Banks Under Fire
Posted on March 24, 2008
Filed Under Investing |
Last week the financial markets managed to reach a level of blind panic probably not seen since the great crash of 1929. Starting with the bail out of at Bear Stearns by J P Morgan the week ended with a concerted short selling guerilla attack on one of the UK’s leading retail bank, HBOS (Halifax Bank of Scotland). A rumour about a possible liquidity crisis at the bank was enough to plunge the share price by almost 20% and the originators are alleged to have made at least $100m from short selling.
It was only a concerted PR effort from the BOE - Mervyn King calling all news agencies to deny any crisis - and the FSA threatening legal action about market manipulation that the crisis was brought back under control. The prospect of a run on another UK bank was enough for the BOE to offer emergency funding to the banking industry. This was immediately taken up and oversubscribed - so much for Mervyn lecturing others about the “moral hazard” of bail outs!
This latest episode in the credit crunch saga is further evidence of how bankers have managed simultaneously to ruin shareholders and investors with unsustainable business models and now taxpayers as government backed central banks have to step in with more and more funding to avoid financial armageddon.
Until calm returns to the to the banking sector such emergency funding will have to continue and as traders, investors and tax payers we will all continue to pay in one way or another.
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