Labour Party conference he wants to tax us into extinction. Tax us to the Bahamas more likely.
If Dave Were President He’d Have Resigned By Now | Alex Wickham
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How Geoffrey Howe Has Lost the Debate | Robin Shepherd
Dave Has Lost Control on Europe | Geoffrey Howe
Lib Dems Should Support EU Referendum | LibDemVoice
Feldman’s Denial | Fraser Nelson
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What Are You Really Paying in Income Tax? | TPA
Galloway’s Mad Month | The Commentator
Tom Harris bemoans the public’s attitude to politicians…
“Mr Oborne echoes the lazy, anti-politics whine we hear so often these days, all based on the absurd notion that politicians were once loved and only fell out of public favour during the expenses scandal. He should take a walk to the Strangers’ Bar. But not to sup with the patrons he seems to despise so much, dearie me, no; he should instead look at the paintings on the corridor outside the bar, which depict the devastating fire which consumed most of the Palace in 1834. And he should reflect on the fact that on that dramatic night, as the Commons went up in flames, a crowd gathered on the South Bank to clap and cheer.”
The thing that Dave needs to work out is which group is more likely to vote Conservative. Mad swivel-eyed loons or mad homosexuals wishing to get married.