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article imageOp-Ed: Financiers playing poker with chips and with the economy

By Alexander Baron     Jul 1, 2013 in Business
Las Vegas - In the World Series of Poker, a hedge fund manager has been eliminated by another hedge fund manager. What does that tell us about the economy?
Hedge fund manager David Einhorn was eliminated from the tournament in 72nd place by fellow hedge fund manager Bill Perkins. This was not the main event, which doesn't start until later this week. As might be suspected from its name, the World Series is the biggest annual series in poker. it is hardly surprising that hedge fund managers play in the World Series, because poker is gambling, and so is hedge fund managing. They may call it investing, but that is one thing it is not.
Alan Sugar is an investor, men and women like him build companies, develop new products, and provide goods and services to people, other companies, clubs, governments and so on. Hedge fund managers buy and sell day in, day out. They try to buy low and sell high, but common sense alone dictates that not everyone can do this all the time, and that what goes up, must come down. If there is a bubble, as sure as the Earth orbits the Sun, a crash will follow.
Einhorn himself acknowledges this is what he does, him and everyone else who plays the stock market. The clue is in the word play. Check out this video from October last year in which he gives his take on the Federal Reserve.
His pearls of wisdom include the claim that high interest rates are good. This is absurd; cheap money is the lifeblood of any economy. True, investors don't get that much of a return, but we all consume, so the cheaper it is to produce, the more that can be produced. This is how trade - real trade - benefits us. Most consumers in temperate countries take it for granted that they can buy tropical fruit fairly cheaply. Trading goods on a large scale allows specialisation, increases production and lowers costs. Listen to him at about 10 minutes, and what he says about people like him making "huge, huge bets" on Federal Reserve policy.
Listen too to the doctor who asks him a question at around 14 minutes 40 seconds. This questioner raises another point that the cost of borrowing for the banks is zero, while small entrepreneurs like himself are fleeced.
Things wouldn't be so bad if it were only hedge funds playing poker with the economy; the shocking truth is that this is what so-called investment banks do all day, every day. True, occasionally they will throw one of their own kind to the wolves, like Kweku Adoboli, but the rest are playing poker, speculating, often with other people's money.
So what is the solution? Clearly it is to use cheap money for real investment, that does not mean literally giving it to the banks for them to lend at interest at their caprice, but for governments to invest either directly in infrastructure and other projects, or to lend to wealth-creating businesses, as was announced by the UK's Coalition Government in September of last year.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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