Sunday, November 08, 2009

Read Nick and Weep

Great piece by Nick Cohen. He's absolutely right, MP's expenses has become a distraction from proper City regulation. I presume health reform is distracting the Americans from the same goal. Nick rightly mentions Larry Summers as one of the Americans standing in the way of bank reform. It is worth noting something Summers said in 1991:
'Spread the truth - the laws of economics are like the laws of engineering. One set of laws works everywhere.'
Dolly Parton said it cost a lot to look as cheap as she did. Equally, it takes a lot of education to be as wrong as that, Larry. Anyway, in case you were wondering whether the City boys were working on the next ruinous scam - yes they are. Of course, bonuses are back up there and, in New York, the bankers have even jumped the queue for H1N1 vaccine. This time it's much more fun because there is less competition and more cash to play with thanks to quantitative easing. This is what it sounds like, a laxative. Assuredly, the bitch that bore them is in heat again.


  1. The "ruinous scam" you link to is, in itself, no scam at all. A carry trade is just an example of what Taleb calls "picking up pennies in front of a steam-roller."
    Where the scam comes is when this trade is presented as a clever thing to do, requiring a huge salary.

  2. One thing we're not short of at the moment is distractions. City bonuses for instance: a symptom not a cause. As Nick points out, our troubles stem from the conversion of investment and universal banks into homes for large proprietary trading outfits, in-house hedge funds.

    Reimposition of Glass-Steagall would be one way to put these operations out of harm's way. Another way to do it would be to adjust capital adequacy ratios so that prop trading becomes radically less profitable - and on the way, less risky and less prone to pay out large bonuses.

    Relative to reimposing Glass-Steagall this would be straightforward. The Basel international capital adequacy framework already provides a way to do it, a mechanism that banks across the world are well-used to complying with.

    What's stopping politicians from both main parties from cracking on with this? Capture by the financial interest is one factor. Another more immediate reason is tax. Receipts from prop trading profits are enormous - Goldman, a hedge fund in all but name, will pay £2bn in tax this year alone. Short term gain, long term repetition of catastrophic disaster.

    But screw tomorrow, eh?

  3. Yes, another excellent column--and look at the comments. This kind of cynicism is just what the plutocrats need, and they can't see it even when it is all spelled out for them.

  4. Gaw, you have it in a nutshell, who wants to shoot the only goose currently laying golden eggs. The banks north of the border are currently losing "many of the sort of people we can't afford to lose" so where are these fifth rate haemeroids going then?

    Compare Goldman's with any of the large supermarkets. Let's say Tesco's, who employ large numbers of people on modest wages with stable employment, the company operates on very low profit margins on very large turnover equating to, in monetary terms, large profits. Generated by a bunch of people who know their neck of the woods very well.
    Goldman's are also ran by a group of people who know their neck of the woods intimately.

    Unfortunately the neck happens to ours and they are wringing it.

  5. Oh, dear lord, wherefore were thou when this Scotch git stuck his head above the parapet?