The UK Politics and EU Referendum thread - merged

[Woodsey]

It's hard to believe some of the stuff Labour are doing is actually serious and not a wind up.

It’s like the fantasy stuff the Lib Dem’s have thrown up in the past. If you know you have no chance of being elected you can promise the Moon!

[DungBeetle]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices.  

That would be fraud.

Really? fraud?  

Well blow me down!

You seem a bright chap.  Has there ever been a case of fraud in the city?

Of course.  However there are consequences for fraud, although I imagine you'll lump banks taking too much risk into the fraud bucket to try and make a point.

Anyway, on your idea - banning derivatives without insurable interest on the grounds you are gambling.  Working through the steps

1) Hedge Fund has purchased protection on a CDS, paying premiums and gets a lump sum on default (like insurance).  This is disgusting in your view.
2) The counterparty is likely the market making desk of an investment bank.  They receive premiums but need to pay out a lump sum on default.  This is a riskier trade.  They won't have any insurable interest either as they are going about their market making business and will likely be taking bid offer by doing the opposite trade with someone else.  (granted there will be some scenarios where they have insurable interest but the quickest way for them to make money is the match buyers and sellers).
3) Okay so let's ban this activity on both sides.  Desk closes.  Jobs lost.  But that's not really the point.
4) Another hedge fund or bank is buying corporate bonds.  That’s good right?  A good solid investment and honourable activity.
5) But hold on!  If I buy a bond what is my risk profile?  I get coupons every so often, but if the company goes bust I lose my lump sum investment.  This looks an awful lot like (2) where we receive CDS premiums but lose the house when company goes bust.
6) Hmm – this is bad as well.  Let’s ban trading in corporate bonds apart from primary issuance as we are just gambling again.
7) However, if we kill the secondary market, we kill the primary market because companies are now issuing an illiquid asset which is far less appealing.
8 ) It is now impossible for Companies to raise money by bond issuance, and investors have also lost access to what can be a good investment vehicle.
9) I’m sure we can now do equity derivatives and get the equity market banned as well.
10) In short, regulate things.  Don’t ban things.

[doubleup]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices.  

That would be fraud.

Really? fraud?  

Well blow me down!

You seem a bright chap.  Has there ever been a case of fraud in the city?

Of course.  However there are consequences for fraud, although I imagine you'll lump banks taking too much risk into the fraud bucket to try and make a point.

Anyway, on your idea - banning derivatives without insurable interest on the grounds you are gambling.  Working through the steps

1) Hedge Fund has purchased protection on a CDS, paying premiums and gets a lump sum on default (like insurance).  This is disgusting in your view.
2) The counterparty is likely the market making desk of an investment bank.  They receive premiums but need to pay out a lump sum on default.  This is a riskier trade.  They won't have any insurable interest either as they are going about their market making business and will likely be taking bid offer by doing the opposite trade with someone else.  (granted there will be some scenarios where they have insurable interest but the quickest way for them to make money is the match buyers and sellers).
3) Okay so let's ban this activity on both sides.  Desk closes.  Jobs lost.  But that's not really the point.
4) Another hedge fund or bank is buying corporate bonds.  That’s good right?  A good solid investment and honourable activity.
5) But hold on!  If I buy a bond what is my risk profile?  I get coupons every so often, but if the company goes bust I lose my lump sum investment.  This looks an awful lot like (2) where we receive CDS premiums but lose the house when company goes bust.
6) Hmm – this is bad as well.  Let’s ban trading in corporate bonds apart from primary issuance as we are just gambling again.
7) However, if we kill the secondary market, we kill the primary market because companies are now issuing an illiquid asset which is far less appealing.
8 ) It is now impossible for Companies to raise money by bond issuance, and investors have also lost access to what can be a good investment vehicle.
9) I’m sure we can now do equity derivatives and get the equity market banned as well.
10) In short, regulate things.  Don’t ban things.

Why does the concept of insurable interest exist and is enforced in the insurance market?

I could go through your "list" but it is frankly embarrassing.  In short, my only suggestion was that "derivatives" unlinked from the primary instrument were gambling and had no economic value.  In addition to that they greatly increased risk in the financial system.  If you want to debate that point fair enough but to suggest that I was wanting to ban selling bonds in secondary markets or ban insuring against losses by the holders of those bonds is desperate stuff.

[BigAdz]

The sober reality of Brexit once again showing it’s head as Thomas Cook look like going under, with Brexit being a major factor in it. 9,000 jobs going, 150,000 abroad and set to have a major impact on leisure industry.

Perhaps a little karma for some of those abroad who voted to leave, they can now see what their vote is doing.

This is a truly disgusting post.

Ruining families holidays is okay because its a  'little karma'

Brexit is really a tiny factor in this situation so I don't think anyone deserves to be stranded abroad or have to explain to their kids why they arent going on holiday whether they voted leave or remain.

Shame on you.

Here are some people who wanted TC to fail so that they made money.  That is disgusting.


https://www.bloomberg.com/news/articles/2019-09-23/thomas-cook-collapse-sets-up-250-million-hedge-fund-windfall?srnd=premium-europe

Hedge Fund takes position in vanilla credit default swap.  Bloke on internet outraged.

Imagine his outrage if people profit from a Brexit no deal and all those people die from no medicine and the predicted influx of locusts?

[neeko]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices. 

Who should take the other side of those trades, other than a bank /  “gambler”

[Woodsey]

The sober reality of Brexit once again showing it’s head as Thomas Cook look like going under, with Brexit being a major factor in it. 9,000 jobs going, 150,000 abroad and set to have a major impact on leisure industry.

Perhaps a little karma for some of those abroad who voted to leave, they can now see what their vote is doing.

This is a truly disgusting post.

Ruining families holidays is okay because its a  'little karma'

Brexit is really a tiny factor in this situation so I don't think anyone deserves to be stranded abroad or have to explain to their kids why they arent going on holiday whether they voted leave or remain.

Shame on you.

Here are some people who wanted TC to fail so that they made money.  That is disgusting.


https://www.bloomberg.com/news/articles/2019-09-23/thomas-cook-collapse-sets-up-250-million-hedge-fund-windfall?srnd=premium-europe

Hedge Fund takes position in vanilla credit default swap.  Bloke on internet outraged.

Imagine his outrage if people profit from a Brexit no deal and all those people die from no medicine and the predicted influx of locusts?

 

[DungBeetle]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices.  

That would be fraud.

Really? fraud?  

Well blow me down!

You seem a bright chap.  Has there ever been a case of fraud in the city?

Of course.  However there are consequences for fraud, although I imagine you'll lump banks taking too much risk into the fraud bucket to try and make a point.

Anyway, on your idea - banning derivatives without insurable interest on the grounds you are gambling.  Working through the steps

1) Hedge Fund has purchased protection on a CDS, paying premiums and gets a lump sum on default (like insurance).  This is disgusting in your view.
2) The counterparty is likely the market making desk of an investment bank.  They receive premiums but need to pay out a lump sum on default.  This is a riskier trade.  They won't have any insurable interest either as they are going about their market making business and will likely be taking bid offer by doing the opposite trade with someone else.  (granted there will be some scenarios where they have insurable interest but the quickest way for them to make money is the match buyers and sellers).
3) Okay so let's ban this activity on both sides.  Desk closes.  Jobs lost.  But that's not really the point.
4) Another hedge fund or bank is buying corporate bonds.  That’s good right?  A good solid investment and honourable activity.
5) But hold on!  If I buy a bond what is my risk profile?  I get coupons every so often, but if the company goes bust I lose my lump sum investment.  This looks an awful lot like (2) where we receive CDS premiums but lose the house when company goes bust.
6) Hmm – this is bad as well.  Let’s ban trading in corporate bonds apart from primary issuance as we are just gambling again.
7) However, if we kill the secondary market, we kill the primary market because companies are now issuing an illiquid asset which is far less appealing.
8 ) It is now impossible for Companies to raise money by bond issuance, and investors have also lost access to what can be a good investment vehicle.
9) I’m sure we can now do equity derivatives and get the equity market banned as well.
10) In short, regulate things.  Don’t ban things.

Why does the concept of insurable interest exist and is enforced in the insurance market?

I could go through your "list" but it is frankly embarrassing.  In short, my only suggestion was that "derivatives" unlinked from the primary instrument were gambling and had no economic value.  In addition to that they greatly increased risk in the financial system.  If you want to debate that point fair enough but to suggest that I was wanting to ban selling bonds in secondary markets or ban insuring against losses by the holders of those bonds is desperate stuff.

The counterparty of the CDS that paid out to the hedge fund has the same risk profile as a bond holder.  Calling for banning stuff you don’t understand isn’t a great look.

[4KSuited]

It's hard to believe some of the stuff Labour are doing is actually serious and not a wind up.

It’s like the fantasy stuff the Lib Dem’s have thrown up in the past. If you know you have no chance of being elected you can promise the Moon!

It’s the class war stuff that really scares the shit out of me. After all, the electorate hasn’t really done what’s been expected in the last few votes.

[DungBeetle]

It's hard to believe some of the stuff Labour are doing is actually serious and not a wind up.

It’s like the fantasy stuff the Lib Dem’s have thrown up in the past. If you know you have no chance of being elected you can promise the Moon!

It’s the class war stuff that really scares the shit out of me. After all, the electorate hasn’t really done what’s been expected in the last few votes.

Yep.  It’s all a bit of a funny joke at the moment but it’s not impossible that they get in.  A terrifying prospect.

[nirvana]

It's hard to believe some of the stuff Labour are doing is actually serious and not a wind up.

It’s like the fantasy stuff the Lib Dem’s have thrown up in the past. If you know you have no chance of being elected you can promise the Moon!

It’s the class war stuff that really scares the shit out of me. After all, the electorate hasn’t really done what’s been expected in the last few votes.

Yep.  It’s all a bit of a funny joke at the moment but it’s not impossible that they get in.  A terrifying prospect.

Watching Laura Pidcock today, alongside Long Bailey apparently a likely front runner in any future leadership election. It is frightening.

[BigAdz]

It's hard to believe some of the stuff Labour are doing is actually serious and not a wind up.

It’s like the fantasy stuff the Lib Dem’s have thrown up in the past. If you know you have no chance of being elected you can promise the Moon!

It’s the class war stuff that really scares the shit out of me. After all, the electorate hasn’t really done what’s been expected in the last few votes.

Yep.  It’s all a bit of a funny joke at the moment but it’s not impossible that they get in.  A terrifying prospect.

Watching Laura Pidcock today, alongside Long Bailey apparently a likely front runner in any future leadership election. It is frightening.

Gonna sound like Aaron, but anyone voting for Labour as they stand really shouldn't be allowed the vote.

[doubleup]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices.  

That would be fraud.

Really? fraud?  

Well blow me down!

You seem a bright chap.  Has there ever been a case of fraud in the city?

Of course.  However there are consequences for fraud, although I imagine you'll lump banks taking too much risk into the fraud bucket to try and make a point.

Anyway, on your idea - banning derivatives without insurable interest on the grounds you are gambling.  Working through the steps

1) Hedge Fund has purchased protection on a CDS, paying premiums and gets a lump sum on default (like insurance).  This is disgusting in your view.
2) The counterparty is likely the market making desk of an investment bank.  They receive premiums but need to pay out a lump sum on default.  This is a riskier trade.  They won't have any insurable interest either as they are going about their market making business and will likely be taking bid offer by doing the opposite trade with someone else.  (granted there will be some scenarios where they have insurable interest but the quickest way for them to make money is the match buyers and sellers).
3) Okay so let's ban this activity on both sides.  Desk closes.  Jobs lost.  But that's not really the point.
4) Another hedge fund or bank is buying corporate bonds.  That’s good right?  A good solid investment and honourable activity.
5) But hold on!  If I buy a bond what is my risk profile?  I get coupons every so often, but if the company goes bust I lose my lump sum investment.  This looks an awful lot like (2) where we receive CDS premiums but lose the house when company goes bust.
6) Hmm – this is bad as well.  Let’s ban trading in corporate bonds apart from primary issuance as we are just gambling again.
7) However, if we kill the secondary market, we kill the primary market because companies are now issuing an illiquid asset which is far less appealing.
8 ) It is now impossible for Companies to raise money by bond issuance, and investors have also lost access to what can be a good investment vehicle.
9) I’m sure we can now do equity derivatives and get the equity market banned as well.
10) In short, regulate things.  Don’t ban things.

Why does the concept of insurable interest exist and is enforced in the insurance market?

I could go through your "list" but it is frankly embarrassing.  In short, my only suggestion was that "derivatives" unlinked from the primary instrument were gambling and had no economic value.  In addition to that they greatly increased risk in the financial system.  If you want to debate that point fair enough but to suggest that I was wanting to ban selling bonds in secondary markets or ban insuring against losses by the holders of those bonds is desperate stuff.

The counterparty of the CDS that paid out to the hedge fund has the same risk profile as a bond holder.  Calling for banning stuff you don’t understand isn’t a great look.

What has that got to do with it?

Bonds are limited in value.  If CDS are limited to that value the systemic risk is obviously lower than if many multiples of the bonds value are in play (and the value of those contracts used as assets for other derivative liabilities).

And you still haven't answered the first question:

Why does the concept of insurable interest exist and is enforced in the insurance market?

[doubleup]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices. 

Who should take the other side of those trades, other than a bank /  “gambler”

Not sure what your point is.  There is nothing wrong with making an investment of some kind and wanting to hedge against certain liabilities.  My issue is the instruments being used for pure gambling by organisations whose failure could have a major effect on the real economy.

[DungBeetle]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices.  

That would be fraud.

Really? fraud?  

Well blow me down!

You seem a bright chap.  Has there ever been a case of fraud in the city?

Of course.  However there are consequences for fraud, although I imagine you'll lump banks taking too much risk into the fraud bucket to try and make a point.

Anyway, on your idea - banning derivatives without insurable interest on the grounds you are gambling.  Working through the steps

1) Hedge Fund has purchased protection on a CDS, paying premiums and gets a lump sum on default (like insurance).  This is disgusting in your view.
2) The counterparty is likely the market making desk of an investment bank.  They receive premiums but need to pay out a lump sum on default.  This is a riskier trade.  They won't have any insurable interest either as they are going about their market making business and will likely be taking bid offer by doing the opposite trade with someone else.  (granted there will be some scenarios where they have insurable interest but the quickest way for them to make money is the match buyers and sellers).
3) Okay so let's ban this activity on both sides.  Desk closes.  Jobs lost.  But that's not really the point.
4) Another hedge fund or bank is buying corporate bonds.  That’s good right?  A good solid investment and honourable activity.
5) But hold on!  If I buy a bond what is my risk profile?  I get coupons every so often, but if the company goes bust I lose my lump sum investment.  This looks an awful lot like (2) where we receive CDS premiums but lose the house when company goes bust.
6) Hmm – this is bad as well.  Let’s ban trading in corporate bonds apart from primary issuance as we are just gambling again.
7) However, if we kill the secondary market, we kill the primary market because companies are now issuing an illiquid asset which is far less appealing.
8 ) It is now impossible for Companies to raise money by bond issuance, and investors have also lost access to what can be a good investment vehicle.
9) I’m sure we can now do equity derivatives and get the equity market banned as well.
10) In short, regulate things.  Don’t ban things.

Why does the concept of insurable interest exist and is enforced in the insurance market?

I could go through your "list" but it is frankly embarrassing.  In short, my only suggestion was that "derivatives" unlinked from the primary instrument were gambling and had no economic value.  In addition to that they greatly increased risk in the financial system.  If you want to debate that point fair enough but to suggest that I was wanting to ban selling bonds in secondary markets or ban insuring against losses by the holders of those bonds is desperate stuff.

The counterparty of the CDS that paid out to the hedge fund has the same risk profile as a bond holder.  Calling for banning stuff you don’t understand isn’t a great look.

What has that got to do with it?

Bonds are limited in value.  If CDS are limited to that value the systemic risk is obviously lower than if many multiples of the bonds value are in play (and the value of those contracts used as assets for other derivative liabilities).

And you still haven't answered the first question:

Why does the concept of insurable interest exist and is enforced in the insurance market?

The entire City is a casino and is built on liquidity.  If you introduce insurable interest the CDS market is dead.  There would not be enough customers.  Add to that it is unworkable.  Every market participant would need to recalculate their insurance interest status every morning.

There is already regulation to at least partially address your concerns (eg compression requirements/capital charges).  Why do you want to kill an entire market?  

[DungBeetle]

In general, I think that derivatives should be limited to those with an "insurable interest".  They are simply gambling otherwise and increase risks to the economic system.  In addition in cases like this, where the collapse of a company is going to benefit certain parties (albeit I acknowledge that counterparties obviously suffer) there are incentives for corrupt practices. 

Who should take the other side of those trades, other than a bank /  “gambler”

Not sure what your point is.  There is nothing wrong with making an investment of some kind and wanting to hedge against certain liabilities.  My issue is the instruments being used for pure gambling by organisations whose failure could have a major effect on the real economy.

His point is who is going to take the other side of your insurable interest CDS trades?  They will by definition be “gambling” themselves.  Do you understand that the person selling the CDS protection has bigger risk than the other side?