If anyone's interested - absolute carnage on stock exchanges today.

[aftershavedave]

Please explain.

ok: the world financial markets are an extremely complex machine, with people being paid good money to develop and hopefully profit from more and more complex, or exotic, asset creation.

put simply, these rich bankers that the media would like to now hang are a vital part of the capitalist system, and it's perfectly resaonable to expect the free-market to work in this way. in fact, it couldn't work any other way.

what we now have is a situation where the assets that have been created have been found to have, to a degree, been built of straw and are less valuable than we all believed.

so as this lack of value is becoming progressively understood. the assets that we all, directly or indirectly, hold are becoming less valuable, and we're all worse off. it's not true that profits always equal losses.

blaming rich bankers is therefore a cop out.

blame capitalism, but don't blame the individuals who are working in this system.

 

[Hannibal smith]

The thing I don't get is what is this 700bn for? To help the people that are defaulting on their mortgages? To pay the bankers who could be out of a job? To buy the bad debt from the banks to keep them afloat?

1 in 10 American mortgages is being defaulted on. The 700bn is to write these of. This means that inter bank lending can in theory go ahead as there is less likelihood of shit credit being wrapped up in it all. Without credit the whole thing goes tits up and this injection is being used to kick start it. In practice I doubt it will make much difference as caution will rule for the time being at least.

 

[Dick Knights Mumm]

Yes - but did all banks and bankers make the same decisions about whether to buy things they did not understand or took a chance on not holding when the music stopped ?

So it is perfectly legitimate to blame the ones that took crap decisions. No-one forced them.

 

[Dick Knights Mumm]

And there are plenty of crap mortgages in this country aren't there ? Which were fine when the market was rising and people were earning.

 

[Les Biehn]

ok: the world financial markets are an extremely complex machine, with people being paid good money to develop and hopefully profit from more and more complex, or exotic, asset creation.

put simply, these rich bankers that the media would like to now hang are a vital part of the capitalist system, and it's perfectly resaonable to expect the free-market to work in this way. in fact, it couldn't work any other way.

what we now have is a situation where the assets that have been created have been found to have, to a degree, been built of straw and are less valuable than we all believed.

so as this lack of value is becoming progressively understood. the assets that we all, directly or indirectly, hold are becoming less valuable, and we're all worse off. it's not true that profits always equal losses.

blaming rich bankers is therefore a cop out.

blame capitalism, but don't blame the individuals who are working in this system.

So you are saying they are symptoms of an infected system, so to speak? But for the banks to make profits off of bad debt, (people must either pay amounts that they can barely afford or have their houses reposessed, viable either way for the banks as they will make money) then surely they are criminals? It's like a footballer who keeps fouling people but not getting booked by the ref (regulators who have been too slack for whatever reasons), he knows he is doing wrong but as long as he does it out of sight of the ref he gets away with it because the system dictates that he can only get booked if the ref sees it.

Trouble is he broke someones leg and the TV cameras saw it.

 

[Easy 10]

I liked El P's explanation the other day.

Horace deposits a million quid in Bank A.

Bank A then lends £900k of that million to Bank B and charges Bank B interest on it, because it doesn't think Horace will be taking his million quid out any time soon.

Bank B then lends £700k of that £900k to Bank C and charges bank C interest on it, because it doesn't think Bank A will be calling the full £900k back any time soon.

Bank C then lends £500k of that £700k to Bank D and charges Bank D interest on it, because is doesn't think that Bank B will be asking for the full £700k back any time soon. And so on.

Then Horace loses confidence with how the markets are going, and wishes to re-invest his cash elsewhere. So he goes to Bank A and asks for his million pounds back. And THEN the fun begins....

 

[aftershavedave]

So you are saying they are symptoms of an infected system, so to speak? But to make profits off bad debt people must either pay amounts that they can barely afford or have their houses reposessed by the banks who see it as viable either way as they will make money then surely they are criminals? It's like a footballer who keeps fouling people but not getting booked by the ref (regulators who have been too slack for whatever reasons), he knows he is doing wrong but as long as he does it out of sight of the ref he gets away with it because the system dictates that he can only get booked if the ref sees it.

i don't entirely follow that but your point regarding an infected system is exactly what i'm saying.

and your point regarding amounys people can barely afford is interesting too: it's you and I and every other person wanting to make money (or create assets using the terms i used before) that's fuelled this as much as the bankers, who are after all, only doing what we all wanted.

i don't personally believe increased regulation is any answer, it'll only drive business to india or china, or the mid east.

 

[hans kraay fan club]

Where did Horace get the million quid from?

 

[Easy 10]

Where did Horace get the million quid from?

He got a red hot tip from Uncle S I believe.

 

[Les Biehn]

i don't entirely follow that but your point regarding an infected system is exactly what i'm saying.

and your point regarding amounys people can barely afford is interesting too: it's you and I and every other person wanting to make money (or create assets using the terms i used before) that's fuelled this as much as the bankers, who are after all, only doing what we all wanted.

i don't personally believe increased regulation is any answer, it'll only drive business to india or china, or the mid east.

Sorry, it was a mess. I have edited it to make more sense.

I see your point, people have been stupid because they have taken advantage of these deals because they wanted to own their own house. The only problem I have with that is people don't tend to know how the market works while these bankers do, they actually work inside the market.

I see your point with regulation but what should we do? Wait until the markets are ok again and then just wait until people become passe again followed by battening down the hatches and waiting for the next time some greedy bastards exploit the system for their own means.

 

[beorhthelm]

this is all just blind panic. the companies have the same balance sheets with the same liabilities and profits as they did last Monday. but fear stalks the market and traders sell on any news, regardless of its nature.

 

[Mellotron]

this is all just blind panic. the companies have the same balance sheets with the same liabilities and profits as they did last Monday. but fear stalks the market and traders sell on any news, regardless of its nature.

Correct. Fearmongering is the WORST thing we can do right now, only adds to and encourages the slump.

 

[Herr Tubthumper]

I liked El P's explanation the other day.

Horace deposits a million quid in Bank A.

Bank A then lends £900k of that million to Bank B and charges Bank B interest on it, because it doesn't think Horace will be taking his million quid out any time soon.

Bank B then lends £700k of that £900k to Bank C and charges bank C interest on it, because it doesn't think Bank A will be calling the full £900k back any time soon.

Bank C then lends £500k of that £700k to Bank D and charges Bank D interest on it, because is doesn't think that Bank B will be asking for the full £700k back any time soon. And so on.

Then Horace loses confidence with how the markets are going, and wishes to re-invest his cash elsewhere. So he goes to Bank A and asks for his million pounds back. And THEN the fun begins....

I recall a story from years ago about some eccentric millionaire who used to visit his bank and demand to see his money. They used to have to literally get a huge pile of notes out to show him. Not sure if it was true, an urban myth or if his name was Horace but I found it amusing. If only more people had done this we might not be in the mess we are now.

 

[Herr Tubthumper]

Correct. Fearmongering is the WORST thing we can do right now, only adds to and encourages the slump.

I do agree with your comments about 'fearmongering' but it does worry me that the banking industry is so fragile a few 'short' traders can, in effect, kill off a bank.

 

[Storer68]

this was the state of play this time LAST YEAR ie 6 October 2007
Then the FTSE 100 was at 6,580.7
Today 6Oct08 the FTSE 100 fell 7.36% to 4,613.80 points
Market Report:

By Nick Clark
Saturday, 6 October 2007

The emergence of a possible rival bid to the Qatar fund Delta Two sent Sainsbury's shares up 4p to 584p. M&S fell 3p to 637p. One trader believed the move unlikely. "It is probably some arbitrage fund trying to squeeze a few more pence out of the Qataris," he added.

There were also bid rumours circling Experian Group, the financial IT company, which sent the stock up 7.5p to 549p. The talk was of a tie-up with Royal Bank of Scotland's Lombard Direct division.

The market opened strongly for a third consecutive day, led up by the miners. Investors piled into the sector as commodity prices strengthened, with Kazakhmys proving the pick of the bunch, closing up 4.59 per cent at 1,596p.

Elsewhere in the sector, Anglo American was up 2.92 per cent to 3,343p after revealing its Tarmac division was to buy the remaining 50 per cent stake in United Marine Holdings from Hanson Quarry Products Europe, a subsidiary of HeidelbergCement.

The FTSE 100 was bolstered by strong rises in New York, after the US non-farm payroll data came in stronger than expected, climbing 32.8 to 6,580.7


A bullish note from Bear Stearns [/COLOR]sent Yell Group roaring up. The directories business firmed 3.06 per cent to 463.25p after the broker slapped an "outperform" target on the stock. Bear said its 10 per cent discount to the rest of the media sector was unjustified, as it was more resilient to the threat of online substitution than expected.

On the downside, British Land dragged the housing stocks into the red after it pulled the proposed sale of its Meadowhall Shopping Centre. The news sent the stock sprawling 3.44 per cent to 1,124p after it withdrew marketing because of the credit crisis. Seven of the 10 worst blue-chip performers were in the property sector. The weakest was Hammerson, which closed 4.26 per cent down at 1,168p.

Northern Rock gave up some of the previous day's gains as it emerged it had again gone cap in hand to the Bank of England. The stock rallied late in the day on rumours of interest from Temasek, a Singapore fund, restricting its fall to 3.2p lower at 158.5p. Elsewhere in the sector, HBOS fell after ABN Amro downgraded it from "buy" to "hold", saying its 175 per cent loan-to-deposit ratio looked high. The banking group weakened 1.15 per cent to 948p.

Shares in the budget carrier Easyjet took off after it said pre-tax profits for the year would be up more than 50 per cent. The airline finished 4.38 per cent higher at 571.5p. Its statement said the airline hoped to add 15 per cent capacity this year and improve the return on equity.

The structural steel specialist Severfield-Rowen was another strong performer after shareholders approved its takeover of Action Merchants and Dalton Airfield Estate. The results of the EGM strengthened the shares 4.04 per cent to 2,110p.

Elsewhere, Alfred McAlpine was up 10p to 510p after rumours of an approach. Speculation has swirled around the group for some months since it announced it was to split its support services and construction business into two listed companies in August.

The worst performer on the mid tier was Bradford & Bingley. The bank followed Northern Rock and Alliance & Leicester down, falling 6.48 per cent to 285p.
Another faller on the second line was the fund manager Ashmore. It shed 3.4 per cent to 291p after UBS put a "neutral" rating on the stock on valuation grounds. The Swiss broker said it had outperformed the sector after rising 27 per cent in a month.

Notwithstanding the penny stock Legendary Investments, the best performer among the small caps was Centurion Electronics, marching up 26.09 per cent to 7.25p after a positive update. Investors bought into the group, which develops in-car electronic gadgets, after it announced "satisfactory progress with regard to the ongoing funding of the business".

Avon Rubber enjoyed a 17.86 per cent bump after the US military approved its gas masks. The government is expected to order 100,000 of the masks per year for the next five years. The stock closed at 181.5p.

After a 20 per cent rise this week, the WH Ireland board released a statement yesterday morning saying it was in talks over a potential takeover. The news it had received a number of approaches boosted the stock 17.5p to 189p.

Cape Lambert Iron Ore slumped 16.84 per cent to 19.75p after it pulled out of talks to sell a 70 per cent interest in the group to the Chinese investor Ding Liguo for A$240m (£105m).

 

[seagullsovergrimsby]

The banking crisis in Iceland could have serious repercussions here in the UK as there are many big name companies who have been bought by Icelandic venture capitalist groups who may now be up shit creek without a paddle.

 

[Barrel of Fun]

A friend of mine works for Goldman Sachs. He made a killing from the Northern Rock saga and he shall be profiting from this latest crisis. Not 'bad' work if you can get it.

 

[beorhthelm]

The banking crisis in Iceland could have serious repercussions here in the UK ....

its staggering and indicative of the nature of whats happened in the last few years that banks in a country with a population of 320k (yep, about the same as Brighton&Hove) could gather so much wealth and business interests.

just seen a guy on C4 news who invested his life savings in Icelandic banks. chasing the extra 1-2% they pay out. Absolutly no acknowledgement of any blame on his part, only those nasty bankers taking risks... so how did you think they where paying more interest than everyone else? to top it off, he cant withdraw money as its tied up in a fixed rate account... or in other words, he doesnt want to risk losing the interest or a bonus payment, he'd rather risk all the money then cry to someone to bail him out. why cant people take responsibility for their own actions

 

[Easy 10]

I liked Clarksons take on it in The Times.

Afew months ago I was seated at dinner next to a banker and, as you can imagine, my watch immediately started going backwards. Minutes crawled by, and as he droned on about derivatives and sub-prime markets in America I began to wonder if it would be poor form to stab him in the eye with my lobster scissors.

Instead I decided to try to will myself to death. But then I was snapped into hair-straightening consciousness when he casually mentioned that the giant Union Bank of Switzerland was in trouble.

UBS? That’s where I’d plonked all my life savings. What do you mean, trouble? Are you saying that because some Mexicans can’t afford to pay their mortgages I’m in danger of losing the fruits of a lifetime’s graft? The answer, when translated and condensed, was yes.

The next day, in a bit of a flap, I rang the bank, which quite understood my concerns and offered to transfer the bulk of my savings to a company I’d never heard of. It was called AIG.

As you can imagine, the past two weeks have been most enjoyable. No wait. That’s the wrong word. I mean blood-in-my-feet, dead-faint-half-the-time terrifying.

As I sat there on that horrible Monday, watching the whole financial world on the brink of collapse, I thought back to all the midnight oil I’d burnt writing these columns, all the crappy hotels I’d stayed in while making various television shows. And how all of that revenue would be lost for a raft of reasons I simply didn’t understand.

Of course I made strenuous efforts to get my money out of AIG as soon as the scale of its problems became apparent. But it wasn’t possible. It had shut the fund in which I’d invested and it would remain closed for three months while it tried to sell the assets. “We need to do this in an orderly fashion,” said the man on the phone, calmly.

Inwardly I was screaming. I don’t give a shit about an orderly fashion, any more than a man in the trenches wants to look smart while running for his life. It’s my money. I gave it to you. You’ve squandered it on a Mexican’s house in San Diego and a stupid football team and that’s your problem. Not mine.

It turned out, however, that I was wrong. It was my problem, so I decided to try to understand banking. And what I’ve gleaned from a two-week crash course is that it is completely unfathomable. There isn’t a single person in the entire world who has the first idea how the system works.

It’s like the internet. An entity. Something that can be brilliant or terrible, depending on nothing that the human mind can grasp. But either way, it cannot be turned off.

This, for example, is what AIG had to say about the situation. “Approximately $307 billion . . . of the $441 billion in notional exposure of AIGFP’s super senior credit default swap portfolio represented derivatives written for financial institutions, principally in Europe, for the purpose of providing regulatory capital relief rather than risk mitigation. In exchange for a minimum guaranteed fee, the counterparties receive credit protection with respect to diversified loan portfolios they own, thus improving their regulatory capital position.” That’s not English. So far as I know, it’s not even human. It is rhyming slang for bank.

Then, for no reason that anyone can explain, news came through that the American taxpayer had rescued AIG. I was beside myself with happiness. I was also in California. So I turned off the CNN business report – the BBC was doing something on global warming, as usual – ran downstairs and, much to the surprise of the hotel doorman, thanked him and everyone in the lobby for getting me out of such a deep and confusing hole.

Sadly, however, it turns out I’m still in it. You see, I’ve just received a letter from an AIG assistant general manager – it has obviously put its top men on the job – saying that I can either have a fraction of my investment back in December, or I can take out a new fund – using imaginary money that obviously doesn’t exist – and hope to get it all back at some unspecified point in the future.

Now, I’m a gambler. I love the horses and playing cards. But this is a big one. This is keeping me awake at night. Can I really put 20 years of savings on red and hope that Carlos the Mexican sells his pickup truck to pay off his mortgage?

My banker can’t help. He, like everyone, is caught up in a whirlwind of uncertainty. I asked him a million questions and he hasn’t been able to answer one. Advice? There’d been plenty in the good times – but now? I might as well have asked my dog for guidance.

It’s the same story with the newspapers and the government. There is much finger-pointing. Blame is flying everywhere. It’s the bankers. It’s the Mexicans. It’s capitalism. It’s the price of oil. It’s the Chinese. And, on the BBC of course, it’s global warming. This is all very natural. But it doesn’t really help.

And so it’s up to me to come up with what I hope, for once, is a spot of sensible advice for those who are in the same boat.

Because there is no safe haven for your money, you need to give it to someone else. That way, it becomes their problem. So, why not pay your income tax early? And call your kids’ school to see if you can settle all forthcoming fees in advance. Need a new car? Why not buy one now?

Certainly I’ve decided not to send out any invoices right now. I simply wouldn’t know where to put the cash. And so with that in mind, if you are the accountant at The Sunday Times and you are reading this, the payment I would like for this week’s column is four lamb chops.

 

[Pretty pink fairy]

look no further than maggie thatcher