Top Lib Dem donor short-selling bank shares

by Stephen Tall on January 28, 2009

Late last week, there was a small flurry of media interest in hedge fund Lansdowne Partners:

A hedge fund run by two Tory donors made a £12million killing in days by exploiting the collapse of Barclays shares, it was revealed yesterday. Financiers Paul Ruddock and David Craigen have donated more than £300,000 to the party, most of it since David Cameron became leader. Within hours of the ban on the controversial practice of short-selling being lifted last Friday, their company Lansdowne Partners sold shares in Barclays worth £28.4million. They were bought back on Wednesday, by which time the bank’s value had nose-dived by almost £1 per share, netting a handsome profit for the financiers’ investors.

LibDem Treasury spokesman Lord Oakeshott was quick to condemn the practise:

Short sellers like Lansdowne make millions betting British banks will go down. The Financial Services Authority shouldn’t let them – and the Tories shouldn’t take their dirty money.”

Strong words and stirring stuff. One problem, not hard to foresee: top Lib Dem donor Paul Marshall of hedge fund Marshall Wace confirmed in front of the Treasury Select Committee yesterday that his firm has made money by short-selling shares in banks. To be fair, the party was quick to note its “clear and unequivocal position” in opposing short-selling: “We do not change our policies and principles in response to the wishes or interests of our donors.”

Still, I don’t suppose it will stop us taking Paul Marshall’s ‘dirty money’ (c) Lord Oakeshott. Nor do I see why it should, either. Fundraising for political parties is difficult enough without declining money obtained perfectly legally.

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Then again, the Lords currently being investigated for taking money to change legislation were apparently working ‘within the rules’ but that doesn’t necessarily mean their actions are moral or ethical….

by Letters From A Tory on January 28, 2009 at 9:48 am. Reply #

I don’t honestly see what the fuss about short-selling is. The whole use of it is to expose the over-valuation of shares in certain companies, and there is a reward for people who make the right call. The banks were, for the most part, incredibly over-valued and the people who short-sold bank shares were entirely right to do so. It’s also worth pointing out that shorting bank shares isn’t a sure-fire means of generating a windfall, as Barclays shares have leapt massively in the last few days, meaning that anyone betting on those shares falling will have lost money.

The above mess, where we end up condemning our own party’s actions, is a result of silly bandwagon-jumping moral panic. Nobody needed Lord Oakeshott’s opinions on short-selling and we certainly didn’t need his moralising of what is essentially an economic question.

by Rob Knight on January 28, 2009 at 9:50 am. Reply #

Sorry disagree with that – reason: because it allows the gambling against an organisation that is an essential service and can be bailed out by yours truly.

I think we should say `thanks but no thanks` to Paul Marshall.

by John Abrams on January 28, 2009 at 11:08 am. Reply #

Why is his money unacceptable if it was made on falling prices, but acceptable if it was made on rising prices?

by Hywel on January 28, 2009 at 11:39 am. Reply #

Oh and if “the Tories shouldn’t take their dirty money.” where does that leave us on Michael Brown?

by Hywel on January 28, 2009 at 11:44 am. Reply #

There is rather a tendency towards intemperate knee-jerk populism among some of the party’s parliamentarians at the moment.

Russians are warmongers, bankers are evil, short-sellers are scum, the BBC is a disgrace, the Labour peers should be expelled and so on.

Oakeshott’s rash hostage to fortune illustrates one of the dangers of this approach.

by Anonymous on January 28, 2009 at 11:48 am. Reply #

Do we really need to explain why short-selling is a bad thing, tho? When the FSA has had to ban it, because it was inflicting such damage on the nation?

I have not the slightest objection to people making money; I wish I could do the same. What I object to, tho, is speculators creating vast debts for me — and you, and everyone else — to pay, in order that they make a quick buck.

Is that too unreasonable?

The short-seller may or may not be illegal, but he isn’t the sort of person who should be influencing public policy. Surely?

by Roger Pearse on January 28, 2009 at 12:27 pm. Reply #

John Abrams wrote:

because it allows the gambling against an organisation that is an essential service and can be bailed out by yours truly

I think that says more about the problem with either a) having ‘essential services’ being traded on the stock exchange or b) bailing out publicly-traded companies, depending on which way you look at it.

The purpose of the stock market is to arrive at a consensus about the future value of companies. As a system, it aggregates predictions of various people to reach a conclusion. Banning short selling means banning the predictions of anyone who thinks that a company might be worth less than it says it is, as has been the case with the banks. It’s the equivalent of sticking our heads in the sand.

It’s worth pointing out that the fall in the value of bank shares is an effect, not a cause, of their collapse and their requirement for a bailout. Post-bailout, nobody really cares what happens to bank shares – the recent falls were greeted with little more than a shrug in terms of their causal effects on the banking system itself.

by Rob Knight on January 28, 2009 at 12:31 pm. Reply #

Short selling is normally and rightly legal, and arguably beneficial to market operation, for the reasons Rob Knight gives. There is an argument that in extreme market conditions it can be harmful, which is why the FSA temporarily banned it.

Did Marshall, or anyone else, break the rules of that ban? If so, but only if so, they deserve the brickbats.

by David Allen on January 28, 2009 at 2:12 pm. Reply #

I didn’t realise that the press had already accused Oakeshott of hypocrisy over his previous condemnation of the Tories for accepting money from short-sellers. The FT’s Jim Pickard drew attention then to the fact that Marshall Wace had held short positions in HBOS. This all happened last September:

The party was certainly made aware of the accusation at the time, as Pickard quoted a response from a party spokesman.

For Oakeshott to be falling into the same trap by coming out with this stuff about the Tories and their “dirty money” four months later really is astonishing.

by Anonymous on January 28, 2009 at 2:34 pm. Reply #

Short-selling involves the effective counterfeiting of a share holding – normally borrowed, but increasingly a “virtual” holding of a company’s stock, in order to profit from a fraudulently induced fall in share price.

Insofar as such counterfeiting mirrors the daily counterfeiting of banks loaning money created from nothing to profit from the interest they can then levy, it is of course all perfectly legal.

Whether these legitimised forms of plunder at minimal risk (zero risk in the case of those infallible banks) is either moral or economically sustainable is highly questionable.

The current debt-based money mess should provide answer enough I would have thought. What ever happened to equity investment and governments issuing their own currency, with interest recycled for the public good?

by Andrew Duffield on January 28, 2009 at 3:09 pm. Reply #

LOL. I’m with Andrew here. It’s becoming almost meaningless to say what is and what is not ethical in this increasing fantasy based financial system anyway. Saying that shifting virtual-money in this way is wrong, but in that way is OK, is a bit daft. We need to “step outside the box” and start asking if we should really be having a fantasy finance system in the first place…

by Mark Wright on January 28, 2009 at 5:34 pm. Reply #

Oakeshott has been a twerp and deserves to be called out on it if what Anon says is true.

Incidentally, has Vince now let go of the notion that short-selling is the root of all evil? I am interested to know whether he confined that assessment to the critical few weeks when (as my poor understanding has it) it may have been genuinely dangerous.

by Alix Mortimer on January 28, 2009 at 7:07 pm. Reply #

“… if what Anon says is true”

It’s all there in the link I gave.

It seems that Cable viewed the ban on short-selling as a short-term emergency measure, whereas Oakeshott said at the time of the ban “The Government and FSA must think long and hard before ever allowing short sales of British bank shares again”:

by Anonymous on January 28, 2009 at 7:17 pm. Reply #

Hasn’t the stock exchange always allowed people to sell shares they didn’t own? pre Big Bang you just had to settle up by the end of the trading period.

Providing mechanisms for people to make money by selling falling stocks is an important part of having a liquid stock exchange I thought.

by Hywel on January 28, 2009 at 11:49 pm. Reply #

Surely these people actually don’t give a monkeys about the underlying value of an entity? They just Grand Old Duke of York the things up and down the hill taking a slice at every opportunity. The banks are OBVIOUSLY worth much more than current values; based on their real estate, loan books, turnover and margins on that turnover. And their power brands of course. Just not going to crystalise quickly. Other bets are better in that regard.

But I wish I’d had a million to bet on Barclays was it on Monday morning. I’d have had 3 million on Monday evening. The underlying value unchanged. These characters don’t give a flying V on value.

by Chris Paul on January 29, 2009 at 3:10 am. Reply #

OK, I’m trying to get my head round this.

I have a cow, I lend it to Tom, Tom sells it to Dick. I say “Hey, Tom, where’s my cow?”. Tom buys a cow from Harry, says “Here it is”, and we’re all happy.

Where’s the problem in that? Tom was hoping he could buy a cow from Harry at a cheaper price than what he charged Dick and even have enough left over after he pays me for the loan of the cow. Isn’t that just Tom proving he’s a better trader in cows than I am?

OK, but did we need a real cow to play this game? Let’s try again.

I have a cow. I lend the cow to Tom. Tom lends the cow to Dick. Dick lends the cow to Harry. Tom, Dick and I say “We’ve all got a cow, temporarily on loan, yes, but a cow nevertheless. That makes three cows”.

The cow dies. Harry says “Sorry, I can’t give that cow back to you”.

Tom, Dick and I all say “We’ve got a cow-shaped hole in our accounts, and we’re in trouble. Someone please give us three cows to share out to save us from going under”.

by Matthew Huntbach on January 29, 2009 at 9:16 am. Reply #

Would an investigation of Lord Oakshott’s finances reveal a reported history of involvement in a plethora of tax haven based companies?
Should not dirty money associated with corrupt off shore tax havens not also be rejected by political parties including the Lib Dems?

by D McCarthy on January 30, 2009 at 12:31 pm. Reply #

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