Short selling
In case you had doubted my case at the time, we can now demonstrate that banning short selling in financial stocks made things worse not better.
Apologies
Since everyone who has ever been involved in banking or regulation seems likely to be dragged before some kangaroo court to undergo ritual reputational disembowelment, I thought I'd get my plans in. I think apologies always sound better in Latin, and I'm hoping that mine can be made to an operatic soundtrack, or perhaps a setting of the Mass or a Requiem - Mozart, perhaps. The following seem to me to be the key phrases to memorise:
- me poenitet
- ex toto corde poenitet me omnium
- mea culpa, mea culpa, mea maxima culpa
- lacrimosus venit judicandus homo reus
- ignoram, feles abegit exercitationes
- ibi non eram, raptus fui ab hominibus ex astris
Doom
As if we weren't depressed enough, the Bank of England today tells us that the economy will have shrunk by 4% by mid 2009, but that there will be some growth in 2010. I agree that the economy will grow in the first three months of 2010 as the massive monetary and fiscal stimulus has its effect, but I differ from the Bank in not believing that this will be sustainable. I expect shrinkage to resume through the second half of 2010 and perhaps into the first half of 2011. A key factor to see why this is likely is the housing market. We are, I think, unlikely to see sustained growth in the wider economy until the housing market is somewhere near its pit - for only then will banks start to become more confident about the scale of their bad debts and only then will households see their balance sheets stabilise without increasing saving. The housing market probably needs at least two more years of shrinkage at 15 percent per year (and may need longer) before it reaches its pit. So we are unlikely to see the housing market stabilise in any confident way until 2011 (and that is assuming that deflation doesn't get a hold and that the nationalised banks aren't forced to default).
(On the day the recession became official I did five or six interviews. Much the most informal of these was with Three Counties Radio, which for some reason decided it wanted to talk to me. The interviewer asked me how bad things would get. I told him there would be contraction through the first nine months of 2009, and then in either the final quarter of 2009 or first quarter of 2010 there would be a quarter or two of growth as the massive stimulus packages had their effect, before shrinkage resumed through the back end of 2010 and into 2011. I gave my prediction of 6-7% peak-to-trough shrinkage. The interviewer then said it was miserable weather out and he was trying to cheer up his audience, so couldn't I look on the bright side? Wasn't it possible that the interventions to stabilise the banking sector might work and that the interest rate cuts and fiscal stimulus packages might work? I replied that I was afraid he misunderstood; the scenario I had described was what would happen if the stimulus packages and other interventions did work. That was the optimistic scenario. It was quite plausible that matters would be much much darker...)
