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Royal Mail sell off: a back-ally deal gone wrong?

Channel Four’s The Now Show summed this up to a T with an allegorical story of a frog and a scorpion. In their story, both the characters needed to cross a lake and the scorpion, given that he couldn’t swim, asked the frog to carry him across. The frog was hesitant at first, being afraid that the scorpion might sting him, but the scorpion was very persuasive and convinced the frog he would do no such thing. If he stung the frog then they would both drown, and what would be the sense in that? So off they went.

Mid-way across the lake, the scorpion stung the frog. The frog exclaimed: “Why the heck did you do that? Now we’re both going to perish!” and the scorpion replied: “You knew I was a scorpion when you met me. Stinging is what I do”. And down they went to the watery depths.

Whilst being a terrifically tragic and seemingly pointless story, it does indeed put into perspective the reality of the Royal Mail parallel. The naïve frog, Vince Cable, not only took advice on what price to set for the shares from some of the very people he was selling to (for instance, Lazard) but then sold millions worth of stock to hedge fund investors on the pinky-swear promise that they wouldn’t sell them on for a high profit.

flickr-2649170541-hdPhoto: Flickr – Alex Folkes

Given that buying low and selling high is what hedge fund managers do for a living, it is unsurprising that within a day the £3.30 shares shot up to £4.89, and within a few weeks stood nearly 90% higher than the original set price. In other words, the government (and the taxpayers) got stung. However, unlike the first story, only Cable will drown as the scorpions run off with their millions of pounds of profit.

So what’s the moral of the story? Life is not a fairy tale. Don’t think that hedge funders aren’t going to do their job because ‘it would be nice if they didn’t, pretty please’. Perhaps having some sort of legally binding document to ensure the safety of taxpayer’s money would be a start, or finding some way to peg prices for a certain length of time to protect the selling of government shares, but in all honesty, it’s down to the government to have some sense. They have control of whom they sell to; they should be better informed, by more objective parties; and most of all, they shouldn’t give scorpions the chance to sting them in the first place.

13/05/2014

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emilyfedorowycz