Now that Northern Rock is as good as finished and just waiting for someone to have the decency to administer the coup de grâce it's only reasonable to ask 'who's next?'
Because they pursued a similar business strategy to Northern Rock, the two most popular names in the frame seem to be Bradford & Bingley and Alliance & Leicester. Like Northern Rock, they have given out mortgages far in excess of deposits taken and have had to fund their business from money borrowed from other banks. The problem being that other banks have a fair idea of how shite many of those mortgages are and are not lending the funds required.
Or so the story goes
Personally, I haven't looked over B&B or A&L's books so I don't know how dire their predicament really is
But it doesn't really matter
As long as people think those banks are in bad shape they are in bad shape
There are predators out there who have seen how panicky depositors are and how quickly a little negative publicity has crushed a bank's reputation and its share price. The stockmarket is more than ready for a little predatory shorting of financial stocks
All you have to do is...
- Sell a lot of Bradford and Bingley shares you don't actually own at the current market price, say £3.60, with a promise to deliver the shares to the buyer in a few days time
- Hope that other speculators and nervous investors join in the sale-fest and drive the market price down to say something like £2.00 a share
- At which point you buy the shares you 'sold' a few days before and turn them over to whoever bought them off you.
- Bingo, you've made £1.60 a share selling stuff you didn't own, off the back of a panic you could very well have started
- And just to be on the safe side and to make sure the share price doesn't rise instead of fall, there's no harm is spreading a few malicious rumours about the company you are mucking about with - there's nothing like TV coverage of mobs of terrified grannies clawing at a bank's front doors to really enhance its share price
Of course, if the company you're mucking about with is inherently strong and market sentiment is generally positive, playing this sort of game is a risky business.
Though, to be honest, if I were a c*nt in a stripy shirt and access to a trading screen right now I'd be sitting here with an erection, thinking 'dead cert'...
It's also worth pondering upon the fact that the people who ultimately stand to lose out from all of this are ordinary savers and people with pensions. That's the not so funny thing about credit bubbles and their aftermath, everyone loses - savers and spenders alike. At least the spenders got to buy some rubbish and have some nice holidays for a while
Of course, things will start to get really interesting if and when house prices start to fall as the result of lenders like Northern Rock, Alliance & Leicester, Bradford & Bingley, and all the others, pumping less money into the housing market with their shonky, fucked-up mortgages
and then, all that debt which built-up off the back of elevated house prices will become flakier and flakier
and then...
well, fuck knows
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edit:
There's an intriguing little quote from BBC Business Editor Robert Peston on the BBC News site here...
"Mortgage banks and building societies such as Alliance & Leicester and Bradford & Bingley, as well as the bigger banks, have seen much of the money withdrawn from Northern Rock"
Now why would Mr Peston single out A&L and B&B, out of all the players on the field, as being destinations for savers fleeing Northern Rock ? = An implied endorsement of those two banks by the State Broadcasting Company
Total LoonThink™, obviously
And remember, it's only subliminal if you don't notice
edit #2:
At the close of today's working day it seems that Alliance & Leicester was selected as next in line for a well-deserved and potentially lucrative kicking on the stock market, though Bradford & Bingley hardly had a fun day either
And then at the end of all that...
WTF!?
as outrageous an example of corporate welfare as you're ever likely to see
Apparently, UK taxpayers are now in the 'underwriting shitty loans made by private companies' business
What's our fee for doing that I wonder
Though this might stabilise the share price of banks which have specialised in shitty loans for a little while, it is unlikely that they will be able to continue pumping money into and inflating the housing market with their shitty loans. And it will be interesting to see just how large an appetite our government has for supporting shitty loans on our behalf in the days and weeks ahead. Rumour has it that there are one or two shitty loans out there
It would be nice to think that speculators who have shorted NR, A&L and B&B in the expectation of a share price bloodbath have been reamed by the government announcement and the positive impact it may have on share prices. However, the week is still young and I suspect much tomfoolery lies ahead...
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