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We're Told The City Contibutes Billions To The Economy?


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Oh dear.

Without mortgages, property would be considerably cheaper.

That is not the underlying reason for house prices to be expensive.

If you could freely build on land then you can always build a house for labour plus materials plus farmland cost.

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they don’t create wealth themselves but allow others to create it more efficiently.

Just like an engineer who designs a more efficient engine. The more efficient engine isn’t wealth but the business using the engine can go for longer and create more wealth.

What most bankers/investors/traders do is allocate capital efficiently. As engineers try to allocate resources efficiently.

correction they are supposed to allocate capital efficiently. Whether they have been doing so is a completely different matter, and from the evidence it very apparent that they have not.

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Flawed argument Cells - clearly you have an IQ lower than Waterloo's Northern line tube platform

It is not clear how you tally the short terms speculator wins is good for the world argument with any short term negative impacts that might happen outside of that speculators own immediate sphere. For example, a high oil price , even in the short term might reduce investment in alternative technologies, as resources would be diverted to oil instead.

You clearly don't actually work in the City, as you are not displaying any rare and unique talent.

All investors are speculators and all speculators are investors.

Is investing bad?

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All investors are speculators and all speculators are investors.

Is investing bad?

No, I think not.

There is world of difference between an entrepreneur who understand his offering and the market and someone who will buy a share for 1 microsecond.

So I say bring in a transaction tax, make it 5% each time you trade. Great for the entrepreneur, let him pay the 5% and perhaps another 5% CGT and make the speculator pay 5% 20 times.

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Planning regulations and laws more than anything dictate the price of property and thus the price of rent. Not the city.

There is plenty of land for sale that we can build decent homes on but it is artificially restricted by your politicians.

I am tired, but this does not appear to tally with your oil analogy. I will not suggest that elements within the city are not beneficial, however there appears to be a large proportion which we could all do quite happily without (and I'm not even referring to the crooked practises going on there). Furthermore your examples are all rather rosy, but from my experience their fetish for liquidity is related more to a need for immediate profit and resource reallocation than any hint of altruism. Paint the city as it is, rather than how it should be, and more might start considering your point of view

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The whole purpose of the financial sector is to allocate capital efficiently. If they do that, they make money. If they don't do that they lose money. Efficient capital allocation is positive for all of us.

Oh dear. I don't disagree with you in principle but I get the sense you are defending the usefulness of a theoretical banking system, one that doesn't exist or represents such a tiny proportion of the beast we call the City of what we have now as to be insignificant.

Efficient capital allocation is something we have not experienced for a very long time: dot coms, Private Equity pick-a-pay loans, property mortgages, CDOs, loan financed share buybacks (already back in fashion), you name it: 90% of the capital allocation we've witnessed since the 70s has been woefully inefficient to the point of bankrupting most western countries. You couldn't do worse than that so your argument whilst true in theory is not in practice.

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No, I think not.

There is world of difference between an entrepreneur who understand his offering and the market and someone who will buy a share for 1 microsecond.

So I say bring in a transaction tax, make it 5% each time you trade. Great for the entrepreneur, let him pay the 5% and perhaps another 5% CGT and make the speculator pay 5% 20 times.

The sort of traders who buy and sell for seconds are not investing in the stock, they are reducing volatility and the spread for other investors. Both of those are a positive.

You wouldn’t be too interested in a share if the buy was £10 and the sell was £5 as the share would need to double just for you to recoup the spread. High frequency traders and market makers help lower this spread and allow more efficient capital allocation.

Both helpful to everyone.

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I am tired, but this does not appear to tally with your oil analogy. I will not suggest that elements within the city are not beneficial, however there appears to be a large proportion which we could all do quite happily without (and I'm not even referring to the crooked practises going on there). Furthermore your examples are all rather rosy, but from my experience their fetish for liquidity is related more to a need for immediate profit and resource reallocation than any hint of altruism. Paint the city as it is, rather than how it should be, and more might start considering your point of view

There is undoubtedly a lot of corruption and wrong doing in the city. But so is there in the steel industry, or the oil industry or the farming industry or the arms industry or any sector you care to name. What is more important is the overall impact of the sector, because we do some doggy deal with some Saudis selling them war planes doesn’t mean we should shut down our defence industry.

All the city is about allocating capital as efficiently as possible. It is in fact getting ultra efficient at doing so. As pointed out here we probably don’t need parts of the city, high frequency trading would be one.

However that is like saying we don’t need engineers to refine and design new engines as we have pretty efficient engines anyway. In fact we are only adding minute efficiency improvements to engines and the finance sector. However multiplied by 500 cars the tiny 0.1mpg efficiency improvement is a huge saving in fuel likewise HFT only lowers spreads a tiny amount but multiply by trillions and it is a huge amount.

Most people don’t like the city simply because they don’t understand it and worse because they believe all the negative propaganda.

A secondary function of the city is to allocate capital directly into the real economy.

This is done by pension funds, by investment banks, by individuals, by governments and wealth funds. if you think an oil shortage is going to happen then you buy oil now pushing its price up an stimulating production. That act averts real shortages in the future and we all benefit. (however if the city gets it wrong and there was not going to be a shortage, it means oil prices will be even cheaper in the future and the city would have lost money). The same applies for investment in steel plants, car factories, everything.

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Oh dear. I don't disagree with you in principle but I get the sense you are defending the usefulness of a theoretical banking system, one that doesn't exist or represents such a tiny proportion of the beast we call the City of what we have now as to be insignificant.

Efficient capital allocation is something we have not experienced for a very long time: dot coms, Private Equity pick-a-pay loans, property mortgages, CDOs, loan financed share buybacks (already back in fashion), you name it: 90% of the capital allocation we've witnessed since the 70s has been woefully inefficient to the point of bankrupting most western countries. You couldn't do worse than that so your argument whilst true in theory is not in practice.

No one is perfect. Not all designs an engineer comes up with work. Some explode in his face. Likewise the city doesn’t perfectly allocate capital.

It just does it correctly more than not. That is how it makes its bread.

If the city was allocating money incorrectly more than correctly it would lose money.

BTW you cannot allocate money into property in a land restricted country like the UK. If you could we would have seen a construction boom which we didn’t have. Instead what you think of allocation into property was allocated to whatever the owners who sold/reportage spent their money on.

It may have been holidays, or a new car, or a TV or going out (all creating jobs). You can argue this is bad capital allocation but we as humans work to live and enjoy what life has to offer. To those spending on those things it was good allocation.

Some of it was more productive, I know people who remortgaged to start businesses. One even reportage to build a invention he had in mind for years. He now makes good money from selling that invention worldwide.

But I’m sure its easier to bash the city than accept that is it largely useful and productive.

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We're Told The City Contibutes Billions To The Economy?

How? Where from, how does it add value?

Beyond a certain size (15%? 20%? of the economy), Bankers turn parasitic.

Political parties receive huge donations to help them stay blind to that reality.

One way (not practical, alas) to control it, would be to cap the total banker bonus pool at 1% of GDP or whatever.

The more bankers, the smaller the size of bonus each could get.

Let them fight over a limited amount of cash.

If they can grow they economy, then the pool gets bigger

Good point, I recall Hugh Hendry pointing out that the historical percentage of the FTSE for financials is around 10 percent, far lower than the 20% seen at the height of the bubble. When the financial sector returns to 10% of the FTSE then the economy should stabilise.

Yes a healthy financial sector that comprises 10% of the host will help contribute towards the economy, but an cancerous growth of a finical sector that takes up 20% of the host will only lead to growth by taking future growth from the economy.

Edited by enrieb
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Planning regulations and laws more than anything dictate the price of property and thus the price of rent. Not the city.

There is plenty of land for sale that we can build decent homes on but it is artificially restricted by your politicians.

So for example housing market futures can't dictate the price and supply of property, but oil speculators/traders can dictate the price and availability of oil, because housing is politically influenced and oil isn't ? Is that what your saying ?

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- Imagine a Brazilian farmer wants to invest in fertilizer to increase crop yields, he needs to borrow money for a year because he wont get the extra income to pay back the investment until the next harvest

- Imagine airbus wants to build a new jet so needs to borrow $10Bn but payback is dependant on the state of the economy in about 20 years because it takes that long to design and build an aircraft

- Imagine a postman in the UK wants to retire in 30 years with an income for the rest of his life even though no one knows how long life expectancy will be in 30 years

- Imagine you want to get paid interest on some savings but cant tell when you might need the money back so need instant access

- Imagine you want a mortgage and want to lock in fixed rates for 5 years (you have just entered into a derivative contract by the way)

- Imagine a US pension fund wants to earn a return by investing in early stage technology companies in Europe but needs to find the right companies

- Imagine an Italian company wants to buy a German company but needs someone to analyse the balance sheet of the target company to check there is no fraud

- Imagine BA needs to figure out the right price to buy airline fuel for summer 2010

- Imagine a Greek ship owner wants to insure a ship with several hundred million $ worth of cargo sailing from China to America

How does any of this happen - The financial markets - and its going on around the world in every country every day. By accident of timezone, language and skills base alot of this activity happens in London which massively benefits the UK economy. The only choice we have is whether we want to keep this profitable, low-carbon, highl skill, growing industry or focus the economy on property ramping, call centres and living on benefits.

no doubt bankers have made mistakes and greed was out of control but lets not forget the regulators, politicians and the people that borrowed money they couldn't afford

Edited by TenPinTom
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The only choice we have is whether we want to keep this profitable, low-carbon, highl skill, growing industry or focus the economy

on property ramping, call centres and living on benefits.

As far as i can see we seem to be focusing on all four. :)

Maybe property ramping, call centres and increased benefit dependency are the byproduct/trickle down effect/displacement

as a result of the preeminance of the city and financial speculation over the last few decades. who knows.

i don't think anyone would deny the influence and impact of financial products and services, but i think much of the justification for the speculative and innovative nature of the casino side of the financial sector is very dubious. As someone else has said, there may be beneficial effects of these trades and speculation, but altruism certainly isn't the intention.

Yes, ordinary people have 'financial assets' that grow and get returns on from these markets, but why MUST this replace the growth and investment in public spending.......that's always the case you'll hear from financial services bods, that they're worried about all the govt. spending to subsidise services and increased provisin welfare for public purpose [which our govt. clearly doesn't do enough of]. Although i find it strange that traders are worried about levels of govt. debt when the debt seems to be primarily issued to provide them with an interest bearing asset. Is that not a case of biting the hand that feeds. B)

Whereas presumably the financial services bods would prefer for us to hand over more of our money to the financial sector instead so that investments can be made in stuff that we then have to pay for. Yes, paying twice for stuff sounds very efficient. :rolleyes:

This type of market solution to pensions provision and investment seems a rather convaluted way of providing something that govt. can easily increase funding fr, just so that those involved in this market based process can nibble at the substantial bits that fall off the cake. There seems to be plenty of vested interest in govt. failing to provide and meet it's obligatons to it's citizens. Jacuzzis and ferraris and fine dining all round.

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Parasite skimming off the top.

That's all they do.

I would probably also add there net effect over the past decade will have been negative on the UK economy, although the finally effect won't be known for some time.

From this thread

psnb1109.gif

Considering the amount of money this country is borrowing I would hardly consider the effects of the City positive. It would appear they have finally killed the host.

http://mises.org/books/inflationinfrance.pdf

I've no idea why you are posting a link to public borrowing?

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The City makes most of its profits from mergers and accquistions so, for example, you run down M&S, say it is a lousey company, get the share price falling and then you get Tesco in to buy it.

You then closed down most of the M&S stores, fire most of their staff, cut back on supplier costs as you now dominate the market more and, in time, you raise yoru prices a bit. You are hailed a genius for halving costs and driving up profits and you make a big bonus...

But no onw takes into account the social and economic cost to the country of all the fired M&S workers. Who cares about them.

You can repeat this again and again and again... include lots of outsourcing of jobs... and before you know it the entire country is dependent upon the city because the city is basically all there is left... and the only companies still in the FTSE 100 are commodities' firms.

You have made yourself super-rich and have destroyed a country in doing so. Heck, the need to outsource, merge and accquire becomes so strong that you end up doing the same thing to even the state of the art industries such as information technology... Hey, you can even wangle billions from the Govt for an IT project, bill the client - the Government - at UK rates for IT workers and then, cunningly, actually employ Indian IT workers instead... paying the Indian IT workers a fraction of what you are billing per person per hour... and when it all goes pear-shaped you can blame the British IT worker because everyone actually thinks that UK IT workers are doing the jobs... which gives you more ammo for further outsourcing, merging and accquiring...

And oneday you wake up and discover that, as Manny Shinwell once warned, that once you sell the family silver there is nothing left. The economy becomes dependent upon debt and house prices and a real need for never-ending house price rises in order for people to remove cash from their homes to buy things...

Eventually, it will all collapse in on itself but, if you are really clever, instead of being lynched you will be given a huge bonus.

Are you an experiment in herb abuse gone wrong? Perhaps you were given the highest dose?

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Ahah, that nice myth. Try to prove it if you think you know more than say, Paul Volcker.

OK.

"He went on to attack the rise of complex products such as credit default swaps (CDS). "

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6949387.ece

Give me an N

Give me an O

Give me an S

Give me an H

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OK.

"He went on to attack the rise of complex products such as credit default swaps (CDS). "

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6949387.ece

Give me an N

Give me an O

Give me an S

Give me an H

I think this chap could be better informed than Paul Volcker.........

derivatives.jpg

:lol:

Edited by spivtastic
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If the City was so Wealth Generating..... why did it need a taxpayers bailout?

As for its wealth creation, Banking in the CIty is a bit like the tourist trade in the Island of Fuerteventura.....it brings in cash and visiting contributors need looking after.

When the flow of visitors stops, so does the income.

If however, you have SPENT your income in tax avoidance schemes and bonuses in the good times, your businesses have nowhere to turn to in the bad times as you have no RESERVES.

Either you close your hotels and restaurants or you ask the taxpayer to subsidise them till next time. This is privatising the profits and nationalising the losses.

As the only income on the island is tourists, no-one is earning enough to pay tax to subsidise themselves for very long. So it is with the bankers.

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- Imagine a Brazilian farmer wants to invest in fertilizer to increase crop yields, he needs to borrow money for a year because he wont get the extra income to pay back the investment until the next harvest

- Imagine airbus wants to build a new jet so needs to borrow $10Bn but payback is dependant on the state of the economy in about 20 years because it takes that long to design and build an aircraft

- Imagine a postman in the UK wants to retire in 30 years with an income for the rest of his life even though no one knows how long life expectancy will be in 30 years

- Imagine you want to get paid interest on some savings but cant tell when you might need the money back so need instant access

- Imagine you want a mortgage and want to lock in fixed rates for 5 years (you have just entered into a derivative contract by the way)

- Imagine a US pension fund wants to earn a return by investing in early stage technology companies in Europe but needs to find the right companies

- Imagine an Italian company wants to buy a German company but needs someone to analyse the balance sheet of the target company to check there is no fraud

- Imagine BA needs to figure out the right price to buy airline fuel for summer 2010

- Imagine a Greek ship owner wants to insure a ship with several hundred million $ worth of cargo sailing from China to America

How does any of this happen - The financial markets - and its going on around the world in every country every day. By accident of timezone, language and skills base alot of this activity happens in London which massively benefits the UK economy. The only choice we have is whether we want to keep this profitable, low-carbon, highl skill, growing industry or focus the economy on property ramping, call centres and living on benefits.

no doubt bankers have made mistakes and greed was out of control but lets not forget the regulators, politicians and the people that borrowed money they couldn't afford

Does this advert have galloping horses in it and attractive women? Because I like those. I also like the implicit honesty of all those 'Imagine's.

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This is the theory. But the evidence is contrary to what we observe. The City is undoubtedly pre-eminent in what it does - in which case according to you the rest of this country's businesses would be thriving. Instead the City's hinterland is a wasteland requiring transfer paymments to exist.

I think perhaps where people get confused is that the parasite (the City) has weakened the host (the UK) to such an extent that it has sent its tentacles across the globe in search of new hosts. And by that means the City now appears to be the host and the rest of the country the parasite.

not many skyscrapers owned by large businesses are there.

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- Imagine a Brazilian farmer wants to invest in fertilizer to increase crop yields, he needs to borrow money for a year because he wont get the extra income to pay back the investment until the next harvest

- Imagine airbus wants to build a new jet so needs to borrow $10Bn but payback is dependant on the state of the economy in about 20 years because it takes that long to design and build an aircraft

- Imagine a postman in the UK wants to retire in 30 years with an income for the rest of his life even though no one knows how long life expectancy will be in 30 years

- Imagine you want to get paid interest on some savings but cant tell when you might need the money back so need instant access

- Imagine you want a mortgage and want to lock in fixed rates for 5 years (you have just entered into a derivative contract by the way)

- Imagine a US pension fund wants to earn a return by investing in early stage technology companies in Europe but needs to find the right companies

- Imagine an Italian company wants to buy a German company but needs someone to analyse the balance sheet of the target company to check there is no fraud

- Imagine BA needs to figure out the right price to buy airline fuel for summer 2010

- Imagine a Greek ship owner wants to insure a ship with several hundred million $ worth of cargo sailing from China to America

snip

thanks for the list of what bankers should be doing, but arent.

they ARE: spending other peoples money in off balance sheet schemes.

offering more interest to investors than is available from the originating assets

creating ponzi markets in property.

paying bonuses to themselves in money when they are giving and paying their dues with CREDIT.

threatening the World and gullible and buyable politicians with total collapse if THEIR world was threatened.

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- Imagine a postman in the UK wants to retire in 30 years with an income for the rest of his life even though no one knows how long life expectancy will be in 30 years

He's being responsible and saves into a private pension.

In 30 years, if he's lucky he finds out that the pension is worth half of what he put in. The rest has been skimmed off in fees. He would have been much better putting it in a simple savings account.

If he's unlucky the fund has gone bust and he has nothing.

Meanwhile his state pension has been reduced, retirement age deferred, and taxes have increased hugely becasue of the banking bail-outs.

He spends his retirement in abject poverty while the City boys and fund managers are living it large in the Bahamas.

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  • 440 Brexit, House prices and Summer 2020

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