The price of everything

Bonderdämmerung

 

“You don’t take a very responsible job at a time like this and jump after eight months to make money in the private sector.”

 

-       Anonymous ‘Senior City banker’ quoted in The Financial Times after John Kingman of UK Financial Investments said he was stepping down. This response would seem to indicate that a) banking itself is irresponsible; b) the anonymous banker explicitly acknowledges he himself is in it for the money; c) bankers still dominate the field in the hypocritical delivery of advice to others; d) the coinage ‘banker’ has now completely replaced its assonant rival as a term of abuse to describe the hopelessly objectionable and contemptible.

 

 

The great Austrian economist Ludwig von Mises had the final word about a terminal credit crunch:

 

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” (Mises, ‘Human Action’, 1949.)

 

But there is an almost insurmountable problem in viewing the investment markets through the rigid and unforgiving prism of the so-called Austrian school. Mises wrote of the world as it should be. We live in the world as it is. Our own investment markets, or at least those of the supposedly developed west, are now government-directed parodies of free markets – having theoretically been at economic war with socialism and communism, and having seemingly triumphed as the Berlin Wall fell, the governments of the west have now adopted much of the socialist-driven command economy model that they had ostensibly vanquished as recently as 1989.

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Too many c(r)ooks

 

“You’re not only wrong. You’re wrong at the top of your voice.”

 

-       John J. Macreedy (Spencer Tracy), ‘Bad Day at Black Rock’.

 

 

The seemingly vampiric permanence of the investment banking survivors versus their peers in hedge funds, property or private equity suggests, as one correspondent posits, that “the end result is going to be very messy”. While Lehman was Wall Street’s singular blood offering, what will it take to put a stake through the heart of rejuvenated risk-mongering ? The Financial Times last week carried a refreshingly outspoken interview with Paul Purcell (brother of Morgan Stanley’s Philip) who laid the blame for the financial crisis on “the greed of fixed-income people”: “Go back and look at the history of Wall Street – Drexel Burnham, Salomon Brothers, Kidder Peabody, Bear Stearns, Long-Term Capital Management, Lehman Brothers, Merrill Lynch – the fixed-income guys blow up every firm.” On first sight this seems perverse, given the tendency of bonds as a whole to be largely mundane investments, seemingly offering little by way of either return or risk. But once you add leverage to the mix, in order to generate those super-sized profits (and bonuses), all becomes clear. Mr. Purcell continues to take Wall Street to task: “We [investment bank RW Baird] didn’t do the bad things that the rest of Wall Street did. The difference is we actually take care of our clients. We want to make money for people. The big firms created proprietary product they put through their own distribution systems to make them more money, whether the clients needed the product or not. Our business is to sell people the right product at the right time for the right price.” Which sounds fair enough; the problem being, says Mr. Purcell, in the “75% of the people in our business [who] are not honest.”

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Bank impertinence

 

“Except for con men borrowing money they shouldn’t get and widows visiting handsome young men in the trust department, no sane person ever enjoys visiting a bank.”

 

-       Martin Mayer.

 

 

Lewis Carroll would have been proud. “Leading” London bankers are reported to be critical of relatively modest proposals to rein in their executive privileges and to make more transparent the earnings of their best paid employees. One naturally unnamed banker reportedly told the Financial Times,

 

“Risk should be managed by executives hour by hour, not by non-executives month to month.”

 

Banks’ risk should be managed, we can all agree on that. But it wasn’t. Not by senior bankers at any rate, many of whom are only enjoying the fruits of employment now thanks to the involuntary appropriation of taxpayer assets. If “leading” bankers want to avoid being kicked to death in the street by a mob they are doing their damnedest to outrage, they would do well to keep a lower, humbler, more discriminating and less obviously self-interested public profile. Some hope. More evidence of the ‘Alice Through The Looking Glass’ world we now inhabit comes from Matt Taibbi’s much feted critique of Goldman Sachs. After the biggest banking bust in world history, the most trenchant criticism of investment banking (Rolling Stone’s “The Great American Bubble Machine” – warning: replete with some colourful expletives) has appeared in a rock magazine. Mr. Taibbi has also given us perhaps the most memorable description of an investment bank yet coined:

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Only in the land of the fee..

 

“Insanity: doing the same thing over and over again and expecting different results.”

 

-       Albert Einstein.

 

“There’s an old saying in Tennessee – I know it’s in Texas, probably in Tennessee – that says, fool me once, .. shame on.. you. Fool me.. you can’t get fooled again.”

 

-       President George W. Bush, Nashville, Tennessee, September 17, 2002.

 

 

Murkyweather Said To Shut F-U Hedge Fund After Losses (Update 2)

 

July 13^th (Greenwich, Connecticut) – John F Murkyweather, who mildly dislocated global markets when his Ultra Conservative Long Run Defensive Cautious Fund blew up in 1998 two hours after launch, plans to shut his latest “relative value” hedge fund, F-U Capital Management Opportunity XVII, according to a person who has been approached to fund F-U Capital Management Opportunity XVIII. The fund is believed to be so-called because the manager has had a tendency to use relatives to value it.

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Triumph of the realists

“Genius is only a greater aptitude for patience.”

 

-       George-Louise Leclerc de Buffon.

 

If it was Wednesday, then it had to be The Dorchester, where Citywire held their latest wealth management forum. Keynote speaker was Elroy Dimson, Professor of Investment Management and a Faculty Governor at the London Business School. Students of the markets will also know Dimson as a co-author of the magisterially weighty ‘Triumph of the Optimists: 101 years of global investment returns’ (Princeton University Press, 2002) alongside LBS colleagues Paul Marsh and Mike Staunton. You can read the 2009 updated commentary here.

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