Northern Wreck

The London Paper  –  17 Sept 2007

It’s grim up North … but everything’s just tickety boo in the City. I imagine that when the public heard about the Bank of England bailing out Northern Rock and saw Friday’s associated 75 point fall in the FTSE 100 they envisaged all we City types working our arses off to inform the market of our analysis. In fact, the office on Friday was as empty as I’ve ever seen it. It felt like an Apathetics Anonymous meeting and predictably no-one had been arsed to turn up.

The reason for the general no-show was that England were playing rugby at Paris and half my colleagues were taking clients to watch our boys get their butts kicked by the Spring Boks. Never has there been a greater contrast than the calm, under populated offices across the City and the long, frantic queues of people trying to extricate their savings out of ‘Northern Wreck’ branches across Britain.

The fact is that we can basically do bugger all when these sort of things happen – other than stare vacantly at our screens feeling like a spare prick at a wedding whilst talking confidently about what’s going to happen when we haven’t got a clue. The other fact is that these sorts of developments in the City are reasonably common and are actually part of the way the great capitalist free market economy functions.

Indeed, it is part of my job to make sure the market rewards well-run companies by telling investors to buy their shares and hence making them grow whilst doing the opposite to inefficient companies. Soon, often when there is a crisis, the bigger well-run company acquires its neighbour and passes on its better working practices and becomes even bigger. This could well happen to Northern Crock who clearly did not have the necessary risk controls in place.

Interestingly, Karl Marx saw this process as occurring every time there was a cyclical economic crisis and predicted that eventually the world would have nothing but huge monopolies. When the next economic crisis happened there would be nowhere to hide, the whole system would collapse and Socialism would inevitably begin.

Unfortunately, this has yet to happen and doesn’t look like it will. What is clear is that we City analysts are in theory at the very cutting edge of the process that Marx identified making sure dog eat dog capitalism thrives. Of course, in reality, we often get things wrong which is highlighted by the fact that under half of the City’s banking teams rated Northern Rock as a Sell prior to Friday’s announcement that heralded a 32% share price collapse.

So, on the very, very off chance that you were worried about the implications the Northern Rock crisis might have on we stockbrokers I’m somewhat disappointed to say are there are very few. Half the City boys were at the rugby whilst the other half was just misinforming the market. We in the City didn’t get where we are today worrying about the impact the potential collapse of a bank would have on some homeowners. Oh no, we had more important things to do like watch the rugger.

Thoughts ?

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