My first job as a financial journalist was covering British building societies, so the nationalisation of Bradford & Bingley £42bn mortgage book, with Banco Santander favourite to take on its £22bn of retail deposits and its 200-branch network is a striking event.
I used to write about building societies under the guidance of Robert Peston, who was then (in the early 1990s) banking editor of the FT and is now business editor of the BBC. So his assessment interests me:
The nationalisation will be seen as proof that the demutualisation of building societies – which began when Abbey National became a bank in 1989 – has been a colossal failure for both the former building societies and the British economy.
These specialist mortgage lenders were under such pressure to grow their profits, as public companies, that they became reckless adventurers in wholesale funding markets.
I think that is correct. Many of the building societies struck me at the time as being self-satisfied and complacent, largely because they had an very well-tested and safe way to make money. They simply maintained a spread between what they paid on retail deposits and what they charged for mortgages.
The business, in fact, approximated to the old saying about the banker: that he paid interest at three per cent, gave out loans at five per cent and was on the golf course by four o’clock. Read more
You might think that $2 – the sum that Nomura reportedly paid for the equities and investment banking franchises of Lehman Brothers in Europe – is cheap for a London-based investment bank.
However, since the dollar is trading at about $1.84 per pound at the moment, it is a slight premium (in nominal terms at least) to the ₤1 that ING paid for the remains of Barings in 1995. Read more
I see (via Felix Salmon) that the credit default swap marked, distrusted by Chris Cox of the Securities and Exchange Commission and beloved by Alan Greenspan, now believes that the US government is more likely to default on its debts than McDonald’s.
FT Alphaville reports that: Read more
Further to my post below, here is Luis Zingales on the liquidity versus solvency flaws in the Paulson plan, and “a smart friend” of Greg Mankiw retorting. According to the latter, it is “academic” economists who oppose the plan. Meow.
As John McCain makes his way to Washington to save the nation, a deal seems to be about to be struck on the $700bn bail-out package proposed by Hank Paulson, the Treasury secretary.
Meanwhile, a consensus is forming elsewhere that Mr Paulson and Ben Bernanke, chairman of the Federal Reserve, are taking aim at the wrong side of the balance sheet of the US banking system.
George Soros argues in the FT this morning, as Martin Wolf did the previous day, that the $700bn would be more efficiently spent on recapitalising US banks and then letting them get on with their business, rather than attempting to set a new price for the mortgage securities at the heart of the crisis.
That would be more in tune with, for example, the approach taken by Scandinavian countries during their own banking crisis in the 1990s. Read more
My FT column this week this week is on Goldman Sachs, recipient of $5bn from Warren Buffett, and whether it can keep combining private profit and public service: Read more
Listening to Chris Cox, the chairman of the Securities and Exchange Commission, giving evidence to Congress a few minutes ago, I was particularly struck by his assault on the lack of regulation of the over-the-counter derivatives market.
Mr Cox described the unregulated $58,000bn credit default swaps market as “ripe for fraud and manipulation”, saying that it was a forum for the shorting of corporate debt without the oversight imposed on cash markets. Read more
It is extremely rare for my prophecies to come true within a week, so I am gratified that Goldman Sachs and Morgan Stanley have come round to my point of view and thrown in the towel as independent investment banks.
Instead, they are turning into bank holding companies, regulated by the Federal Reserve, which puts them on a par with commercial banks and provides an even bigger backstop from the Fed. Read more
I have a piece in New York magazine this week on the credit crisis and the city. You can read it here.
I am glad that Hank Paulson, who wants to raise a $700bn US government fund to buy distressed mortgage securities in an effort to restore confidence to financial markets, is an old Wall Street hand.
In a world where Sarah Palin, the US Republican vice-presidential nominee, claims expertise about Russia because it can been seen from her home state of Alaska, it is reassuring to have a US Treasury secretary with actual experience.
It is definitely more comforting to have Mr Paulson in the hot-seat than John Snow or Paul O’Neill, his predecessors.
That said, Mr Paulson’s background as the former chairman and chief executive of Goldman Sachs, does raise questions. Read more
I have written a column for the Weekend FT on the events of the week, looking at how banks and insurance companies got addicted to complexity and what needs to be done to reform regulation.
The true identity of Humpty Dumpty, the English nursery rhyme character, is unknown. Read more
My regular column in the FT is on, guess what, the credit crisis: Read more
I have written a column for tomorrow’s FT (yes, I know it is unusual for me to be so prolific, but these are unusual times) on the Wall Street crisis: Read more
I have written a column for the FT on Monday on the collapse of Lehman Brothers. Here are the first few paragraphs:
In Greed and Glory on Wall Street, Ken Auletta’s book about the last time Lehman Brothers collapsed, in 1984, Richard Fuld appears as the fierce, proud, introverted head of bond trading. Even at the end, after internal feuding had brought the firm to a halt, he resisted the idea that it had to be sold. Read more
As an antidote to the property-related crisis sweeping over Lehman Brothers, I went over to the Javitz conference centre in Manhattan yesterday to learn about one property development that is not short of money.
It is Saadiyat Island, the mind-boggling $27bn project to develop an island next to Abu Dhabi in the United Arab Emirates. At about $1bn per square kilometre, the emirate is not stinting on Saadiyat.
I suppose the falling oil price may crimp the style of Abu Dhabi and its next-door emirate Dubai a little. But it is not stopping the creation of Saadiyat, which will not only have nine resort hotels along a 9 kilometre beach but a cluster of world-class museums. Read more
My column in the FT this week is on Hank Paulson, the bail-out of Fannie and Freddie, and the dangers of endless intervention. It starts like this:
I do not know what plans Hank Paulson, the US Treasury secretary, has for the weekend. Bird-watching, perhaps. Whatever they are, may I suggest that he sticks to them? Read more
US supermarket chains are following their German and British counterparts in discovering the joys of small stores in cities. Both the New York Times and the FT have stories today about Wal-Mart and others following the example of Tesco’s neighbourhood stores.
There are good reasons why the neighbourhood grocery chain, which has been pioneered by Aldi’s US chain Trader Joe’s as well as Tesco’s Fresh & Easy chain in California, could pay off for US supermarkets.
As the Times article points out, there is an awful lot of pointless variety in the typical US supermarket, driven by the tendency of branded food companies to make 57 varieties of everything. Read more
Speaking as (free) customer of 23 and Me, the genetic testing company co-founded by Anne Wojcicki, the wife of Sergey Brin, the Google co-founder, I can see why it has just slashed its prices.
The New York Times reports this morning that 23 and Me is cutting the price for people who want to spit into a laboratory tube, send it off in the mail, and receive some genetic information about themselves.
Instead of $999 per test, the test price is now $399. Linda Avey, Ms Wojcicki’s co-founder, says that the privately-owned Silicon Valley company wants to entice more people to give it a shot, which would allow more interesting research applications:
“It’s all about numbers and having as many people enrolled as possible.”
Some readers may recall that I was offered a free genetic test while at the World Economic Forum earlier this year, along with my colleague Gideon Rachman. So I have some insight into whether it is worth doing. Read more
Hank Paulson’s effort to prop up Fannie Mae and Freddie Mac has various beneficiaries but few gain more than foreign investors.
One effect of the way the quasi-nationalisation is structured is that US institutions may well suffer more than foreign ones. In brief, it is good for overseas central banks and sovereign wealth funds but bad for US regional banks.
The exuberance in non-US markets this morning is a reflection of that fact. The government has had to step in to reassure foreign investors who have become huge buyers of agency debt, but has treated US equity holders harshly. Read more
Lucy Kellaway has another take on business people and their families.
It seems that smokeless tobacco, of which I approve, is now all the rage. Read more