The problem is that all this negative talk makes for a self-fulfilling prophecy. The more the media speculates about institutions and plays on the fear factor, the more people will bring about that very situation. B&B had a default rate of around 1.8% on its own mortgages and did have a portfolio of debt with a >5% default rate, but it got shot of the latter last week. It wasn't too badly off, from what I can judge. The problem is that the media piranhas start to encircle the next victim and, bingo, millions of pounds are wiped of B&B's share values and withdrawn from accounts. Net result is a failed bank, but more importantly, even less confidence in the market place. So people spend less, companies make less money, lay-off workers and more mortgages go into default. Bring on the next victim!
As I've said before, it's all a question of confidence. There's no science in all this, just emotion. There's still the same amount of money sloshing around the system as before, it just starts to freeze up when the doom-mongers take over.
Technically, we could be out of this in months, if the media put a more positive spin on things. However, with the BBC putting out pages entitled "What would financial Armageddon look like?", I don't hold out much hope in the short term.
Sorry, much as I detest the media and the band-waggon mentality, I dont think the current financial collywobbles can be laid at their door. It seem to be market led, and I doubt very much if the serious players (pension funds and the like) really care very much about what the "experts" on
The Sun and
The Guardian are writing about.
As for the Great British Public (and the Great American Public), I doubt if they hold enough privately owned shares to make any difference. Most of them are there for the long term and won't go out and sell when the price is dropping anyway.
I must declare an interest: I always wanted to be a fat cat. Never had any capital, never saved any money.
