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MPs quiz hedge funds after £270m profit from RBS crisis
Paul Waugh, Deputy Political Editor27.01.09
MPs RENEWED their attack on "short selling" today after it emerged that a US firm made a profit of at least £270million betting on a fall in the share price of Royal Bank of Scotland.
The Treasury select committee was set to question some of the world's leading hedge funds in the Commons today as part of a new investigation into claims that international investors had been preying on British banks.
New York-based Paulson & Co, run by billionaire John Paulson, covered its "short" position on RBS -nearly 70 per cent of which is soon to be owned by the taxpayer - last Friday.
Paulson, which managed more than £35 billion, has also profited from shorting Barclays and LloydsTSB, according to reports filed with regulators. British-based Lansdowne Partners last week made £17million by shorting Barclays.
The Treasury select committee wrote to the Financial Services Authority to demand a reintroduction of the ban on short selling - which was imposed last June until it was lifted this month - if there was evidence the practice had undermined British banks.
Reader views (10)
The media idiots and great unwashed in Parliament, think the £270m made by short selling has caused the whole disaster within say RBS, costing us all billions. The cause was the idiot, barely honest, directors who have now rightly got the boot.
- Michael Waugh, London
It's not correct that shorting doesn't require work (or risk). You will find the best hedge funds research companies meticulously and only short companies whose business models are unsustainable. Many hedge funds lost piles shorting VW (much to Porsche's delight) so they tend to short only after thorough research and conviction tells them that a company has got it wrong - but if the hedge funds get it wrong, then they pay up.
- Ab, london
This is scandalous and can't be justified.
They destablise the business and manipulate the market.
As for some sort of greater good, what are you talking about simple greed and self interest.
- Harry, London
Short-selling. Makes a real contribution, doesn't it? Only to the shorters, however. Nowhere else. Doesn't require work, doesn't produce anything, just a sure-fire method of gambling invented by the geniuses of the universe and apparently not considered a bad thing by our masters. Did somebody say the financial industry really doesn't need regulating?
- John Problem, Hackney Wick, London, UK
Why don't the MPs quiz their great and glorious Prime Minister, Gormless Frown, and ask him why his "masterful stewardship" and "restructuring" of the financial services industry from '97 to '07 allowed hedge funds to operate in this way?
Answer: because it will undo whatever is left of the government's credibility.
- Nobby Clark, Perth, the Scottish one
Would anyone complain if they had made this profit if the share price had gone UP instead of DOWN. It is only a bet on share movements.It is the same principal but in opposite directions.
- Adrian, London
Fly. Actually if people looked really looked at the numbers, banking shares fell further in monetary terms and were far more volatile when the ban on short selling was in effect. Short selling finds the real market value. Take the dot com boom of the early 2000s. No shares available to short = ridiculous over-valuation of dot com co's = long investors completely losing their shirts when the truth was outed.
Look at the bad business practices of the companies that are being shorted rather than blaming the market instead.
- Student, London
Who is going to quiz the MP's?
I would like to offer my services as one person who has worked all my life, never taken ANY benefits but sees his Country being destroyed.
- Roger, Surrey
The profit does not come from nowhere. It comes from a drop in the value of the bank's share price, which is the result of the market estimating the true value of the bank as a business. It could be engineering, it could be satellite TV, or brewing, but in this case, it is banking. Why? Because banks have been making bad business decisions, in particular taking excessive risks. Their share price should of course drop, and we should invest our money with better businesses. If the economy ran the way some commentators would prefer, centrally planned like the German Democratic Republic, we would trundle along, pretending all was fine, until everything collapsed.
- Karl Evans, London
As I said before it seems strange how things in the banking sector have got worse since our ever so dilligent FSA lifted the ban on short selling.
- Fly, london
