When I heard that the City bonuses are going to amount to £7 billion this morning, I sincerely wished that someone somewhere would start a revolution

[nameymcnamechange]

Coming as it does after yesterday's Child Benefit announcement, I am beginning to feel positively anarchic.

I think there should be a General Strike over this, or at least a protest march in London.

Beenbeta,

The stock markets have not been a great place for long term investors for over 10 years now.

A combination of greedy management sucking the cash out and traders creating way too much short term volatility has really poisoned it for long term investors.

I actually know quite a bit about game theory, having studied it as part of MBA with a finance focus. Try searching MN for my messages that contain the words "game theory". Please trust me when I sat that I know very well what a zero-sum game is.

In a market transaction, profit depends on prices each seller have bought at. So imagine you just bought a company's shares at $10. If I bought them yesterday at $8, I just made a profit by selling them to you. And if you sell the same shares tomorrow at $11, you also make a profit, and so on. Hence, as I said before, in a buoy market (where prices keep rising), all players win. In a bear market, where prices keep falling, everybody loses (because I buy it at $10, sell it to you at $9, then you sell it at $8, etc).

I hope that was clear. If not, let me know and I will try to explain it better.

larry - Actually, it is very easy to outlaw speculation. I am assuming here that we agree on the definition of "speculation" as a very short term trade.

Just say that every investor, private or institutional, needs to hold shares for a minimum of 7 days. Or a month. Job done, speculation banned.

Of course this will never happen, because speculation is actually a good thing for the markets re market efficiency & liquidity.

I'm not sure what you were trying to day in the rest of your post.

CoteDAzur

In a bull/bear market everybody wins/loses?

Counterparty A sells cable (GBP/USD) @ 1.60. Its fall to 1.59. Counterparty A buys cable @ 1.59. Counterparty A makes 100 ticks.

Counterparty B buys cable (GBP/USD) @ 1.60. Its fall to 1.59. Counterparty B sells cable @ 1.59. Counterparty B loses 100 ticks.

Net P&L between both parties = 0.

People can go short you know ... you don't need to own something to sell it.

it is persecution - no other industry has its pay regulated by law to such an extent.

new EU rules from Jan 1

• The maximum amount of upfront cash in a bonus will be 30 percent, while for large bonuses it will be capped at one-fifth. A new watchdog for European banks which replaces CEBS will define what is a big bonus.

• 40 percent of normal bonuses must be deferred or paid out over a number of years while 60 percent of big bonuses is postponed.

• The cap would ensure bonuses are linked to long-term performance rather than being cash rewards for short-term risk-taking. There will be a clawback of bonuses, meaning a star trader, for example, would not get the full payout if his investments unravelled.

• (EU) Parliament has agreed with countries that they introduce the rules by the beginning of next year, to cover any bonus which is paid from January.

• At least half of bonuses must be paid in instruments that are tied to the strength of the bank, such as company shares or contingent capital, a type of I.O.U. or capital that can be turned into bank stock.

Siasl - What you are describing is neither a bull market (where prices keep rising) nor a bear market (where prices keep falling). It is not even a market, because it seems to have only two players.

Bull market:
A buys at 1.58, sells to B at 1.59
B sells to C at 1.60
C sells to D at 1.61
Etc
... Everybody wins

Bear market:
A buys at 1.58, sells to B at 1.57
B sells to C at 1.56
C sells to D at 1.55
Etc
... Everybody loses.

Of course, in reality, prices don't rise every day and not everybody wins or loses. But there is no such thing as zero-sum because the trend is either bullish or bearish, so the sum is either positive or negative.

Cote

Take you're first example

A buys at 1.58, sells to B at 1.59
B sells to C at 1.60
C sells to D at 1.61

Who did A buy the asset at 1.58 from? Lets call them E.

E who sold to A at 1.58. Price has risen to 1.61. E has lost 300 ticks.

Sorry but that does not even make sense. He didn't actually lose any money because price went up after he sold, and he wouldn't have won any if price had gone down after he sold.

What you are talking about is called "opportunity cost" (otherwise known as "what if" or "woulda shoulda coulda").

Maybe it would help you to think of A as someone who bought shares at the IPO (initial public offering) of a company, the first link in the chain of investors who then trade those shares.

Cote

Imagine E shorted the asset at 1.58. If E closes the position at 1.61, E realizes a loss of 300 ticks. If E holds the position then E would need to post variation margin on the MTM loss of 300 ticks to the relevant counterparty.

You don't seem to be making a distinction between funded and unfunded investors.

If it was an IPO, and the company issue at 1.58, then the company would have effectively lost money (opportunity cost) by issuing too early. If they needed to do a share buyback at 1.61 they would crystallize this loss.

What about S&P futures, interest swaps, CDS, options etc. What is the net position on all these products? Zero. Since for every long position there has to be an equal an opposite short position. Hence the net P&L of these positions = zero.

You are confusing yourself.

The only way that trading in securities would be a zero-sum game would be if their graph is a straight and horizontal line. That is not the case.

It is like buying/selling houses. In an up market, I buy at 100K, sell it to you for 150K two years later, then you sell it to someone else for 200K a few years after that. In a down market, all these players lose.

When you trade IBM shares, they have an inherent value because there is an underlying asset - the company. And the company continues to grow (most years, if not every year), therefore the share price tends to increase over time. A child can see that this is not a zero-sum game.

Some of the examples you give are indeed zero-sum transactions, but they are hedging positions, and hence are meant to be zero-sum.

Sorry to come late to this. A revolution might already have started. This is worth 7 minutes: vimeo.com/15420249

Also, check out www.slowmoneyalliance.org