Australian Lefty on Politics, Governance, Science and Info Management

Derivative dealers as prodigal teenagers

Posted by Dave Bath on 2008-06-02

An excellent post ("The gods of greed" 2008-06-02 – itself an extract from a new book)at the Guardian asking why the imprudent finance industry is getting bailed out without a quid-pro-quo.  The metaphor/simile is wonderful (to me as a parent who has had a kid come back to stay under the parental roof).

The whole article is good, plays to my own ideas about the need for better regulations over the finance industry and their dodgy derivatives, … but here is the bit that got me chuckling.

What was most extraordinary about all of this was not the bailing-out of City and Wall Street types who had spent decades, like surly teenagers, insisting that they wanted only to be free from the stuffy, paternal state institutions to which they now turned for help.  Rather it was the failure of those same institutions to insist on any quid pro quo.  In the real world, when a wild-child son or daughter comes home, tail between their legs, their “boring” parents usually require them to clean up their act in return for financial support and use of their old bedroom.  Not so in the world of banking and finance.  In remarks to the press in March, the British treasury actually ruled out tougher controls.


4 Responses to “Derivative dealers as prodigal teenagers”

  1. Raf said

    I started off in derivatives back in 1989. No one had much of a clue back then as to what they were doing. You didn’t need to know when the money was rolling in. A lot of swaps books were incorrectly valued, sometimes simple data input error. We ran risk reports using lotus 1-2-3 macros which took an hour each morning to tell us what the positions were.

    Anyone remember Hammersmith and Fulham council dropping GBP600m on a swap “hedge”. Marvelous.

    Roll forward to 2008. To be honest if Bear Stearns had not been forcibly taken over the US financial system, and very probably the rest of the world, would have disappeared down the swanee.

    Democratisation of our money system must happen soon before the next disaster.

  2. Dave Bath said

    Raf: I think it will need a lot more pain to force such a change. I guess that’s why I’m kindof hoping for a real meltdown, enough to start putting controls on the “free trade/GATT” type treaties that usurp the role of nation states and democratic systems.

    Of course, we COULD create a UN-financial-regulator (with teeth) – a multinational regulator for the transnational hooligans…. but I can’t see that happening any time soon either.

  3. Hmmm, there’s a whole bunch of legal cases about those UK council swaps agreements…because of course, the councils weren’t empowered to speculate with their electorates’ money… I wonder if that has put some people off swaps?

  4. Dave Bath said

    Here in Oz, lots of investments by councils, quangos and the like are at risk too. Are there any such cases going on here?

    (Of course, funding arrangements with state and fed governments meant that large amounts of taxpayer monies were being invested by relatively inexperienced finance officers… whose fault is that).

    But… the big issue here is why governments won’t expect something from the prodigals…

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