Letter Writers' Guild

HBOS Fiasco!

For once I agree with Alex Salmond, with his comment about “Spivs and financial speculators” selling HBOS down the river. Actually they were trying to sell HBOS to themselves in the long run. In the short term they were trying to ‘sell short’. This is a very complex and high risk strategy which is played by the high rollers who try to ensure a favourable outcome for themselves to the detriment of the business they are attacking and without regard to ethics or the soon-to-be jobless hoi poloi.

It is really too complex to put in simplistic terms, but allow me to try. Big X says to Broker he wants to buy shares in HBOS at the current price. Broker sets up the deal for settlement at a short future date. Before then, ‘X’ does not actually own the security, he just ‘intends’ to own it. If others do the same then much of the stock is ready to change hands. The smart move then is to sell the deluge into the market, before the day of reckoning, in order to drive the market price down before having to settle the account. The quantity of shares has to be paid for at settlement, but now the price is much less, so a profit accrues to Big X. Big X and his fellow speculators have now panicked the geese to fly from the nest and can strip the nest of the good eggs which are desirable to collectors, throwing away any dead branches which are not worth picking.
Those who followed the raid on Sterling by George Soros will recognise the scenario.

The scene was set some time ago due to changing conditions in financial dealings. Halifax, as a Building Society, had become the biggest mortgage provider in the UK. As a B.S. it was depositor’s money which was lent out for property mortgages. Halifax demutualised in 1997, becoming a PLC with shares on the market, distributed as always to the rich and the poor in unequal amounts. It also achieved Bank status around the same time. This meant not having to rely solely on the real money of depositors.

Leading up to 2001, the Bank of Scotland, as was the fashion, wanted to grow bigger by taking over Nat West. However there was a bigger shark on the prowl, Royal Bank of Scotland, which made a better job of devouring the prey. This led to what was called a merger on the rebound, wedding Halifax with Bank of Scotland. Even more money could then be created out of nothing except the credit worthiness of the combined assets.

From then until 2007 was a great time for all ‘financial ‘spivs’ to make money out of money, out of money, with all the hedging and arbitraging etc that was rife, especially in America where Alan Greenspan of the privately run FED, saw his friends all right with 1% interest rates. Meanwhile here, you just had to ‘get on the housing ladder’ which the young and the smart thought would reach up to the sky forever. Some lenders went too far by offering no deposit mortgages on 125% valuations just to help you get on that ladder with the lender on top encouraging you to push him up higher.

The Financial Services Authority was set up in the early part of this decade, I thought, to regulate and oversee with good governance to prevent such happenings. Maybe not! Maybe they were understaffed, unsure of their power, or perhaps even part of the financial ‘spivs’ just like the Bank of England.

 Ron Rankin