Sticking up for Gordon Brown

I’m no fan of the Labour Party.  I’ve gone into why in the past and won’t bore you.

The present problems with certain UK banks are not the fault of the UK government.  The reasons are quite abstract, but can be summarised by a loss of trust in the US banking system, precipitated by the problems with complex repackaging and selling of debt in the last 9 years.  (It started under Clinton, so it’s not entirely a Bush problem – although the unchecked free market policies of his government have played a large part).  The failure of Northern Rock would not have happened, despite widespread over-lending in the mortgage market, without the backdrop of the so-called ‘credit-crunch’.   UK government policy, and Gordon Brown, are not to blame.

Likewise short sellers are not responsible for the situation.  Short selling has been better explained by the likes of Robert Peston, but it’s essentially borrowing an asset, selling it at market price, buying it back at a lower price, and giving it back to whoever you borrowed it from.  That way you profit from falls in the stock market.  Of course, if the price goes up, you end up losing money.  It’s not risk free - by any means.  Short sellers can only profit when prices are falling.  The only potential abuse is traders breaking the law and spreading false rumours.  That isn’t happening.  Short sellers are an easy scapegoat. Alastair Darling (chancellor of the exchequer), Alex Salmond (Scottish nationalist leader), and Vincent Cable (an irrelevance) have attributed blame to short sellers.   They’re talking out of their arses.

The only thing they’re right in saying is that short sellers make the situation worse.  But they’re a symptom, rather than a cause, despite what politicians say.  This armchair economist is somewhat in favour of some kind of rules to limit short selling in these kinds of situations.  It’ll be difficult to do though because it’s international.   It’s going to get worse before it gets better.