Tuesday, 7 October 2008


The repeated leaking of insider stories to the BBC's Robert Peston has been a key characteristic of the credit crunch, from a UK perspective. His government sources told him about Northern Rock and Lloyds/HBOS ahead of time, meaning that the market began to view his reports as near-gospel.

However, his most recent story about UK banks going cap in hand to the government for funding might have been a big scoop, but has backfired spectacularly, triggering a run on RBS bank shares today. It is difficult to know the intentions of those leaking these stories, but the effect of this leak has been disastrous. Instead, of giving the impression that the government is strong and willing to work closely with the country's leading banks, the banks look feeble and the government appears confused and unwilling to clarify its position. In Alphaville's opinion, the mistake was giving the markets a heads-up ahead of time, which allowed them to pre-emptively react. Maybe so.

Given the government's apparent incompetence, and the inability of the European Union to do anything at all, the time is approaching when the authorities might have to do something rather dramatic. I really hope it does not come to that.

Edited to add: it's worth having a think about what these share price falls really mean. What they mean, technically, is only that the value of these banks' shares is in doubt. And that, farcically, is because of a government leak to the BBC. It doesn't say much about the economy as a whole, nor even the bank itself - only the value of the equity given there's a possibility the government might dilute existing shareholders.

This might sound like I'm splitting hairs and trying to deny the reality of what's happening, but no, what I am saying is that financial journalists are dramatising events and partly obscuring reality. "The world is coming to an end," noted a colleague a second ago to a market source, "scary stuff" she added. But the world is not literally coming to an end, or more precisely one world is coming to an end, but others are likely to grow soon.

Here is a hearty denunciation of the doomsayers (thanks Matt). And it is worth remembering that almost the entire cadre of financial journalists got it wrong on the upswing of the credit cycle so why should we think they are telling the truth now?

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