The results of the poker study were reported here
on August 30. Most people would like to believe that when they hand over their money to a bank or some other financial institution to invest they are not playing poker or something akin to it. Alas, most of the time they are.
A report in the London freesheet City A.M.
yesterday stated matter of factly that the Financial Services Authority has launched a consultation paper as part of a plan "to create a 'radical shift' in the way clients' money is protected by investment firms".
About time too, you might think, but the reason for this appears to be not the ongoing banking fiasco but the collapse last October of the derivatives broker MF Global Holdings Ltd. This firm went under "after a $6.3bn (£3.96bn) bet on the Eurozone went wrong, undermining market confidence in the broker".
This is a staggering admission, the company bet - ie gambled - over $6 billion on effectively one transaction - and lost. That is more than the annual budget for Miami-Dade County, an area with a population of two and a half million people.
Details of the (long overdue) FSA consultation paper can currently be found here
. Although any resulting legislation will of course apply only to the UK, it is to be hoped that one recommendation at least will be taken up and enforced globally, that is to ensure that clients' money is split up so that investors don't lose everything in one fell swoop.
It would though be much better for all genuine investors and for the world if all such funds and so-called investment companies were wound up and all monies returned to their clients, then people could invest their own money on their own terms.
Let us be quite clear about what these firms be they hedge funds, unit trusts or even pension funds really do. They do not invest money in the proper sense of the word. If you have a few thousand to invest and you decide to buy a stake in a local building firm, shop or some such, either as an active or a sleeping partner, you put in your money, and take a stake in the business. If the business thrives, you take a share of the profits; if the business goes bust, you lose your money. This harsh law of the jungle ensures you will invest wisely, and if you are an active partner, help make sensible decisions about the business.
When however you hand over your money to a so-called investment house, the dealers and traders buy and sell all day long, day in, day out. This is not investment, it is gambling, though most of the time it is more akin to roulette than poker. Before you make any profit - if there is a profit to be made - the brokers, traders and fund managers must be paid, so must their rent, advertising, and often a small army of so-called economists - creatures like Richard D. Wolff
who were put on this Earth to to make astrologers look respectable.
The very fact that these so-called investment funds have such enormous overheads means that for their clients to receive any return at all, they must outperform the market by a considerable margin. Common sense as well as bitter experience
shows the vast majority do not.
Unlike genuine capitalists - manufacturers and farmers who make goods or grow food; wholesalers and retailers - who distribute goods; or the many who work in the service industries, the people who operate these funds produce nothing. It would be far better for all mankind if their companies were wound up and they were to join the ranks of the unemployed where they would be paid considerably less for for doing far less harm.