Friday, April 18, 2008

Finance is like psychology. There are no definite answers, but with the right tools we get an idea

[Dangerous Expansion of the Fed's Power (by Don Boudreaux)
from Cafe Hayek by Don Boudreaux
Bill Shughart has
a second essay published by The Independent Institute, on the unjustified and dangerous recent expansion of the powers of the Federal Reserve. A selection: "And most worrisome, the regulatory reform plan also empowers the Fed to ensure "market stability," watching for threats originating anywhere within the financial system, be it from commercial banks, investment banks, mortgage lenders, hedge funds or insurance companies. As economists have asked: if smart, highly paid Wall Street investment bankers with huge financial positions on the line failed to foresee the risk to which subprime mortgages exposed them, how can one expect a regulatory agency to do so? And, what steps will the central bank take to "stabilize" markets, if it does perceive a threat? Will it continue to bail out institutions who run into financial trouble?"]

[‘There are no business ethics, only naked greed’ ET 18 Apr, 2008, Shishir Prasad & Pravin Palande, TNN. Satyajit Das, author of Traders, Guns and Money, has spent more than 31 years teaching and practising in the exotic financial derivatives industry. "I am not against change if the change is good. But there are no ethics in the business anymore. What we have is naked greed,” he says. ..."This is a clear case of massive information asymmetry between the foreign bank, the Indian bank and the Indian firm...For many of the CFOs, the remuneration is built around ESOPs. This gives all the more reason for the CFO to manufacture earnings than the core product. This is what leads to all the problems... The knowledge is useful. It totally depends on how you use it... Anyway, finance is not as complex as it is made out to be. If I say that my job is simple, I may not be able to justify the amount of money that I make. Hedge fund managers and other financial professionals get the highest fees for their work. Can they justify the fees if their field is simple? The field is deliberately made complex so it can be closed-door and very few people can access it. Secondly, there are sub-industries that survive because the field is apparently complex. People write books and there are training classes which are very lucrative and this is an industry on its own. Finance is like psychology. There are no definite answers, but with the right tools we get an idea. If you understand the basic principles of finance and have some luck, you can end up making a lot of money."]

What better tool than Intuition that is the fodder of The Life Divine? [TNM]

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