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I've been enjoying the intertwined discussion of markets/recession/CDOs with alternative economies and individual-action security and stability strategies for the future. It's the more-than-one-basket thing. But of course my aesthetics are not everyone's.
Nor mine, indeed. I was wondering about spinning off a thread on how one can hedge climate change, but of course climate change affects resource prices which affects the economy, and so on, so maybe we should keep it all in one bucket.
The CRA and the use of "wrappers" is fascinating, isn't it? If you can recruit a good investment proposition to give your own vehicle a halo effect, is it possible to ascertain with any confidence how secure a venture is? Which is one of those issues that is not especially a problem as long as the inflow of money on risks exceeds the outflow of cash lost on bad investments.
Another interesting, if less technical, article is the recent one by John Lanchester, which I found useful, if a bit chatty. Excerpt:
A customer goes into the bank and deposits £200. Now the bank has £200 to invest, so it goes out and buys some shares with the money: not the full £200, but the amount minus the percentage which it deems prudent to keep in cash, just in case any depositors come and make a withdrawal. That amount, called the ‘cash ratio’, is set by government: in this example let’s say it’s 20 per cent. So our bank goes out and buys £160 of shares from, say, LRB Ltd. Then LRB goes and deposits its £160 in the bank; the bank now has £360 of deposits, of which it needs to keep only 20 per cent – £72 – in cash. So now it can go out and buy another £128 of shares in LRB, raising its total holding in LRB Ltd to £288. Once again, LRB Ltd goes and deposits the money in the bank, which goes out again and buys more shares, and so on the process goes. The only thing imposing a limit is the need to keep 20 per cent in cash, so the depositing-and-buying cycle ends when the bank has £200 in cash – all the cash there is – and £800 in LRB shares; it also has £1000 of customer deposits, the initial £200 plus all the money from the share transactions. The initial £200 has generated a balance sheet of £1000 in assets and £1000 in liabilities. Magic! In real life, it’s even better: the UK cash ratio is 0.15 per cent, so that initial £200 would generate £133,333 on both sides of the balance sheet.
The whole article is here. |
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