Wednesday, September 17, 2008

Uncertainty continues despite takeovers

Prime Minister Gordon Brown has said the Lloyds TSB take over of HBOS was necessary to “protect the banking sector”. He said that “decisive and quick action was needed” but failed to make any clear statement about the uncertainty over the HBOS staff, 40,000 of whom may find themselves out of work. The merger of the two banking sectors means Lloyds TSB now hold a vast proportion of mortgages and bank accounts in the UK. But the 3000 branches that the company now own may well be reduced as will the number of staff standing at 150,000. On both sides of the Atlantic there have been accusations that much of the current financial crisis was brought about by bad government regulation and the fault of “fat cats and city slickers”. But leaders on either side of the pond are unclear in their proposed solution. Gordon Brown told Sky News that he would look into ways of “cleaning up the financial system” but did not make clear what the problems might be [BBC].

There was some signs of recovery on the FTSE 100 following the news of the Lloyds/HBOS merger, but the international financial crisis is far from over. On Wall Street yesterday two major institutions nose dived. Morgan Stanley dropped 20% of its value in the day while Goldman Sachs saw a fall of 30%. American financial investor Jim Rogers told CNN, "It's going to get worse. There are going to be more bankruptcies. There's going to be a big cleanout in the financial system."

There are concerns too that the current crisis may end the boom in China. Many in the West are worried about the consequences of globalisation; spiralling trade deficits with China, jobs lost to low cost producers in Asia, questionable labour practices in Third World countries, and unsafe imports. Until now it's been unusual to hear any criticism of globalisation emanating from China. But with 40% of the country's GDP coming from exports the situation for China is very tenuous.
And China is clearly pointing the finger of blame at the US. The People’s Daily, in an editorial published on Thursday, said “investors from all over the world have been deceived”. US financial institutions had “spread their risk with the rest of the world, and as a result, other nations lost trillions of US dollars, while America has protected itself” the paper said. As for a solution the paper went on to say “'a fair, just financial order that does not rely upon the United States” was needed [Sky News].

Cash injections and take-overs may only be a stop gap. The underlying problems with the markets will take a long time to address. And there is no-one with a clear solution. While many blame the ‘fat cats’ at the top of the ladder, there are evidently more fundamental problems, not only in the US but across the world. It may well be one of the pitfalls of globalisation. No investment appears to be safe during this current turmoil. Many have shifted their money into gold, up 10% yesterday - its highest ever daily rise. King Midas soon found gold a curse and later discarded his wealth and splendour, moved to the country and became a worshipper of Pan, the god of the fields and satyr. Perhaps a simpler way of life and economy is the answer.

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