Markets. Why they are important.

The cost of capital to the investment banks would rise and a lot of the leveraged high risk trading they do woudl also automatically stop as it woudl no longer be profitable.

Bank shares will fall in value.

The traditional clearing bank operations (which rely on Bank of England support and regulation) do need separating from Investment banking. No way the tax payer should be bailing out investment banks.

I used to work as a trader in a commodity firm in the City and still do it on my own account for a living and the idea that taxpayers would bail me out woudl be bonkers but wat I do is no different from an invesment bank.

Does anyone remember Barings after Nick Leeson? The Bank of England shut them down over a weekend and shareholders lost their investment and employees lost their jobs. That is how capialism should work. Same should have happened last year when banks got into a mess with only the clearing bank parts saved.

Personally, I think that will be very good for the City and the UK to split up the banks. Putting the risk back on the investment bankers who are taking the ridiculous risks and huge bonuses.

Which reminds me, I wonder how the markets will react if Vince Cable is allowed to do what he intends.

www.guardian.co.uk/business/2010/may/12/banks-fear-shakeup-conservative-lib-dem

Which market is the chart of?

I think Brown's problem was that he thought he'd delivered the end of boom and bust. Consequently, he didn't treat the additional income from bankers' taxes as a one-time boost, and structurally readjusted spending on the basis of a bigger sustained income stream than we really had. When that income stream collapsed, he focused efforts on rebuilding it, with two unfortunate side-effects:

1. It pissed off lots of people, including me, to see him showering money on financial institutions and individuals, and using such a light-touch in dealing with individuals who had done wrong. He created a massive moral hazard.
2. He ignored second- and third-order effects. Second order: the bank income stream was shored up, but tax receipts from other parts of the private sector will fall (have fallen?) and he's done not very much about that. Third order: the budget cuts are going to collapse receipts from the millions of people employed by the state.

Do people really believe that everything would have come to a juddering halt if the Tories hadn't got their man into number 10?

The image of the markets 'going after' Portugal, etc is vile. Under-regulated greed capitalism is indeed an ugly thing.

If you don't want creditors to have a hold over you, you don't borrow at all or you borrow prudently. End of.

I think Brown's problem was that he believed he was investing in the country AND in political stability by means of a bought Labour vote.

It was going to happen with a hung Parliaent and minority Govt struggling to get its Budget through Parliament.

If the coalition hangs together the markets will be happy. If it falls apart and the budget deficit is not cut the markets will dive. We are not out of the woods yet but hopefully the markets will now go after Portugal/ItalyGreece/Spain instead of the UK.

Protestors storming Parliamant in Ireland over their second bank bailout does not look good so they may be vulnerable too.

Wasn't the meltdown going to happen if there was a hung parliament?

SchnitzelVonKrumm - I am feeling happy this morning.

He might have been investing in the country - but there are limits. What sort of investment is it if you're spending so much - and are so over-confident that you don't need to be prudent because you've ended boom and bust - that you end up seeing the country harmed when the people you're borrowing from inevitably get nervous and cuts have to be made?

BeenBeta - " The meltdown would have happened. " - but we will never KNOW will we? I agree with your argument, but disagree with your certainty ;)

Lost money BeenBeta?

The markets like the coalition deal. This morning the Pound Sterling is up a lot as is the Gilts market.

With confidence and financial stability the Govt can now make policy with less pressure, We all benefit from lower interest rates and cheaper imported goods too.

If thsi coalition had not happened the markets would have reacted very differently. The meltdown would have happened.

The UK dodged a bullet.

The OP's post is extremist nonsense wrapped up as economic logic. Utter rubbish, very anti-British citizenry, very anti-democratic.

The way right wing people constantly seek to undermine the prospect of democracy is frightening. Why do they hate it so much? Why do they always defer to power? Is it genetic?

I agree the we aren't in the same situation as Greece and that we need to talk about this without all the drama and hyperbole. But I suspect that the conclusion is still that we need to make massive cuts to avoid becoming Greece. Psychologically we just need to get on and DO IT. Once we have made the cuts, then it will feel like spending is starting to rise from the new base and we will feel that things are getting better again.

I did read somewhere that the voices of doom were predicting meltdown so that when it doesn't happen, the Tories can be credited with having avoided it.

Agree with Schnitzel's comments about Greece, it is just silly to compare the two situations. I'm not saying our deficit is not a serious issue but I do think we should talk about it sensibly.

There are key differences between the UK and Greece from a credit ratings standpoint, including

1. The UK is in control of its tax base, ie. people here actually pay their taxes.
2. There is broad consensus among all the main political parties over the need to cut the deficit and pay down debt; the differences between them are over the exact timing and the mix of cuts and tax rises needed to do it.
3. The UK is among a tiny handful of countries, most of them fairly new, that have never defaulted. Hence the sanguine tone of the bond and currency markets - today's Gilts auction was 2.5 times oversubscribed, which doesn't suggest the panic of Tory fantasy.

We will almost certainly make a whacking profit on the banks - but if will be small in comparison to the national debt.

goodnightmoon - A HELL of a lot of the debt is index-linked now - inflating out way out may not be as easy as last time.