Donnerstag, Januar 22, 2009

It's Not Limited To The US...

Stupidity, that is.

This is mind-boggling. Sorry that it's only available in German, but such is life.

Basically, the Austrians are planning on doing something that will result, one day, in a true tragedy of the commons.

They are requiring investment companies (there are 256 such companies in Austria) to pay into a fund. The monies from this fund are to be invested with an insurance company to ensure that the capital will increase over time. This includes, as well, companies that "merely" provide portfolio management.

What for?

To pay investors who have lost money in investments.

Making things vastly worse - mind-boggling, this - the government of Austria will pick up the tab above and beyond what the fund can pay, up to €20 000 per investor (again, not €20 000 total, but that sum in government payments). Further, the investment companies that have paid into this fund may be tapped for further funds for extraordinary developments.

Words almost fail me.

This is mind-boggling. It's not something like FDIC insurance, but rather is aimed at investment companies, meaning that if I invest with company ABC into a portfolio, and that portfolio was extremely risky and as a result paid high returns, but goes tits up, then I don't carry the risk.

If this is fully implemented, I can all but guarantee the next crisis in European banking. It will be in Austria and will happen when extremely risky investments - if anything, the riskier the better! - go bad on a big scale, taking down not merely the fund, but also the company behind it and forcing the government to pay money as well. It is rewarding extreme risk takers by taking a goodly portion of their risk away and putting it with the taxpayer.

This isn't merely a bad idea: it shows that stupidity is not limited to the US.

Ye gods.

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