Financial Services Authority steps in to protect bankers from their own greed and stupidity
Today the FTSE 100 experienced an amazing rise in value, over 8% in a single morning – something which is practically unheard of in the history of the stock exchange. What’s happened here? Just yesterday the entire global economy was collapsing into chaos, so what could possibly have enabled the stock market not just to stabilise, but to see one of its biggest ever increases in a single day? Not much, as it turns out. But this just goes to show how completely irrational the stock market really is.
The Financial Services Authority has announced that traders will no longer be able to ‘short sell’ the shares of financial services companies until the middle of next January. If you don’t know what a short sell is, it’s essentially a bet that the company’s share value will decrease – so the trader makes money if the company does badly. If a large number of traders start short selling a company, it can often send shares into a downward spiral because everybody else assumes that there is something fundamentally wrong with the company and more people start ‘shorting it’. This is essentially what destroyed the share value of HBOS this week, forcing it to be taken over by Lloyds TSB.
The problem with all of this is that the FSA claims that short selling is still a “legitimate investment technique”. Really? So why suspend it at all in that case? We already know the answer – short selling is fine when the spivs are hammering a manufacturer or a publisher or a software company into the ground, but apparently the banks deserve special exemption from the very tactics they use to profit from the destruction of other businesses. Once more this week we’ve seen that the bleating city-boys think they should be allowed to play by an entirely different set of rules to the rest of us. The second issue with this move is that even if you suspend short selling, the underlying problems with the banks which have caused the recent chaos are still there – it doesn’t change the fact that because of their reckless and risky behaviour over the past decade, a lot of big banks are in deep trouble, exposed to far more risk and bad debt than any sensible company should be.
So despite today’s excitement, nothing has really changed, all the problems that existed yesterday still exist today and this morning’s spike in the FTSE has been driven by nothing but a little feelgood factor with no real foundations, and possibly the knowledge that, as ever, the government is more than happy to bend the rules in order to protect the bankers from their own greed and stupidity.