Losing money – how to do it.

The concept of losing money – once upon a time, it was a very simple concept. Not any more. 

Losing money used to be a simple measure of how much you have now, against how much you had before. Any decrease and you had lost. Any thing else and you were quits or richer. Either way, not a loser. Those were gentle times. Ours are not.Today you can have officially lost money and be a loser, even if you made a profit and are richer. This new kind of, high pressure ‘losing money’ is part, I argue, of what is driving volatility, risk and all manner of financial idiocy.

You see, losing, is no longer measured against the static yard stick of what you had before. It is now measured against the moving target of what you could have possibly made if you had made as much as the person who made the very most. You made x. The whizz kid who has his eye on your job made x times 2. The difference between what you could have made and what you actually did, is the amount you lost. The magnitude of your failure as a trader.

This is now, how finance works. The city advertises its ‘star’ investors and fund managers. It shouts the percentage their fund could make you. It sneers at all those those who made LESS. The fact that they actually made a profit pales before the acid comparison with what they SHOULD have made if they weren’t LOSERS.

And this is why the city chases risk and abuses leverage like they were drugs. It is a matter of personal and company survival. How are you going to be the all-conquering banker, commanding the huge bonus if you make less than some other rising star? How will your hedge fund make the A-list if it doesn’t ‘perform’ up there with the best returns anyone has ever seen? Well, you won’t.

Of course the corrective to this was supposed to be the sobering and steadying possibility that you would over-reach. You would take a risk too far, stretch your leverage too thin. And become that modern day leper – a ‘rogue trader’!

And of course the consequences of this was so dire that it would more than off-set the desire to win. This was the city fable of self-regulation and the natural corrective mechanisms of the market. But which were shown over and over again to be about as reliable and terrifying as the threat of Greek income tax.

Of course the failure of these corrective “self regulatory mechanism’ was glossed as ‘animal spirits’ or ‘irrational optimism’ and other such econo-mumbo jumbo. As if crash after crash, Dot.com bust after Tech bubble bust after Savings and Loan scandal were some sort of, boys will be boys, high jinx to be overlooked and tolerated as a necessary part of life.

And then when the BIG bust came after an orgy of risk and idiocy to end all orgies finally had a massive coke fuelled coronary right there on the trading floor, the bankers discovered the ANSWER – too big to fail. And lo, there was no threat of loss – AT ALL. Now they can take any risk they want. DO it with money that they didn’t even have to earn and if it goes wrong – just shriek and scream that the world is going to end until they are given another bail-out.

Losing money is now something only tax payers do. How else do you think 4 of the big 5 US banks made money every day and did not lose a cent?

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