Friday 18 January 2013

Danger: Molesworth At Work in the Financial Markets

I have long held the view that many Germans who should know better just don't understand markets at all (e.g. here and here).  And now, meine Damen und Herren, we have another entertaining example
Competition: Europe seeks the most dangerous financial product 
It is known that many [financial] products are dangerous. They are opaque and complex and thus threaten consumer protection with concealed risks and high costs. They harm third parties such as the global poor particularly in developing countries by speculation with food and land. They put the stability of the financial system and sustainable development at risk because in some cases they cannot even be sufficiently analysed by financial markets experts or regulators and because they exacerbate price volatilities (also for currencies, credits, etc.). Other products might harm the environment by inefficient investments in non-sustainable industries or resource consumption... Please submit your proposal that should be banned here.
No, I am not fabricating this - it is a construct of the fertile mind of one Sven Giegold, a German member of the European Parliament. Nor am I making up Markus Henn, one of the 'jury' that will judge the competition, described as 'Financial Markets Expert, WEED' (sic).  Nigel Molesworth, it seems, grew up to be a star trader for a hedge fund, chiz, and still persecutes Fortherington-Thomas to this day.

If we may be serious for a fleeting nano-second (and I'm not sure why we should be in the face of such provocation), it is a fact that there are some 'exotic derivatives' that do indeed defy all rational analysis and are clearly the result of some over-indulged traders jerking off in the corner of the trading floor.  But any bank whose policies permit these things to be transacted has got much bigger problems than just hyperbolic gamma or whatever is the resulting exposure-dynamic.

I'd say pensions are pretty lethal - you put aside a lifetime of savings and some Brown, Balls or Osborne comes along and trashes them.  Not to mention Equitable Life.

Hopefully this earnest competition will attract some creative entries ...



James Higham said...

and are clearly the result of some over-indulged traders jerking off in the corner of the trading floor.

Do derivatives do that to you? I ask only for curiosity's sake.

Timbo614 said...

I agree with Nick.

Top of the list for Mr. Average has to be a Personal Pensions. My personal experience:

I started mine in 1986 and initially put £100 a month in - that was quite some sacrifice back then. Some years (the good years) I put in £400/month.

By the end of 1987 - I was well down of course but "long term game" was of course the thinking. Then 1990... then 2000... "F*** it" - I stopped paying in and left it to accumulate (rot would be a better word) Then 2007...

By the time I retire the annual product of that sacrifice for over 20 years will be about the same as the money I can save at current prices, by growing my own veg... that is not what I was aiming at in 1987!

I am pulling it out now at the fastest rate I am permitted...Which last year was virtually halved (thank you Osbourne).

It now sits in a B.S. account rotting, but at least I am not being charged for the bloody management of which bits rot the fastest!

Blue Eyes said...

Tim Worstall suggested The Euro and The Proposed EU Tobin Tax.

Both were apparently rejected from even entering the "competition".

My pension fund currently reports quite a perky yield but I am sure it is only down to the gilt bubble.

Elby the Beserk said...

I'm not a Twitterer, but as one who dismayed his prep school headmaster by requesting, as his prize for winning the annual Latin comp, "The Compleat Molesworth", I do keep an eye on this...

Budgie said...

One financial product that fits the bill is International (government to government) Aid. I would ban that, but I guess it is not the sort of thing that Sven Giegold had in mind.

Jan said...

Commiserations Timbo re your pension. I worked in the pensions review for a well known insurance company in the late 90s and remember a few pensions where the "pension pot" had reduced to zero as a result of charges! (The people had very low amounts "invested" of a few hundred but even so it seemed a bit rough.

Even then a lot of people had stopped paying in as returns were a lot lower than the projections some over enthusiastic salesmen had predicted.

The wool was well and truly pulled from over my eyes.

Tim Worstall said...

They won't allow us to add government bonds, mortgages, either.

It's entirely fixed.

Anonymous said...

Timbo614: "It now sits in a B.S. account rotting, but at least I am not being charged for the bloody management of which bits rot the fastest!"

Might I suggest you feed it into you annual Cash ISA allowance?

Demetrius said...

At birth, grandfather gave me Life Membership of his local Hang The Kaiser Association. Unluckily there are no officials to whom I could tender a resignation so will remain a member. Having declared interest my suggestion is to demolish the Bundesbank and the ECB and revert to the currency of 1919.

Timbo614 said...

@Anon, At my B.S. The ISA Rate is 18.85% below the non-ISA rate :(

And other rates I've seen are not very good either.

I'm at the point of getting back into the market. Just for dividend investing where I can bag about 5% with a little work :)

But this does not gel well with my prediction that at some point this year it will take a big tumble... so it will be gently does it, feeding it in month by month with a 5 year plan to build up divi's paid at different times of the year. Hoping the tumble comes earlier rather than later and it will be a on hair-trigger for pull out and back to cash.

@Jan, Fees yes! Fees fees bloody fees! Especially in the bad years when you lose 20% of your pot, charging you another 1% for the privilege is really annoying!

Nick Drew said...

James - they ain't called Big Swinging Dicks for nothing

yup, Timbo, Jan, that's about it

am delighted for you, BE, but keep your eyes open. you've a lot of years before you start needing it!

priceless, Elby; (speaks well for them if they let you have that as a prize)

Tim has the measure of it, budgie: fixed - but nice tries!

1919, Demetrius ! a bit extreme ?

Ryan said...

Money. Because it purports to hold value better than food whereas it is quite clear that food has more value than inedbile money.

An entertaining example of this was inadvertantly provided by Oxfam who said recently that if all the rish people o fthe West simply gave their "money" away it would cure poverty throughout the whole world, as if the rich had a particularly strong apetite and were eating billions of times more food than the chap under Waterloo Bridge.