Hedge Fund Betting?

16 09 2011

I have on this site at various times over the years found myself making two comments. The first is that sin is equated with stupidity. The second is that Hans Christian Anderson’s story, The Emperor’s New Clothes, is the best parable to summarise so much of what goes on in the modern world.

In the last few days the news has broken about a dealer for a Swiss bank who has accumulated a debt for the bank of two billion dollars. How did he do it? According to the press by ‘betting’ on the direction of share prices and other assets.  Once upon a time banks were the pillars of society and trust was the name of the game. Now banks are mere gamblers.  Excuse me but didn’t dodgy trading have something to do with the whole financial crisis of three years ago?

Hedge funds I am told have only been around a decade or so and were the canny idea of a bunch of financial smart characters sitting around (literally) one day reflecting on money management. But who at the top agreed to this practice of money laundering, because that is what it is.

Stop and think about the very basics of money economics. At any one time there is only a finite amount of money in existence. If you go into the bizarre world of money handling it can be infinite as long as it remains on paper or on a computer screen and as long as it doesn’t have to be called up.

So here we have ‘the emperors clothes’ that don’t actually exist except on computer screens. Banks tolerate or encourage  it because it means that at the end of the day their funds have gone up (if the dealer is clever and clever here means able to make other silly people believe there are clothes there). But here I find a problem, a very basic problem I referred to above. Money is finite so if your pot gets bigger someone else’s gets smaller, so if at the end of the trading suddenly your ‘clothes’ become real and you are in hock to the tune of 2billion, (not even millions!!!) that means your pot has a big hole in it while somewhere somebody else is smiling happily with a bonus of 2billion.

So where do these ‘pots’ come from to start with?  Well if you are an ordinary bank, from the assets they hold which may be money, stocks and shares or property – and that is where you, me, companies etc. etc. come in because much of that is ours. If you are are hedge fund trader you either accumulated large sums by some means or you conned others with large sums to believe in you with the believe that you are a great gambler and can increase their money for them – and it’s better than going to a casino – but it is gambling.

So a bank or whoever has this finite pot which goes, they hope, up most of the time by clever gambling – but Casino’s don’t lose money because the odds are always stacked in their favour – yet as re cent years have shown the system is not foolproof and sometimes the charade is shown for what it is – a means of a very limited number of people getting very rich and if the pot is finite, it means ultimately that a lot of others of us are not as well off as we could be because they used our money  and got it for free.

Isn’t it time somebody shouted stop? You see, it seems that again and again this charade is being brought to the public’s attention and again and again, we the mass of the public are thinking, “We’re being conned,  and these fat cats are ripping the  rest of us off – and it can’t go on,” and that may have far greater social consequences than most of us realise. Stop this world, I want to get off before it gets really nasty!








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