President Obama’s $500,000 cap on top bankers’ pay may play well in Des Moines but it is as bad for America as it is bad for Wall Street. If you want banks run properly you have to pay properly.
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Ending the ban on short-selling financial stocks is not only good in principle, it is also encouraging for investors. When other arms of government are tightening controls, the Financial Services Authority has signalled that there is light at the end of the credit crunch tunnel.
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Surely all businesses can cope with a 1 per cent contraction in the economy? Not if some of them try to maintain their sales at the expense of others, they can’t. It’s time for a bit of game theory.
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Stopping a clock does not stop time and suspending dealings in shares doesn’t stop their value falling. As directors of an investment house, New Star Asset Management’s board, of all people, should know that.
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Is the ban on short-selling shares working? No-one can say, so let’s set up an experiment that allows hedge funds to deal in half the stocks while the rest remain protected.
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The state bank bail-out is not nationalisation after all. The £50bn of preference shares the government is offering to buy looks like capital but, as any finance director knows, is really a loan. It protects the taxpayers’ money but there will be no windfall if banks’ fortunes soar again.
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Governments think if they help the few borrowers unable to pay their bills they will help relieve the banking crisis. What they’ll do is encourage lots more to default and thus make the crisis worse.
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It won’t help much but it won’t do much harm either, so if people want an interest rate cut, go on - let them have it.
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When the fire-fighting is finished and the rescue completed, there are serious questions for what remain of the world’s banks. Capitalist countries must ask whether banks can again be trusted.
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Short-sellers join a long line of financial scapegoats – hedge-funds, private-equity, speculators, share rampers, insider-dealers and the mysterious Gnomes of Zurich – but they are no more guilty than any pension fund that sells shares to avoid a fall.
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