Thread on the influence of markets on politics with respect to Brexit: what happens next?
2/ The underlying theme of Brexit in recent weeks has been fantasy meeting cold hard reality.
Suddenly proponents of Brexit are distancing themselves from Brexit’s actual likely reality - from its actual implementation “on the ground”.
Suddenly proponents of Brexit are distancing themselves from Brexit’s actual likely reality - from its actual implementation “on the ground”.
3/ Those who have now come out for remain instead of an actual possible Brexit deal as agreed between the UK and the EU, include Dominic Raab (the Brexit secretary who negotiated this deal), Boris Johnson , Iain Dale (die-hard brexiter), Andrew Lilico...
4/ But all of them are effectively using the That’s not my Brexit defence.
5/ (As if any of their proposed alternatives solve Ireland, limit economic damage and are acceptable to the EU – as if with May’s self-imposed red lines there are any alternatives.)
6/ The impact of leavers distancing themselves from actual implemented Brexit is that May, by boxing herself into this corner by aligning with ERG red, and after failing to win a majority after a disastrous snap election she herself called, ...
7/ ...now finds herself pushing a deal which is at least 80 votes short of a majority – a deal which nobody likes except for the UK’s enemies.
politics.co.uk/blogs/2018/11/…
politics.co.uk/blogs/2018/11/…
8/ How is May going to push this through? One idea is TARP theory. In the 2008/2009 great financial crash, the “Troubled Asset Relief Program” was used to buy toxic assets nobody wanted, nationalising effectively worthless assets to recapitalise bust financial institutions.
9/ The TARP bill failed on its first vote. This sent markets into a further meltdown. Secondvote? It passed, markets bounced and disaster averted. en.wikipedia.org/wiki/Troubled_…
10/ This week has seen the TARP strategy applied to the WA bill. The gov accepts that on first attempt the WA vote will fail to pass in the commons.
11/ TARP theory says that the ensuing market meltdown will force MP’s who hate the deal to vote for it anyway to avoid the far worse alternative – disorderly Brexit and no deal. Conservative MP’s may also worry about the prospect of a GE and a Corbyn led government.
12/ Critics of the TARP theory as applied to the WA say that the markets already expect the bill to fail on first vote (which by the way is in 2 weeks): Markets are a discounting mechanism.
13/ Markets price in a consensus view of what will happen in the future not just what is known about the present.
14/ If the consensus is that May is planning on a TARP approach, the thinking is that markets will assume WA will fail first vote and price that eventuality in prior to the vote already.
15/ So when the WA vote fails, markets won't move. This will mean the TARP effect won't happen. For No. 10's TARP approach to work, something unexpected has to happen.
16/ But by No 10 letting the cat out of the bag on the strategy, and with the public knowledge that May is 80+ votes from getting this through, the TARP strategy is scuppered.
17/ But what about the second vote? Is there a TARP II? Imagine the first vote fails (no surprise), markets have priced in this already. Then imagine the 2nd attempt at voting through fails too (because markets won’t fall on first failure).
18/ I don't think markets are pricing a second failure in at all. Market consensus is still that some deal will occur before April. No deal is still seen as unlikely.
19/ I think we'd see a big fall on a second vote failure as we'd be entering complete uncertainty with highly dangerous probable outcomes. E.g. General Election (Corbyn PM), No deal (A50 tick down). By this point May would have resigned.
20/ There is no TARP II bounce unless there’s a 3rd WA vote which passes, or a further ref amendment is added. A ref with only WA and Remain options would de-risk Brexit eliminating a disorderly outcome.
21/ Markets would like that a lot. The EU would like that a lot. TARP II might yet happen but most likely without May at the helm.
22/ Therefore the "managed chaos" strategy mentioned by Nick @NickCrosby on Cakewatch this week, which May is allegedly pursuing could easily destroy her. It will get the better of her. It's a level of chaos she can't control.
23/ Remainers tend to think that the EU will only extend A50 for a further referendum or a general election, but would a market panic be grounds for an extension too? Some different views on this here
24/ But I think given a choice between ending a market panic and avoiding no deal, an extension would be granted by the EU27 despite unanimity being required. However would our parliament get their shit together and actually request this?
25/ There will be some in the Tory party (and even the Labour party) who will see no deal as a very good excuse for a more ideological and deeply cutting revolution than virtually any leave voter considered.
26/ Most of the thoughts above are mapped out in my flow chart here.
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