The great Pakistani stock broker bailout

The Karachi stock exchange crashed all the way from “16000 to 9000”: – and in the process bankrupted a lot of stockbrokers and other large players. Taking note of this severe crisis, the govt. rushed in to save the day, for stock brokers don’t loose money in this country! First, the govt. changed the rules of the game – not once, not twice but thrice!

In Pakistan, stock brokers make money by borrowing from banks and using that borrowed money to play with the stock market. By law, they have to return that money along with interest in X days, while retaining all the profit. This being Pakistan, now that the value of the stocks bought on borrowed money has fallen below the amount of their loans, the stock brokers have conveniently changed the time they need to pay it back to a full year – and arm twisted the govt. to throw money at the stock market by buying shares at higher than market prices so the stock brokers can cash out and let the govt. bear the losses.

Depending on how you add up the various billions the govt. has already thrown at the stockbrokers, the total amount has already reached 150 to 200 billion rupees. The law changes alone are worth many billions – without them the entire stockbroker industry was effectively bankrupt.

In a surprise twist to the tale, a few govt. organizations have grown a backbone, and refused to just hand over govt. money over:

bq.. Four of the federal organizations have expressed their reservations on provision of a fund amounting to Rs20 billion to Karachi Stock Exchange (KSE) for pulling the share market out of the prevailing crisis.

According to sources, the Federal Government directed the State Life, National Bank, National Investment Trust and Employees Old Age Benefit Institution to extend Rs20 billion to KSE.

*The federal bodies are of the view that the fund created with the money of the poor, pensioners, insurance holders and others should not be provided to KSE.*

These bodies have already extended Rs5 billion to KSE in a bid to support the market.

p. Kudos to the above for resisting this blatant transfer of money. In the long run, the stocks might even make money, but pension money should never be gambled, even if there is a good chance of winning.

In other, highly unsettling news, Altaf Husain “jumped into the fray”:

bq.. Muttahida Qaumi Movement (MQM), Chief Altaf Hussain on Sunday said we are worried about the country’s economy and we intend that Pakistan come out of the economic crisis. He was addressing via telephone to Karachi Stock Exchange (KSE) members at the residence of prominent businessman, Aqeel Kareem Daddy, said a statement issued by MQM here on Sunday.

The meeting was convened on a request of the KSE officials which was attended by KSE members in large number. The members of a body constituted by the MQM’s Chief also present their suggestions regarding resolution of the crisis in KSE.

p. It is a well known fact that a sizeable percentage of the stockbrokers in Pakistan are scam artists, with the stock markets largely rigged, and the govt. watchdogs on a short leash, controlled by the stockbrokers and given a tidbit now and than on good behavior.

Calling on “Altaf Husain”: to save them is just shows how rotten the entire system really is.

The only surprising thing about the Pakistani financial system is that it’s still better than those in more developed countries – as the fraud, distrust, larceny and the ever changing rules of the game caused every player in the game to distrust each other from the very beginning – so while millions of -small investors- suckers were gamed out of their hard earned money, the big players distrusted each other enough that they were unable to build the massive pyramid schemes so common in more developed countries.

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