It has been a while since I had a good rant so here’s one that’s long overdue…. The world of finance is in turmoil. Banks are going under, merging or being nationalised (trust good old Labour to come up with that one).
Why?
For 2 reasons. Firstly in America they embarked on sub-prime lending, and secondly, other banks were then stupid enough to trade on those mortgages. All done in the belief that property values can go up as well as up! Well it’s not like that in the real world. What goes up DOES come down!
So how do that banks react when the nasty brown smelly stuff hits the high speed whirly rotating thing? They react by NOT lending to each other, by stock piling their cash. Now the only reason anybody refuses to lend to somebody else is if they don’t believe the borrower when they say they will repay the money borrowed. In other words, at the moment ALL the banks are calling each other “LIAR!”, and the only reason they can have for doing that is if they themselves are being “economic” with the truth (i.e. they are lying).
Surely the banking institutions are there to do business. That means take it in with one hand (savings and deposits) and give it out with the other (loans and mortgages). There is only one reason for stock piling money, akin to us sticking it under the mattress, and that is to ensure that it is still there to pay out fat cat bonuses that haven’t been earned (no change there then).
So why have supposedly good banks and building societies gone belly up? Well that’s down to traders and their “Chinese Whispers”. If I was to say that I think such and such a venture is about to fail, then nobody much listens, much less cares. If what I said is repeated in a local news paper then a few people will take note and may boycott that venture. Then if the regional news program or local current affairs program repeats what I said, a few hundred more people may react in the same way. It could then get onto national TV and all of a sudden nobody wants to be involved with what is probably a perfectly good venture, but, which I spoke ill of.
And THAT is exactly what traders in the city have done. They have perpetuated concerns by betting that a venture (in this case, banks) will fail and everybody and his dog has followed suit. Tell a child that he or she is thick often enough and in the end they will believe that they are thick, and they will under-perform. And it’s no different with the banks. Everybody was placing bets that certain banks would fail, so fail they did.
And the worst thing about it is that the TRADERS that started it all off were proved right, so their bets were good, so they made MEGA BUCKS. And THEN the financial world is amazed when the American Congress vetoes the proposal by George W Bush (junior) to pump $700 billion into the banks and a system that has rejected meaningful regulation since it’s inception.
So what of the future? I have no doubt that GWB (jnr) will get $700 billion to pump into the system and shore up capitalism. And our favourite scot, GB, will do the same for Banks GB Incorporated. I'm just not convinced that the "day of reckoning" will ever catch up with those that it needs to catch up with and take to task. And who will pick up the tab for all this? You and I, the silent minority, in the form of income tax, value added tax, road fund duty (tax), council tax, rates, speeding fines, etc…. Meantimes, the fat cats will get considerably fatter. Bitter, me? Nah! Not a bit. Just remember, next time you hear somebody described as a “high flyer” in either Banking or The City – what they really are is someone who is on their way to becoming a “fat cat”.
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