Meltdown, Correction, Opportunity
As with anything in the city and the heady world of finance, what is a disaster to one person is an opportunity for another. The recent weeks and the current turmoil in financial markets here and elsewhere in the world have shown that where there are losers there are invariably winners!
The Taxpayer’s Bank
And nowhere is this more clearly illustrated than right here on our doorstep. Well, in Newcastle, actually. Northern Rock, as we all know, is a bank that ran into trouble. Depositors flocked to withdraw their savings. A bank run! In order to ensure the bank would not collapse when so much money was literally pouring out of it, the British Government came to its rescue and “guaranteed” the bank’s depositors they’d get all their money if they just left it in the bank. In effect, the Government said it would always provide the bank with enough money to pay anyone who wanted to withdraw their cash. The money had to come from somewhere, though. And, being a Government guarantee that meant that this money would have to come from the British taxpayers. Thanks, Government! The losses could mount up to over £100 billion. That’s a cost of about £3,500 to every taxpayer in the country! Big money. So, the depositors are winners, and the taxpayers could be losers.
And the Losers Are...
Richard Branson will lose out to the tune of around the £6 million it has cost him to try and buy the bank, less any compensation he receives. And, it will probably cost the bank’s shareholders - including a number of our own Top Traders who had bought Northern Rock shares. Why? Because the government is not about to value the bank at anywhere near the last shareholder price - 90p per share. In other words, each shareholder will only get a fraction of that 90p share value in compensation from the government.
Now, That’s a Good Job
The old bosses of the bank will of course lose out, too, as they seek employment elsewhere. But with every loser, there’s a winner: and the new boss of Northern Rock will be a winner - Ron Sandler, who is now Chairman of the bank, is getting £90,000 A MONTH to help get the bank into shape again. Now, some would say that’s a lot of money, and it is. But, put in perspective, it’s just over £1 million a year and a very small fraction of what the bank will be worth, so probably value for money all round.
What’s on the Shopping List?
There have been winners and losers in property, too. We are told that property prices have fallen recently, especially ‘commercial property’ - shops, offices, malls and so on.
Safe as Houses
Why is this important? Because, our economy, what we do with money and how we spend it and treat it, has a lot to do with the price of property and our belief that bricks and mortar are solid investments which in time will always go up. Invariably, they will.
Shares - Which Way Up?
Are there any losers here? Yes. If the shares are sold at less than the price they were bought, you lose.
Those who have deposited or put money into savings accounts or other accounts at banks, building societies or financial institutions - any account holder with money in the bank.
Take the business from being a private company (or PLC) to government ownership. The opposite of Privatisation.
Quite simply those who own the shares of the company. Essentially, they are the owners of the company.
Bricks & Mortar:
A term usually referring to houses and property, but sometimes used when describing more traditional businesses and not those associated with, say, telecoms or hi-tech businesses.
When the financial markets and/or the economy (could be globally or just nationally) starts pulling through after a recession or a downturn.
A quick reverse movement in the price of stocks and shares, or the stock market as a whole. It’s like a little adjustment before it continues its movement and often happens when prices are too low or too high.
Stands for Public Limited Company. Normally, a company whose shares can be owned by the general public and are usually bought and sold, through a regulated stock exchange such as the London Stock Exchange.