Wednesday, 4 July 2012

Competing at the speed of light

How do banks compete? 

If they want your money or mine they might offer cheaper mortgages or higher returns on investments or better customer service. Or just persuade you that they're nice people. (Hmm - that could be hard.) But the big profits are made in investment and casino banking. How does competition work there?

Casino banking is about complex derivatives and getting to the deal first. Now speed matters in lots of businesses but casino banking is a world apart. Last year Hibernia Atlantic anounced a plan to spend $300 million on the first new transatlantic cable in a decade. Apparently getting messages from London to New york in 65 milliseconds just isn't fast enough. Financial institutions are expected to be keen to use it.

And the current delay between New York and Chicago - 6.55 milliseconds - is also too long. New Scientist reports that 10 firms want to build microwave links between those cities; reducing the transit time by a whole 2.4 milliseconds.

This obsession with speed is symptomatic of the way in which casino banking is detached from the ordinary world - even the ordinary world of loans and savings. It's a pathological growth that should be separated out from ordinary, necessary, banking and then greatly reduced by taxing it as the gambling that it is.

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