Posts Tagged ‘finance’

So high-frequency trading is pretty clearly insane and has fuck all to do with useful economic activity. There are billions of dollars to be “made” out there, but they only reward whoever has the shiniest computers, fastest microwave connections to the stock exchange, and smartest algorithms; and they all come at the expense of those who think they can keep up but fall behind due to inferior ability to play the market.

Huge amounts of human endeavour are being poured into this system by those who hope to get personally rich from it. Not to blame them exclusively for that; they exist in a culture which tells them every day that making money is the most patriotic and noble thing you can do and so long as you stop somewhere short of literally drowning puppies in the process you should feel great about it.

And yet nobody’s producing anything useful while all this is going on. Nothing’s being built or designed; the creative or communal aspect of the human spirit is not being enriched. Just billions of dollars being thrown around, won and lost, inflicting massive rewards or punishments on the participants so chaotically that I’m not sure we’d notice the difference if it were truly random.

Obviously this is all crazy. But the mistake people make is in thinking it’s crazy like, say, quantum mechanics is crazy. Quantum mechanics is crazy, in the sense that it’s a bizarre and inexplicable and counter-intuitive system, which nobody would have designed anything like that, but it also has an unavoidable connection to the real world. It models our best current understanding of how the world just is, at a fundamental level. Whether you believe it or not, whether you want to rearrange things in a way that strikes you as more sensible or not, quantum mechanics is going to carry on, because that’s just how things are.

Whereas high-frequency trading is crazy like stoning gay people to death is crazy. It’s something our species invented, and which we’re quite capable of subsequently identifying as complete bollocks and rejecting as unworthy.

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I’m having to go through some of the standard boilerplate online training watchamajigs at my new job at the moment. You probably know the sort of thing: a short on-screen presentation about the dangers of falling over your own shoes, then a multiple-choice quiz about the correct safety precautions for preventing any paperclip-related fatalities around the office.

Because I work in finance, there’s a bunch of stuff about money laundering and identity theft too. Presented entirely out of context, here is a question that was posed in a test of my competency to manage people’s pension schemes:

I may have misunderstood a few things about the private sector. I’m not sure I’m cut out for this job after all.

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About $10,000,000,000,000 has been squirrelled away by 92,000 people.

A tiny little subsection of humanity, described appropriately by the Guardian as a “global super-rich elite”, has amassed this fortune, extracted it from various of the world’s economies, and hidden it under a metaphorical Cayman Island-shaped mattress to reduce their tax liability.

This is what happens when you encourage personal accumulation of wealth for its own sake, and sanctify those who succeed in the scramble to the top. You allow the “job-creators” to hoard unimaginably colossal piles of resources, denying their use to any of the rest of us.

What is even the point of anyone having that much money? What personal hedonistic joy are you going to derive from the second billion which you couldn’t reach with the first? It just becomes about getting a high score.

The total amount tucked away in private banks is apparently $21,000,000,000,000. And yes, it really is meant to have that many zeros. I have to keep double-checking, too. To put that in a little perspective, if you look at the cost of the NHS and scale it for population, then this off-shore stash could pay for the entire USA to have its own nationalised healthcare service, providing every single person in the country with the kind of social safety net enjoyed by every other nation in the developed world.

Twenty-six times over.

But it’s not going to. Because some successful capitalists earned that money, and now its all theirs to do what they want with it.

This is a completely fucked system.

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This image was being passed around on Twitter a little while back, and it helps to demonstrate several things that are wrong with our modern idea of “criminal justice”. And not just the obvious ones.



If you’re like me, your initial reaction will be one of involuntary outrage and injustice, followed by a more measured skepticism about the authenticity of the reporting.

As for the second point, Snopes fundamentally confirms it and provides some context, and a post at Cornell’s student-run law blog looks into it some more. The basics are legit.

So, back to the outrage.

In the case of both of the above convicted criminals, there are reasons why we might want to punish or censure their behaviour, and there are factors that might prompt us to be more understanding. And in both their cases, I’m compelled to focus on how the compassionate option is overlooked.

The reason I checked Snopes about this in the first place is that Roy Brown’s story could hardly be written to tug harder on your heart-strings. He was homeless, he needed to pay for something to eat and somewhere to stay, he took only a single bill when offered several stacks of money, and he turned himself in the next day because the moral code his mother had instilled in him led him to feel bad. I mean, come on.

His past criminal record isn’t described in the screenshot of the article, and it’s not exactly spotless. But responding to his situation by deciding to incarcerate him for the next decade and beyond is irredeemably fucked.

Paul Allen, on the other hand, seems to have got off lightly. He was sentenced to a little over three years, mitigated in part because the $3,000,000,000 fraud he was involved in was “non-violent”. Apparently the fact that he didn’t punch anyone in the face to illegally acquire all that money means he didn’t harm anyone in doing it? And it’s not as if Roy Brown’s crime involved violence, or threats of violence, or would even have necessarily become violent if he had met with any resistance. So that seems like a pretty crappy reason to only go easy on the rich guy.

But his story is juxtaposed with Roy Brown’s, I suspect, to do more than just highlight the extremely harsh nature of the latter’s sentence.

It’s not enough that we feel sympathy for the homeless guy who made a mistake and felt bad; we’re also meant to loathe the arrogant fat-cat who didn’t get nearly the thrashing he deserved. And, despite my anger at the situation, I just don’t.

For one thing, NPR’s excellent Planet Money podcast featured a fascinating piece recently about Toby Groves, a guy who became involved in some major fraud despite everything about his track record indicating that he was less likely than most to act so dishonestly. They talk about the psychology behind these kinds of crimes, and how Toby Groves’s case is indicative of a fact insufficiently widely understood about human behaviour: it’s not just intrinsically terribly bad people who are capable of doing terribly bad things. The situations people find themselves in are hugely influential on their capacity to act immorally.

And holy crap is the financial system good at putting people in situations where doing terrible things seems like the sensible option and is very easily self-justified.

Paul Allen was sentenced in 2011. The criminal investigation into the company of which he was CEO became public in 2009. The fraud that was being investigated was already going on since before Allen took the CEO job, in 2003. So there were multiple prominent and powerful members of this huge national corporation, who spent years defrauding taxpayers out of billions of dollars without anything being done about it, in ways which suggest that these practices were endemic to the sector as a whole.

It’s palpable nonsense to suggest that these businesses will be fine once we get rid of the particular individuals who were in charge, and who just happened to be evil this one time. It doesn’t take a malevolent outlier to monumentally screw things up. I wouldn’t trust anyone with that level of responsibility, and that much potential for wrong-doing.

Roy Brown and Paul Allen can both be sentenced to jail. But we can’t imprison the social problems, drug culture, and other factors that cause decent people to be homeless and desperate. We can’t use threats to keep control over the business culture, the laws, the loopholes, and the complacency within the financial industry which contribute to billion-dollar fraud. The psychology of deterrence doesn’t work on institutional relationships and abstract concepts. (It doesn’t work all that reliably on actual humans.) We need to find some other way to address these things.

Compassion for people suffering from hard times and driven to commit criminal acts is part of the answer. Dredging up hatred for certain individuals, who get swept up in a sea of self-reinforcing greed in a system that makes it so easy for them, doesn’t seem like such a helpful part of the puzzle.

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So, Reason magazine. Any thoughts?

I’ve been following their online presence for a while. For some reason, I had the preconception that they were mostly focused on religion, secularism, and rationality, but I may have been thinking of someone else. Reason predominantly cover politics, and they’re an interesting crowd. Even when I’m not entirely on board with their message, disagreeing with them tends to feel more worthwhile than it does with a lot of other commentators, who are often just boringly wrong.

Nick Gillespie, editor-in-chief of Reason.com who may or may not be played by Bill Hader, was recently on Bill Maher’s talk show:

I take issue with a number of things he said, but in a way that’s more fun to unravel than when someone like Rush Limbaugh says something obviously stupid and cruel.

Among the generally liberal panel on liberal Bill Maher’s liberal show, Nick seems to be kind of on his own in suggesting that America’s economic problems should be primarily solved through spending cuts. Here’s something he said that was received with particular agitation:

We don’t have a revenue problem; we have a spending problem.

I’m not so interested in whether this statement instantly proves Nick Gillespie to be a Republican, as Bill Maher reckons it does. But I do think it misstates the problem.

Actually, I suppose it’s possible that the problem only lies in one area, but the situation of “being in debt” depends on the relationship between two factors: how much money you acquire, and how much money you spend. (Stop me if the Micawber-esque economics is getting too technical.) Given only that the US is spending more money than it makes, there are clearly two methods available for getting out of the red:

  1. Increase the amount of money made (while avoiding a corresponding increase in money spent),
  2. Decrease the amount of money spent (while avoiding a corresponding decrease in money made).

America doesn’t just have a spending problem. It has a problem with the money, and the money both comes and goes.

If we’re spending money in ways that aren’t worth the trouble of raising the funds, we should cut that spending. But if we’re spending money on things important enough that raising more funds (which generally seems to mean taxes) is the less harmful option, we should do that.

Given just how many $1,000,000,000,000s are being talked about, it seems unlikely that enough spending can be cut to clear the debt, without increasing revenues at all. Nick Gillespie does actually have some suggestions that would make this a more practical idea, such as ending America’s engagement in the wars with Iraq, Afghanistan, and Drugs (the scariest foreign land of all), but none of this seems to be remotely on the table for any of the country’s actual politicians, even the purportedly “small government” supporters on the right.

So it doesn’t seem entirely unreasonable, given this massive amount of money that’s already been spent which needs to actually be paid, to wonder whether the super-duper rich folks could be chipping in any more than they are now. Don’t get me wrong, I’m all for supporting enterprise. I don’t want to punish people for working hard and becoming wealthy. I’m not saying we go crazy with this.

But I’m pretty sure the US economy was coping with income tax rates being what they were in the 1990s, before the Bush tax cuts came into play in 2001 and 2003. Those cuts were set to expire in 2010, but were extended. Business wasn’t being crippled and major corporations weren’t moving daily overseas to more liberal climes. And, presumably, tax revenues were significantly higher than they are now. So, maybe we could look at some things going back to how they were before?

I’m not saying that’s definitely the way to go. Someone who actually understands economics would surely see many ramifications to something like this which would never occur to me. But shouldn’t it at least be on the table? Or am I a socialist line-toeing democrat for even bringing it up?

So, that was a bit of a ramble which rather got caught up on one particular point made during the above clip. A lot of interesting stuff comes out in the rest of it, though, so have a look if you’ve got time.

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This is an interesting, bothersome video.

The tax system in America right now is profoundly screwed up. You don’t need another uninformed recap from me about the massive tax breaks and bonuses being flung around the financial sector which caused an economic meltdown. You probably understand all that better than I do.

But I don’t think most of the people in this video have the answer.

I agree with their rhetorical point that the majority of working citizens could do with being cut a break, more than the handful of multinational corporations with huge financial sway. But a small minority of motivated and organised voters asking “Who will it be?” doesn’t seem likely to change many politicians’ minds and stop them opting for the latter.

Which is a shame. Because although the principle of trickle-down economics isn’t wholly without merit, it’s been turning into the right-wing’s over-simplified answer to everything.

It can make sense, in some situations, to provide financial benefits and encouragement to businesses, which will then be able to provide more jobs and broaden their scope and stimulate greater economic activity, in ways that wouldn’t have been possible for them if they’d been taxed so heavily to start with that they could never get off the ground.

But not every attempt to make the uber-rich pay something more closely resembling a proportionate burden is going to cripple industry and destroy their motivation to create profits.

There comes a point when trying to make sure that extremely rich people and corporations continue to amass as much money as possible, so that we can get more of it back when they spend it, becomes ludicrous and self-defeating.

And the reported tax bills for some billion-dollar companies, such as Barclays, have been bizarrely low recently (though the commonly cited example of General Electric in the US may be more complicated than it seems).

I’d be interested in hearing some more details from the economist in that video who seems to know what she’s talking about. I think that’d be more helpful than all the “Time to invest in America” chanting from well-meaning passers-by, who’ve been stood in front of a camera and prompted to repeat a vague mantra.

(H/T Red State Progressive)

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So, this Robin Hood Tax thing.

A few people on Twitter have posted links to this and commented about the video, in which Bill Nighy is certainly rather excellent. And most of the chatter around it has been reassuringly measured, but there are still a few voices getting a little over-excited and reminding me of some of the less imaginative people I work with.

By which I mean, responding to just about anything to do with finance by a knee-jerk “Tax the bankers” reaction. It’s far too easy to just decide that those bastards took our money so let’s take their money. The Bad Science mantra applies here.

I’m not going to turn this into an economics lecture, largely because I’d have to do loads of revision before I actually knew anything. I’m a small-l liberal, and don’t flat-out object to some sort of tiered tax system where the extremely wealthy pay proportionally more (you can tell I haven’t revised or I’d know at least some of the relevant terminology). But I’m also a half-assed libertarian (as I think my Facebook ‘political’ status will testify), and something of a capitalist, and the idea of tax hikes for the rich being taken lightly, or talked about like it doesn’t really matter because they’re rich and they deserve it, really rubs me up the wrong way.

So for one thing, I think the name they’ve chosen for this proposition is rather unfortunate. He’s supposed to be the sort of hero that the common man can always get behind, because most people consider themselves amongst the poor for whose benefit he’d be robbing the rich. And maybe at the time he was doing good and providing a legitimate form of social welfare that wouldn’t be provided by the state. But I’m not convinced that Robin Hood’s own style of redistribution of wealth has any place in our society today.

There needs to be a much better argument in place for installing a tax like this than “Those rich fat cats will never miss it”, or “They screwed up our economy, why shouldn’t they pay for it?” And I’m sure its proponents have better arguments, which I plan to start making a genuine effort to explore, under-equipped though I may be to understand any of it.

Obviously I’m not against all taxes. I like that we have state-funded emergency services, and the NHS, among other things. I think that while some people do very well in life, and others have crappy luck and struggle to get by, there should be some kind of institutional system in place such that the former are obliged, to some extent, to help out the latter. Yes, it’s a pretty primitive grasp of economics I’m displaying here, but it feels worth going back to the fundamentals to consider why “Tax the rich” is an over-simplification that we shouldn’t quite be satisfied with.

Though having said all that… the bastards did take our money.

A couple of things occurred to me watching the explanatory video, about the practicalities of imposing a tax like this. I’ve no idea if these are among the many important and relevant questions that other better-informed people are probably asking, but this is what I’ve got.

The scheme could raise many, many billions of pounds a year. That’s quite a lot of money, even to a really big bank. And although talking about “raising” all that money might make it sound like it’s being created by some cleverly discovered productive force which generates revenue out of nowhere in particular, it’s just money that’s being taken away from the banks. It’s done by taking a tiny, tiny proportion from each of many transactions, which make only the tiniest dent at the time, sure… but if all those individual charges add up to, say, £10 billion at the end of a year, then surely the effect is the same as if you just ordered them to pay a massive one-off fine of £10 billion. (Obviously not *quite* the same, for reasons which no doubt elude me.)

Either way, however small an effect it sounds like a 0.05% tax should have, it sounds more significant when you consider that it’d have the same effect as taking away tens of billions of pounds from some people, because that’s exactly what it’s doing.

Though off the back of that, my second ponderance is how the banks are likely to respond. Not in the sense of whether they’ll loudly object to the proposed changes, but whether their business practises will change to try and avoid such heavy penalties.

The tax is described as “a charge on all bank transactions that don’t include members of the public – bonds, derivatives, currencies, speculative stuff”. I can’t pretend to know anything much about how this kind of trading works, but it seems like it wouldn’t be unexpected for a tax on all such trading to significantly shift financial pressures and incentivise banks to start doing things differently. I can’t possibly imagine how, I’m not even sure I’d understand it if you explained it to me, and maybe it’s not even an important issue to raise. But it’s something that’s going to be costing these guys billions. Historically, giving away billions of dollars is not how many people choose to operate whenever they have a say in the matter. Mightn’t this effect the overall financial system in some ways, good or bad?

I’ll be staying mostly out of the debate on this myself, I imagine. I’ll be interested to see what comes of it, and what clever people have to say. In particular, I’ll want to hear the objections of people who aren’t on board with it, and what concerns they have to raise. There could be a significant economic impact of such a move that it’s way beyond my abilities to foresee, but if it’s just a matter of my libertarian sensibilities being offended, then I’m inclined to think that my libertarian sensibilities might just have to deal with it.

Also, a last-minute bonus question: Can this work? I’ve been waiting to see something of its like for some time, but have no clue how it might be made practical. I’m definitely waiting for Cory Doctorow to tell me what to think this time.

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