Bond funds and the ambiguities of Finance

I thought this post in Facebook’s page Insight Corporation and other groups deserved to be included here:

I must confess that I began my interest in Finance while living in the UK. I already had some inclinations for the subject, albeit not with the push and cultural pressure of living in a Country that has a comparative advantage in Finance for its Economy. I had the luck — or lack thereoff, depending on perspective — of being in the United Kingdom through the eye of the storm in 2007-2010, and of having witnessed a big chunck part of the drama. Later I was a bit confused by the acrimony of the Media mainstream and the wider Society about Finance and the bankers, and those weren’t easy days for someone not from the heart of the millieu, but with natural curiosity and an inquiring Mind always, specially about something new to himself… Anyway this comes about when I share this Matt Levine’s Bloomberg post, and I learn or rediscover the ambiguities surrounding modern high finance, which may explain a lot of the reasons why it shakes in displeasure so many Minds and with good reason. But when I think a bit deeper about all this, and when you know about the bright side of Finance and its widely understood positive externalities to any Economy, you just happen to get a belief that we are dealing with a subject where the ambiguity is or must be in some way tolerated and properly analyzed and scrutinized.

This isn’t to say that Finance is always good. No. But as with any Human endeavour, the more you develop it, the more sophisticated and intense it becomes, the more difficult it is to tame all the ambiguities… This is a question of, with all the rest being equal, and when the proper Value of what is being done is ascertained, the need to really have a way to tolerate and manage all the ambiguities, specially when those same ambiguities aren’t going to ‘materially’ harm anyone…

In the post Levine sides by the bright side of ethically avoid cheating, just for the sake of it and because everybody does it anyway as I would myself, but also says something in these lines which points to why this isn’t always necessariy the way to best go about ALL deals in Finance and sophisticated Investment:

 Still, you can see the appeal of this argument. If a bond investor is doing something socially worthwhile, it is by determining for herself what bonds are worth, and trading when prices diverge from her estimates of value. A big bond-fund manager who relies on the price a dealer gives her, without having her own independent idea of the bond’s value, in some sense deserves to be cheated.

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I must confess that I began my interest in #Finance while living in the UK. I already had some inclinations for the…

Posted by Insight Corporation on Thursday, December 10, 2015

When Can Bond Traders Lie to Their Customers?