[Diggers350] Panorama: Reckless gambling

[Darren Hill]

I spent a couple of years after the run on Northern Rock trying to 
understand what was happening to the world economy and reading proposals 
of how it could be addressed.

I often spent the time to understand complex processes to later find I 
couldn't recall the detail.

The markets are amazingly complex.

My interest in understanding faded once I realised that much of the 
system is excessively complicated and corrupt.  Regulators have to seek 
advice from the traders in specialist markets as they are the only 
people who understand them.

Stuff that makes me shudder includes -

The derivatives market (aka futures market) -  especially 'credit 
default swaps'
High frequency trading
Front running
Dark pools

I just checked and they are all explained on Wikipedia - there may be 
arguments for allowing these (maybe not front running!!) but what good 
can possibly come from allowing the production and distribution of goods 
to be hugely effected by amazingly complex gambling?

Look at the size of the derivatives market - it dwarfs the size of the 
markets of real goods.

http://www.truthistreason.net/1-2-quadrillion-derivatives-market-dwarfs-world-gdp

There were reports a few months ago that there were big moves to 
investing in food futures (derivatives) and predictions that food prices 
would shoot up.

Guess this might go some way to explaining the recent spike in the price 
of a bag of flour?

http://www.twnside.org.sg/title2/resurgence/2010/240-241/cover01.htm

The effects of all these amazingly complex markets are easy to see - the 
wealth gap continuously grows.  Cheap energy gave 'improved quality of 
life', there was no trickle down effect from rich people getting 
richer.  More money to invest = more money made, that is the rule of 
thumb of a market economy.

The occasional individual who out competes their peers to climb the 
wealth ladder gives hope to thoose peers that they too can improve their 
lot.  I guess that this hope and the 'improved quality of life' has been 
enough to provide acceptance of a grossly unfair system?  Are we now 
seeing the beginnings of the loss of this acceptance?

My last post here "Re: 69p to £1.29 flour price hike" on the 18th 
December explains more.



















On 20/12/2010 22:11, james armstrong wrote:
>
>
>
>
> *‘BBC PANORAMAMAKES PLAIN THEBANKING CRISIS *
>
> I’m trying to make sense of the financial crash.
>
> After watching Panorama to-nightto my own satisfaction I can see the 
> big picture.
>
> The investment banks – the gambling off-shoots of B of Scotland, 
> Lloyds, Coutts, etcemploy market analysts who are paid tomake money.
>
> The analysts put in very long hours.They work for the money market –banks.
>
> Their ‘product’ which they focus on all day long, and week-ends too, 
> talk about, and ‘invest’, is money.
>
> Their job is to make theirbanks-money.
>
> The way theycarry on business , from hour tohour, is analyzing and 
> comparing different portfolios of money-making schemes and doing deals 
> in the market. .
>
> They are incentivised to make the banks money by being given a share 
> ofeach investment.They make huge deals for their bank and when it 
> makes money they get a share of the very big money.Bizarrely if they 
> lose their banks money, it does not hit their pocket.
>
> Here’s` where the madness kicks in.
>
> The sums they deal with are astronomical. They have a unique unit for 
> counting their rewards, called ‘P.M.’s’They count their bonuses and 
> salaries and annual take in 'P.M.s'
>
> A P.M. is equivalent to the Prime Minister’s salary of £146,500 per annum.
>
> They mentally note their rewards, and talk about it, as ‘two or three 
> P.M.’s ‘
>
> Their world is then, Money. They no longer live in our worldof ‘the 
> economy’ which is based onbuying and selling, making and consuming 
> ‘goods’ – the world of ‘housekeeping’ which is what the Greek word 
> ‘economy’ means.
>
> At this point madness creeps in.They admitthemselves willing to stab 
> colleagues in the back- toensure their ownmoney keeps flowing oin. 
> This euphoria fosters the delusion that they and their world can 
> carryon for ever making money.
>
> Eventually reality creeps in.The scale of their gambling (which they 
> call work) leads to enormous risks.The whole is summed up by Will 
> Hutton as
>
> “Massive reckless gambling”
>
> “We have still not addressed the central issue, sothis model is 
> destined to repeat itself with a massive bubble and crash every 25 
> years”W Hutton.
>
> So much from to-night’s Panorama programme.
>
> I can just add my own take on a couple of points.
>
> The‘money’ which the analysts are concerned with and which theyinvest– 
> isnot the same ‘real money’ which I deposit or take out of the 
> bank.Thye have inventeda new kind of money. The City boys invent the  
> 'money' with which they gamble.They make bargains buying and selling 
> ‘assets’ which some years ago became the tradeable version of 
> mortgages and debts -think of them as I.O.U.’s which the banks claimed 
> they were owed and had a certain value. (An uncertain value as it 
> turned out)
>
> But when the system collapsed in 2008 , the tax-payer used ‘real’` 
> moneyto pay the banks debts.
>
> Even then I don’t think it is really, real money, but just more credit 
> which the government borrowed by issuing Gilt edged securities- 
> government bonds on the Bond Market.
>
> However, the money the government used is one stage more real than the 
> bankers’ moneyand has to be earned and paid in taxes by workers in the 
> real world.
>
> Sanity resides however in the real world.Panorama did a poll and found 
> that 71 per cent of the population don’t trust banks.
>
> James
>

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