Friday, November 21, 2008

Darling Will Learn That You Can't Buck the Market

Niall Paterson is reporting on Sky News that the Chancellor is considering measures to force banks to "help" business. He may have part nationalised them, but he doesn't seem to realise that if he tries to force banks to do things they believe to be financially unviable, he further reinforces the growing perception by foreign investors that we have an economy which is fundamentally unsound. The priority of all banks now is to convince everyone that the days of financial recklessness are behind them and they now operate on the basis of a policy of sound money. What a pity it is that our government is trying to do the very opposite. And it is something they will pay for in the long term. The mantra "you cannot buck the markets" is still very true, even if the government thinks that command dogma can win the day in the short term. Long term, they will discover something very different. The way he's going, he won't buck the market, he will f*** it.

All of which makes Fraser Nelson's Spectator column this week very relevant. He thinks that Brown may go for a January election on the basis that if he leaves it any longer he may be found out. He also asserts that serious economists now view the London financial markets as "Reykjavik on Thames". Terrifying, if true.

17 comments:

Alex said...

It seems like only weeks ago that the Chancellor was telling the banks that they didn't have enough capital to support their assets so they would have to go our and raise some more capital. The banks (apart from Barclays) said they couldn't raise the capital so the government said thay would give them £35 billion of equity. Trouble is, theat money won't be coming until January, so it is a bit rich for the Chancellor to be complaining that on the one hand the banks don't have enough equity and obn the other that they haven't been lending enough.

proudvotinglabour said...

Iain,

Do you really, really think that the great British public, the great American public, the great European public, the great Chinese public, in fact basically the rest of the world apart from a small bit of Smith Square in London called Tory Central Office, is waiting for leadership from their politicians that includes the line "you can't buck the market"?

I had yet to be convinced by reports that the Tories had failed utterly in waking up to the fact that the world had changed and that old dogma about markets and deregulation and small national insurance holidays for micro firms were really all you had to offer.

I assumed that the New Tories would have something up their sleeves along the lines of we now accept man made climate change, we now think the minimum wage is a good idea, we now accept we have to help the poor type repositioning.

But my flabber is well and truly gasted that you, and apparently your party, in the wake of a global financial meltdown which has proved that the banks and market speculators are as good at managing our economy and markets as Russel Brand is at showing self control still think that "you can't buck the market" is the answer?

If that is the answer, then how do you ensure that people suffer the maximum possible pain in a hope that the old system can be rebuilt through lack of any other option is surely the question.

Lassez faire is deader than Lassie.

If you get that, then you may have a chance in 2010, if you don't then your party is dead!

trevorsden said...

But previous to the crunch the banks were lending money by getting it from the markets in turn.

Now that crazy policy has been stopped - just where do the govt think the banks can get money from to lend. The banks have been - or are being - recapitalised but the level of lending cannot match that of before since that was unsustainable.

People need to wake up. Huge sums of money have gone - disappeared. The banks have to get it back somehow. One way or another it has to come back to us - there is no one else left.
There is no such thing as Father Christmas, no matter how much Brown fancies himself in that unlikely role.

ingur said...

Left to their own devices, banks all over the world would have gone belly up. But instead they have been bailed out by their governments.

So you can buck the market.

And when you see what havoc unregulated markets wreak, you have a moral duty to do so.

no longer anonymous said...

Yet again the lack of business experience of Labour MPs reveals itself.

generator of not enough electricity said...

An election in the cold bleak mid-winter? - it sounds just the sort of environment that Brown revels in. 3 day week anyone? - Do you remember the days when the CEGB had its nose glued to its Voltmeters as the mains voltage dropped to 200 volts and the country fell apart? - Bliss for Brown.

Marquee Mark said...

You can lead the banks to water - but you can't get them to swim in the deep end any more. Those days are long gone. Now they need to be standing at the shallow end. With floats and water-wings life preservers on....

Gavin Kennedy said...

I am perplexed as to any decision to force banks to lend other than at commercial rates.

Surely, it was this sort of legisltaive and political pressure that introduced the conduct that became 'sub-prime' lending which fed the financial incentives to speculate or sell on the resulatant 'assets' via hedge funds and as 'toxic' loan packages?

Complaints about bank lending to businesses have, so far at least, been complaints about them offering to continue with overdrafts at Base + 4 instead of previously Base + 1, etc.

In short, the banks are pricing lending, apparently, to cover risks which still exist, in their opinion.

Politicians who were complicit over the past few years in 'persuading', or worse, forcing, banks to lend 'sub-prime' would appear to be in no position to second-guess bank credit managers.

As for politicans (civil servants, or another quango?) making lending decisions direct to businesses, it passes belief that the implicit assumptions that they are better able to judge the merits of such lending are less than 'insolent' about their abilities (as Adam Smith observed in Wealth Of Nations.

Marquee Mark said...

Word verification is genuinely "rebugatt". Which spookily sums up Darling's position, I think!

Roger Thornhill said...

He is doing to the financial services what he tried out with our Pensions provision.

From the best to one of the worst.

Yak40 said...

Same as the Democrats in America, forcing banks to give mortgages to people who couldn't afford them, so the banks get creative and offload their risk via MBS, Cdos etc, sound familiar ?

The genius Obama was part of a lawsuit against Bank of America to force them to make bad loans . . . .

Gareth said...

ingur said: "And when you see what havoc unregulated markets wreak, you have a moral duty to do so."

Banking is heavily, and incompetently, regulated. The current financial crisis which started in America/Asia/Austria/Other places beginning with A is not the fault of the free market economy, as we haven't had one for a long time, if ever.

Governments worldwide had their say on the international banking regulations and were as for them as any banks. It allowed the credit market to boom. Declining actual productivity was subsidised with productivity taken from the future.

The IMF's recent call for a co-ordinated 2% GDP injection to create a 2% increase in GDP is a prime example of such thinking. Borrow it now and you still have to pay for it later. Worse, from an accounting perspective you cannot include the extra 2% of borrowed money without including the extra debt on the other side of the balance sheet, leaving you no better off.

Cotton socks said...

I have rarely seen such sanctimonious clap-trap being voiced by the lefties as has been posted here.

YOU CAN'T BUCK THE MARKET

Why? Because you cannot buy debt, all you can do is move it around. The problem with the system is that it is full of assets inflated beyond their worth and until that is addressed all these "solutions" from government are b*lls.

The government is already starting to find that its "management" of the crisis is not working as planned. All that money thrown at the banks has made d*mn little difference, so there is a few billion down the drain. Now it is going to throw billions more at tax payers - but to what point? The debt will still be in the system, it will still need removing. We will be were we are now but with even bigger debts.

If Brown wants another 5 years in No. 10 he better call the election before Xmas because when the tax scheme flops like the bank scheme has flopped it is time for the IMF.

londonerr said...

proudvotinglabour
"If that is the answer, then how do you ensure that people suffer the maximum possible pain in a hope that the old system can be rebuilt through lack of any other option is surely the question.

Lassez faire is deader than Lassie.

If you get that, then you may have a chance in 2010, if you don't then your party is dead!


If you truly believe this, proudvotinglabour, and your leadership is banking on this thinking then we are really stuffed.

You want to skew the system, create an imagined perpetual-motion economy based on the right to credit. You are nuts. Stick to slick slogans, Lassie, leave the economy to those who know it.

Auntie Flo' said...

proudvotinglabour said:

"a global financial meltdown which has proved that the banks and market speculators are as good at managing our economy and markets as Russel Brand is at showing self control"

I can see where you're coming from there, pvl, however, do you claim that Socialism/ Communism is better?

Have you ever spent any time in a communist country? People lived in abject misery and poverty under Communism with beggar all control over their lives while the politicians and the Communist party elite lived in luxury.

How is that better than the market?

roman said...

proudvotinglabour: keep up at the back there, Conservatives haven't been based at Smith Square for years.

See you are still peddling the old socialist lines, despite Brown's amazing incompetence.

tapestry said...

Getting the banks free of the 12% per annum preference shares and back into private ownership asap should be conservative party policy