大象传媒

Bank spanked - who weeps?

• Robert Peston
• 15 Sep 08, 04:45 PM

For those who believe in free markets, it's a good thing that Lehman has gone bust.

Why?

Well a corollary of having the freedom to make hay or fat returns when the sun shines is that banks should suffer for their mistakes.

But ever since the credit crunch set in last year, the US Treasury and the UK government have bailed out banks that ran into trouble

They feared that if Fannie Mae, Freddie Mac, Bear Stearns and Northern Rock had been allowed to collapse, the havoc wreaked on global markets and economies would have seen excessive pain inflicted on too many innocent people.

The problem with these bail outs is that they provided comfort to banks that they could make stupid mistakes and get away with it (well, to an extent).

Not any more.

The US Treasury has well and truly re-established moral hazard - the idea that banks should pay for their sins - by refusing to use taxpayers' money to support Lehman.

And make no mistake, this is a huge insolvency filing, the biggest in US corporate history, with $613bn or 拢340bn owed to creditors - equivalent to around a quarter of UK economic output.

Big banks can no longer be under any illusion that they can make big, stupid financial bets and expect taxpayers to pick up the bill when the bets go wrong.

Which most taxpayers may feel was a lesson worth teaching - unless they're all impoverished ultimately by collateral damage to other banks and a potentially negative impact on global growth.

Let's hope, for all our sakes, that Hank Paulson's decision to punish this big bank doesn't end up hurting us (and him) disproportionately.

• Permalink
• Comments (0)

Meltdown Monday

• Robert Peston
• 15 Sep 08, 06:53 AM

There has never been a weekend like it in my 25 years as a financial journalist.

For Wall Street, it has probably been the most extraordinary 24 hours since the late 1920s.

As I said would happen yesterday evening, .

To prevent contagion to the next most vulnerable investment bank, mighty .

That Merrill is steering itself into safe harbour, no longer confident of its future as an independent, is almost as shocking as Lehman's demise.

And one of the world's biggest insurers, AIG, is reeling from losses on its exposure to real estate and credit default swaps, or complicated financial insurance - and, , is seeking a $40bn bridging loan from the Fed.

As for the US central banking system, the Fed, it is endeavouring to minimise the damage to the financial system from these shocks by allowing securities firms to swap shares for short-term loans, to tide them over.

The Fed is also increasing by $25bn the amount it is prepared to lend to bond dealers.

And a group of 10 banks, including Citigroup, JP Morgan and Goldman Sachs, have created a $70bn collaborative fund, to try to prevent market liquidity from evaporating in the coming anxious hours.

The global financial economy has never in recent years been tested by quite such a combination of accidents and jolts to confidence.

In a way it's fortunate that most Asian markets have been shut today. But the dollar has inevitably fallen in what little trading there's been, Australian stocks have fallen, and futures prices are pointing to a very weak opening on Wall Street.

For most investors and bankers anywhere in the world, today will be a day to endure and survive.

UPDATE, 11:30AM:

Probably the most positive development in the past 24 hours is that 10 of the biggest US banks are pooling their cash in a collaborative effort to prevent any of them running out of funds in an emergency.

Each of them is contributing $7bn and each can borrow up to $23bn from the common pool.

The members of this liquidity consortium include our own Barclays, along with Citigroup, Goldman Sachs, JP Morgan, UBS and others exposed to the fallout from the collapse of Lehman.

The initiative represents an outbreak of common sense among the banks - because in this time of chronic market dislocation, it's a way of ensuring that cash gets to where it's most needed.

The crisis in the global financial economy doesn't stem from their being too little cash in aggregate. It's simply that much of it isn't where it's most needed.

A useful analogy would be Eric Morecombe's protest to Andre Previn in the classic sketch that he was playing all the right notes of Grieg's Piano Concerto, but not necessarily in the right order.

It wouldn't do any harm for the US cash cooperative to be replicated over here by our banks.

There's a time for cut throat competition between banks, and this probably isn't it.

• Permalink
• Comments (0)