Why Bank On Balance Sheets When You Can Bank On Belief

Anxiety mounts as share prices tumble. This from the Guardian this afternoon:

There was mounting anxiety about the rescue takeover of HBOS by Lloyds TSB today after wild movements in the banks' share prices heightened fears that the deal may not go through.

Shares in Royal Bank of Scotland were also down 10% despite its attempt to reassure the market this morning that the near-collapse of Dutch-Belgian financial group Fortis yesterday would not affect its business.

Shares in HBOS, which owns the Halifax, have tumbled to more than 30% below the value of the Lloyds TSB offer since it was launched on September 18, which market experts said raised serious questions over whether the takeover would succeed on the current terms.

Donald Tosh of private client stock broker Spiers & Jeffrey said: "The message from the discount is that there is a problem with the deal. Around the world every bust bank has been bailed out by the respective governments. But in the UK, Lloyds is bailing out HBOS and that's why the huge discount has emerged."

We all know that there are problems with these businesses but we also know that a year ago no one thought there were.

No one who bought and sold shares anyhow.

Or - at least - they didn't seem to think there were.

Nor did they seem to care.

Were they simply buying because they thought others would be buying too? Were these people actually so nose-to-tail that balance sheets and assets - the real world out there - counted for nothing at all?

Is it just what people believe that matters in modern business?

Has the Stock Market actually become a religion? In fact, more than a religion, has it developed all the features of an outlandish sect? After all, there are gurus whose very words are pored over to extract their full and obscure meaning; entrails that are examined for days on end in all sorts of media; acclamations of earnest followers that make the front pages of the finest of publications.

There are even sacrificial lambs.

We call them employees.

They have everything to lose. Not only their jobs but these days, as small shareholders in the companies that employ them, also their savings.

People's capitalism turns roundly on its adherents.

This is an evil religion - if religion it can be fairly called. It may be evil because its exponents are weak or it may be evil because systemic inequalities plague its functioning. That is to say, it may be the people or it may be the procedures. But whatever the reason, real men and women are getting badly hurt and a generation will suffer the consequences.

I remember what it was like the last time I went through this. I left university in 1983 to an economy in the thrall of Thatcher's society without a society. A breakdown of the contract between government and voters. Then it was deliberate. Then it was people.

You couldn't blame procedures or circumstance.

I left the country in 1987 - not only to my first job abroad but also to my first job.

We need to do something better than leave the country. We need to plan for a different future. A future which does not choose to bank on belief.