What's all this government posturing on "spivs"?

Sir_Humphrey

Because a system cannot be made perfect does not mean it cannot be improved.

Now is not the time for Panglossian fatalism.

EDIT: I am not arguing for the overthrow of Capitalism. I am arguing that if it cannot be regulated it is fatally flawed. I am arguing that it can be regulated so is not fatally flawed.

nickmason

Generali wrote: »

Maybe Lehmans had the right attitude to bonuses - pay it in stock. Many people working there have lost 50% or more of their wealth as a result of the firm collapsing.

:rotfl:Guess it depends on what you mean by "right".

I totally agree that this is stupid "scapegoat" politics. Spiv seems to have been used as a portmanteau for all sorts of people; short-sellers, hedge-funds, etc.
It seems that there was nothing like the level of shorting of HBOS that the gov/media were suggesting. It was just good old fashioned selling of held stock which wasn't looking a good holding.

But somebody worked the "spiv" line to the media very well (the term was immediately adopted by cross-party papers: the Mail, the Express AND the Mirror)... and then the government could do the something "that needed to be done".*

In fact when "SPIV" kept appearing in the media, my office thought it referred to "Special Purpose Investment Vehicles" - CDOs etc - rather than some bizarre renaissance of a term from the mid 20th century.

* I hope I don't offend by the allusion, but I have just returned from Rwanda, where part of the strategy of genocide was for the Tutsi victims to be called cockroaches; most genocide academics identify 8 stages of genocide, the first three being classification, symbolization, dehumanisation (which is where the renaming comes in). Of course I am not in any way equating the two, but it is a useful reminder of how dehumanisation is used to make attacks on the victims more acceptable. After all, I can hardly hear the refrain "hard working families" being used in the context of the "spivs", even if it's probably a fairer description.

Generali

Sir_Humphrey wrote: »

EDIT: I am not arguing for the overthrow of Capitalism. I am arguing that if it cannot be regulated it is fatally flawed. .

And that, for me at least, is what is so horrible about 'democratic' socialism. If it can't be regulated it must be banned 'for the greater good'.

Sir_Humphrey

Generali wrote: »

And that, for me at least, is what is so horrible about 'democratic' socialism. If it can't be regulated it must be banned 'for the greater good'.

Plenty of activities are banned for the greater good. These range from murder to certain forms of fraud.

What I was getting at for banking is that it can be regulated. If it cannot be regulated it should be nationalised (as it is an essential component of the economy). As I believe it can be regulated, I think nationalisation is unnecessary in this case.

Plenty of Conservatives have nationalised industries on this basis in many countries (eg railways).

There are going to be fewer Hedge Funds in future (a fact of which I know you are painfully aware). The problem with Hedge Funds is not that they are short selling, but that they are massively leveraged and charge exorbitant fees. Most have also failed to secure the returns that were promised to their investors.

So you have an expensive product that usually fails to deliver whilst the people running that product often make a packet (not always of course). All in all I can see why people are beginning to see elements of Private Walker and Del Boy in it.

pizzagirl

Sir_Humphrey wrote: »

There are going to be fewer Hedge Funds in future (a fact of which I know you are painfully aware). The problem with Hedge Funds is not that they are short selling, but that they are massively leveraged and charge exorbitant fees. Most have also failed to secure the returns that were promised to their investors.

I suspect that most people who invest in hedge funds haven't the slightest clue how they make money.

Generali

Sir_Humphrey wrote: »

There are going to be fewer Hedge Funds in future (a fact of which I know you are painfully aware). The problem with Hedge Funds is not that they are short selling, but that they are massively leveraged and charge exorbitant fees. Most have also failed to secure the returns that were promised to their investors.

So you have an expensive product that usually fails to deliver whilst the people running that product often make a packet (not always of course). All in all I can see why people are beginning to see elements of Private Walker and Del Boy in it.

There are almost certainly going to be fewer hedge funds and the problem is fees.

The thing is, all investors' returns when added together must equal the market because they are the market, there is nothing else. If you invest you money in a 2&20 hedge fund (2% annual fee and 20% of profits skimmed off) then unless hedge funds outperform the market as a whole you will necessarily do worse by investing in one. The best thing (as I advised the odd person on here even while working in a hedge fund!) is to use very cheap tracker products and to diversify as much as is possible.

Warren Buffet writes very eloquently on how the financial services industry overcharges in the last couple of newsletters from Berkshire Hathaway.

The shorting thing is a bit of a blind alley quite honestly. For a liquid stock, you're not going to have that much impact on the price if you short agressively as buyers will just 'buy the dips' against you. For illiquid stocks it will cost so much to borrow the stock and to cover your position then you end up with tiny profits even if ou get it right.

The best shorts are often either 'pair trades' (eg M&S are going to do better than Tesco I think so I short Tesco and go long M&S, the relative performance is then all that matters to me) or hedges (eg short the market, go long the best stocks in the market - that's similar to a pair trade in many ways).

You can make money just shorting but it's tough and very risky.

pizzagirl wrote: »

I suspect that most people who invest in hedge funds haven't the slightest clue how they make money.

To invest in a hedge fund you need to be a 'sophisticated investor'. Generally that means rich.

Sir_Humphrey

Generali wrote: »

The thing is, all investors' returns when added together must equal the market because they are the market, there is nothing else. If you invest you money in a 2&20 hedge fund (2% annual fee and 20% of profits skimmed off) then unless hedge funds outperform the market as a whole you will necessarily do worse by investing in one. The best thing (as I advised the odd person on here even while working in a hedge fund!) is to use very cheap tracker products and to diversify as much as is possible.

Warren Buffet writes very eloquently on how the financial services industry overcharges in the last couple of newsletters from Berkshire Hathaway.

The shorting thing is a bit of a blind alley quite honestly. For a liquid stock, you're not going to have that much impact on the price if you short agressively as buyers will just 'buy the dips' against you. For illiquid stocks it will cost so much to borrow the stock and to cover your position then you end up with tiny profits even if ou get it right.

As I have said, I agree that shorting is not the real problem here. I did read Buffett's last letter, and I agree it is a very good read.

But in the excessive use of leverage, they are a systemic risk in the shadow banking system just like the investment banks were.

To regulate something can be justified even if that activity is not immoral. The classic example of this is forcing people to drive on the left. There is nothing immoral about driving on the right, (cue Michael Caine Italian Job joke).

Generali

Sir_Humphrey wrote: »

As I have said, I agree that shorting is not the real problem here. I did read Buffett's last letter, and I agree it is a very good read.

But in the excessive use of leverage, they are a systemic risk in the shadow banking system just like the investment banks were.

The leverage that your Prime Broker will allow you to use as a hedge fund is directly related to the underlying assets you're investing in.

For example, a small cap equity fund can probably only leverage up to about 160% (ie if they have £100 of investors' cash they can buy up to £160 of shares with that money).

They can bump that up a bit by shorting and by using derrivatives like CFDs but you're unlikely to get past about 200%.

Problems with leverage have come due to the dramatic shift in the perceived risk of an investment product, CDOs being a very good example.

A AAA rated CDO would have been viewed as a pretty safe investment a couple of years back but no longer. The value of the CDO has been slashed and at the same time, the money that the Prime Broker will lend against it has been slashed too. In a few cases I've heard of Funds being leveraged at a few thousand percent. This clearly causes the fund to go belly up but the bank is still left with losses as they have lent on collateral that isn't worth what they thought in effect.

MissMoneypenny

Generali wrote: »

Maybe Lehmans had the right attitude to bonuses - pay it in stock. Many people working there have lost 50% or more of their wealth as a result of the firm collapsing.

Midland Bank use to do that.

Generali

MissMoneypenny wrote: »

Midland Bank use to do that.

Most banks do but the length of time you're locked in for differs from bank-to-bank. Lehmans was at least 5 years I think.