I've just come across this fascinating paper (PDF) commissioned by the FSA, looking into what behavioural economics can bring to attempts to improve financial capability. The section entitled The curse of knowledge which starts on page 49 is particularly worth a read.
There's a great line in the conclusions: "What should be taught may not be explicit financial capability but thinking skills."
Tuesday, 7 October 2008
Plugs
First, a quick plug for the Financial Inclusion Centre, which was set up by ex-Which? policy supremo Mick McAteer. Mick has been tearing a strip off the financial services industry for 15 years or so now. Most recently he had pop at Ros Altman for scaremongering about Personal Accounts. He’s also one of the few lefties out there really interested in how markets work.
Obviously it’s a bloodbath out there in terms of banking stocks, which does beg the question what impact the shorting ban has had.
Mr Gray welcomes the appointment of Paul Myners as City minister.
As we all know, the public sector is hugely inefficient, the state is rubbish at doing anything and the 'wealth creating' private sector is best left to itself to generate, invisible hand stylee, benefits for all of us. We know this because groups like the TaxPayers Alliance have been reapeating this mantra for years.
Today the TPA blog Burning Our Money says: "Government money is the only realistic option for shoring up our banks' balance sheets quickly. And if that fails to restore confidence, outright nationalisation is the only thing left."
And finally, David Aaronovitch has a good bit in today’s Times about the crisis that hammers home the lack of answers out there:
Obviously it’s a bloodbath out there in terms of banking stocks, which does beg the question what impact the shorting ban has had.
Mr Gray welcomes the appointment of Paul Myners as City minister.
As we all know, the public sector is hugely inefficient, the state is rubbish at doing anything and the 'wealth creating' private sector is best left to itself to generate, invisible hand stylee, benefits for all of us. We know this because groups like the TaxPayers Alliance have been reapeating this mantra for years.
Today the TPA blog Burning Our Money says: "Government money is the only realistic option for shoring up our banks' balance sheets quickly. And if that fails to restore confidence, outright nationalisation is the only thing left."
And finally, David Aaronovitch has a good bit in today’s Times about the crisis that hammers home the lack of answers out there:
there is my old comrade Bea Campbell, declaring that, within two decades, unrestrained capitalism “in doing its thing, unrestrained, it has brought the world to the brink”, though she doesn't say what of. Then, admitting that “progressives” are disorientated and unorganised, she adds: “And yet, and yet... progressives interested in a dynamic, inventive, co-operative, democratic and egalitarian esprit didn't create this conjuncture, but it is the moment we have been waiting for.”
The moment we have been waiting for to do what? I mean given that the world is supposedly “on the brink”? Bea might have used the word socialist, because at least that connoted a belief in an alternative economic system. But now there is no such belief, and what the “Left” seems to argue for is some kind of odd return to the capitalist settlement as at 1980, before Reagan and Thatcher got their hands on the policy levers.
So where does this fantasy - which could easily seduce a section of the Labour Party - take us? Thatcher partly won the legacy battle because, having opposed the privatisation of British Telecom, even the most purblind social democrat could see that she had been right and didn't want the old BT back. They could also see, with the Common Agricultural Policy, where protectionism got us. Don't just say “better regulation” or “taxes on the fat cats”, comrades. That's not a new dawn.
So these gentle mumblings will turn out to be like Monty Python's Boring Prophet from The Life of Brian who predicts merely that things will be put inside other things. We have yet to experience the real consequences of the credit crunch - the joblessness, the spending cuts, the creation of a pessimistic generation. When those hit us we can expect the more exciting prophets, the soft sellers of millenarian brands, the BNPs, the scapegoating anti-capitalists of the near fringes, to begin to affect the mainstream politics of the country.
Monday, 6 October 2008
Quickies
Zedman has been providing some very useful corrective comments on hastily-posted rants, so I'm going to give his blog a big plug. Here's a bit on why shorting actually decreases when share prices drop.
Also lots of useful links on there like to this article which covers similar ground about shorting to my recent attempt. That in turn led me to this paper (PDF) on shorting constraints and over-pricing which looks worth a read.
On a totally unrelated point here is a great piece by Marxist economics commentator Doug Henwood which cheerfully slaughters a number of my sacred cows. Always worth reading critical voices though.
Also lots of useful links on there like to this article which covers similar ground about shorting to my recent attempt. That in turn led me to this paper (PDF) on shorting constraints and over-pricing which looks worth a read.
On a totally unrelated point here is a great piece by Marxist economics commentator Doug Henwood which cheerfully slaughters a number of my sacred cows. Always worth reading critical voices though.
Work is the blight of the blogging classes
Too busy to post much today. There's a big piece in the FT about shorting that is well worth a read. It's much more sympathetic than I am. Two bits stuck out, this first from a side-bar -
This is the sort of thing I was trying get at the other day. Shorting just doesn't seem to me to be the mirror of going long.
And this bit from the main bit of the article -
Fine, but it's a double-edged sword of an argument. It undermines the claim (made by a hedgie elsewhere in the article) that you need shorting for prices to stay close to the 'truth'. Doesn't this suggest that you don't?
Separately I managed to miss the fact that Paul Myners has joined the government as City minister. Great move I reckon. He knows what he's talking about and isn't afraid of being radical. Unfortunately it looks like he's coming off the PADA board. But I reckon the Tories would have booted him anyway.
Unlike traditional long-only investment, where the maximum loss is the amount put up, short sellers face potentially unlimited losses if the stock they are shorting rises.
This is the sort of thing I was trying get at the other day. Shorting just doesn't seem to me to be the mirror of going long.
And this bit from the main bit of the article -
Research on trading in banks such as HBOS in the UK and Morgan Stanley in the US appears to show that levels of shorting were far lower before the ban than during the summer, and had barely risen. Hedge funds say the blame lies not with short selling but with selling by mutual funds, pension funds and other traditional investors. “There’s a lot of long-only intelligent money that is looking at the fundamentals [of the banks] and saying this is not good,” Mr McGrath says.
Fine, but it's a double-edged sword of an argument. It undermines the claim (made by a hedgie elsewhere in the article) that you need shorting for prices to stay close to the 'truth'. Doesn't this suggest that you don't?
Separately I managed to miss the fact that Paul Myners has joined the government as City minister. Great move I reckon. He knows what he's talking about and isn't afraid of being radical. Unfortunately it looks like he's coming off the PADA board. But I reckon the Tories would have booted him anyway.
Sunday, 5 October 2008
Thinking big!
Robert Peston has come up with a radical suggestion for sorting out the banks - let's take a big stake in them via Personal Accounts -
He argues that it's better to do this than let the super-wealthy hoover up the bargains there might be out there.
Fascinating idea, but I thought idea was that the fund options available in the PA scheme should be run by external managers? Not sure how this would fit in. In addition it would no doubt be attacked by the Right as creeping nationalisation. Still, at least someone is thinking big.
My suggestion is that the Government could lend, say, £50bn to the PADA, and it could then use that cash to buy cheap stakes in banks, to help them recapitalise, and also - perhaps - to pick up other distressed assets.
He argues that it's better to do this than let the super-wealthy hoover up the bargains there might be out there.
Fascinating idea, but I thought idea was that the fund options available in the PA scheme should be run by external managers? Not sure how this would fit in. In addition it would no doubt be attacked by the Right as creeping nationalisation. Still, at least someone is thinking big.
A few random thoughts
1. There's a mounting number of ex-City workers looking for new jobs. I wonder whether this isn't a bit of an opportunity for unions and NGOs to pick up some insider financial knowledge on the cheap. There have alaways been people in the City whose views are quite a bit to the Left, but have decided to make money while they can. In addition there will now be quite a few embittered ex-City folk who may be willing to swap teams. Seems worth exploring to me?
2. Wouldn't it be great if a politician did a Joe Kinnear? A lot of the football 'news' that gets reported would make a tabloid gossip columnist blush, so I had a lot of sympathy when I read his rant. But politicians get it far worse (though some of them obviously court this type of press), so I would love to see an MP get stuck into a journo for their constant focus on personalities and 'what X said to Y about Z' 'revelations'.
3. This S&M post about ownership is obviously right up my street. Given that we now have a window of opportunity to re-examine what has worked and what has not in the past 30 years of capitalism, a review of the ownership strikes me a central question to address. As much as there has been an increase in emphasis on getting the 'shareholder as owner' model to work, at the same time we've seen a surge in trading suggesting an increasingly short-termist attitude on the part of investors. And 'owners' appear to have failed to get pay - on of the key governance issues - under control. How can we make it work better?
The question of ownership feeds through into lots of other issues. It's one of the factors in the private equity boom - some argue it's a better governance structure, whilst some directors prefer the model because it gets away from ceaseless short-term pressure in the public market. It also links to what we think about issues such as stock-lending and shorting.
Tomorrow's Company is already carrying out some work in this area as part of it's What is happening to ownership? project (PDF). But I'd like to see something come out of the Left. What about it?
4. I am obviously a little bit biased, but I think the TUC blog is great and exactly what we were missing in the lefty blogosphere - a regular policy-oriented blog linked to a respected labour movement organisation.
2. Wouldn't it be great if a politician did a Joe Kinnear? A lot of the football 'news' that gets reported would make a tabloid gossip columnist blush, so I had a lot of sympathy when I read his rant. But politicians get it far worse (though some of them obviously court this type of press), so I would love to see an MP get stuck into a journo for their constant focus on personalities and 'what X said to Y about Z' 'revelations'.
3. This S&M post about ownership is obviously right up my street. Given that we now have a window of opportunity to re-examine what has worked and what has not in the past 30 years of capitalism, a review of the ownership strikes me a central question to address. As much as there has been an increase in emphasis on getting the 'shareholder as owner' model to work, at the same time we've seen a surge in trading suggesting an increasingly short-termist attitude on the part of investors. And 'owners' appear to have failed to get pay - on of the key governance issues - under control. How can we make it work better?
The question of ownership feeds through into lots of other issues. It's one of the factors in the private equity boom - some argue it's a better governance structure, whilst some directors prefer the model because it gets away from ceaseless short-term pressure in the public market. It also links to what we think about issues such as stock-lending and shorting.
Tomorrow's Company is already carrying out some work in this area as part of it's What is happening to ownership? project (PDF). But I'd like to see something come out of the Left. What about it?
4. I am obviously a little bit biased, but I think the TUC blog is great and exactly what we were missing in the lefty blogosphere - a regular policy-oriented blog linked to a respected labour movement organisation.
Short positions
The Observer has an extra section today focusing on the credit crunch. It's actually not very informative. Will Hutton's piece in it (which doesn't seem to be on the website) is worth a read.
The business section does has one interesting story in it about the shorting in respect of a number of companies (as indentified by level of stock-lending). Here's what it says -
Debenhams is the interesting one for me, as it has become one of the examples people like to give of a bad private-equity buyout (take private, load up with debt, refloat). So perhaps not surprising to see market sentiment being pretty negative about it.
The business section does has one interesting story in it about the shorting in respect of a number of companies (as indentified by level of stock-lending). Here's what it says -
According to figures from City research firm Data Explorers, 18.28 per cent of Wetherspoon's shares are on loan, nearly as much as Northern Rock's (20 per cent) at the time it became the first UK victim of the credit crunch last year. The proportion of Punch's shares on loan stands at nearly 17 per cent.
Mitchells & Butlers, another pub company, has 9.35 per cent of its shares on loan, while retailer Debenhams has 12.7 per cent, says Data Explorers.
Debenhams is the interesting one for me, as it has become one of the examples people like to give of a bad private-equity buyout (take private, load up with debt, refloat). So perhaps not surprising to see market sentiment being pretty negative about it.
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