Questions to which the answer is "no"

From the BBC:

Gambling ads: Would a pre-watershed ban protect young people?

This is an ineffective solution to a non-existent problem. Fun article though, they're really jumping the shark.

Next.

Fun Online Polls: Fixed-odds betting terminals & The Brexit Bill

The results to last fortnight's Fun Online Poll were as follows:

What 'should' be the maximum bet on fixed-odd betting terminals?

£2 - 19%
£20 - 4%
£200 - 1%
It's none of the government's business - 76%

Thanks to everybody who took part, 105 votes in total, a good turnout (albeit spread over two weeks).

'Nuff said, I think. These machines - and gambling in general - is something I (and presumably a lot of other people) instinctively dislike, it's always a negative sum game and seems all rather depressing. But that in itself is no reason to ban something.
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Our strong and stable leader appears to be adopting a bizarre variant of the black sheriff in "Blazing Saddles"'s negotiating tactic, i.e. taking the whole country hostage and offering to pay the EU £40 billion in ransom for a safe return of the Brexit negotiations.

Ho hum, seems a bit craven to me, but not as bad as the original ransom demand of about £100 billion.

So that's week's Fun Online Poll.

"How much should the UK be prepared to pay the EU to kick start the Brexit negotiations?"

Vote here or use the widget in the sidebar.

Fun Online Polls: The North-South divide; Fixed Odds Terminals

The results to last week's Fun Online Poll were as follows:

The UK's North-South divide runs from...

Chester to London - 8%
Bristol to Norwich - 76%
Other, please specify - 16%

A low turnout of 50,even though I was away last week so this Poll ran for a fortnight.

Thanks to everybody who took part or left a comment, but I'm with the majority on this. If you've spent half your life in Oop North and half Darn Sarf, you know the difference.
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And lo, The Righteous are out in force again:

Gambling addict warns against fixed-odds betting terminals

A recovering gambling addict has warned others about the dangers of using fixed-odds betting terminals in bookmakers. The man, who asked to remain anonymous, said he had lost as much as £15,000 in a day at betting shops in Reading town centre.

The government is conducting a review into the machines, which account for more than 50% of bookmakers' profits. The Association of British Bookmakers said a report suggesting the maximum bet should be reduced from £100 to £2 was "flawed".

You can't even begin to pick holes in these claims and counter-claims, they are one giant hole. I'm not going to waste your time or mine by trying to guess what the actual substance is before picking holes in it anyway. The only fun bit is waiting for Philip Davies to spring to the defence of the betting industry for the eight zillionth time.

So that's this week's Fun Online Poll.

What 'should' be the maximum bet on fixed-odd betting terminals?

Vote here or use the widget in the sidebar.

Consolidation.

I switched on the TV the other day. There were four ads between programmes. Two of them for online gambling, two for pay day lenders.

If they are smart, these companies would merge, as they have mutually inclusive goals. It's a win-win.

How about "BETLOAN" your one stop gambling shop?

Reader's Letter Of The Day

From The Evening Standard (8 August 2013, page 53):

BY campaigning against the proliferation of betting shops in his constituency, Shadow Business Secretary Chukka Umunna has probably been acting in Gala Coral's best interests.

According to your article, Coral already has two betting shops in Umunna's Streatham constituency, so its former chairman Neil Goulden presumably has every interest in ensuring that no further licences are granted to ensure it market share is not diluted.

Mark Wadsworth, Buckhurst Hill.

Sometimes you get what you pay for

From The Evening Standard:

Labour's rising star Chuka Umunna was accused of hypocrisy today for accepting a £20,000 donation from a gambling tycoon while publicly attacking the number of betting shops [in his own constituency]...

Conservatives claimed the shadow business secretary was guilty of double standards for accepting the sum from Neil Goulden, chairman emeritus of the Gala Coral Group, one of Britain's biggest bookmaker and leisure chains.

There are no double standards here. From the point of view of the donor, this is actually entirely consistent and coherent and Chucky was at all times acting in Gala Coral's best interests.

According to the article, Gala Coral already has two betting shops in Chucky's constituency, so Gala Coral has every interest in ensuring that no further licences are granted, thus ensuring that its market share is not diluted by new, competing businesses.

"Yet the really interesting thing about the tulip boom is that it did not end in universal disaster..

From Andrew Marr's A History Of The World (not the best book ever but well worth £4 if you can plough through it quickly enough so as not to get confused by the fine detail):

... or even in the widespread bankruptcy of Dutch speculators. The Estates General which ran the republic refused to take special measures, and passed the problem back to the civic authorities.

Many towns, in their turn, refused to process or hear any court actions involving the tulip trade, carrying on as if none of it had really happened and allowing the paper losses and the paper gains to wipe each other out.

If the dreams of sudden enrichment were snatched away, so were the nightmares of destitution.

This concept is of much wider application of course and I have alluded to it often enough.

There is more of everything in densely populated areas - shock

From The Daily Mail:

On high streets where many shops still lie empty as they recover from the worst recession in Britain since the 1930s, one type of business has continued to thrive in the economic gloom.

Bookmakers have swamped the UK's shopping parades – with numbers up 25 per cent since 2008 - and in one London borough, Newham, there are currently 82 - six per square mile.

Around almost every corner in this generally deprived part of East London are shops where people can stake £100 a spin on casino-style gambling machines, which are as addictive as crack cocaine.

Yesterday Newham Council was in court to defend its decision to block plans for a new Paddy Power shop, and if they win it could lead to hundreds of betting shop licences nationwide being turned down or revoked.

OK, is that really an abnormally large number of betting shops?

1. There are about 8,500 betting shops in the UK.

2. The UK has a population of about 62 million.

3. So that's about 1 betting shop per 7,300 people.

4. The borough of Newham has a population of about 310,000

5. 310,000 divided by 7,300 = 42.5

So that area has about twice as many bookies as you would expect, which surely is not abnormal, they're just at the far end of the bell curve.
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Footnote - in a former life, I had a client who'd run a couple of betting shops, he said it was fairly easy money but the biggest profit was getting a licence in the first place (which appears to be specific to the building, not personal to the applicant), which increased the value of those premises by about £100,000 (and that was 15 years ago).

So you could make a handsome turn by getting the licence and then selling the place. If the local council hands them out like confetti, then the value will be lower, but if it starts revoking them, the embedded value of the still valid licences will go up and up.

Whatever next?

From The Age:

The Prime Minister, Julia Gillard, has defended the government's intervention in gambling advertising during live sports broadcasts, declaring it has balanced community concerns with the economic needs of broadcasters.

Ms Gillard formally announced the government's demand that TV and radio networks ban the promotion of live odds and restrict gambling advertisements during sporting matches in a press conference at Kirribilli on Sunday afternoon.

In other news:

Adverts for kids' toys and fast food to be banned from children's TV; adverts for cars to be banned from repeats of Top Gear on Dave; adverts for food and supermarkets to be banned from cookery programmes (that's Food Network down the tubes, eh?); adverts for DIY superstores to be banned from home makeover shows; adverts for cosmetics and perfume to be banned from Loose Women etc etc etc.

"Yes We Vati-can!"

When I saw this in The Metro last week, I initially assumed it was a spoof, but it is actually a gloriously tasteless genuine advertisement:

Fun with JP Morgan

There are plenty of stories about JP Morgan bank losing £2 billion on some stupid bet, but the interesing question is, who took the other side? That money doesn't just disappear into thin air.

According to CNBC:

... as a trader for JPMorgan in London was selling piles of insurance on corporate debt, figuring that the economy was on the upswing, a mutual fund elsewhere at the bank was taking the other side of the bet.

The trade contributed to more than $2 billion in losses for JPMorgan, which disclosed the loss last week. The hedge funds, including Blue Mountain Capital and Blue Crest, have profited handsomely thus far as the markets move against JPMorgan.

But perhaps one of the most surprising takers of the JPMorgan trade was a mutual fund run out of a completely different part of the bank. The bank’s Strategic Income Opportunities Fund, which holds about $13 billion in client money, owns about $380 million worth of insurance identical to the kind the “London whale” was selling, according to regulatory filings and people with knowledge of the trade. It is unclear how much the fund made.

The good news is, whoever takes the winning side of the bet gets a big bonus and whoever takes the losing side gets a smaller bonus, or none at all. So it's in the interest of bank employees and hedge fund managers, taken collectively, to make as many stupendously large bets with other people's money as possible on anything that looks even vaguely plausible; whatever happens, their overall wealth increases and everybody else's overall wealth goes down. But I am sure that all these traders and experts are far too honourable (or too stupid) to ever cook up such a scheme.

Reader's Letter Of The Day

From The FT:

Sir, Why are bookmakers apparently so much better at risk control than investment bankers?

Ian Maitland, London SW1, UK.

On the infinite stupidity of European Parliament

From Europolitics:

The European Parliament is attempting to rid the EU of speculators betting on Greece going bankrupt, voting for a ban on the practice of naked short-selling of credit default swaps... CDSs are insurance-like contracts that pay the buyer if a country or company goes bust.

OK.

Buying a CDS is analogous to buying insurance.

If you own a house, you are "long" of a house and you can insure it against the risk of it burning down. The insurance company doesn't own your house (the bank does, probably). It is gambling on your house not burning down (or fewer houses burning down).

If you own Greek bonds, you are "long" of Greek bonds. You can insure against default by buying a CDS. The seller of the CDS doesn't own Greek bonds, and is gambling on Greece not defaulting.

The owner buys insurance, the insurance company sells insurance. You buy a CDS, the insurer sells a CDS.

If you own Greek bonds and buy a CDS, your risk is 'covered' and you are now indifferent whether Greece defaults. The insurance company has sold you a "naked" CDS and has every interest in Greece not defaulting.

The general rule in insurance (apart from life insurance) is that you can only insure something up to the lower of its value or replacement cost; if you over-insure, you have every incentive to burn down your own house and pocket the difference.

Now imagine, I could buy "naked" insurance, i.e. I don't own Greek bonds (or your house) - then I have every incentive to trigger a Greek default (or to burn down your house). And as we know, setting fire to a house is easier than preventing other people from doing so - there is assymetry of risk here.

So it's the BUYERS of "naked" CDSs who cause the problem (to the extent that there is one) and not the SELLERS - all insurers are by definition "naked" sellers. Greece (or its new rulers, the EU) ought to be rejoicing every time a major financial institution sells naked CDSs because this institution has just put itself in to bat for Greece.

Here endeth.

Reader's Letter Of The Day

From today's FT:

Sir,

Greece can’t be allowed to fail – to save French and German commercial banks. But a failure has to be engineered in a way that saves commercial banks from having to pay out on the credit default swaps insurance for which they have already taken large premiums. Tails really do wag dogs.

Keith Wallace, London EC2, UK .

More Banking Blackmail Fun

The Daily Mail merrily repeats a story which is patently untrue:

Britain could be hit with losses of up to £366 billion from the collapse of the Greek economy, it has emerged. Ministers had claimed that British banks have 'only' £2.5 billion of exposure to Greek government debt, while the Bank of England says the potential losses would be just £8 billion.

But experts last night said that UK financial institutions are in far more danger than previously thought, because banks are tied up in complicated derivatives and insurance deals. They warned that if Greece defaults on its debts the crisis could cause a series of dominoes to fall, with Portugal, Spain and Ireland heading to the wall in turn...

Ho hum.

The nominal value of all these side bets may well be £336 or £366 billion (the headline and the contents of the article are not consistent), they may well be £3,360 billion or £3,360 quadzillion, but it's still nothing to worry about. As I've said before, beyond a certain level, it's not proper money any more, it's just numbers on bits of paper:

1. These banks and financial institutions have all made bets with each other, it is a zero sum game, so even if some banks end up losing a total of £336 billion, other banks will win £336 billion - and I'd assume that most banks have inadvertently made each-way bets because different departments can and do take opposite positions.

2. The total amount that any bank can lose is capped at its total net assets; I guesstimated the total net assets of UK banks (i.e. shares + bonds) at £873 billion last time I looked, so absolute worst case, UK banks have only bet with non-UK banks and they lose every single bet, shareholders and bondholders would lose just under half their capital.

3. Commonsense tells us that if you have assets worth £10,000 and foolishly enter into a £1 million bet which you lose, the maximum you can lose (and the maximum amount which the other person can win) is £10,000, which whittles that £336 billion down even further.

4. Let's say that Big Bank and Small Bank have entered into such a bet and Big Bank wins - the most extreme outcome is that Small Bank loses everything and, having nothing left to offer, is taken over by Big Bank lock, stock and barrel. So along comes the Monopolies & Mergers Competition and splits them up again, big deal.

Debt For Equity Swap Of The Week

From The Telegraph:

The owner of the 1,600-strong Coral betting shop chain and the Gala Bingo business said four of its mezzanine debt owners had taken control after converting their £558m holding into equity and injecting another £200m cash to pay down senior debt.

Candover, Cinven and Permira – the buyout houses which owned what was once Britain's biggest private company – have exited the group. Permira is thought to have lost most of the £500m-plus it invested... Apollo, the biggest mezzanine holder, will emerge as Gala's largest shareholder with a 25pc stake. Cerberus will own 18pc, with Park Square taking 8pc and York Capital, 4pc.

1. Just to strip away a bit of jargon, 'senior debt' means most likely to be repaid and 'junior debt' or 'mezzanine debt' means least likely to be repaid, i.e. just above share capital.

2. So we can imagine Candover et al to be like over enthusiastic buy-to-let landlords, who borrowed money from Apollo et al but couldn't repay it out of rental income (in this case, the profits generated by Gala Coral. Apollo et al repossess the rented properties (the underlying business), and because the rented properties have some value and generate income, they don't demolish the rented properties (liquidate the business) they just take it over and keep going. Candover et al appear to have been wiped out, because they were in 'negative equity'.

So far so good.

3. The gimmick is that banks are actually in the same position as Candover et al*. The banks they have assets of a certain positive value (mainly money they have lent to people and which is being repaid with interest) and a to a large extent they are financed by borrowing money from other people (call it 50/50 between ordinary depositors and bond holders).

4. In the absence of government bail outs and guarantees, the shareholders would have been wiped out long ago, bond holders would have waived the right to be repaid the full face value of their loans to the banks (i.e. 'bonds') and would have become shareholders instead. Ordinary depositors can be considered to be 'senior debt' in this example, and would not be converted to equity.

5. What's interesting in this case is that the negotiations had been dragging on for nearly a year.

* You sometimes find almost endless chains - perhaps Apollo are in hock to a bank, so that bank takes over part of Apollo (debt-for-equity swap); but then that bank finds the value of its Apollo stake is not enough to repay its own bond holders, so the bank does a debt-for-equity swap with its own bond holders (who are in many cases other banks) and so on and so forth until the whole credit bubble is collapsed back to the underlying assets on one side (houses or businesses) and people who own them on the other side, without dozens of middlemen in between.

Ask a simple question...

Tim Worstall in 'Polly on gambling '...for the government to be screwing 14% of total turnover out of an industry is really quite impressive: outside sectors like domestically pumped oil (with the royalties upon it) I’m not sure that there is any other sector so heavily taxed. Be very interested to know if there is of course.

Me in the comments: 'any sector that produces VAT-able supplies hands over just under 15% of its turnover as VAT. Sure, the nominal VAT bill is reduced by the input VAT they have paid to their own suppliers, but the total bill, VAT paid to HMRC plus input VAT paid to suppliers is 14.8936% of turnover. Next question.'