Reddittors vs Wall Street

[Bird on a Fire]

Back when I was a lad, in the 1990s and early 2000s, my current account got about 4% interest. It made saving my pocket money, birthday money and holiday-job wages attractive, because that £20 from my grandparents could turn itself into £25 or whatever.

Since I got my A levels in 2008, I don't think I've ever got more than 1%, and usually less. The longer my (very little) money is in the bank, the less it's worth, and is more than offset by the fees if a direct debit goes out before payday.

Whatever growth the banking sector is delivering, it's not accessible to the less wealthy.

[lpm]

So here's a question.

If people weren't investing money in speculation - I share the both noggins's sense that there's a distinction, and also a sense that I might be missing things - mightn't that money then be invested in something more directly productive instead?

It seems to be that gambling on the market might be a quick way to return a profit on an investment, which obviously has its uses (pensions, etc). But given a choice between shorting a potato company or investing in a new potato startup (or an old potato firm attempting to restructure), only one of those things is likely to result in more jobs and more potatoes for everybody. The other results in more money, but most of that extra money goes to people who already had money in the first place.

I do have a general impression that the modern economy delivers a lot more opportunities for growth to the wealthy, which is why wealth inequality is rising. The UK has a very successful financial sector, but all its actual potato farmers are broke.

It's not money that matters, it's limited resources.

For example: "Are an excessive number of computer graduates going into financial services? Should those limited resources be redirected to automated supermarket delivery systems, or into a human space program, or healthcare robotics, or drone warfare, or self-driving cars?"

This is what you get to play around with in a command economy - the Commies can decide to shift those resources to war and space. A pure capitalist system lets financial incentives shuffle them and doesn't interfere.

Fortunately a third way exists - simply increase tax on excessive earnings in one sector and decrease or subsidise in another area. Resources follow the new tilt to the playing field. A handful of government programs is enough to directly boost certain national priorities, such as development of vaccines.

The answer to short sellers and the like is to tax them properly, instead of clumsy intervention.

[Herainestold]

Senator Elizabeth Warren seems to agree with plodder more than lpm.

Democratic Sen. Elizabeth Warren of Massachusetts on Thursday called for the Securities and Exchange Commission to do more to deal with "market manipulation," with her comments coming as the stock market has seen huge moves lately for GameStop GME, +63.74% and other heavily shorted stocks. "The bigger issue for me is the SEC's inability and unwillingness to deal with market manipulation," Warren said in a CNBC interview, referring to the Securities and Exchange Commission. "To have a healthy stock market, you've got to have a cop on the beat. That should be the SEC. They need to step up and do their job." Warren also said "there's going to be an investigation," and the SEC on Wednesday said it's monitoring the market's volatility.

https://www.marketwatch.com/story/sen-w ... 2021-01-28

[noggins]

Isnt the real interest rate (interest less inflation) for a risk free bank account going to always hover a little bit above 0? At best. The bank cant make more money from borrowers, due to competition, unless it makes riskier loans, which is bad. All that leaves is a bit of operational efficiency which the competition can copy.

[Bird on a Fire]

So here's a question.

If people weren't investing money in speculation - I share the both noggins's sense that there's a distinction, and also a sense that I might be missing things - mightn't that money then be invested in something more directly productive instead?

It seems to be that gambling on the market might be a quick way to return a profit on an investment, which obviously has its uses (pensions, etc). But given a choice between shorting a potato company or investing in a new potato startup (or an old potato firm attempting to restructure), only one of those things is likely to result in more jobs and more potatoes for everybody. The other results in more money, but most of that extra money goes to people who already had money in the first place.

I do have a general impression that the modern economy delivers a lot more opportunities for growth to the wealthy, which is why wealth inequality is rising. The UK has a very successful financial sector, but all its actual potato farmers are broke.

It's not money that matters, it's limited resources.

For example: "Are an excessive number of computer graduates going into financial services? Should those limited resources be redirected to automated supermarket delivery systems, or into a human space program, or healthcare robotics, or drone warfare, or self-driving cars?"

This is what you get to play around with in a command economy - the Commies can decide to shift those resources to war and space. A pure capitalist system lets financial incentives shuffle them and doesn't interfere.

Fortunately a third way exists - simply increase tax on excessive earnings in one sector and decrease or subsidise in another area. Resources follow the new tilt to the playing field. A handful of government programs is enough to directly boost certain national priorities, such as development of vaccines.

The answer to short sellers and the like is to tax them properly, instead of clumsy intervention.

For sure. I don't think anybody wants a command economy. Nobody on this thread has mentioned one, and the reddit stonks bros certainly don't.

Tax is a useful mechanism. I also think it's a good idea to have a strong regulatory system, with laws that proscribe harmful behaviour, and punish the individuals and funds involved. Profits confiscated, licences lost, criminal sentencing in line with other forms of theft and fraud.

We're a long, long way off that, but it sounds like we actually all agree on the desirable direction for future travel.

Are there any countries with well-regulated financial sectors? Germany's is corrupt as f.ck, but the Nordics are usually good at balancing social concerns with capitalism.

[Bird on a Fire]

Isnt the real interest rate (interest less inflation) for a risk free bank account going to always hover a little bit above 0? At best. The bank cant make more money from borrowers, due to competition, unless it makes riskier loans, which is bad. All that leaves is a bit of operational efficiency which the competition can copy.

I don't know, tbh. Maybe I too was profiting from the risky/fraudy behaviour that lead up to the crash. That's tainted the toys I saved up for!

I thought (aware that this is a lies-to-children oversimplification) that banks basically made money by lending it to people and charging them interest, then giving a portion of that interest to savers. Borrowers want the lowest interest rate, savers the highest, and banks are balancing those competing demands.

I suppose in an age when everyone needs electronic banking services, simply having an account and a card is enough of a benefit that people won't just keep all their money in a shoebox, so the banks know they can get your money even without offering interest. It would be a bit pathetic if professional bankers can't offer people a better return on investment than 0%, but I can believe that it's not in their interests to do so.

[plodder]

yes. money isn’t invested in things so much, it’s invested in wheezes.

we all understand the importance of liquidity. Are you suggesting the current near zero interest rates are because financial whizz kids have made credit virtually cost-free?

because some of us think that people are now so in hock to the banks that the slightest increase in credit costs will cripple us for a decade or more, so they’re being kept low for political reasons, fuelling yet another bubble. i mean, imagine interest rates returning to the long term average of 7% ish. normal people would be f.cked.

[JQH]

i mean, imagine interest rates returning to the long term average of 7% ish. normal people would be f.cked.

Indeed, especially when you consider the monster mortgages people have to take out to buy a home these days.

[plodder]

Worth considering that Islamic banks don’t charge interest on loans, they treat them like a shared investment. They’ve been around a while.

[plodder]

i mean, imagine interest rates returning to the long term average of 7% ish. normal people would be f.cked.

Indeed, especially when you consider the monster mortgages people have to take out to buy a home these days.

Exactly. Cost has rocketed in part due to clever cheap credit offerings.

[lpm]

Credit costs are (in simple terms) the margin above base rates.

So you might pay 1.75% on a mortgage, being 0.10% base rate plus 1.65% margin to reflect the riskiness of your borrowing.

But you might pay 3.50% on your credit card, being 0.10% plus a 3.40% margin for unsecured borrowing.

A farmer might pay 2.50% secured on his potato tractor but 7.50% to finance his new restaurant venture.

Global interest rates have been very very low due to the financial crash, followed by being knocked down again by the pandemic. But the margins we all pay are also getting lower and lower. We used to pay 6% or 8% margin on credit cards which has been cut to 3% or 4% by the sophistication of predicting risk by the financial markets. That's the real saving we are all getting.

Interest rates won't rise to 7% unless inflation rises to around 5% - which would be very welcome for a while. House prices are driven upwards by low interest rates - people can afford the larger mortgage when interest rates fall and house prices rise, but can't afford the required deposit.

[Bird on a Fire]

My bank account does 0.5% APR, I have an (unsecured) loan at 9% and my credit card is 18%. Those interest payments are going somewhere, but not into low-earners current accounts.

Do I take it that, if the base interest rate went up, I might get 7% on my (purely hypothetical) savings, but a loan could be 16% and credit cards 25%?

And is all the difference explained by rates of non-payment on loans and credit card payments?

ETA Just checked, and my current account is actually 0% APR for people paying in less than £1000, which is how much I earn.
ETA2 credit card is 19.9%

[bolo]

Do I take it that, if the base interest rate went up, I might get 7% on my (purely hypothetical) savings, but a loan could be 16% and credit cards 25%?

You might, but as usual it is somewhat more complicated than that. In some places there is a legal limit on the interest rate you can be charged. Demand for loans drops when rates go up, which may put pressure on banks to raise rates less. On the other hand, if banks can't charge interest rates as high as they would like, they may instead just make fewer loans to riskier borrowers.

I'm an amateur. LPM can probably give a more complete answer.

[lpm]

Jesus, BoaF, you must be a shocking credit risk. Tesco do unsecured loans from 2.9%. There must be some way you can consolidate all that into lower interest charges.

[Bird on a Fire]

Jesus, BoaF, you must be a shocking credit risk. Tesco do unsecured loans from 2.9%. There must be some way you can consolidate all that into lower interest charges.

I probably am. (To be fair, it's not a huge amount - £3k left on the loan and £300 on the credit card, which I only use for short-term PhD expenses which I have to pay up front.)

When I took it out I had just finished a masters and was working part-time on a zero-hours contract, so I just had debt from studying and very little provable income. None of the cheap providers would touch me (though I think those ultra-low headline rates are typically for homeowners with high salaries anyway).

Now I'm doing a PhD I don't even count as employed (though it's complicated by the fact that I earn in Portugal and have debts in UK). And with the academic job market as it is I'll be unemployed for months when my contract's up, scraping by on scrappy little contracts and whatever savings I can muster by then. Or I might well jump sectors.

Obviously I don't own anything valuable, because I'm young and most of my relatives are still alive (thankfully!).

I don't think cheap credit exists for low-earners without wealth (for understandable reasons, of course).

[Bird on a Fire]

Just to be clear, I'm not posting from a "woe-is-me" perspective - I've chosen my current professional path deliberately, and have always known I wouldn't be making much money at this point. I even turned down a couple of decent salaried positions before starting the PhD. I think my longer-term prospects are relatively decent.

But there are plenty of people in pretty similar positions (low, variable income, especially via zero-hours contracts) who don't have being a Doctor of Birdology to look forward to at the end of it. I think the same structural issues making my finances difficult also apply to other people in comparable situations who don't have much of a way out, and that's a Bad Thing.

[lpm]

Senator Elizabeth Warren seems to agree with plodder more than lpm.

Don't be silly, lpm's craziest sock puppet yet.

What Elizabeth Warren said:

Casino-like swings in stock prices of GameStop reflect wild levels of speculation that don’t help GameStop’s workers or customers and could lead to market instability.

What I said:

Everyone realises that it's the Reddittors who are the villains, right? A few of them will make money. But at the likely cost of driving GameStop into bankruptcy and its employees to the unemployment lines, plus a bunch of reddit gamblers losing their money.

[Herainestold]

Senator Elizabeth Warren seems to agree with plodder more than lpm.

Don't be silly, lpm's craziest sock puppet yet.

What Elizabeth Warren said:

Casino-like swings in stock prices of GameStop reflect wild levels of speculation that don’t help GameStop’s workers or customers and could lead to market instability.

What I said:

Everyone realises that it's the Reddittors who are the villains, right? A few of them will make money. But at the likely cost of driving GameStop into bankruptcy and its employees to the unemployment lines, plus a bunch of reddit gamblers losing their money.

I'm not your sock puppet. Just send me a PM and I'll tell you I'm not.

[plodder]

Global interest rates have been very very low due to the financial crash, followed by being knocked down again by the pandemic. But the margins we all pay are also getting lower and lower. We used to pay 6% or 8% margin on credit cards which has been cut to 3% or 4% by the sophistication of predicting risk by the financial markets. That's the real saving we are all getting.

OK, look. You need to stop and listen to yourself for a bit.

You’re saying that interest rates are historically low because of two things: the economy is f.cked (due the financial services sector mispricing risk) and because financial services allow us to sail closer to the wind than ever before due to their amazing sophistication at pricing risk?

Are you sure you don’t want to backpedal a little?

[nekomatic]

I’m not clear what you think is wrong with either of those statements.

[plodder]

I’m not clear what you think is wrong with either of those statements.

They don’t combine to form a coherent statement. It’s evident that the financial services sector is not actually very good at pricing risk, as they’re actively creating yet another credit bubble.

[bolo]

There's an article in the WSJ today profiling a Youtuber/WallStreetBets personality who has a few tens of millions of dollars worth of Gamestop stock and is no doubt excitedly urging his followers to keep buying. All just for a laugh, I'm sure. No market manipulation here, no pump-and-dump, just good clean fun and sticking it to the nasty hedge fund guys. The Reddit folk are heroes, so the article is obviously lying when it claims that "an off-Reddit chat room associated with WallStreetBets is filled with obscenity, racism and antigay screeds."

[plodder]

lol, just go on reddit yourself and find out?

[Bird on a Fire]

If he still holds millions in shares he's not done a good job of the dump part of pump-and-dump.

As for an "off-reddit chatroom associated with" - whatever that means - it's plausible. Probably somewhere like voat, the racist version of reddit. Don't see the relevance beyond a lame attempt at a vague smear. Bankers are so racist they donate to the GOP and voted for Trump.

I'm not sure why people struggle with the idea of nuance, or of things being relative. The reddit guys are clearly less rich and powerful than hedge funds, but obviously have some spare cash. Posting on a forum might manipulate the market, but less so than mainstream media hit pieces. A mature ideology can cope with shades of grey.

[bolo]

lol, just go on reddit yourself and find out?

I have. Have you? It's tulipmania but with more neckbeards in basements.