"Ladies who do"

They showed this film on BBC2 a few weeks ago. I was interrupted while watching, so I set the Freeview box to record it. Unfortunately it missed the last ten minutes, so I've had to make assumptions on how it actually ends.

UPDATE: Derek has found it on YouTube.

Despite seeming really old-fashioned at first glance (filmed in black and white in 1963), it is as relevant today as it was then, and is a good template for all the similar films in the 1980s and 1990s ('Trading Places', 'Pretty Woman' and so on). The surprisingly sophisticated plot has two main strands:

1. The central characters are some cleaning ladies who raid waste paper baskets and pass the information on to 'The Colonel' who knows how to use it for insider trading. They end up very wealthy when the last company on which they took a punt (which had nearly gone bankrupt) turns out to have "valuable deposits" (we assume minerals, it's not made clear) on its land.

2. A highly leveraged and increasingly desperate land speculator (he ends up refinancing at 40% interest IIRC) wants to buy up the company which owns the row of houses in which the cleaning ladies live, evict them, knock the houses down and build an office block on the site. The main character discovers this while doing her general snooping and spying.

The strands come together at the end when the cleaning ladies decide to use their ill-gotten gains to buy out the land speculator and go ahead with the redevelopment themselves. The main character tells her co-conspirators (who are becoming increasingly aware of their own moral ambiguity, having started off as heroic underdogs) that it doesn't matter that they don't have enough money to finance the construction as well: the potential gain is so large that they can get a construction company to do the work 'for free' in exchange for a share of the finished project (now modified to be two blocks of flats with shops on the ground floor).

She actually uses the expression "other people's money" nearly thirty years before the film of that name was released while she is explaining all this, and also explains how you capitalise rental income to arrive at the value of a project.

So all this was common knowledge sixty years ago, and probably had been for centuries. What's changed? Have we learned anything from this? It would appear not, this is how the stock exchange and land speculation work today. Land Value Tax would have prevented all this (apart from the insider trading bit, that's a job for Deposit Funded Corporations).

Film highly recommended, as mildly depressing at it is.

Insider trading and deposit-funded corporations

Stories like this or this always leave a bad taste, however much those involved protest their innocence.

That's another advantage of deposit-funded corporations, which wouldn't have shares which can be bought and sold on the stock exchange. They'd be like building societies (or LLPs, partnerships or unit trusts), you make your deposit, you are allocated your share of profits or losses each year (or month or quarter) and you withdraw your deposit plus accumulated profits when you need the money, or you would rather deposit with a different company which you think will give you a better return.

The point about insider trading is that you buy if you expect good news, i.e. the announcement of future profits, and you sell as soon as the news becomes official or public knowledge and the price has jumped. "Buy on a rumour, sell on a fact".

With DFC's, there'd be no point cashing in if future profits are expected to be higher, you'd sit tight and hope for a share of it. OK, you would still have an advantage if you knew the rumours before everyone else because you could add to your deposit before the news become official or public knowledge. But you wouldn't get your share of those profits until they are actually made and it would leave a longer paper trail.

Similarly, if you have insider knowledge of potential bad news (like the insurance company finding a loop hole that means they don't have to pay out on a factory which burned down), you would be tempted to cash in. But the company would have to make a provision for the future losses as soon as it knows and knock a percentage off everybody's deposit. So if senior managers withdrew their deposits before they make the provision and announce the bad news, that would be straightforward false accounting and fraud and much easier to prove than 'insider trading'.

And there would be no incentive to spread false negative rumours (to give you a buying opportunity) and then refute them (to give you a sell opportunity). Or vice versa. The amount of your deposit is entirely unaffected by rumours either way, the amount you can withdraw is only affected by what has actually happened in the past.

Carillion: Winners and Losers

City AM have listed the winners to save me the bother:

... Amid the chaos, however, lurk some cunning opportunists – most of whom can be found in Mayfair.

In many ways, Carillion has been the story of the short sellers. The most bet-against stock in Europe will see hedge funds share profits of around £300m between them. Marshall Wace took the biggest piece of this as shares plunged in the autumn. After it exited stage left, the fund was quickly replaced by rivals, steadfast in the belief worse was to come. Blackrock, the world’s biggest asset manager, has stuck around and still holds a chunky bet against the contractor.

Then there is a raft of advisers picking up hefty fees. The jewel in the crown would be the administrator mandate. EY is reportedly in the box seat, but pension scheme adviser PwC may cry foul, arguing its rival has a conflict given EY’s six-month role helping the company right-size operations.

But never mind the winners, back to the many losers from Carillion's decline – including, of course, the government. A decade on from the financial crisis it is incredible the state yet again finds itself under pressure to consider a taxpayer bailout of a private company, this time during a period of economic growth. Such situations imperil public faith in business and the very principles of a market-led economy, and remind us that regulators – in the financial sector and beyond – have some way to go before we can be confident that the spectre of bailouts has been consigned to the past.

As to paying hundreds of millions for "administration", sod that. All the government needs to do is send somebody round to each site where Carillion operates and tell everybody "You're working for us now, here's your new employment contract". Those people will then get onto their own suppliers and tell them to send future invoices to the Department of [whatever] and everything continues as was. It'll save the government taxpayer a fortune.

This is also another argument for deposit funded corporations - like building societies, co-operatives or partnerships, they don't have a share price, so speculators will have to find something better to do.