Wednesday, October 15, 2008
Tuesday, October 14, 2008
Systemic crisis, or redefining class boundaries
The bailout of the banks is considered a great success by governments and people in finance, that has saved we serfs from a financial cataclysm.
Of course it can also be viewed another way: we now have confirmation that if you are in relatively successful in finance, you are safe from penury, unlike those people who rely on finance, who are now at the whim of central banks (via interest rate control) and the directors of these invulnerable institutions.
Given they are now incentivised to pay off the government as quickly as possible, will they really want to loan more money out to you, their benefactors, and extend new and greater lines of credit?
The idea that we will *make a profit* is, for a lay person, ridiculous. Are you expecting to make an income stream from this money? Will you ever be able to appreciably see the improvement in your public services, or transport?
Realistically, for those people not in London, you will not see a penny of this. I can see spin in the future that the profits are going to the Olympics, or Cross-Rail in London.
So what's just happened? You, and this means the "middle" and "working" classes, are, and will always be, the backstop for these financiers. So perhaps the world has shifted.
Meritocracy in industry is dead. Be part of the club, and you are safe. Be a suitor to it's members and you are at their whim. Perhaps it's always been this way, but never so publicly announced by a Prime Minister.
Of course it can also be viewed another way: we now have confirmation that if you are in relatively successful in finance, you are safe from penury, unlike those people who rely on finance, who are now at the whim of central banks (via interest rate control) and the directors of these invulnerable institutions.
Given they are now incentivised to pay off the government as quickly as possible, will they really want to loan more money out to you, their benefactors, and extend new and greater lines of credit?
The idea that we will *make a profit* is, for a lay person, ridiculous. Are you expecting to make an income stream from this money? Will you ever be able to appreciably see the improvement in your public services, or transport?
Realistically, for those people not in London, you will not see a penny of this. I can see spin in the future that the profits are going to the Olympics, or Cross-Rail in London.
So what's just happened? You, and this means the "middle" and "working" classes, are, and will always be, the backstop for these financiers. So perhaps the world has shifted.
Meritocracy in industry is dead. Be part of the club, and you are safe. Be a suitor to it's members and you are at their whim. Perhaps it's always been this way, but never so publicly announced by a Prime Minister.
Monday, October 13, 2008
Cool spending graph
Taken from Angry Bears posting check out this cool graphic for consumer spending around the world.
Nationalisation will probably result in greater contraction
Reading the FT this morning, a few articles suggest hedge funds are desperately trying to deleverage, this being on of the main reasons for the flight to cash in the commodities and stock markets.
Paul Mason suggests there will be a greater emphasis by the banks on small business and mortgage lending stability.
This is an assumption, but surely there must be several private equity deals financed by the recently nationalised banks, and hedge funds who are still geared on RBS (for example) loans.
So the pressure from the government / public to call this money from these gearing engines will almost certainly result in a greater move to cash, causing further falls in these markets as these institutions desperately look for businesses and stock to sell.
Interesting times ahead if this is the case. Then magnify this across the other regions of the world where banks are being nationalised. Is this the beginning of the end of the middle of the beginning of Monte-Carlo capitalism? (Excuse the highly geared time frame ;) )
Paul Mason suggests there will be a greater emphasis by the banks on small business and mortgage lending stability.
This is an assumption, but surely there must be several private equity deals financed by the recently nationalised banks, and hedge funds who are still geared on RBS (for example) loans.
So the pressure from the government / public to call this money from these gearing engines will almost certainly result in a greater move to cash, causing further falls in these markets as these institutions desperately look for businesses and stock to sell.
Interesting times ahead if this is the case. Then magnify this across the other regions of the world where banks are being nationalised. Is this the beginning of the end of the middle of the beginning of Monte-Carlo capitalism? (Excuse the highly geared time frame ;) )
Sunday, October 12, 2008
Recapitalising RBS: a story of misadventure
So the current plan by governments around the world is to *recapitalise* the banks. What does this mean? Essentially, taxing you for the next 6 months to pay for *ordinary shares* in banks who have clearly lent too much and want some help to keep them ticking over.
This strikes me as insane for 2 reasons:
1) If this works...
The market cap of RBS is around £12bn at time of writing, so the UK taxpayer (Taxy) for this money could own 100%, not (for examples sake) 50%, for it's £15bn. So in very basic terms, I'll pay more for half the company than I would for the whole one. Darling and Prduence need new calculators.
2) If this fails....
The UK tax payer has just bought 50% shares. At what price? Current market? The rest can still be sold, costing taxy a not inconsiderable amount. And they keep getting sold. So at what point does Darling step in to go to step no. 1. Lets say he doesn't. The shares tank completely (Taxy feeling the pain), then margin call after margin call producing a 50% owned bank. Taxy now owes £15bn to the central bank. Better crack that whip Prudence
This strikes me as insane for 2 reasons:
1) If this works...
The market cap of RBS is around £12bn at time of writing, so the UK taxpayer (Taxy) for this money could own 100%, not (for examples sake) 50%, for it's £15bn. So in very basic terms, I'll pay more for half the company than I would for the whole one. Darling and Prduence need new calculators.
2) If this fails....
The UK tax payer has just bought 50% shares. At what price? Current market? The rest can still be sold, costing taxy a not inconsiderable amount. And they keep getting sold. So at what point does Darling step in to go to step no. 1. Lets say he doesn't. The shares tank completely (Taxy feeling the pain), then margin call after margin call producing a 50% owned bank. Taxy now owes £15bn to the central bank. Better crack that whip Prudence
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