It's Don't make Your Mind Up Time

[peterbirks]

Well, there are times that I'm glad that I am not seriously in the markets. If anyone took anything at face value the things that the BoE or the Fed said last week, then they would have done their pieces. I was going to say that we weren't quite at the stage of "I'll never believe anything you say again", but we aren't far away from it.

Rumour has it that King might throw in the towel before the end of the week, following its announcement yesterday that it would pump three-month liquidity into the money markets (a very different animal from overnight liquidity). Whatever happened to King's condemnation of this last week on the grounds that it would encourage risky behaviour?

I was annoyed because I got out of sterling ahead of the Fed's anouncement on Tuesday, but luckily I didn't panic and then go back in after that one wrong-footed me. Otherwise I would have been caught out by two flip-flops within a week.

It's not much better in the US, where Freddie Mac and Fannie Mae, quasi-independent financial institutions created in a bygone age, have been allowed to buy $20bn in subprime loans - a bail-out of the mortgage lenders in all but name. Clearly, nothing can be allowed to fail any more if it might costs votes. The democratisation of the financial system has a big downside. Farepak was allowed to fail because (a) it didn't make bad television and (b) the people affected didn't really matter. Mortgage lenders in trouble and failing banks were not such a concern when 90% of the population rented and only 20% had bank accounts. But now we live in a complex, devt-related, financial society. We are all geared mini plcs now. And we all have votes.

+++++++++++

It only took the Treasury two days to get out a statement "clarifying" the Chancellor's Tuesday statement: Here it is:

GUARANTEE OF EXISTING NORTHERN ROCK PLC DEPOSITS

The Treasury today confirmed that the guarantee arrangements for existing deposits in Northern Rock PLC would cover all accounts existing at midnight on Wednesday 19 September. This guarantee covers future interest payments, movements of funds between existing accounts, and new deposits into existing accounts. The guarantee will also cover accounts re-opened in the future by those who closed them between Thursday 13 September and Wednesday 19 September, inclusive.

Since it would otherwise be unfair to other banks and building societies, the arrangements would not cover any new accounts set up after 19 September, other than re-opened accounts as set out above.

In the case of wholesale market funding for Northern Rock PLC, the Treasury confirmed that the arrangements would cover:

• existing and renewed wholesale deposits;
• existing and renewed wholesale borrowing which is not collateralised.

The arrangements would not cover other debt instruments including:

• covered bonds;
• securities issued under the 'Granite' securitisation programme;
• subordinated and other hybrid capital instruments.

The guarantee in relation to Northern Rock PLC will remain in place during the current instability in the financial markets.

+++++++++++++++++


So, Mourinho has gone. And it's all Madeleine McCann's fault. My guess is that John Terry was reading The Sun and made some comment about the quality of the Portuguese police investigation. Mourinho's nationalistic pride reared its ugly head, and he started defending the invetigation, probably adding something like "no smoke without fire". Terry lost his rag. Mourinho lost his, stormed off, and then texted the entire team to say that he was quitting.

Well, it makes as much sense as anything else.

Comments

[jaybee66.livejournal.com]

I don't think much of the government "promising" 90% of your money back on deposits of £35K or less if, further down the line, nations start defaulting.

Yes, my cup is half empty. I am looking at a bigger gold holding.

Do you know the way to replace Jose

[(Anonymous)]

As a Leeds supporter who'se "Wise for England manager" campaign has been dealt a fatal blow by the last 2 en-gur-land results I'll have to fall back on a "Wise for Chelsea" campaign. It's a perfect fit:-

1) in form
2) gets on with the fans
3) attack minded *
4) strong personality
5) gets on with the chairman

* taxi drivers

I live in hope

Keith S

Re: Do you know the way to replace Jose

[andy-ward-uk.livejournal.com]

Way ahead of you. The "Gregory for Chelsea" campaign is growing apace. Think about it, they wouldn't even need to give him a relocation allowance.

But seriously though folks ... I'm the first to admit I know nothing about the financial markets. But what I pick up from your stuff Pete (which I find very informative) is that the whole "not on my watch" attitude from governments and the people who run banks really seems to be storing up so much trouble for the future. It sounds like the UK housing market. Because no current government wants to be in the firing line when all the people who have over-borrowed (having been egged on to do so in the first place) have to pick up the bill, they prop it up and prop it up and prop it up - but it's just going to make the crash all the harder when it comes.

Re: Do you know the way to replace Jose

[(Anonymous)]

Wouldnt have thought Gregory was ahead of Wise with the bookies (Pete?).I cant check at work.

Back on the financial front Ive never been convinced by those who say because the demand for houses is greater than the supply there wont be a problem. When those trying to join the bottom of the pyramid are having to borrow a ridiculous multiple to get on-board theres got to be a high probability of it turning pear shaped as the banks reign in their lending parameters. The fact city economists are on a huge wedge and are surrounded by people on larger wedges has also concerned me re their grasp with reality.

Keith S

[jellymillion.livejournal.com]

I expect my political disillusionment is probably overdone, but I'm wondering how long ago it must now be since a senior politician in office did something that was in the long-term interests of the country that elected him/her but that caused material damage to that politician's prospects of re-election. And because I'm more of a victim than a student of political history, I can't think of any such case.

[peterbirks.livejournal.com]

Although there would doubtless be people who would disagree with me, two instances in the distant past that I can think of are Roy Jenkins' budget in 1970, when he refused a "giveaway" option (Labour lost) and Jimmy Carter in 1979, who refused to stimulate the economy so that people began to "feel good" around election time in 1980 (he lost).

Clearly today's politicians have thaken those lesons to heart.

PJ

Other examples

[geoffchall.livejournal.com]

You could argue that Blair's choices over Iraq were done with what he thought were the best interests of the country/world even with an awareness that the political fall-out would be bad.

Or Thatcher's hard-nosed approach to economic collapse in 1980 when all about her were urging her to not be so obsessed with money supply. She was doing what she thought was right and knew would be (and was) politically disadvantageous.

Sadly both are examples of wrong actons for the right motives.

[jellymillion.livejournal.com]

As recently as 30 years ago? Blimey.

Interesting that both those you cite would qualify as "probably principled" in my book, although I wasn't paying a lot of attention back then.

Madeleine and Research into Times Lost

[(Anonymous)]

I believe, by the way, that you meant to quote TSO as saying "no omelettes without breaking eggs." I've no doubt that a thousand MScs in behavioural psychology will be launched herefrom, particularly in the nether reaches of New Labour's admirable and excellent social engineering plan to turn hoodies into academics by the simple expedient of awarding anybody who doesn't bunk off school with five A/S levels and a place in a "new" University (read: wasn't even a "real" polytechnic, and you'll still be in debt to the tune of £30,000, mate).

Perhaps there are other areas of risk that Mr Darling might wish to guarantee in the near future, lest they cause a couple of million deranged and inadequate "graduates" to rebel and vote, I dunno, "YouTube." After all, this seems to be where the smart political money is going. Policies? Pah! Financial structures? Pah! Let's all get happy-slapped on a nationally visible web-site.

No. Wait. Mervyn King just got happy-slapped on a nationally visible web-site. (viz: everywhere.)

Anyhoo, and I hate that but I'm going to condescend just this once: it is an extreme pleasure to see the old Birks back and fulminacious as always. Not that you went away, as such, but the events of the last few weeks have brought out the best of you, and more. I particularly enjoyed the ice-cream analogy.

I can't even be bothered to look up the details on Freddie Mac and Fannie May, but as far as I can recall, they were an almost identical (Roosevelt) fit to the current (Brown) problem. With the added similarity that neither Roosevelt nor Brown was actually the cause of the problem in the first place. (OK, arguably Brown, but you'd have to be both a leader writer for the Telegraph and a certified lunatic to push this. I know, I know ...)

So, then, what would you expect FHLM and FNMA to do? Oddly enough, they were beaten to the punch by (and I'm vague on the order) the Feds, the EU, the Feds again, a bit more of the EU, a reluctant leak down the pants from the BoE, the Feds again with a 0.5% drop (which I predicted, by the way, so don't go blaming me for your speculative losses), and the wonderful spectacle of the Treasury screwing around, panicking, and then putting the arm on Darling to tell his boss to fuck King up the backside.

Well, that's the way I see it.

On the other hand, I have a lot of sympathy with Mike's argument that "it looks wrong, but you gotta do it." I think Mervyn King is going to get screwed for all of the wrong reasons (and, cynical as I am, I'm really rather looking forwards to the Conservatives on the Policy Committee doing this. No. I'm not looking forwards to it. I'll laugh like a drain).

Mervyn's basic case against providing a back-stop against risk is sound, as you say. There are several problems with this, however, in the UK savings market. One of which is that nobody in their right mind would accept a 90% guarantee for their money above £2000.

I mean, where did this come from? And (in guarantor terms) what's the difference between 90% and 100%?

Oh, I know. The Thatcherite twats that I went to school and college with. But no matter. Ignorant fools.

The other problem, of course, as we have seen, is that the BoE is only independent as long as the government allows it to be so.

Res ipsa loquitur.

BTW: This ten quid bet on £/$ looks to be hotting up. Clearly, I don't have much time left, so I'm relying on a catastrophe. Can you envision the black swan .... ?