24 February 2017

Protecting or endangering?

The Financial Conduct Authority is proposing to restrict betting on financials for private investors. ETX Capital comments: “if the proposal to reduce leverage is approved you would need to deposit more money in your account to trade.”

Any investor who is not a complete novice knows the risks attached to owning shares; knows that they can go down as well as up. The same is true of those who invest with leverage and on a short timescale: they are aware that losses are at least as likely as profits.

A risk which investors are perhaps less in focus on is that their broker will go belly‑up, potentially leading to the complete loss of funds held with that broker.

In 2011 MF Global, which had taken over futures/CFD broker GNI, went bust due to a variety of problems e.g. unauthorised trading by employees. Assets, including funds belonging to clients of former GNI, were frozen until the firm had been wound up, which took more than a year.

In 2015, spread-betting and CFD broker Alpari UK went bust as a result of losses arising from an extreme move in the Swiss Franc.

When an investment firm folds, client funds are typically lost, unless reimbursed by a government bailout fund such as the Financial Services Compensation Scheme. The more client funds are held by the firm, the bigger the losses (or reimbursements) involved.

I wonder whether the FCA has considered that requiring spread-betting and CFD clients to hold more funds with their broker, for a given size of position, increases risk — both for clients, and for taxpayers who may have to make good the losses in cases of insolvency.

17 February 2017

Staatssicherheit

Among a long list of problem areas identified by David Anderson QC in relation to proposed counter-extremism legislation, he mentions

the extent to which police, public authorities, informers and other members of the public will be encouraged to scrutinise the political and religious views expressed by other adults and children ...

[and] whether surveillance and investigatory powers (tailing, bugging, undercover police operations, CHIS, interception warrants, searches of communications data) may be used for the purposes of determining whether a person has engaged in, or been exposed to, extremist activity, in person or over the internet ...
Which raises the following question with regard to those who, while having nothing to do with promoting violence, disseminate views which the government dislikes:
— how much tailing, bugging, covert ops, hacking of emails and web activity, etc is already taking place?


* For those unfamiliar with the concept of CHIS (covert human intelligence sources), see this Home Office document. Page 11 gives a couple of examples.

10 February 2017

‘Exchanging ideas’

Celia Green:

I think people talk so much about the importance of ‘exchanging ideas’ because it is actually impossible in their world.

Everyone has so dense a layer of reactive personality that to talk objectively about anything is out of the question.

Aphorism, from Advice to Clever Children.

03 February 2017

counter-extremism

I have posted a second article on erosion of the rule of law. This one covers existing counter-terrorism legislation and the UK government’s counter-extremism strategy.

30 January 2017

new article on the website

I have posted an article on legal certainty, intended to be the first in a series dealing with erosion of the rule of law in Britain and elsewhere.

Next post on this site: Friday.

27 January 2017

Rewriting the rules of economics - 2

The second thing that jarred when I read MP Liam Byrne’s article is this.

Mr Byrne refers to those on a state pension, to whom the triple lock “will have channelled more than £33bn extra” by 2020. This is supposedly one of the groups who have done well while others have suffered.

However, this betrays an ignorance about the British state pension, which has dramatically decreased relative to wages, since the days when it was held out by the UK government as something that would hold its own against private sector pensions.

The current basic state pension is about a quarter of median income, and well below the cost of a minimum standard of living.

Incidentally, there is one possibility pseudo-egalitarian commentators seem not to consider with regard to the current high inequality readings. The readings arise to some extent from a small class of super-rich – footballers, popstars and others, many of whom benefit from the fact that contemporary mass media, mass entertainment and mass production are all geared towards the tastes of the homogenous majority. Even more redistribution of income towards the lower half of society may well result in readings becoming higher, not lower.

26 January 2017

Rewriting the rules of economics

An interesting article by Tim Worstall attacks MP Liam Byrne’s call to “rewrite the rules of economics”, as a cure for the supposed problem of inequality. As Tim points out, you cannot rewrite rules if they represent the way economies work.

Getting academics to generate models that will produce the answers you want seems the wrong way round to do research.

A couple of things jarred when I read Mr Byrne’s article (co-written with Professor Colin Hay, co-director of the Sheffield Political Economy Research Institute).

The article cites the relation between a person’s level of education and their earnings, committing the common fallacy, when discussing this topic, of assuming correlation means causation. At least, that is the obvious way to interpret the writers’ assertion that

a degree remains the key determinant of a middle-class income
It seems to be taken for granted that the average non-graduate – if we could go back in time and arrange for them to attend university – would see their income higher by the so-called “graduate premium”: the difference in average salary between graduates and non-graduates. This presumes there is no innate ability factor to generate two different effects, with a correlation between them: (1) level of education and (2) level of earnings.

The blank-slate presumption is not supported by data but is frequently made nonetheless, perhaps because it chimes better with egalitarian ideology.

25 January 2017

Markets are voluntary, politics is coercive

Milton Friedman:

The political principle that underlies the market mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate [...]

The political principle that underlies the political mechanism is conformity. The individual must serve a more general social interest — whether that be determined by a church or a dictator or a majority. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform.
From ‘The social responsibility of business is to increase its profits’,
The New York Times Magazine, 13 September 1970.

24 January 2017

Paternalism for traders

The government is proposing to restrict spread betting on financials, which will primarily affect small investors.

This is wrong:
a) because paternalism is immoral,
b) because speculators (particularly small players) increase the efficiency of markets.


IG Index gives the following example of what will happen.



Even for experienced traders, the margin requirement (the amount of cash you need to deposit with IG) will go up from £345 to £1725, a factor of five. It’s hard to see this as anything other than a way of prohibiting trading, without making it outright illegal.

The vast majority of small traders, argues the consultation document, lose money – but so what? If that is how they want to spend their hard-earned pay, they should have that choice.

To express your views on the proposed legislation, fill in the online response form here.

23 January 2017

The individualism myth

In her recent speech at the World Economic Forum in Davos, Theresa May blamed individualism for our (allegedly) declining sense of responsibility towards one another.

‘Individualism’ is maligned by both Left and Right. The Church of England attacked it in its 2015 pre-election report.


The Oxford English Dictionary gives this as the primary definition for the word:

independence and self-reliance
I am not aware of any evidence for a correlation between (a) independence/self-reliance and (b) behaving with less consideration. Conceivably, there is a negative correlation.

The Prime Minister should refrain from reinforcing social myths. Perhaps by “individualism” she actually means indifference to family, arising from reliance on the state. If so, she should use a different word.

22 January 2017

Donald Trump and the conservatives

Everyone – including Daily Telegraph editors – seems to be complaining about President Trump, comparing him unfavourably with Obama, Reagan, Kennedy etc.

But there is nothing very surprising about what is happening, other than the election result.

If an ideology is pushed into a corner, it gets nastier.

Many conservatives seem to despise Trump for lowering the tone. Perhaps they should be grateful to him for shaking things up a little.


There are two preferred positions for the enemies of mediocracy [...]

Option 2: they can play by the rules, and compete by offering a more aggressive brand of mediocracy, with emphasis on authoritarianism and/or military activity.
(Mediocracy p.58)