Careless Whispers

The London Paper  –  2 July 2007

Why does a dog lick its balls? Because it can. Why do certain hedge fund managers spread false rumours in order to get their grubby little hands on even more cash? The same goddamn reason. You don’t have to be a rocket scientist to work out that although spreading bogus rumours is illegal it’s a pretty rational thing to do for naughty hedge fund managers because the risks are minimal yet the rewards can be disgustingly huge. I believe we may have witnessed an example of this kind of skulduggery last Friday when a story appeared that Morgan Stanley was going to buy Dresdner bank off a German insurance company called Allianz.

Surprise, surprise nothing to date has materialized. However, that Friday shares in Morgan Stanley fell 3% whilst shares in Allianz rose 1.6%. This was mainly because predator companies are generally obliged to pay a premium to buy businesses which is clearly good for the prey but it is often perceived as a waste of cash for the acquirer.

So, if a cunning hedge fund manager had bought shares in Allianz, sold shares short in Morgan Stanley and then spread this rumour they could be sitting on a 2.3% one day return. All said scallywag needed to do was call up a broker and tell him that he’d heard from an analyst about this imminent deal. Before long mobile phones and internet sites across the world would be buzzing with the story and soon the original rumour-monger would almost certainly be rung himself by a Johnny-come-lately to the story. Then a sly smile would spread across his greedy face as he uttered the immortal words ‘This confirms exactly what I thought’. A £40m bet on this particular rumour could earn an unscrupulous fund around a £1m one day return and its managers £200K personally.

Profiting by spreading false rumours is the oldest trick in the book. However, over the last five years I’ve noticed it spreading like a malignant cancer and I attribute this almost entirely to the growth of hedge funds. Unlike conventional funds that invest for the long-term, many hedge funds are incredibly short-term. Although some of these jokers may be reluctant to ‘manipulate markets’ for ethical reasons (well perhaps one or two) very few would not do so for fear of being caught. That’s because being prosecuted for being the very first person to spread a rumour is about as likely as John Prescott being named Britain’s Poet Laureate and Mr Universe in the same year.

I reckon George Michael would have made a good hedge fund manager because he knew the power of a careless whisper. When potential rewards are so preposterously massive and the risks are so tiny who wouldn’t be tempted to be a little naughty now and then? Of course, my resentment toward these comedians is not because what they do is morally repellent. Oh no, I just can’t bear the fact that they can earn in 60 minutes what it takes me about 3 weeks to earn – although my disgust is somewhat mitigated by the fact it takes the average Brit a whole year. That’s why we all have to hope that the regulator gets his shit together to stop this hideous tomfoolery.

Thoughts ?

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