Tweet I still don't know why a New York based company would be so interested in what happens in Carmarthen West and South Pembrokeshire that they would want to bung £40,000 into the local Tory coffers; but I do know a little more about the company. Christofferson, Robb and Co are what is known as a hedge fund.
Hedge funds are not well understood outside their own sphere – and there are plenty of people who believe that they're not terribly well understood within it either. They are usually secretive, and much of what they do is completely unregulated. Different funds behave in slightly different ways, and because they are so secretive about their precise business, it is hard to know what any individual company is up to. But there are some generalities which are known.
Hedge funds often borrow many times the value of their underlying assets to buy things that they don't want and can't afford, and they sell things that they don't own. They then buy back the things that they sold but never owned in order to return them to the rightful owner from whom they were borrowed in the first place, and they sell the things that they bought but didn't want before they have to pay for them. They turn future profits which haven't been made into bits of paper which they can buy and sell before they even exist.
These funds are, in effect, gambling; and they are doing so with huge sums of money which aren't theirs and don't really exist. Betting on the future price of currencies, betting on the future price of shares, betting on the future price of commodities. Some of them even bet on the future value of the bets that they and others have already placed. They add an enormous degree of instability to the market place, and their whole ability to make money depends on market volatility. Their profits, made by making risky and usually short term investments, come at the expense of those investors who have to be more careful and long term with their money – investors such as our pension schemes and insurance companies.
So, whilst the overwhelming majority of us have a vested interest in financial stability and security, these funds – acting on behalf of already wealthy investors – have a vested interest in instability and volatility. They deliberately create volatility in order to benefit from it. They are a siginficant part of what has led to the recent instability in the markets – something from which we all suffer.
Some hedge funds trade in what are rather euphemistically referred to as "Mortgage Backed Securities" or MBS. These securities – the name is a complete misnomer, since there's nothing remotely secure about them – are the means by which the sub-prime crisis in America started and by which it was subsequently exported around the world. By separating lenders from the consequences of their foolish actions, MBS led to the collapse of Northern Rock in the UK and Freddie Mac and Fannie Mae in the US. In short, they are responsible for much of the financial crisis which has engulfed the world in recent weeks and months.
Let me be quite clear about this – the financial crisis is not simply an unfortunate accident. It is a consequence of virtually unregulated ('light-touch' regulation is the euphemism used by government) markets (the UK markets were deregulated by the last Tory government, of course, and Labour have done little or nothing to bring them back under control), corporate and individual greed, and foolish lending, aided and abetted by the creation of MBS to divorce banks from the risks of their lending.
What sort of hedge fund is the one which has been donating so handsomely to the Tories locally? It's hard to be certain. They certainly have been trading in MBS, and there has been talk that, after the collapse of the US market in this area, they would be investing in the same sort of business in Mexico. And they were one of the companies which was 'selling short' the shares in financial institutions such as Freddie Mac and Fannie Mae; that is to say selling borrowed shares in order to buy them back at a lower price before returning them to the owner.
The Tories cry crocodile tears over the problems faced by ordinary families as a result of the credit crunch; but they were responsible for creating the conditions in which the crunch could occur by de-regulating the markets, and they are clearly happy to be generously funded by companies which have been making their money trading in the sort of securities which caused the crunch.
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