Big Bang Instability
The argument developing over whether BP should withhold its next dividend payment while the oil spill crisis is ongoing highlights the underlying structural faults in our financial system following Big Bang de-regulation in 1986.
Evidently the BP dividend accounts for something like 17% of all pension payments in the UK. This is of course ridiculous. No one company should ever account for more than 5% of the equity or yield of a balanced portfolio and in days of financial probity and strength long gone, this was the rule. Big Bang created a much freer market which has generated an enormous amount of trading activity. This in turn has made speculation and growth the driver, causing significant over valuation of a very large group of otherwise sound shares. The knock on effect is low average yields which in turn cause fund managers to speculate to gain profits for the payouts. Soon we hear of pension black holes.
As part of the re-balancing of the economy we must re-appraise the purpose of the City. Yes it is a market but it must also provide the foundation of wise long term investment based upon earnings. Only thus can we have the stability at the core which is critical to future progress. Once investors predominated, with speculators seen as a rather vulgar minority. Now everybody seems to be at it. The applecart is now too easily upset.