Saturday, February 21, 2009

Bank nationalisation - finding a politically acceptable term for it.

Markets took a pummeling this last week as investors digested the US governments plans for a 'stress test' of the solvency of leading banks. There had been a widespread assumption that Tim Geithner would come up with a plan that would keep the banking system going with a combination of loan guarantee programmes, capital hikes through preferred share issues to the Fed, and purchases of toxic assets at 'attractive' prices.Markets have now woken up to the realisation that by inviting the private sector in to co-invest in the purchase of toxic assets the government has taken a huge step in ensuring that they wont overpay. The proposed 'stress tests' are likely to show that at market valuations many of America's major financial institutions are to all intents insolvent. Yesterday, the administration had to reassure markets that they had no plans for nationalising the banks but the reality is that the government will be calling the shots in the near term and the shareholders and unsecured creditors will be paying the price. Pre-privatisation really is the stage that they are at.

Heard a marvellous phrase in Zurich yesterday. A fund manager said he had a portfolio fitted with ABS. ABS , I asked. Anything but Sterling came the reply.

UK car production was down nearly 58% in January. There are rumours that a major producer is set to announce closure of its manufacturing ( Ford,Honda,Toyota ?) in the UK. With collapsing output, rising unemployment, and tumbling tax receipts the tax burden of the British taxpayer is going to rise and remain high for sometime to come. What's the betting that this government won't take any of the necessary steps to curb government spending, or cap public sector wages and pensions? Much better to leave the harsh and needed political and budgetary decisions to someone else. Meanwhile as Nero fiddles....

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