The rule of chaos and disorder
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Today was another day of chaos and confusion on the global markets that will have ramifications for a long time to come.
Here in the UK, the building society Bradford and Bingley (B&B) has been nationalised, in the US, Congress has voted down the much vaunted financial rescue package, and banking stocks are tumbling around the world.
Under the nationalisation of B&B, the government will take control of the bank’s £50bn mortgages and loans, while B&B’s £20bn savings arm and branches will be bought by Abbey and its Spanish parent group Santander.
B&B currently employs about 3,000 staff. Speculation had intensified in recent weeks that B&B was approaching a funding crisis, leading to a growing number of customers withdrawing their funds.
B&B had fallen into financial difficulty as a result of the credit crunch removing the option of raising funds through the global wholesale money markets. The company’s focus on the buy-to-let market intensified its problems as that market has seen a large rise in bad debts as
UK house prices have fallen.
In London, shares in HBOS closed down 18% while Lloyds TSB slipped 13.5% and Royal Bank of
Scotland lost 13%. The losses contributed to the FTSE 100 index’s biggest one-day fall since January, down 5.3% to 4,818 points.
Global shares also fell sharply, France’s key index lost 5%, Germany’s main market dropped 4% while US shares also lost ground.
Meanwhile, this evening the lower house of the US Congress has voted down a $700bn (£380bn) plan aimed at bailing out Wall Street. As news of the vote came through, traders on the floor of the New York Stock Exchange apparently stood around dumbfounded.
Analysts say that without a bail-out the banks will be left to handle all their own bad mortgage debt as best they can and more of them will be in danger of going bust.
While the market is in turmoil the financial institutions will be nervously watching each other to see which will be the next to either collapse or sink into Government ownership.
