Dear Guardian

If the fact that finance is a social utility had been borne in mind, it is hard to believe that the trade in credit default swaps (CDS) would have been allowed to balloon.

Excuse me, but why should my decision to buy (or to sell) a CDS be something which is supposed to create some social utility?

My money for me to do as I wish with, no?

5 thoughts on “Dear Guardian”

  1. “My money for me to do as I wish with, no?”

    Well … crudely speaking, ‘good’ speculation is where people are betting their own money, as this keeps you on your toes – gains and losses net off and markets are kept closer to their equilibrium. Plus it’s good fun.

    ‘Bad’ speculation is where people are gambling with Other People’s Money, i.e. bank employees taking wild punts with depositors’ money – if the trade goes well, they get a bonus, if it goes badly, they don’t care.

    Whether hedge funds fall into the former or the latter category is moot. I’d say provided they aren’t leveraged with bank debt, there’s no problem.

  2. Bad’ speculation is where people are gambling with Other People’s Money, i.e. bank employees taking wild punts with depositors’ money –

    The problem there is, anyone lending their money to a bank (they aren’t “depositing” it, in the main, for it is not stored) are saying to the bank, “here’s my money, please take wild punts on it and earn us both a profit”. If you lend your money to earn interest, you’re using the bank as a loan broker. If you don’t want to risk your money, don’t lend it to a bank whose job it is to risk it.

  3. “If you lend your money to earn interest, you’re using the bank as a loan broker.”

    Exactly, that is how it should be, the bank borrows money from depositors and lends it to borrowers, super, that’s the whole point of banking.

    Where it goes wrong is when employees stopped lending sensibly and started making wild punts on stuff, knowing that it’s risk free for them but wildly risky for the depositors.

  4. MW – too true.

    If I was lending money to bank so that it could take wild punts with it I’d expect a far better return than the standard about-a-third-of-the-overdraft-rate!

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