[OPE] Where have all the gamblers gone?

Insight: Where are the Gordon Gekkos?
By Gillian Tett
Published: FT March 19 2009

... one of the real problems in the markets is not too much greed - but a desperate shortage of risk-taking speculation in almost any form. (...) Last week, for example, a group of senior hedge fund players and chief investment officers gathered in Dublin - and collectively guessed that about 80 per cent of the risk capital that was sitting in the European system a year ago has disappeared. In part that reflects a stunning wave of deleveraging and redemptions among hedge funds. Back in 2008, the global hedge fund industry had some $2,600bn of assets, according to Hedge Fund Intelligence, a research group. http://www.hedgefundintelligence.com/ The hedge fund gurus gathered in Dublin last week, though, reckoned that sum would be near $1,000bn [i.e. minus 60%] by the end of this year (and some projected dramatically lower). (...) traders in London say there is really only one bank in Europe which is even pretending to run an active prop [proprietary trading] desk now - namely Goldman Sachs. As a result, billions of dollars of risk-taking capital is believed to have quietly vanished. (...) The good news for the asset management industry is that as the high-rolling, highly leveraged hedge funds disappear, the problem of investor "crowding out" is disappearing too. That should make it easier for unleveraged asset managers to make a decent return from "simple" strategies - which in turn should tempt them back in. Indeed, some bankers think - or desperately hope - this week's equity rally could reawaken animal spirits soon. (...) http://www.ft.com/cms/s/0/e25b352a-14a0-11de-8cd1-0000779fd2ac.html?nclick_check=1

(By "risk-taking capital" they don't mean primarly entrepreneurial capital invested in means of production to make new products and services, but speculative capital invested in asset trades, where income is extracted from bets and insurance on fluctuations in their value. Imagine that real GDP had continued to grow at an average 4%+ a year or so from 1973 onwards, where would it be now? Most likely the lacklustre investment scene will last a couple years, at least. Question is, where did that one and a half trillion dollars go?).

J.

If you change your mind,
I'm the first in line
Honey I'm still free
Take a chance on me
If you need me, let me know,
gonna be around
If you've got no place to go,
if you're feeling down
If you're all alone
when the pretty birds have flown
Honey I'm still free
Take a chance on me
Gonna do my very best
and it ain't no lie
If you put me to the test,
if you let me try
 
- Abba, "Take a chance"

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Received on Sat Mar 21 23:43:43 2009