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BLOG SITE OF SPIRITUALMAN, KEVILL DAVIES

Novelist. Author of APSARAS and tales from the beautiful Saigh Valley. First person to quantify spiritual values.

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Tuesday, 12 October 2010

Arbitrage

Arbitrage is a financial instrument that makes money by exploiting the variation in the price of commodities in different markets. Sometimes it can be quite complicated when the commodities being traded might, themselves, be complex financial entities such as 'futures contracts'.

It is one of the ways, an investment bank or Hedge Fund might make money. Nothing is being manufactured or a service being provided. It is money making by purely computer based number juggling. Let me give you an example.
A City investment banker goes into the home of a frail old pensioner and notices what is certainly a long lost Rembrandt on the wall above the fireplace. It is dirty and smoke affected, hiding some of the finer points of the painting, but our banker knows a real Rembrandt when he sees one and offers the naive pensioner a tenner. The pensioner who needs the money, agrees and with some sadness, it has been in the family for years, hands the picture over. Six months later, after cleaning, the picture is sold at Christies for £10 million. That is arbitrage. Legal; certainly, but morally?

In the world of arbitrage it is a case of 'sellers, not buyers, beware'.

Is this what we want the UK noted for? In a country that spawned such great entrepreneurs such as Brunel, Stephenson and Babbage, do we really want the country to be best known for Spivs and Shysters. People who exploit the wealth other people have created.
I say, to start with, introduce a world-wide ban on the trade in assets not directly owned.

There has to be another way.

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