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— View from the City —
Hector Sants, the chief executive of the U.K. Financial Services Authority, denied he had come under any kind of political pressure when he banned the short selling of 32 financial stocks and was quickly followed on Sept. 19 by the U.S. Securities and Exchange Commission, which banned shorting on a generous 799. But what other reason was there?
Sants admitted there was little evidence that hedge funds had been massively shorting HBOS plc when the drastic decline in its share price drove it into a government-sponsored merger with its rival Lloyds TSB Group plc.
Indeed, hedge funds loudly protested their innocence, although the
Financial Times reported that New York hedge fund manager John Paulson
had emerged as the biggest short seller of U.K. banks. Data Explorers Ltd.
and its stock-lending database reported short positions in HBOS fell
from 2.96% to 2.75% of its market capitalization between Sept. 16 and
17. A great deal lower than the high of 10.5% of HBOS' market
capitalization in July, when the FSA launched an inquiry into market
manipulation and, as the site gleefully pointed out, nowhere near the
40% at which shorting peaked in U.S. mortgage lending giants Fannie Mae and Freddie Mac.
Still, whatever Sants or SEC Chairman Christopher Cox may say, no one is listening. Republican presidential nominee John McCain and New York Attorney General Andrew Cuomo want to exorcise the short sellers and plan to send the inquisition after Cox himself. In the U.K. the pols talk of hedge funds hunting in packs and London's Daily Mirror newspaper launched a personal attack on one American-born hedge fund manager as the "Greedy pig U.S. billionaire who has helped bring HBOS to its knees." The Mirror, whose own pensioners were once robbed by its former owner, the late Robert Maxwell, seemed mainly excited by the fact that the man had recently paid £24 million ($44 million) in cash for an apartment with a spare room for his pet pig, Pickles. But it also claimed he had made hundreds of millions of pounds gambling on HBOS' share price falling. Even Prime Minister Gordon Brown tried to take the credit for the crackdown on short selling -- as well as for saving HBOS. Then it was the turn of the overpaid bankers to feel the heat of the prime minister's wrath as Brown promised to work to rebuild the world's financial systems around clear principles of transparency, sound banking and responsibility. What this meant, he said, was that no bank should evade responsibility for toxic investments by claiming it did not understand what it was taking on and that bonuses should not be based on short-term deals but should be a reward for hard work, effort and enterprise. Most bankers would probably claim bonuses were already intended for that. But no matter. The great British public believes these are the same evil, ruthless men who lend money to subprime victims and then call in their mortgages to prop up failing banks when times get tough. And who is to say the public is wrong? That politicians want transparency for banks and punishment for the greedy is only right and proper. But they don't want it for governments. Like U.S. Treasury Secretary Henry Paulson, who wants the authority to spend $700 billion to shore up the world banking system but doesn't want to account for it, Brown wants the power to force the merger of banks in violation of normal competition rules and still escape normal regulatory oversight. But let's not condemn them too harshly. On both sides of the Atlantic these are extraordinary times. And, of course there's a U.S. presidential election coming up and Brown himself could soon be ousted. Governments must be seen to be acting, and if there's an evil opponent to fight, so much the better. |
The battle is between good and evil; darkness and light. In the good camp, we have, as ever, the politicians. Ronald Reagan versus the Evil Empire; George W. Bush versus the Axis of Evil, Al Qaeda, Saddam Hussein and, latterly, even his former pal Vladimir Putin, in his chosen role as Son of Evil Empire. And that's just the presidents. There are also would-be presidents, New York state attorneys general and, on this side of the Atlantic, a prime minister, a Scottish first minister -- even the odd opposition politician -- all racing to put their country on code red terror alert as the battalions of the Dark Lord advance. Hedge funds and overpaid bankers are the enemy. Short sellers and bonus farmers are all painted as the devil's minions.
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