Monday, 2 August 2010

Money, Money, Money

There is something about summer that always makes me want to take up a hobby. This usually involves taking up a sport, or attempting to learn a language. (Although this never usually gets beyond the 'hello,' 'goodbye','my name is' and 'can I have a coffee' stage..)

This summer I am determined to learn more about how the economy works and attempt to find out what those polished looking men and women in Canary Wharf really get up to.

The recession has suddenly made the world of high finance a bit sexy. I'm sure in a couple of years we will have Hollywood blockbusters detailing the collapse of Lehman Brothers, or BBC dramas about Adam Applegarth's exploits and Northern Rock's collapse.

Yet its worrying that its taken the recession to ignite interest into what is Britain's biggest industry. While we may not all know the technicalities behind putting a car together or mining for coal, we can certainly understand how these primary industries work and how money and profit can be made.

As the crash highlighted, even top politicians and financial institutions couldn't fully comprehend how the complex markets operate.

Its hardly surprising. Since light touch regulation in the 1980's was introduced the industry is constantly being flooded by new products and practices. During the property boom, mortgages allowed to be given to people who could not afford them were being sliced and diced into lots of different packages and sold on, the result of which we all saw. The trouble is money floating round in the ether is just that; the more removed the knowledge about where it came from and its security then the higher the risk of things going wrong.

I read an excellent blog post today by Robert Peston in relation to the new rules being drawn up by the EU to improve banking supervision. He makes the point that the jargon used by the Basel Committee who are writing these rules cannot be understood by anybody outside the committee that wrote it; yet the potential repercussions for getting it wrong could impact us all.

Its very difficult to have a political argument about something like the future of banks and how they should be taxed and regulated without having some sort of knowledge about what exactly is going on.

So, Im off to learn about Credit Default Swaps and the Libor rate. I may be some time....

RECOMMENDATION: Philip Coggan 'The money machine: How the City works'

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