Hi
Now I know there is a huge amount of love for investment bankers on this forum, so I thought I would highlight a couple of snippets in the news of late.
First having brought the world economy to its knees, our intrepid heroes in the investment banking world are arguing that the investment (casino) banking component should not be separated and ringfenced from the retail (where we put our savings) component.
Why not? Because if that happens the banks will have expensive overheads, wont be able to lend to businesses (not that they are doing that now anyway) and therefore, wont be able to help the economy recover. So in short, dont do anything to us for bringing down the world financial system, because if you don't we can't help the economy to recover. Jeez!
Secondly, anyone get a pension?
Well as you know many pensions are linked to the FTSE 100 and are managed by investment fund managers. Apparently common practice is for said funds to lend your shares, obviously without telling you, to hedge funds that specialise in short selling. YOu wouldnt want your pretty heads worried would you? For borrowing your shares the hedge funds pay a fee to the investment bank.
SHort selling involves the short selling hedge fund agreeing to sell shares it does not yet own at the current market price, but hopes to buy them at a cheaper price in the market to meet their obligation. So what short sellers do is try to create rumours that company A is going down the pan etc in order to force the share price.
Now you might think - oh, thats all right, the investment fund will pay the fees it gets for lending my shares without me being told, back into my pension pot. No way pal. Whether you get any money at all from the fees is entirely dependent on whether the investment fund decides to give you something.
So in effect people with pensions lose twice. Once when they dont get the full amount of the fees paid by the hedge fund to the bank for borrowing your shares. Secondly because the short sellers are doing everything possible to force the price of the shares down, when the fund gets your shares back they are often at a lower value than they were and your pension pot has gone down.
Great eh? And you wonder why your pension fund isn't performing as well as you thought it would.
CHeers
D