Saturday, September 20, 2008

Perspectives on the Market Crisis

A lot of nonsense is being talked regarding the current crisis. That short-sellers brought down HBOS, that the world is going to end, that Gordon Brown has got a grip. The reality is somewhat different. In the end HBOS was the victim of a business model that was not designed to deal with a severe downturn, short selling only amounted to a few percentage points of the activity on their shares over the last few days. That didn't stop Alex Salmond sounding off though in a concentrated whinge about the fate of a Scottish institution. Then we have had some predictions of the apocalypse, largely from the same sort of people who thought the good times would never end. The fact is that business cycles have existed since, well, ever. They are documented to at least the Middle Ages. So, what goes down does eventually go up. It would take a series of catastrophic misjudgements to prolong the current crisis beyond the norm, which, unfortunately does mean a slowdown of at least a couple of years. All of this leaves Gordon 'an end to boom and bust' Brown looking like a bit of a fool. Now the Labour Party is trying to spin a narrative that he is the man uniquely qualified to bail the country out. This is very, very high risk stuff indeed. Collapse the government's competence down to one man and you make the argument about him. If he doesn't, or can't, deliver then that is the game. If I were them I would really push policy, not personal factors, because policy can change but your people can't, unless you fire the Prime Minister of course.


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