Tuesday, September 23, 2008
Hedging their bets
Plaid Cymru's John Dixon has been banging on about the funding of the Carmarthen West and South Pembrokeshire Conservative Party for some time, notably here and here. Now the Western Mail has caught up with the story, proof that blogging can have benefits in the dead tree press as well as other more conventional media.
Mr. Dixon writes on his blog: 'I still don't know why a New York based company would be so interested in what happens in Carmarthen West and South Pembrokeshire that they would want to bung £40,000 into the local Tory coffers; but I do know a little more about the company. Christofferson, Robb and Co are what is known as a hedge fund.
Hedge funds are not well understood outside their own sphere – and there are plenty of people who believe that they're not terribly well understood within it either. They are usually secretive, and much of what they do is completely unregulated. Different funds behave in slightly different ways, and because they are so secretive about their precise business, it is hard to know what any individual company is up to. But there are some generalities which are known.
Hedge funds often borrow many times the value of their underlying assets to buy things that they don't want and can't afford, and they sell things that they don't own. They then buy back the things that they sold but never owned in order to return them to the rightful owner from whom they were borrowed in the first place, and they sell the things that they bought but didn't want before they have to pay for them. They turn future profits which haven't been made into bits of paper which they can buy and sell before they even exist.
These funds are, in effect, gambling; and they are doing so with huge sums of money which aren't theirs and don't really exist. Betting on the future price of currencies, betting on the future price of shares, betting on the future price of commodities. Some of them even bet on the future value of the bets that they and others have already placed. They add an enormous degree of instability to the market place, and their whole ability to make money depends on market volatility. Their profits, made by making risky and usually short term investments, come at the expense of those investors who have to be more careful and long term with their money – investors such as our pension schemes and insurance companies.
So, whilst the overwhelming majority of us have a vested interest in financial stability and security, these funds – acting on behalf of already wealthy investors – have a vested interest in instability and volatility. They deliberately create volatility in order to benefit from it. They are a siginficant part of what has led to the recent instability in the markets – something from which we all suffer.'
There is no suggestion that these payments are irregular in any way, however such donations do demonstrate the sort of link between the Tories and the City that they may not be so keen to boast about in the current climate.
Vince Cable in particular has been calling on the government to introduce new rules to protect depositors, prevent future excessive binge lending and stop damaging speculative activity by hedge funds. Everybody is blaming the City, whether they are guilty or not. How this link with the Tories will go down in Carmarthen West and South Pembrokeshire has yet to be seen.
Mr. Dixon writes on his blog: 'I still don't know why a New York based company would be so interested in what happens in Carmarthen West and South Pembrokeshire that they would want to bung £40,000 into the local Tory coffers; but I do know a little more about the company. Christofferson, Robb and Co are what is known as a hedge fund.
Hedge funds are not well understood outside their own sphere – and there are plenty of people who believe that they're not terribly well understood within it either. They are usually secretive, and much of what they do is completely unregulated. Different funds behave in slightly different ways, and because they are so secretive about their precise business, it is hard to know what any individual company is up to. But there are some generalities which are known.
Hedge funds often borrow many times the value of their underlying assets to buy things that they don't want and can't afford, and they sell things that they don't own. They then buy back the things that they sold but never owned in order to return them to the rightful owner from whom they were borrowed in the first place, and they sell the things that they bought but didn't want before they have to pay for them. They turn future profits which haven't been made into bits of paper which they can buy and sell before they even exist.
These funds are, in effect, gambling; and they are doing so with huge sums of money which aren't theirs and don't really exist. Betting on the future price of currencies, betting on the future price of shares, betting on the future price of commodities. Some of them even bet on the future value of the bets that they and others have already placed. They add an enormous degree of instability to the market place, and their whole ability to make money depends on market volatility. Their profits, made by making risky and usually short term investments, come at the expense of those investors who have to be more careful and long term with their money – investors such as our pension schemes and insurance companies.
So, whilst the overwhelming majority of us have a vested interest in financial stability and security, these funds – acting on behalf of already wealthy investors – have a vested interest in instability and volatility. They deliberately create volatility in order to benefit from it. They are a siginficant part of what has led to the recent instability in the markets – something from which we all suffer.'
There is no suggestion that these payments are irregular in any way, however such donations do demonstrate the sort of link between the Tories and the City that they may not be so keen to boast about in the current climate.
Vince Cable in particular has been calling on the government to introduce new rules to protect depositors, prevent future excessive binge lending and stop damaging speculative activity by hedge funds. Everybody is blaming the City, whether they are guilty or not. How this link with the Tories will go down in Carmarthen West and South Pembrokeshire has yet to be seen.
