It's all the broker's fault

Look at the state of the financial situation in the world. You do hear and see many big banks are being taken over by other banks and financial institutions had bailouts by the government or the federal banks. What is going on? I think it is all a broker's fault.

If you noticed, anyone in the world can spread a rumour which is detrimental to an institution and guess what happened next? The financial institution will then be taken over by another bank. Why? Their shares are worthless and what do they rely on? Nothing.

I can give you a good example. Say HBOS. One broker sold a big amount of HBOS shares in the market and start spreading rumours that HBOS is on the verge of collapsing because many shares have been sold. When you see that HBOS shares taking a nose dive, it will led to people starting to panic and what next? HBOS does not have sufficient capital to finance their loans because they borrowed from the free market. When their shares take a nose dive, where are they going to get more money then? That is why they have to be taken over by other banks. In this case, Lloyds TSB has taken over HBOS.

Now we have to investigate how come Lloyds TSB is so strong. Well, they don't really borrow as much as HBOS from the free market. Yes, they do borrow money from the share market (by issuing shares) but they have their own funds to support their borrowing. That is why they can sustain even if there is a fall in their share prices. Well, if you are HBOS who borrow more than 30 percent from the free market to finance your mortgages, a silly rumour will have detrimental effect on you and that was what happened to HBOS.