Should contracts for difference be outlawed by the ECB?

Leinsterr

Just wondering what people think about this. This basically led to Sean Quinn's downfall and caused a lot of problems. Anyone agree?

srsly78

What problems? He entered into a contract freely. Would it be a problem if he had made billions instead of losing?

CFDs are a type of derivative. Do you want to ban derivatives?

A derivative is a contract entered into by two parties - as you can see this could mean pretty much any deal you can think of. Should we stop parties from making deals with each other?

Scortho

Leinsterr wrote: »

Just wondering what people think about this. This basically led to Sean Quinn's downfall and caused a lot of problems. Anyone agree?

So because a multi billionaire fecked up you want me to invest/speculate my money on ways I see fit. Many people had bets on Liverpool to win at the weekend and lost their money. Should we ban bookies?

Cfds are a great way to leverage your investment, so long as you know the associated risks and are willing to take them. As well as that one should really know when to get out of them as well.

Not expect the irish taxpayer to throw you a couple of billion because sure you were a large employer.

Farmer Pudsey

CFD and many other other derivative products should be baned or else stamp and tax duties should be levied. They serve little or no purpose in the real economy however they can be used to destablise finiancial systems. If you had money in a bank and heard that it was betting on horse's would you withdraw it. Well a lot of derivatives and Finiancial instruments are little better.

These were the one of the main cause's accross the world of the present fiancial crisis. They do not create wealth in the real world rather they seem to be a form af legalised finiancial gambling and the risk attached to the economy by them far outweight there benifits.

However the biggest issue is getting aggreement accross fiancial markets to tax them equally

Scortho

Farmer Pudsey wrote: »

CFD and many other other derivative products should be baned or else stamp and tax duties should be levied. They serve little or no purpose in the real economy however they can be used to destablise finiancial systems. If you had money in a bank and heard that it was betting on horse's would you withdraw it. Well a lot of derivatives and Finiancial instruments are little better.

These were the one of the main cause's accross the world of the present fiancial crisis. They do not create wealth in the real world rather they seem to be a form af legalised finiancial gambling and the risk attached to the economy by them far outweight there benifits.

However the biggest issue is getting aggreement accross fiancial markets to tax them equally

Should we ban betting on the 2:30 because some chap could spend his weeks wages on it and not have food to feed his family.
Same thing, except on a smaller scale.

Again if you don't want to get involved in Cfds, spread betting, derivatives, short selling, bonds, currencies etc then you don't have too. But if two individuals or institutions want to take the risk and people are willing to give them money, why shouldn't they be allowed? Yeah they might lose and yeah they might gain!
Someone will always be the big swinging dick and someone will always lose.

sock puppet

I think buying futures or writing put options would create similar downside risk even if they were banned, though they're usually quite short term.

Cookie_Monster

As an accountant who has previously worked in areas where these are used I absolutely agree they should be banned or at the very least taxed as if they were a product or service transaction. There is no need for them, work for the sake of work, fictional transactions that do nothing but drive up commodity prices in the long run for end users. the whole industry is just an example of a parasite leaching off the actual movement of goods and selling of services.

Cookie_Monster

Scortho wrote: »

But if two individuals or institutions want to take the risk and people are willing to give them money, why shouldn't they be allowed?

because they drive up the prices for everyone, most of the oil price fluctuations over the last few years have been driven by fictional trading rather than actual real events, it affects everybody. Throwing a tenner of some horse doesn't.

Farmer Pudsey

Scortho wrote: »

Should we ban betting on the 2:30 because some chap could spend his weeks wages on it and not have food to feed his family.
Same thing, except on a smaller scale.

Again if you don't want to get involved in Cfds, spread betting, derivatives, short selling, bonds, currencies etc then you don't have too. But if two individuals or institutions want to take the risk and people are willing to give them money, why shouldn't they be allowed? Yeah they might lose and yeah they might gain!
Someone will always be the big swinging dick and someone will always lose.

Banning hosre betting is something that I am agnostic about. However if Johnny bets his wages on the no2 at the 2.30 race in the Curragh it will not have a ripple effect accross the economy. However the same cannot be said about CFD's and alot of derivatives. The other issue is that a lot of these companies, funds and intitutions may not be able to cover there bets. In this case the general public has to pick up the tab in the form of extra taxes, leveys etc.

They also as they are untaxed contribute little or nothing to the economy. The risks attached far out weight the benifits

luckystrike23

You can't ban CFDs. We are not the USA - they have banned such products but they have options and futures there which basically serve the same purpose. The thing we should ban is the financial transactions tax that is going to make it more expensive for anyone to transact in anything - bonds, stocks..etc

http://www.contracts-for-difference.com/

srsly78

Cookie_Monster wrote: »

because they drive up the prices for everyone, most of the oil price fluctuations over the last few years have been driven by fictional trading rather than actual real events, it affects everybody. Throwing a tenner of some horse doesn't.

This is incorrect. They actually drive down prices by making the market more efficient. Compare the historic market with the modern market.

Derivatives do serve a legitimate purpose, but get a bad rep because they can also be used for reckless leverage. Conversely they can also be used to reduce risk (hedging).

KyussBishop

If they allow reckless leverage and the blows up, harming both the economy and taxpayers pockets, that is not efficient, that is ridiculously economically and socially destructive.

Here is a rather good article on how speculation though such financial instruments is driving inflation of oil prices:
http://www.forbes.com/sites/johntharvey/2011/04/26/why-you-are-paying-so-much-for-gas/

srsly78

If so then they are just stoking a bubble and will lose their money when it pops (thus giving us lower prices).

It's either that, or the price is right - and it reflects projections for massive future demand from the likes of India and China.

This is crystal ball stuff and hard to prove.

Consider that our very own ESB hedges it's risk by buying oil futures. This would be an example of derivatives giving us lower electricity bills, or at least taking the edge off any big spikes.

@kyussbishop: You are complaining about the socialising of losses. This is an entirely seperate argument, for what it's worth I would agree with you. Failed gamblers should not be bailed out. Corollary: institutions should never become "too big to fail".

KyussBishop

No, the people who lose money are the people paying higher prices for oil, i.e. everyone in society, since production of everything is connected to oil in one way or another. This is nothing to do with socialization of bank losses, this is a direct loss from people having to pay an inflated price.

You don't let bubbles form for such essential commodities in the first place, because it harms everyone (just like the way you don't want to let bubbles form in the housing market either, since that has put out economy into massive turmoul); you properly regulate the markets and the use of financial instruments (such as limiting the amount of financial instruments any one company can hold on a commodity), so they can not be used for such speculation.

srsly78

Easily worked around by creating lots of subsidiary companies (possibly offshore) and so on.

Saying we should stop bubbles forming is great, but it basically means telling people to stop being silly. Yes governments can incentivise/decentivise behaviour somewhat but bubbles have been around for a long time despite their best efforts.

KyussBishop

It would be extremely easy to tweak the regulations to require proper company registration and licensing for trading on the oil market (disallowing offshore companies, and counting subsidiary trades under parent companies limits), and to impose heavy fines for any company caught breaching the rules by trying to get around the regulations.

People aren't just going to accept the assertion that bubbles are inevitable, and say "ah well, lets just free finance from all regulations, so speculators can impose their rents on prices and cause massive economic destruction"; that's ridiculous and based on a wholly unfounded assertion.

srsly78

I did not assert bubbles were inevitable, I merely pointed out the success rate enjoyed by governance throughout history.

How do you force the people selling oil to do it your way? Oh yeah, guns and stuff.

NAP123

Scortho wrote: »

Should we ban betting on the 2:30 because some chap could spend his weeks wages on it and not have food to feed his family.
Same thing, except on a smaller scale.

Again if you don't want to get involved in Cfds, spread betting, derivatives, short selling, bonds, currencies etc then you don't have too. But if two individuals or institutions want to take the risk and people are willing to give them money, why shouldn't they be allowed? Yeah they might lose and yeah they might gain!
Someone will always be the big swinging dick and someone will always lose.

I have no problems in somebody taking a punt with their own money.

This is not what happened with Sean Quinn and is not what happens with other companies.

Banks should be disallowed from loaning money for the purposes of gambling and therefore nobody should be allowed borrow money, to purchase CFDs.

Betting on the failure of something when you have the financial power to guarantee it's failure, is not a bet it is a guarantee and skews the market.

Therefore it is criminal and should not be allowed.

CFDs cannot be managed or regulated and should be banned.

Of course they won,t, because the banks need to load the dice in order to keep their criminal empire.

Scortho

NAP123 wrote: »

I have no problems in somebody taking a punt with their own money.

This is not what happened with Sean Quinn and is not what happens with other companies.

Banks should be disallowed from loaning money for the purposes of gambling and therefore nobody should be allowed borrow money, to purchase CFDs.

Betting on the failure of something when you have the financial power to guarantee it's failure, is not a bet it is a guarantee and skews the market.

Therefore it is criminal and should not be allowed.

CFDs cannot be managed or regulated and should be banned.

Of course they won,t, because the banks need to load the dice in order to keep their criminal empire.

Should people be allowed borrow money to speculate on the value of property? Should they be allowed borrow money to speculate on the value of wine or art?
Because all 3 can rise and fall in value.

Sean Quinn started off with his own money (equity in his own investments) and was going fine until the tides turned against him and he lost his shirt. Had Anglo not given him a loan to cover his losses, the people who he had the Cfds with (I think a bank in Switzerland) would have came in and cleaned him out a few years earlier.
No one knew for sure that Sean Quinn was involved in Anglo for a good while although rumours did pop up from time to time.

If we ban Cfds much more complex financial instruments with greater risks attached will pop up such as CDOs in combination with CDS (Paulson and co with Goldman Sachs.)

For me what John Paulson did in 2005-2007 was genius!