While I was on holiday, the financial markets have been quite 'unsettled'. The fact that the UK's banking system has now been partially nationalised seems incredible . Lots of job losses are predicted in the banking sector, on top of the job losses which have already occurred. However, for now at least, I still have my job.
A couple of days ago while walking in the street, I bump into an ex-colleague who works for one of the newly partially nationalised British banks, so I ask him how things are going:
"It was scary GB," he says, "the day our share price plummeted the dealing room went completely quiet. Everyone was scared. The clients stopped calling, apart for one or two who phoned up wanting to cancel old deals."
"So I guess you were all expecting to survive without becoming government employees!"
"Well yes," he replies, "things must have been a lot worse than we were led to believe. We've got lots of good businesses, but we've been brought down by a few bad ones and irresponsible management. Now we're all tarred by the same brush :-(. There's a lot of resentment. When it was announced that the chairman and chief executive were quitting, a huge cheer went up in the dealing room!"
But an old university friend who I met the following day, and who works for an asset management firm, was more up upbeat.
"These banking stocks are so cheap now," he tells me, "so I bought some! It'll all recover eventually :-). And if you ask me, I think the government is playing a mug's game by buying those bank preference shares. Preference shares give you all the risk but no control ..."
Hopefully this partial nationalisation of the banking system coupled with government guarantees for bank debt will be the low point of this crisis. It's a bold plan which in my opinion tackles the problem in exactly the right way. But if things go wrong now, with governments having already made their move to shore up the banking system, it's not clear that there'll be anyone left to prevent a very deep global recession.
Saturday, October 25, 2008
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16 comments:
Glad to hear your job's still safe GB.
There's a long way to go yet. Several sovereigns may yet default in the next 6 months given their dependence on money markets which have seized. The commodities boom which sustained their earnings may now be over so their projected GDP figures don't look good when considering if their debt is a sound investment. And the IMF doesn't have enough money to bail all of them out.
A few sovereign defaults and low corporate earnings for a year or two isn't going to do the banks a world of good. PWC and some other insolvency administrators might find a silver lining but it'll be hard for the rest of us. :-(
GB, what do you think the difference is between the actions of Western governments this time and that of Asian governments during the 1997-1998 crisis in Asia? I remember there were criticisms of Asian governments nationalising and bailing out their ailing banks and conglomerates. Some Asian leaders are already crying foul at this hyprocrisy, not that they would stand to gain from a global financial meltdown...or would they? Apparently a significant percentage of sovereign wealth funds are now held by countries like China, UAE, Kuwait and Singapore which might have decided to snap up shares in our PLCs and corporations for cheap had it not been for government intervention.
The end of this asset bubble seems like it's going to be a real mess. All of the market movements seem to be driven by panic selling from hedge funds and mutual funds (fear would be somewhat more rational).
Quite a few economists did warn about the unsustainable leverage in the US but the rest of the world kept happily financing American consumption (public and private) and the easy money policies in Japan and U.S. just proved too tempting to hedge funds.
Now there's a wreckage of asset prices (you name it, the Sterling, Euro, Brazilian real, oil, etc.) which will be painful.
Iceland blew up and there seem to be a few other irresponsible countries that will blow up as well.
Now we'll just have to sit tight in this roller coaster and see when it stops and where everything settles.
Gold Man's Sac, you made me wonder, if the US has $12 trillion of debt and the Fed has reserves of $70 billion, where will the $700 billion come from?
And if the UK has £6.5 trillion of debt and only £35 billion held by the Old Lady of Threadneedle Street, where will the £50 billion come from? Can Gordon, Alistair and Mervyn also make £50 billion available for education, the NHS and for making our streets safe again?
Looks like Palin, uh I mean McCain, uh, no, Obama and David Cameron will have to inherit this mess. Could be a blessing, surely it can't get any worse? Or will you actually lose your job, gaybanker?
Hey I got laid off on friday.
Was with the firm for 12 years.
It was an architecture firm that primarily did affordable housing financed by tax credits. The equity markets has dried up any financing for development. It is looking at least 18 months before things start percolating again.
I will be okay because I have a bunch of money saved and have a great support system, i feel sorry for the low paid workers that suffer because of the slow down in consumer spending and get screwed.
I work as a lawyer in the City.
My work is focussed principally on real estate commercial development (mainly retail/leisure) with a property finance element. We are on notice of loosing up to a third of our depart, and the consultation announcement will be made by Friday of this week.
ahoj
Anon2, it's fiat currency my dear. Part of the reason the greenback still maintains its value is because the countries that have large USD reserves do not want it to go bust. That and the fact that the US owes the world so much that it is now the case of the debtor holding the creditor ransom. Add to that the US' technological (read: military) might.
The US Government has been essentially bankrupt for a long time. The system has always been that private businesses kept the economy going. Now that they are facing difficulties too the money really has to come from outside the country. But who will be charitable enough to do that?
On a side note, the $700 billion merely involves the ayes of Congressmen and a few entries into the account books and everything would (hopefully) be hunky dory. $12 trillion becomes $12.7 trillion, so what eh?
thanks god have been promoted am not into finance at all but at least still earning my very good wages every month, poor banker after all this years of greed, looking peoples down and feeling like the kings of the world you seem like you are in difficult time, well gb if i have advice for you ask for bf a,b,c or whatever the name you want to give them... anyway am stupid dont even bother, bye grandpa....
Ahhh, all you poor European and Americans. Thankfully, Australian banks have been relatively well regulated and have fairly limited exposure to most of the problems that US and Euro banks have. All banks in Aus are reporting healthy profits and ample cash reserves. So there's no real fear in the finance industry apart from stock brokers and investment bankers.
I wouldn't say that my job's safe LWW, but it's true that I haven't been made redundant yet.
I can't remember the details of the Asian government bail-outs GMS. Perhaps the critics thought that the Asian governments acted too quickly, hence risking moral hazard in the future. It's hard to see anyone benefitting from a global meltdown, but regional meltdowns might bring some benefits to the regions left standing!
Indeed first Anonymous commentator, whoever you are.
I might end up losing my job, second anonymous commentator, whoever you are. But as John G comments, currencies are fiat currencies, so governments can print as much as they like. I'm not an economist, but from a monetary point of view I think the only issue is whether the action is inflationary or not. Another thing is that the money isn't being spent, it's being invested, and if these measures are successful then the investment might make a handsome profit.
Sorry to hear that you've lost your job meshugener. I hope your savings last until you find another one.
Good luck with your job czechOUT, like me it sounds as though you're potentially at risk.
Indeed John G. We may well be witnessing the end of the world financing the US's huge debt.
Your comment made me laugh third anonymous commentator, whoever you are. It sounds a bit like you want to leave a nasty comment, so I had to laugh because in that sense your comment is a bit of a failure!
Glad to hear that you're relatively safe Monty. So if things get really bad here, perhaps I should emigrate to OZ!
Take care everyone, GB xxx
When are you going to write a slag post again? Wanna read about you f*cking some boys.
Keep up the good work.
x
GB: Do you know - I have ranted against that partially nationalised bank where your Uni friend works because - they seemed so arrogant.
It's funny because I did think about you when I was quite rude about the financial industry because you do tar everyone with the same brush - even though it's obviously not the case.
I guess I see banks as being full of greedy people who're obsessed with money. I still can't work out if this is a good or a bad thing.
And screw work - just think, if you get made redundant - take your pay and go and lie on the beach for a month. THat's what I'm going to do when it happens. x
I'm not sure when I'm going to write another Encounters post, Kail, maybe soon, maybe never. I've been reducing the number of posts in that category since November 2006, and will probably continue to do so.
I glad that you don't necessarily think that I'm a greedy, money obsessed person, Bobby :-). But I hate beach holidays, For me it would have to be something a bit more active, not sure what, but I guess I'll work something out when it happens!
Love and kisses, GB xxx
well for everyone's sake i hope things recover soon. But i'm not so sure they will.
j
You bankers do not lose that much at end, you've been living like rich without being one-
It comes, easy goes!
A-Philosophical?
I-Ncomprehensible more like.
x
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