Analysand and Analyst in the Global Economy, or Why Anyone in Their Right Mind Would Pay for an Analysis

Article excerpt

According to Lacan, Pascal invented game theory with the notion that the ante staked in a game of chance must be viewed as lost from the moment one agrees to play. (1) Whatever amount one agrees to gamble should be considered a pure loss. Hence the advice sometimes given to gamblers not to bring more money with them to the casino than they are comfortable losing, given how likely it is that they will lose all of it. This well-meaning advice is obviously futile in the age of ATMs and credit cards, as anyone on a losing streak can easily obtain more money to wager.

Rather than openly declare buying and selling on the stock market as tantamount to gambling--an arena in which one should not wager more money than one is comfortable losing--politicians and financial advisers have increasingly dissimulated the gambling aspect of the stock market behind the notion of 'investing'. They have touted the idea that conservative investing over the long term can bring in a decent, fairly consistent percentage--not as nice as Bernie Madoff's too-good-to-be-true, consistently positive returns, (2) naturally, but better than those achievable virtually anywhere else, whether in a savings account, a certificate of deposit or government bonds.

As company pensions have been progressively eliminated in the United States and putting away money for retirement has increasingly become an individual endeavour even in France, the speculative nature of the stock market has been downplayed and the notion of conservative long-term investing trumpeted far and wide. Such tactics are necessary if politicians are to make people forget about soon-to-be bankrupt Social Security administrations, where their retirement income was to be doled out by the benevolent state, and rely instead on personal efforts to secure financial solvency beyond their working years. Diversification has been advertised as the cure-all for stock-market gyrations; and governments, in concert with financial advisers of all ilks, have attempted to convince the public that the market can be mastered through careful, conservative, diversified investments in raw materials, health care, technology, and, yes, even banks--investments that might well be hedged to offset risk using puts, calls, straddles, strangles, three-way collars and the like.

According to some, the boom-and-bust business cycles Marx exposed as endemic to capitalism in the nineteenth century have been tamed and contained. BusinessWeek, a well-known US financial magazine, spent much of the last decade announcing the advent of what its authors referred to as the 'New Economy', by which they meant an economic system immune to serious downturns and crashes.

All of that has turned to dust in the past few years, but the Pascalian truth that one should begin one's investing with the notion that whatever one stakes should be viewed as always already lost has been one-upped or raised to the second (or even higher) power by the widespread use of leverage in financial instruments. Ever more exchange-traded funds (ETFs), available like ordinary stocks on the NYSE Euronext, offer double or even triple the gains made by various asset categories or market indexes, not to mention double- or triple-sized losses. When investors purchase such funds on margin--that is, with borrowed money based on the purported value of their other paper assets, as so many have done over the past fifteen years--they can very easily lose more than they anted up. Those who invest in certain kinds of futures and options should obviously be informed of the risk.

This is also true in the real-estate market, where, at least in the United States, it was quite possible until recently to buy a home with no money down, only to find the value of the house decline by as much as 40 per cent within a year. Mortgage holders often lost far more money in a few short months than they could have hoped to earn in a decade.

Were we to follow Pascal, we would be inclined to replace the ubiquitous formula found at the bottom of virtually every mutual-fund prospectus these days--'Past results are no guarantee of future returns', an understatement if ever there was one--with the Pascalian warning: 'Expect to lose at least as much as you put in. …