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| The herd mentality has been let loose on global markets [EPA] |
Every year, the bulls are let loose on the streets of San Fermin in Pamplona, Spain. Ahead of them, young men numbering 100 or more try not to get gored or trampled.
There have been deaths.
Tell me, why would you want to run with the bulls?
In the same way, the herd mentality has been let loose on global markets over the past few days.
According to an estimate by the Bloomberg business information service, $19 trillion has been wiped off the value of stocks around the world.
This is a staggering figure – to give it some context, that is more than the US and Japanese economies make in one year.
All these forced marriages in the banking sector – Lloyds TSB's $22bn buyout of HBOS in the UK and Bank of America's $50bn swoop for Merrill Lynch – may just halt the bloodletting.
As may the US government's $900bn splurge to seize Fannie Mae, Freddie Mac, AIG and the financial support for JPMorgan's acquisition of Bear Stearns, although investment bank Lehman's paid the ultimate price for backing toxic mortgage-backed securities.
Toppling giants
But all these marriages have only created bigger giants to topple.
Doing the toppling: hedge funds betting that prices will fall are selling stocks in financial institutions hoping to make a killing when they buy them back.
Traditional investors hope that stocks will rise over the long run.
Many blame hedge funds for warping the markets, exaggerating a small fall into an avalanche.
No wonder the US Securities and Exchange Commission has let it be known it may introduce tighter controls on such practices.
The markets will continue to test every crack in every bank's armour, dragging this mess on for some time to come.
If we are to see an end to this turmoil, the US may have to nationalise every bank. And the UK may have to follow suit – having already taken Northern Rock under its wing.
Both countries have seen economic growth and a housing price bubble powered by debt over the last five years.
The central banks can grease the wheels of finance, pumping billion into the markets, but uncertainty will exist as long as there are worthless mortgage-backed bonds in bank vaults.
Until then, the herd will continue to trample the global markets.
*The opinions expressed in this column are entirely that of the writer and not of Al Jazeera English.
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