Wednesday, October 8, 2008

Nationalisation of banks in the UK

The wheel has turned full circle. After the 1980's effectively de-regulated the financial services industry in the U.K., regulation is back in fashion. Not just regulation, but public ownership of banks has become a reality. The largest banks have been nationalised, or part nationalised, if you prefer. Part, because the shares will still be traded on the stock exchanges. The Govt will probably be the largest owner, but not the only owner.

The excesses of greed driven capitalism have to be corrected. If this is not done now, the risk takers will cause another crisis soon enough. The Financial times writes "History suggests that corporate contrition only lasts until the next generation – too young to feel the pain of the last shake-out – takes control. That gives government and regulators 10 years or less to shore up the system against counter revolution (greed coming back)."

Lessons for the Indian market participants:

On TV, you hear our own investment bankers (brokers & fund managers) demand "reforms". These so called 'reforms' are nothing but desire for more and more from the govt by giving less and less to society. I think the clamour for 'reforms' will die out, since no govt will give in to the demand of these investment bankers who almost destroyed the world economy.
Then, makets will now value companies on the basis of their performance, rather than on their ability to extract concessions from the govt. Financial services in the private sector is now an extinct species. Banking & Insurance - will be the subject of govt control and maybe ownership.

My suggestion is to focus on PSU banks, institutions & PSU's in general.

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