economonkey

We’ve compiled some of our favourite quotes on the subject of finance and economics - if you know of any good lines that we’ve missed, please leave them in the comments…
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would […]

If you don’t understand just how badly messed up the current economic situation really is, you need to read this article from the Wall Street Journal: Ten Days That Changed Capitalism
We are living in interesting times. This is not a good thing…

Today the Bank of England governor, Mervyn King, faced a grilling from the government’s Treasury Select Committee – a group of politicians who are responsible for scrutinising the actions of the Treasury, BoE, the FSA and various other organisations that are responsible for the UK’s financial well-being.
The Committee, understandably, wanted to know what the fudge […]

Usually on this site I write features about various aspects of the financial system, leaving Lance to concentrate on the current affairs opinion pieces. But it’s becoming increasingly difficult to remain dispassionate.

The financial system is having a bit of a wobble at the moment, rather like that earthquake that hit the UK recently, knocking a few glasses off the shelves and knocking a few minor celebrities off the front pages, at least for a day.

What has been called a ‘credit crunch’, and ignorantly predicted to be ‘over by Christmas’ (though, like the war, nobody states which year), is actually something rather more serious: in all probability it’s a return to normality. Risk is now being priced back into investments, default spreads are widening and, in general, everybody’s paying more for their money.

Which is as it should be. The last five years or so have seen a collective delusion on the part of economists, central bankers (with some exceptions), financial journalists, house buyers and consumers.

Of course interest rates will stay low (never mind inflation). Of course house prices always go up by 10% a year when wages rise by 3% (never mind the impossibility of the maths). Of course it’s different this time (no, it never is). Of course the UK has a miracle economy based on selling financial products and ever more expensive houses to each other, and doesn’t need manufacturing (unlike the Germans, for example).

To use the vernacular for a moment, it was all bollocks.

With all the fuss about the McCartneys’ divorce settlement, a lot of people might not have noticed that yesterday the Bank of England pumped another £5 billion of emergency loans into the British banking system, to bale out high street banks suffering from short term cash flow difficulties. Problem is, it wasn’t anywhere near enough […]

Put two economists in a room together and you’ll get three different opinions on the state and future direction of the economy. Surely economics, the dismal ’science’, could learn something from one of the true sciences, such as physics?

Certainly there have been efforts to do so, particularly among large investment banks and hedge funds, who have used quantitative analysis tools running on powerful computer systems to try to tease out the signals from the noise of price movements, taking into account thousands of different influences from interest rates to tax variations, asset prices to currency exchange rates and much more, all on the basis that there is some underlying predictability, some ‘law’ that governs price movement.

Which makes it all the more surprising that so many of them got it so spectacularly wrong; to the tune of $188 billion and counting. Why?

You’ve probably heard a lot about hedge funds if you pay much attention to the business news, but the chances are that you’re not entirely sure what a hedge fund actually is, and you haven’t got round to looking it up because it sounds like it might be complicated. Don’t worry, it’s actually quite simple…
In […]