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We Should Appreciate Financial Engineering

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Sort of article that would normally mark the top.

Plenty of stories have already been posted regarding the "quality" and likely outcomes of some of the business the city is writing at the moment.

http://business.timesonline.co.uk/tol/busi...icle1842930.ece

We should appreciate financial engineering

From The Times

May 26, 2007

We should appreciate financial engineering

Patrick Hosking: Business Commentary

Buried in the voluminous GDP data from the Office for National Statistics yesterday was one eye-popping figure. Looking at the various sectors of the British economy, the official statisticians say “financial intermediation” grew by 4.7 per cent between the last quarter of 2006 and the first quarter of 2007. Financial intermediation is essentially financial services and takes in banking, broking, insurance and asset management.

On an annualised basis, the financial services industry is, therefore, growing at 20 per cent. That is twice the speed of the Chinese economy, a byword for breathtakingly fast expansion, and seven times the overall British economy. Even on a year-on-year basis, it is galloping ahead at 10 per cent.

If the City were an independent nation, it would be regarded as the ultimate tiger economy, out-Singaporing Singapore and leaving investor favourites such as Ireland, Vietnam and Estonia for dust.

It is a breakneck pace and, alas, unsustainable. Few businesses and fewer still industries can keep up that kind of speed before stresses appear. Skill shortages emerge, the back office struggles to cope, compliance and other standards slip. Unprofitable business gets taken on.

Yet in the meantime the City can pat itself on the back. These are glorious times for financial services generally and happy times for London in particular, which is winning market share from other financial centres. In bank dealing rooms and hedge fund boutiques, the rainmakers are already starting to tot up their 2007 bonuses, though it is still eight or nine months before they will receive them.

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Not bad for a system that was originally supposed to merely administer currency, enabling the rest of the economy to trade and create wealth.

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Not bad for a system that was originally supposed to merely administer currency, enabling the rest of the economy to trade and create wealth.

A bit of advice my Dad game when growing up is "if you handle enough money some of it sticks". I went into Engineering and handle no money other than wooden dollars, consequently not a lot has stuck!

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