Benedix Blog

By Simon Dixon of Benedix

As the credit crisis becomes more and more mainstream and people begin to feel it in their everyday lives people want answers. Everyone seems to want someone to blame – is it the investment bankers?, is it the FSA?, is it securitisation, the bank of England, or government, or the credit ratings agencies? When crisis occurs we ultimately search for blame.

The answer is none of the above. What is at the heart of the issue is the financial system that we currenlty use, and all of us have contributed to the crisis. In other words, we are all partly to blame. This may sound harsh but I have been presenting seminars for years now on the issues, way before the Northern Rock crisis came to light. Coming from a background of stock broking, market making, investment banking and now as Head of Training & Research for Benedix, as well as mastering in economics and dedicating myself to the study of economic history I have first hand experience of all the issues that have contributed to the credit crisis.

 So the natural question is – what is wrong with the system and who has contributed to the system? To answer this question we need to go back to the creation of the financial system and the completely unsustainable system that we created.

We’ll sum it up in very simple terms here. Think of the basis of our financial system: historically all the money in our economy was created and printed by our central bank, and backed by a limited supply of gold. The central bank  creates the money in our economy doesn’t ‘give’ money to our economy - instead it lends money to the government and private banks, with interest on top. The problem is that if the central bank creates all the money, where do we find the money to repay the interest to the central bank?

This is the foundation of the flawed system and a system that has nearly collapsed a number of times. However the current impending collapse may have been put off until another day through government policy and intervention.

This may come across as shocking but let me take you back in time to build a picture for you.

Fractional reserve banking

Let’s go back in history and look at the development of our financial system. We began in a barter economy where goods were exchanged when two people agreed - I have a sheep and you have a goat, but I like feta cheese and you want a wooly jumper, so we swap.

Trade can be difficult in a barter system (economics students will know of the problem of ‘coincidence of wants’). You must find someone who has what you want, and who wants what you have. Imagine a small medieval town with a butcher, baker, and brewer (who makes beer). Imagine the butcher wants to get a beer, but the brewer is vegetarian - the butcher has nothing to offer in exchange. 

Instead, the butcher could get a beer, and write a note promising to give anyone with that note the equivalent value in meat. Now the brewer can give that note to the baker in exchange for the bread, and the baker takes the note to the butcher to buy meat. It may seem a contrived example but these ‘credits’ were likely the first form of money. 

As time moved on people began to create money for convenience in the form of precious metals and gold become the recognised form of value for trade. Even though the money has no usefulness in itself (you can’t eat or drink a coin, and it doesn’t keep you warm or dry) people were willing to use it since they knew that most other people would also accept it in exchange for goods.  

Gold became the standard form of money. People deposited gold at goldsmiths, receiving a ‘note’ (ie. receipt) for their deposit (eg ‘I confirm that Jack Smith has deposited 50g of gold with me’). Eventually people started to exchange the notes instead of handling the gold (so I give you a note that tells the goldsmith to give you 10grammes of my gold). Once these notes became a trusted medium of exchange an early form of paper money was born, in the form of the goldsmiths’ notes.

As the notes were used directly in trade, the goldsmiths noted that people would never redeem all their notes at the same time, and saw the opportunity to invest the ’spare’ gold. As long as the goldsmith shared their investment return (interest) with its clients then they would be happy to leave their gold with them. This is how modern commercial banking works. Commercial banks like Barclays, Natwest etc. pay you a small amount of interest for depositing your money and lend that money out for a higher interest rate leaving a fraction of the money in reserve.  Today we operate out of what is known as a fractional reserve system.

When depositors started to suspect that the goldsmiths were a little  unscrupulous - in other words, wondering if there was really any gold left in the vault - they lost faith in the ability of the goldsmith to pay their gold. Many people would then try to redeem their notes at the same time (to get their money back as quickly as possible), forcing the goldsmith to call in loans. This was called a bank run and many early banks went into insolvency. The Northern Rock crisis is a modern example of such an event.

For the economy and the banking system as a whole, the practice of keeping only a fraction of deposits on hand has an important cumulative effect. Referred to as the fractional reserve system, it permits the banking system to “create” money. When a loan is made, all that happens is that numbers on a computer system are credited to the borrower’s account. The borrower then uses this ‘money’ in his account to buy, say, a house, by paying the money into the house-seller’s bank account. The money that lands in  house-seller’s account is recorded as a new deposit in the accounts of the bank - in other words, it’s ‘new money’. When you borrow £100,000 to buy a house, as soon as you have paid for the house the national money supply increases by £100,000. No new money is printed, but the 97% of money that exists only as numbers in computer systems is increased.

It’s a difficult concept to get your head around the first time you hear this, but I can guarantee that only a fraction of politicians, world leaders, and even finance professionals actually understand this. The vast majority are simply not aware that most money is created within the banking system and NOT by the central banks.

As history unfolded itself central banking was born. The Bank of England (originally a private company created to fund wars) and the Federal Reserve were founded to be a lender of last resort to commercial banks. This creates a real problem, in economics referred to as a moral hazard problem.

Moral Hazard

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions. For example, an individual with insurance against car theft may be less vigilant about locking his or her car, because the negative consequences of automobile theft are borne by the insurance company.

It is like being in business with a backer that says, ‘Take some big risks in order to get large returns. If it goes wrong I’ll bail you out’. This is what central banks do -  Northern Rock followed a risky strategy that was destined to lead to a failure, but was sheltered from the consequences of its actions by the Bank of England. More recently, the same has happened to Bradford and Bingley. 

Incentives

Couple this moral hazard problem with staff bonuses and commissions. When all staff in Investment and Commercial banks are incentivised with commissions and bonuses conditional on how many deals they put through you have a strong incentive to lend. Banks make their money based on how much business they put through and staff get paid on commission. The more debt you get people in the more you earn. It is natural to innovate ways to get more people in debt when your wage is contingent on meeting targets.

Investment banking and commercial banking and the 1929 crash

Now move forward to 1929 - the year of the stock market crash that led to the great depression of the 1930’s. Prior to 1929 the stock market was booming with more and more interest in sophisticated products being created and heavily marketed by investment bankers.

(For clarity the job of an investment bank is to securities debt and equity to trade on a market and sell it to investors as well as structuring complex debt products. They created derivatives products which simply put allow people to gain exposure to financial markets with a small amount of money on deposit called a margin. Much like a mortgage you can control a property with ten percent down and gain a higher profit or loss as the property market increases or decreases in value. Derivatives allow you to gain more exposure to financial products using debt).

Investment Banks created such products and commercial banks lent out deposits. In the late twenties investment banks and commercial banks were allowed to operate under one roof.

The market crashed in 1929 when people grew worried about their money on deposit at the commercial banks. Were the banks lending out my deposit through margined derivative products and how safe is this? As more and more people became fearful they started to run on the banks and withdraw their deposits. Investment banks recalled their derivative products, which resulted in a mass selling of securities and a stock market crash.

Policy Change

There was little faith in the banking system after this and credit became hard to come by. At the same time as banks recalling loans the central bank contracted the money supply massively. This lack of money led to the great depression of the 1930’s.

Nobel prize winning Economist John Maynard Keynes advised the government that the best way out of a crisis is through government expenditure - spend your way out of the crisis. As the government grew, debt financing become essential for growth. The investment banking industry grew and the level of debt surged.

This was aided by a key change in US legislation called the Glass Steagall act of 1933. This act prevented investment banking and commercial banking from occurring under one roof. It recognised the danger of these two activities occurring under one roof. In 1999 the US government decided that this was no longer important and re-appealed the act. They made the financial system self regulating and investment banks went on an acquisition spending spree. The banks merged and acquired and the universal bank was born that offered everything under on roof asset management, investment banking, commercial banking, broking and many more services.

How money is now created?

The process of fractional-reserve banking has a cumulative effect of money creation by banks. In short, there are two types of money in a fractional-reserve banking system:

1. central bank money (physical currency such as coins and paper money)
2. commercial bank money (money created through loans) -

When a loan is funded with central bank money, new commercial bank money is created. As a loan is paid back, the commercial bank money disappears from existence.

Money comes into a bank, a fraction is held on deposit (eg 10%), this money is spend and re-deposited into a bank which is lend out further subject to the fractional reserve ration until the money created can increase ten fold, creating ficticious money that has no real value and is only backed by debt.

 Although no new money is physically created in addition to the initial deposit, new commercial bank money is created through loans.

 The value of our economy used to be limited to the amount of gold we had, now it is limited to the amount of debt we can create. The result – sub-prime lending: lend like mad. We are constantly spammed with email, magazine fliers and advertisements of easy credit, debt consolidation, shark loans and all sorts.

So in an economy where 3% of our money is created by government and 97% from commercial banks we are in a situation where simultaneously families are in debt through mortgages and credit cards, corporations are in debt through equity and bank loans, small businesses are in debt through venture capital and bank loans and the government id in enormous debt through government bonds.

So where is the money?

Who has the cash. The reality is banks can create as much money as we can borrow and there is not enough money in the world to pay off all the debt.

Securitisation

While everybody was paying their debt due to a bull market the investment bankers securitised everything. Securitisation is the process of assigning a pool of loans to an asset backed security traded in a secondary market. What do banks securitize? Mortgages, car loans, insurance premiums, personal and corporate loans, credit card receivables, everything! Now imagine if you package this debt up into a sack (Structured Investment Vehicle) and then create the ability to buy the debt on debt through a derivative. Then you break this debt up into tranches of different risk profiles and create a derivative of that tranch (Collateralised Debt Obligation), and then create a credit default derivative too. Nobody knows what the risk of these obscure products actually is and what happens when people can’t repay – this is the current environment. But at an investment bank this is a structurer’s job and his livelihood depends on making such products.

So, who is to blame?

 This is the situation we are in:

• When the banks need to borrow money they go to the money market. 
• When everybody needs to borrow the money market dries up. 
• Now the public look to the government to rescue us. 
• When you are a politician with a short term mind set,  you are only looking as far forward as your next election. Naturally you don’t want to be the one that takes the blame for the system collapsing so you will rescue, print money and create record inflation. 

Who’s fault is this? Is it the politician or the democracy? We voted for the politician and no politician would get elected if they told the truth and really understood that system needs to be completely reformed to solve the problem.

Reforming the system involves getting rid of the fake money we have created. This will probably lead to a decline in our standard living, as we stop living beyond our means (courtesy of our credit cards and personal loans).

Is anybody going to vote for the politician who proposes this remedy? So in placing the blame can we blame the regulators, the FSA, the investment bankers, the way we are paid, the ratings agencies that gave poor ratings, the Bank of England, those who don’t manage their finances and take out credit cards and personal loans for over-indulgence.

Or do we all have to take some responsibility for creating this system?  We all have a role to play and should all take responsibility. We all need to contribute to a solution - as young professionals in the banking and finance sector, you will be a key part of this solution. 

We will be publishing more articles on the problems with the current financial system with a view to preparing the next generation of finance professionals for the financial crises that they will face over the next two decades. 

We expect you will have heard the news about the bankruptcy of Lehman Brothers over this weekend, as well as the hasty £28 billion takeover of Merrill Lynch by the Bank of America. 

Obviously it can be a traumatic experience to lose your job, especially if you have spent much time and effort in advancing your career and seeking to be the best you can be.

WHAT DOES IT MEAN FOR YOU?

If you’re currently looking for a position in the banking and finance sector, now is the time to start becoming incredibly proactive. In a time of economic boom, the City of London alone hires around 10,000 new graduates each year, and even then the competition between candidates is incredibly fierce, particularly around the bulge bracket (largest) banks. The situation now is much more challenging.

WHAT WILL HAPPEN OVER THE NEXT TWO YEARS:

We can’t predict the future with regards to the fate of other banks and institutions. However, it’s very easy to see what has to happen in the employment market within banking and finance. 

1. HIRING WILL EVENTUALLY TURN AROUND

Naturally in light of recent events most banks will be very conservative with regards to hiring staff. Many of the largest banks have limited or cut their graduate schemes already. When the economy turns around and things start to improve, hiring will gradually increase again.

2. EXPERIENCED STAFF WILL GET HIRED FIRST

Thousands of staff from Lehman’s and those laid off from other banks will now be searching for jobs. When a recruiter is faced with the choice of an inexperienced graduate or someone who already has the experience, they will almost always choose experience. Additionally, the salaries of experienced staff are likely to fall, since any job is better than no job and laid-off staff will be keen to find work as soon as possible.

3. FINALLY GRADUATES WILL START GETTING HIRED AGAIN

The sector will re-hire the best staff from Lehmans and other banks first. Therefore as a graduate, it’s almost certain that you will further down the pecking order.

THE IMPLICATIONS:

The implication of all this is that, for graduates or those seeking the first position in finance, it could be a while - months or even a couple of years - before the situation changes.

WHAT CAN YOU DO?

You will certainly need to take an unconventional approach to landing that first job:

Take a long-term view:
What goes down must come back up, so at some point the situation will improve. You may have to ride out the storm for a few months or a couple of years, but if you know your goal is to work in finance, then you can spend that time doing everything possible to improve your chances of landing a job.

Be proactive:
Take alternative approaches to seeking a career; create a vacancy for yourself by convincing a company of the value you can provide; create a winning CV and apply speculatively; do what the most City high-fliers do when it comes to getting something they want.

Increase your value to a company:
Invest in yourself; learn everything you can about the sector; buy books or courses and train yourself on everything you need to know for your target role, so that you are ready to work ’straight out of the box’; become an expert who can start bringing in revenue for the company from day one.

WHAT’S THE WORD FROM THE TOP?

Yesterday we spoke to the CEO of a £20 billion asset management firm, who gave these words of advice:

“It is relatively simple for companies with solid balance sheets who are looking to rationalise - poorly performing employees will lose their jobs and will find it hard to find employment elsewhere. Good employees, who work hard, develop themselves through specialist training and add real value will retain their jobs and do very well, and when the markets turn they will be in a very good position. This is true for both experienced and entry level employees.”

THE TOP 20% WILL SURVIVE:

In other words, the top 20% will be safe in their jobs and ride the wave back up to the top of the next boom. If you’re not in that top 20% of proactive, value-contributing workers, you need to evaluate yourself and see how to you can contribute more value to the company in order to secure your position.

WHAT NOW?

We know that at times like this extra guidance is vital, so in addition to the usual advice from CEOs, finance professionals and experts, our full-day workshop in London this month will now also show you how you should approach job seeking in this new and more challenging environment. 

To find out more, visit www.benedix.co.uk/workshop

Good luck with your career search over the next few months and if we can help at all, let us know.

Each year we deal with thousands of students, graduates  and working professionals and we know that the world of finance can be confusing when you’re just starting out and trying to work out which job is right for you. There’s a lots of misconceptions and - dare we say it - misinformation out there.

To give you guys a hand in securing your career in finance, we set about developing a course that makes everything much clearer. We asked experienced City professionals to give you the benefit of their experience and insights and we interviewed some of the highest achievers in the sector (including executives and Directors with over 40 years experience in the banking and finance sector).

All their experience and tips are condensed into one intense day of professional training at the City Professional Workshop. If you want to know what the top people in the City know, there’s a couple of spaces remaining on our workshop on Tuesday 23rd September. You can find out more about the day here.

“This workshop was an amazing crash course in ‘The City’.
R. Crowter-Jones, University of Oxford

“This workshop is brilliant! Straight to the point, no waffle, great value for money! Inside information about real life in the City is truly insightful and priceless. Would recommend it to anyone interested in a career in finance.
Z. Theuzhanov – BA Hons Finance, Richmond American International University

“This is a great opportunity for people aspiring to work in the City to learn how the City works and also gives a further insight into the different roles within the industry.
K. Pemberton – MSc Investment Management, Cass Business School

Every few weeks we publish an interview with someone currently established and working at a high level in finance. The interviews can give you a stronger understanding of individual roles within the finance sector, as well as giving you an understanding of the lifestyle in the City. Use them to find out what the high-fliers do and then model their success.

Some time ago we spoke to Amit, a private equity practitioner at Deloitte. Amit began his career in accounting, and moved into audit at Barclays Capital before obtaining his current role in corporate finance at Deloitte advising private equity clients. He has recently moved to India to join a team of corporate financiers in India’s growing market with Deloitte.

Amit has experience obtaining graduate jobs during hard economic times (immediately after the 9/11 terrorist attacks) and offers valuable insights into the process of finding your ideal role in banking and finance. This interview discusses strategies for success in interviews and is recommended for anyone about to apply for a career in banking and finance.

You can download the interview here.

‘The City’ is a term often used to refer to the whole financial sector in London, but what exactly does it involve? It can be a confusing industry when you are just starting out in finance, but this article (an extract from the excellent book ‘The City: Inside the Great Expectation Machine‘) gives an overview of the reality of the finance sector and dispels a few common misconceptions:

“The ‘City’ really is very different from perception. The diversity of activities is much greater than commonly supposed. More information still, these activities are highly fragmented. The image of the monolith needs to be replaced by a different image: a series of circles of different sizes, some overlapping, some just touching, many making no contact at all. For example, institutional investors (principally pension funds, insurance companies and unit trusts) invest in the stock market using securities firms to buy and sell for them, so these activities clearly overlap. These same institutions may invest indirectly in the financing, of say, a power project in China which has been arranged by a project finance department of an investment bank. In terms of our image, the circles only touch in the instance. The project financiers do not sell the project to the investors – this is the job of others in the investment bank – but a relationship exists between the investors and the project finance team.

But between many City activities there is no relationship at all. A trader in the equity market will know nothing of the workings of the London Metal Exchange (where world prices are set daily for the likes of copper and aluminium) let alone the Baltic Exchange, which is the pre-eminent international shipping services marketplace. Equally, participants in these specialised markets will have little knowledge of the job of a stock exchange market maker or an institutional equity salesman. There is no point at which these activities touch, even though they are functionally similar.

Given this degree of diversity, what then defines ‘the City’? A precise definition is practically impossible. Certainly, there is an emphasis on wholesale (corporate and institutional) activity rather than retail (personal) financial services. The Bank of England, the Stock Exchange and Lloyd’s of London are clearly part of the City but where do we place lawyers and accountants who provide essential support services for City activity? They may have branches elsewhere and do much work that is unrelated to the City. For many journalists at the popular end of the media spectrum these definitional niceties are not a problem – ‘City’ is synonymous with pretty well anything financial (it has the additional merit of being a short word, which makes it ideal fir headlines!)

Nor can ‘the City’ any longer be defined geographically, in terms of the area administered by the Corporation of London (the local authority responsible for ‘the Square Mile’). Several of the largest investment institutions are not and have never been based in the City. Edinburgh is home to Standard Life, one of the largest insurance companies in the UK and a leading equity investor. Some firms of stockbrokers ‘defected’ to the fringes of the City in the early 1980s. Salomon Brothers, the US investment bank, chose in 1984 to move to a building next to Victoria Station in central London. A 1998 report commissioned by the Corporation of London sensibly conceded defeat on geographical front. It conventionally defined ‘the City’ as covering all ‘City-type’ activities that take place in Greater London.

As a general rule, until the late 1980s, both domestic and foreign financial institutions preferred to have their London base inside the City where the UK merchant banks, insurance companies, stockbrokers and other key participants were located. The soaring rents of 1986/87, together with the need for larger offices and advances in communication technology, caused an exodus both westwards (to the West End of London) and eastwards (to Canary Wharf in Docklands). Many of the big investment banks are now located at Canary Wharf (Morgan Stanley and Credit Suisse First Boston were founder members). Today ‘the City’ is a financial rather than a physical entity.

The bit of the City that is visible to the world at large is the one talked about in the business pages of the equity newspapers, in which the emphasis is on macroeconomic trends and British quoted companies. News relating to UK companies and their share prices dominates because that is what is relevant to the great majority of public readers, as investors or employees. How much press coverage is given to the City’s role in the flotation of Polish Telecom or the financing package for an iron ore mine in India? None, except possibly deep inside the ‘Companies & Markets’ section of the Financial Times.

Investment banks consciously use their equity activities – because they are visible – as the ‘shop window’. But behind the scenes lie many other City activities and have little or no public profile, which are often larger in scale and quite possibly more profitable. A good example is the Eurobond market (nowadays more properly called the market for ‘international securities’). In short, it is important not to lose sight that the greater part of the City functions quietly out of the limelight – and that these ‘invisible’ operations are actually more important to its continuing prosperity.

Most of these ‘invisible’ operations are international in focus. In fact it is the international orientation that truly defines the City, not the services it supplies to the UK domestic market. Much of what the City does has little or no connection with the British economy. Martin Taylor, the former chief executive of Barclays, nearly encapsulated this view in a tongue-in-cheek article for the Financial Times in which he suggested that:

“The best way to think about the City…..is essentially (as) an offshore phenomenon, halfway between a Caicos Island and an oil rig” (If only the City would secede from Europe, Financial Times, 23 December 1999)

The City has always been, and indeed still is the provision of financial services to an international marketplace. It remains the largest centre for international financial transactions. Within these transactions lie many activities.

We highly recommend this book as an excellent source of all-round background knowledge on the finance sector. If you get it from the Benedix bookstore it will be delivered by Amazon (so you get a nice discount as well!) 

If you’re seeking a career in the finance sector, then the more commercially aware you are, the better your chances of passing the interview. It’s always good to track the markets and the economy - you will get asked about this at your interview! You can expect (among others) questions such as: 

• What is the major trend in the oil price right now?
• What do you think the Bank of England will do next?
• What stocks are you watching and why?
• How is the Euro doing now? 

To get an offer you need to be commercially aware  - after all, how can you claim to be to want to work in the finance sector if you don’t have enough interest to open the FT or keep an eye on what is happening  in the markets?

Below are some of the key economic indicators that will be released over the next week. If you would like to learn more about how these indicators affect the different markets - commodities, equities, bonds, foreign exchange and so on - then we recommend that you watch the video seminars on the Professional Trader Programme. Also, anyone who has completed the course is invited to our monthly Traders and Investors Club, where full-time traders, fund managers and investment bankers meet up to discuss the markets in depth. To get your invitation and find out more about trading and the markets visit www.benedix.co.uk/protrader. 

Economy

The Federal Reserve, the European Central Bank and Bank of England announcing their interest rate decisions this week. This will probably be the main focus in the financial news, although all three are expected to hold their current rates. This means that any change will cause quite a response in the markets. However, with oil prices falling back, the committees may be feeling a little bit of relief. With the BoE having the highest interest rate and the poor economic data that we have seen recently, there is an off-chance that we may see an interest cut in the UK.

Monday 4th August

• 09:30 UK Construction PMI
• 13:30 US Personal Consumption Expenditures
• 13:30 US Personal Spending
• 15:00 US Factory Orders

Tuesday 5th August

• 00:01 UK Halifax Home Price Index
• 09:30 UK Manufacturing Production
• 09:30 UK Services Purchasing Managers Index
• 15:00 US Institute of Supply Management Non-Manufacturing (services)
• 19:15 US FOMC

Wednesday 6th August

• 00:01 UK Nationwide Consumer Confidence report
• 00:01 UK GDP Estimate
• 10:30 UK British Retail Consortium Shop Price Index
• 15:35 US Crude Oil Inventories

Thursday 7th August

• 12:00 UK Bank of England Monetary Policy Committtee (MPC) Interest Rate Statement
• 13:30 US Jobless claims
• 15:00 US Pending Home Sales

Friday 8th August

• 00:00 UK Nor results due
• 13:30 US Non-farm Productivity
• 13:30 US Unit labour costs
• 15:00 US Wholesale Inventories

Last week we offered the opportunity to have your CV re-written specifically for banking and finance. In order to get the chance of having your CV rewritten, all you had to do was email a CV and tell us: 

• The job role or sector that you want to work in
• An explanation of why you’re right for that particular role
• A quick explanation of what makes you different from all other candidates. 
• A short history of your career or job search so far. 

This book of the week is outside of the realm of finance, but we can assure you that the lessons within the book are essential to being successful in your finance career. To develop our career development workshops we interview many leaders in the finance sector and without a doubt the most successful professionals in the City practice the ‘habits’ outlined in this book. 

The book is called The 7 Habits of Highly Effective People. Note that it’s about ‘effective’ people and not efficient people - somebody can be very efficient but will be completely ineffective if they’re doing the wrong thing. 

So what is ‘The 7 Habits’ about and how can it help you in your career? 

At Benedix we stress the importance of thinking long-term. Many people will focus solely on getting their next job, but it’s always important to think about what you’ll be doing in that job and how you want to progress within the role. “The 7 Habits”, while equally applicable to your personal life, is a bible for success in business - start practicing the 7 habits and you’ll find you can make things happen and get what you want in your career. 

We can’t explain the 7 habits as well as Dr Stephen Covey does, so if you want to rise to the top of your career ladder, snap up a copy of The 7 Habits of Highly Effective People!

PS. All the books on our bookstore are delivered by Amazon, so you get a nice discount on them as well!

Every few weeks we publish an interview with someone currently established and working at a high level in finance. The interviews can give you a stronger understanding of individual roles within the finance sector, as well as giving you an understanding of the lifestyle in the City. Use them to find out what the high-fliers do and then model their success.

Our most recent interviewer was with Roger Hambury, Trading Director at spread betting firm CityIndex. This is a great interview for anyone looking to go into sales & trading, and Roger elaborates on the difference between the types of people who do well in market making vs sales trading:

“…A market maker is like an ex-LIFFE trader - he’s got to have that extremely sharp brain because he’s competing against thousands of other people very quickly. You’re going to have somebody shouting at him asking for a price, and he’s got to make that price and stand by that price, plus he’s monitoring all his risk.”

“…A sales trader would be given clients – if you have a high net worth client, he’s going to want to be kept in touch all day of what’s going on in the market, what his positions are and what he’s interested in. He may say to you, “call me if Vodafone hits 180”, so you’ve got to remember to call these people. It’s all about loyalty and giving a good service because now, competition wise, everyone can offer the same commission rates and margin rates. It’s really that they just want to speak to you.” 

Download the full interview to find out more.

Economics can be extremely complicated depending on who you speak to, but the following makes it very very simple! Enjoy…

ECONOMIC MODELS EXPLAINED WITH COWS:

SOCIALISM 
You have 2 cows. 
You give one to your neighbour.  

COMMUNISM 
You have 2 cows. 
The State takes both and gives you some milk. 

BUREAUCRATISM 
You have 2 cows. 
The State takes both, shoots one, milks the other, and then throws the milk away… 

TRADITIONAL CAPITALISM 
You have two cows. 
You sell one and buy a bull. 
Your herd multiplies, and the economy grows. 
You sell them and retire on the income. 

SURREALISM 
You have two giraffes. 
The government requires you to take harmonica lessons.

AN AMERICAN CORPORATION
You have two cows. 
You sell one, and force the other to produce the milk of four cows. 
Later, you hire a consultant to analyse why the cow has dropped dead. 

ENRON VENTURE CAPITALISM 

You have two cows. 
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the  release. The public then buys your bull.