Wednesday, March 19, 2008

No smoke without fire

Bank of England rescues HBOS...

Whether the rumours were true or not is neither here nor there, the simple fact that a lot a people were prepared to believe them speaks volumes.

Posted by mark wadsworth @ 04:28 PM (2461 views)
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24 thoughts on “No smoke without fire

  • This is now where the real fear starts, as the same whizzkids who came up with CDO’d etc. now turn their hand at underhand insider dealing and fraudulent rumour spreading, as they know the market is saturated with distrust. It is about time someone caught these rats and drowned them all. Anyone who works in the ‘markets’ is, true to form just a little more smartly dressed than a barrow boy, but equally willing to sell his old mum for a profit. The private sector constantly bleats about regulation being too tight, b#llocks, its not tight enough.

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  • ouch bystander! Very naive view Im sorry to say.

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  • Naive yes, techieman, but I watch the markets and feel the fear, ramped up by Bloomberg et all and this rumour spreading to short was bound to happen. I am sorry, but I can’t celebrate this type of capitalism. The financial markets have their, very important jobs to do, but this stinks of criminal behaviour that could (if true), deliberately or just for a selfish quick profit, destabilise the whole financial system. NWO keeps being mooted on this site, but it could just be traders who know how to work the system, as I say for a quick profit. From what I remeber about the Bear Sterns case they had liquidity problems because everyone started taking their money out, because someone said they had liquidity problems. I am not financially astute, but I do try to put two and two together, and in the case of Bear Sterns it definitely smacks of shorting, possibly by JP Morgan. I am probably wrong, but who really knows.

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  • theboltonfury says:

    TM, you say naive but why? please expand as to why that view is so ill conceived
    I agree completely with bystander.

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  • trouble is facts say hbos borrowed £750 mill last wednesday @ 9.5%…fact…….why though,if they have no liquidity problem

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  • why did hbos borrow £750 mill from fed at 9.5% if no liquidity problem then

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  • Looks like a convenient way out possibly. Blame it on rumours as a last resort. Just down to reckless greedy banking.

    bystander : I appreciate what you mean and given half a chance I have no doubt about this kind of behaviour nowadays.

    Probably the important point about all of this is : At This Time Who Knows what To Believe Anymore? — A sad indicment.

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  • Good question well made, Taffee, but the ECB flooded European financial institutions with $500 billion taken gratefully by nearly all, as have the BoE and the Fed in their respective countries, equally gratefully recieved by all. Traders are looking at those institutions who have strong exposure to mortgage debt and are probably working through a list. HBOS has been talked about for months as having potential problems, I agree, but rumours fed the drop in stock, and we have yet to see if these rumours are proved right. I bet someone out there made a tidy profit from shorting both Bear Sterns and HBOS. IMHO we will see more of this unless strong action is taken to dissuade the reckless and/or criminal among the trading community. I would add greedy, but as this is the only reason anyone would work as a trader it’s a bit pointless.

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  • happyrenterz says:

    Bear Stearns loudly denied they were in trouble all week, then on Friday said they were broke and needed a bailout. They would have been speaking to the Fed all week. So these lies were with the Fed’s blessing. Then BS investors got killed with $2 a share. That lack of transparency is why everyone is spooked and distrustful. So easy enough for someone to go short and spread rumours in this climate. Possibly someone who lost millions in the BS bailout. Every man for himself I’m afraid.

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  • Ok so to rumours and the next company “in play”. My view is this, the price of a commodity (including house prices as we discuss here) is driven by Supply and demand, if someone shorts the market and is wrong they get their fingers burnt if they short a market then basically they believe the price should be lower. Now the price of the commodity / share / whatever is determined by the manifestation of buyers and sellers in the market. The “barrow boys” would get killed if they shorted a market which fundamentally shouldnt be shorted.

    If you look at history you will find countless examples of this. For example the Bunker Hunt brothers in Silver. Lets look at Soros and his short of the pound, if he had been wrong (which he was later on another market which escapes me at the moment) then he would have just lost a ton of money (and you probably wouldnt have heard of him) . Now in my view the “barrow boys” can take something where it wants to go only perhaps quicker. Bystander i have no problem with a rant but just maybe you are aiming your rant at the wrong place.

    Even if you were correct, dont you think this is just manifestation of society in which im afraid you and me are collectively responsible?? We created the “monster”. Bystander if you are right then presumably no-one should have sold shares or run on NR? Maybe the shorts are just dipping their toe in the water to see what is done, or maybe there are genuine problems and the actions and price just reflects that.

    Let me just say this the D&O coverage for Bear S. is going to get hit big time. The shareholders will say that they were told all was well – when it wasnt. Think about this, you could have said the same about Enron at the time or Worldcom etc.

    You may perceive that traders will sell their own mothers to make a buck – actually i think thats a gross exageration, some traders treat their mothers / families and friends well whereas some are sh*ts – a bit like people in general. Why are there traders and why do (the good ones – and i wouldnt count myself as in that group) make a ton of money? Well because they are good at what they do. Now i agree NOone deserves (in my view) to be paid huge wads of money, whether traders/ rock stars / sportsmen or whatever but they are, because thats what society values them at. I realise there is no way you will agree with this and thats fine, really. What is a scandal is the (lack of) taxation of the wealthy but that is another issue.

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  • Techieman, you make total sense, and I am not aiming my vitriol at all, but when you see people’s pensions, savings, currency and country devalued by incompetence, greed and ‘spin, it tends to ‘annoy’. There are some very clever, very decent people in the ‘markets’ but the “show me the money” mentallity is all pervasive and contagious. With regards to NR, I find that to be an indication of the society we live in , when the BBC holds its head up high and grabs the exclusive: great journalism or ambulance chasing journalism, an example of the power of the press, rumour made solid, turned into the first run on a bank in 140 years (IMHO). I totally agree with you that taxation of the wealthy needs to be reassessed for the benefit of all, even the wealthy, when they get over the initial shock, and find another tax haven to run to.

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  • HR – if BS had said yep we are broke then there would have been contagion in the markets and a huge sell off. They would have then been critisied because they didnt control the crisis in an orderly way.

    In my view they had to be “economical with the truth” if they had been truthful then the Fed would not have engineered the JP Morgan “bailout”, because they couldnt have done so. This i am afraid is how it works – rightly or wrongly like it or not. Now i would be first to admit the problem is how we got to where we are, the lax reulatory controls and the allowance of the banks to basically hold no deposits ensured that when confidence turned (and it took a long while for that to happen remember) there would be casualties. Maybe there will be more.

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  • Bystander lets calm this down a little. You will find that traders will exhibit moral hazard because the situation they are likely to be in is that there is likely to be large scale redundancies / sackings in the City. Its probable that this will be a net cull – i.e. they wont -for a while at least be able to get other city jobs. Now im not saying this to illict sympathy, all i am saying is that that “market” will decide.

    Also if they do lose their jobs what will they do? I mean they have no trade no apprenticeship etc.

    In those situations and where people know they are on a tightrope overlooking the equivalent of the grand canyon then – assuming they can get away with it they will likely exhibit shall we say irrational behaviour. Now you or others may say well they deserve to lose their jobs and maybe thats right, but i would say they maybe as much as a victim as you or me. Dont be fooled not everyone in the city drives a Porche Boxter (or whatever) and lives in a mansion in bishops avenue.

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  • happyrenterz says:

    TM I see your point about the complexity of the situation, but I disagree that this is the only way to do things.

    For example if someone is speaking to the Fed or BoE about bankruptcy these agencies could be expected to tell the truth. Sure the share price of that company will get a hit but so it should, they are bankrupt. As things stand the Fed or BoE can’t be counted on to tell the truth, so anything they say about the solvency of a bank can’t be trusted. So the whole market suffers the panic we now have. The good get lumped in with the bad.

    “In my view they had to be “economical with the truth” if they had been truthful then the Fed would not have engineered the JP Morgan “bailout”, because they couldnt have done so.”
    Why not ? The BS share price would have been hit but the “bailout” could still have been arranged?

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  • little professor says:

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  • I sympathise with the decent hard working city boys and girls who will lose their jobs because of fraudulent mis-selling in a country they may have visited to do some christmas shopping, but to say those who then do ‘anything’ to save their skins/ jobs are victims as much as you or I, I find difficult to swallow.You don’t cure cancer by breeding more cancer, you remove the bad cells, hoping the good cells will become stronger and eventually clear the ‘body’. I know this is a simplistic view, especially when you add into the equation the mystery of human nature, but I don’t remember anyone trying to help British leyland, Rover, even TVR out, and save their workers. the only power they had, was to strike and this is impotent in the face of country-wide apathy. I know this sounds harsh, but I will shed few tears for those who lose their jobs, if the alternative is to allowing this systemic corruption to continue. Perhaps they could retrain and give something back to society…….there rant over. However techieman I wish you all the best and hope you are one of the lucky and decent who keep their jobs in the coming months.

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  • Hr – i think we just will disagree on this one. I am not particularly fussed with the shareholders losing risk capital (which they have) and to be honest i have not much time for some of the investment banks but its the contagion thats the issue. Now lets say HBOS rolled over, that would be a huge amount of contagion. Its not like a manufacturer going up the wall – all that happens there is that the assets are sold off and the creditors receive a dividend. But what are the banks assets? Other companies / peoples loans / mortgages etc., so what happens if the bank goes under? Now yes the directors should be punished and the shareholders but why should depositors or borrowers suffer? Its not that the “bailout” couldnt have been arranged its that there would have been a domino effect before the assistance was put in place. Its not the share price of THAT bank that is the issue.

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  • All good clean fun!

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  • No offence intended to any Scots, but its more than a tad ironic that the credit boom engineered by a Scottish Chancellor (whose successor of course is a Scot) under the Prime Minstership of another Scot has led to the downfall of the Bank of Scotland, the oldest surviving bank in the English-speakling world.

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  • Bystander no need to worry i trade for my own account, and basically always have! I think -and maybe its just the way i have put things – we are at cross purposes. I agree that we should have a manufacturing base in this country and should have done more to make the companies efficient / competitive enough to enable survival. Can i try and make some money now so i can take my mother round some flowers and fish’n chips? :-). Sorry its not that i want to belittle your points, you have a valid position but i wouldnt dream of being critical of people in other industries because i confess to not knowing how they work.

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  • Hope your mum enjoys the flowers and fish ‘n’ chips, techieman

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  • I’ve been an HBOS customer for 8 years now. Well – how should I put this. As at 10pm today I am:

    – Unable to withdraw cash from machines across town in London (all non-HBOS machines)
    – Unable to perform Telephone Banking (call centre says they are having technical problems and no – they are not going bust *read the script*)
    – Unable to perform Internet banking – I can log-in but all details have been wiped out on the interface

    Unless HBOS in conjunction with BoE have decided to prevent any cash outflow by taking these measures, this technical glitch would be a terrible coincidence.

    I’m out asap as soon as systems are back up.

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  • RUNAWAY! RUNAWAY! Halifax is going under!

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  • I have just used Halifax online system to transfer cash between accounts and all is working perfectly – dont panic !

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