High Frequency Trading: astonishing but not surprising

I have always failed to understand why stock market authorities around the world, whose job it is to regulate markets for the protection of investors, permit parties to conduct high frequency trading. High frequency trading, or HFT, is not really trading at all. Companies design algorithms which enable computers to spot market discrepancies that arise in a millisecond or less on the market, and then take advantage of tiny differences by putting in very large buy orders and then very large sell orders all within a millisecond or less. It is not really trading at all, but simply a competition as to who can figure out the most complex effective formula to take advantage of what is no more than a fractional dealing between something happening and something being recorded.

How to Borrow Money and How to Repay Borrowing and How to Avoid Borrowing

In the United Kingdom the Bank of England base rate is a mere half of one per cent, the lowest it has been in modern economic times. If you deposit money with a large bank or institution you will get a rate of interest tied to that half per cent; it may be a few points higher or a few points lower, depending on how long you are prepared to trust the bank with your money. In any event it will not produce a real return or even keep up with inflation, which is running comfortably more than 2.5% a year.

The True Worth of a Government Guarantee about your Bank Deposits

The European Union has 27 member states. Virtually all of them have had economic problems. In virtually all the economies, the economic problems were caused by over spending. Nations in effect bribed the voters with gifts of large pensions and large social security payments which the nations could not afford. Those gifts would be paid for by future generations unless the future amounts of the bribes were curtailed, and thus “austerity” became the solution for most of the economies.

But not all of the economies got into economic difficulty by making large bribes. Certainly Italy, France, Greece, Spain and Portugal did, but certainly Cyprus did not. It got into difficulties by investing its depositors money in Greece and in particular the Cypriot banks lent money to the Greek banks that proceeded to lose the money lent.

Banks: the chickens are coming home to roost

Bankers’ bonuses are going to be capped. The poor dears who rely on their bonuses to maintain their life styles will, in the European Union, have their bonuses capped to the equivalent of their annual salaries. It will be a small step on the right path and in the right direction, but it fails to deal with the underlying problem that the banks have caused and still cause for our economies. The second small step will be to separate the traditional banking business for taking deposits and lending from the highly speculative activities which involve what is in effect gambling with other banks.

Transaction Taxes

The European Commission has proposed a transaction tax. It is a modest proposal which sets a tax on transfers of shares and bonds of 0.1% payable by the buyer and a tax on derivatives of 0.01%. It is intended to encourage what the commission calls more responsible trading and it should make speculation less attractive.

People Like Us

The concept that big is beautiful is not one honoured in words but it certainly is honoured in observance. Every day in almost every part of our lives we must deal with a big organisation that has many millions of customers. These big organisations, like wealthy people and the aristocracy, seek comfort in organisations like them so we find that their auditors are massive corporations, their lawyers are massive businesses and their friends are people like them.

LIBOR – The Stables are still Filthy

If you borrow money at an interest rate that is linked to something, then you have to understand the thing to which it is linked. If you were to borrow money linked to the base rate of a major bank (or one of the base rates of a major bank) you will know that the rate you pay will rise and fall. You rather put yourself into the hands of the bank and the market. If the bank’s base rate to which your interest rate is linked, is also a base rate that is used to attract deposits to the bank, then your interest will fluctuate more or less in line with the market.

Claiming Against a Bank for Interest Rate Swap Mis- Selling

The Financial Services Authority has completed its review of a pilot number of cases where banks have sold small businesses interest rate swaps in which Barclays, HSBC Lloyds and RBS provided a sample of 173 sales. There are many thousands of such sales but there is no reason to believe that the findings of the FSA when the samples were reviewed will differ in any significant way from the way in which all interest rate swaps were sold by UK banks.

nemo dat quod non habet

Nemo dat quod nom habet is one of those useful pithy Latin sayings which lawyers, businessmen and politicians should have engraved on their hearts. It means that you cannot give what you have not got. That may sound like a statement of the bleeding obvious, as we used to say in Poplar, but as obvious as it may sound it is surprising how many times people banks and politicians try to give what they have not got.

The great unanswered question of the banking crisis

The problems that banks are causing to economies around the world are continuing and we shall hear more of them as time goes by. The latest news is that regulatory authorities have fined UBS one billion US dollars for manipulating LIBOR rates. Other banks have already been fined and more banks will be fined in future. Using a fine as a means of punishing a corporation for what is clearly criminal behaviour is a soft option. However the regulatory authorities and prosecutors have little choice.