Lordy, but the man does get his economics wrong.
OK, long post here about pensions. The greatest iniquity of which is that most money \”invested\” in the stock market doesn\’t in fact buy new shares, it buys \”second hand\” ones.
Which of course is terrible, just a casino for the spivs to take a rake off from.
He entirely misses the point that precisely because one can unload an investment, that is, precisely because there is indeed this secondary market, the premium paid for new investments is lower.You know, as the risk is lower because you can get out in a liquid market then the price demanded to compensate for risk is lower.
Think it through for a moment: If you\’re locked into an investment for 30 years, do you want a higher or lower return than if you\’ve got a 30 year investment that you can, if you should so wish, get out of today?
Is there anything which might be a guide to on this? How about bank accounts? You get pretty much nothing on a basic on demand account in interest, don\’t you. But if you\’re willing to lock it up for 12 months in some form of deposit account you get higher interest, don\’t you?
See? Being able to leave an investment lowers the risk and thus the compensation demanded for taking such a risk.
Anyway, Ritchie has a great new idea: essentially, let\’s replace PFI with direct investment by people in similar infrastructure deals. Buy bonds in your local NHS hsopital. Leaving aside the merits or not of this idea one delightful little phrase:
….establishing the rules on how pensioners are paid by People’s Pension Funds, what happens if they want to transfer their funds or die before retirement
\”What happens if they want to transfer their funds\”. Which gives us that secondary market all over again and we\’re back pretty much where we started. We\’ve a primary market that leads to, in his terms \”real investment\” and a secondary one which is just a casino. But, and here\’s the point that he\’s admitted, that secondary market exists because the investors themselves want there to be a secondary market: otherwise, why would he propose that there should indeed be a secondary market in his new scheme?
Which makes all his complaints about the null value of the secondary market fail rather…..