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Ritchie really is a card, isn’t he?

And yet investment is low. And that is because the yield on speculation and not investment is high. So there is, after all a misallocation of capital. But this fault lies not with the low interest rate but with the nature of markets, the appetite for risk that they reveal (which is very low in the long term: if anything, anywhere reveals commitment phobia it is capital markets) and the tax system we operate.

Right, so, it turns out that people don’t like long term risk. We thus have markets where people can shed risk if that’s what they want to do. That the stock market is liquid means, for example, that if I get a bit worried about Glencore then I can get out of Glencore. This makes me more willing to invest in Glencore in the first place of course: I know that I can shed my risk.

Ritchie’s basic contention is to acknowledge that distaste for risk. And then to insist that everyone should be investing in 30 year bonds which won’t have a liquid secondary market. So that investors cannot shed their risk. And that this is going to make them happier to invest because investors don’t like long term risk.

Err, yeah.

9 thoughts on “Ritchie really is a card, isn’t he?”

  1. A huge chunk of what capital is available to fund new enterprise is being sucked up by the scum of the state.

    The classic socialist sneer. Some bloke is doing his job when a socialist puke runs up and kicks him in the balls. While the bloke is writhing in agony on the floor, the leftist is busy shouting “Look at this deadbeat lying down on the job”.

    There are hundreds of types of state meddling ranging from the control of interest rates to minimum wages laws which, if got rid of , would once again see the market thrive and prosperity worldwide go through the roof.

  2. Anything which is a second order effect or would happen in a longer time frame than, say, two years into the future is invisible to him.

  3. I suspect that his view is that if we get rid of speculation then we eliminate artificial short-term risks, and if we regulate industries properly then we get rid of real long-term risks, and so there will be no risk and everyone will be happy 🙂

  4. I read his comments as

    1) people don’t like risk
    2) the markets promote risk and allow it to be traded
    3) this satisfies people’s hunger for risk
    4) comments 1) and 3) and entirely logically consistent

  5. ” And that is because the yield on speculation and not investment is high.”

    Is it really? When the risk is priced in?

    I would politely invite me to show me where I can get a high yield on speculation without risking losing the lot?

  6. My job is to invest money to back pensions. So I feel I can comment on this.
    We have been trying (very hard) to invest in long term asset for the past 5 years. We actually did so, reasonably successfully, until about a year ago. But, there is some new regulations (Solvency 2) that make everything extremely hard to do.
    So now, my job has stopped being investing in suitable long term assets and has become ‘give the regulators what they want’ (which means endless risk assessments / process documents / policy documents / reverse stress tests and so on).
    The long term assets we did manage to invest in included Airports, Channel tunnel, Train Rolling Stock, Electricity networks etc.

  7. portemat:

    Glad there’s another one of us on here.

    We have a small army of people figuring out how to comply with the matching adjustment rules. All so that we can invest in the types of infrastructure project that Ritchie says the private sector won’t invest in.

    But then again he lives in the real world and we live in ……?

  8. Steady now Tim.

    Richie is a Professor of (Political) Economics now so you have to take what he says seriously.

    (as if it were needed)

  9. Portemat and the ever superb GlenDorran

    I must confess to an irrational (well maybe a little) desire to commit acts of gross violence whenever Murphy or the like babble on about the banking industry as ‘unregulated’ or ‘casino-like’. As you say, his claims to live in ‘the real world’ are as laughable as almost anything else he claims.

    No doubt other regulations in addition to Solvency II have had an impact on the appetite for longer term investment. Clearly he is utterly ignorant of finance and more crucially, completely unwilling to learn anything which does not conform to his previous prejudices.

    As I have often said, one of the most dangerous men in Britain, if not the world……

    Fortunately, he cannot silence all the voices of criticism:–it-is-seductive-fiction-10492000.html

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