Ignorant Populist Rage

I know about as much about politics in England as I do about biotech, which is to say: basically nothing.   I can, however, read, and what I read today in the article at hand tells me that Tom Watson is the Labour Party’s second-most-senior politician.   In this role, I guess,  Mr. Watson feels obliged to trumpet his Ignorant Populist Rage to his constituents:

Tom Watson, the party’s second-most-senior politician, said it was not right that financial institutions are looking to make quick money out of betting on the UK’s currency, as British voters make their most significant political choice in a generation.

He urged the prime minister to intervene after the FT reported that banks and hedge funds have approached pollsters, hoping to be the first to reap the rewards from a swing in the value of the pound.”

As you can see, we have some fantastic targets here for Ignorant Populist Rage:   those evil banks and edge funds looking to – OH THE HORROR – “make quick money”!!!  AIYAHHHHHH!

The article continues:

“Watson also suggested that there should be a wider look at the polling industry and the impact of its research on elections and political decision-making. “Hedge funds who commission their own private exit polls stand to make many millions of pounds learning the likely outcome of the referendum hours before the UK government and the British people find out if we have voted to leave or stay in the EU,” Watson said.”

Hedge funds do research with the goal of making money.  That’s how capitalism and markets work.   If Evil Hedge Fund X wants to pay 15,000 workers minimum wage to stand outside of each of the roughly 15,000 McDonald’s franchises in the U.S. and count customers going in and out, they can do that.   If Evil Hedge Fund X wants to trade index arbitrage on the S&P 500, they’ll probably be calculating their own index values, rather than looking at the screen on CNBC.    If Evil Hedge Fund X wants to pay pollsters, or conduct their own polls, of Brexit voters, they can do that too.

Watson channels “British people (who will, later) find out if we have voted to leave or stay in the EU.”   This makes me think of my dad, who, while not British, is probably going to learn about the news on an average day significantly later than I learn of it.   I may learn of the day’s happenings on Twitter, or from my RSS feed of a plethora of news sources, and I of course am getting “news” after many others who have better, faster, more expensive new sources than I have.   My dad, who still DVR’s the nightly news (yes, he finally got rid of the VCR),  will be amongst the last to know.

Guess what – that’s OK!  My dad isn’t trying to trade FX crosses based on what he sees on the nightly news.   If my dad wants to trade FX crosses, he needs to get better quality news sources, and if he wants to think he has the best information available, he better go out and try to get that information HIMSELF – you know, like the Evil Hedge Funds do.   If Watson’s “British people” want to be the first to find out if they’ve voted to leave the EU because they want to try to profit financially from trading on that information, then they should do something that might enable to obtain insight into that information in a timely manner – otherwise, it matters not a bit to the “British People” that Evil Hedge Fund X has done the work to get an edge in that information and try to profit from it.

The article continues:

““Information about a historic vote that will shape the future of our continent should be made available to everyone at the same time, not shared among a privileged few whose only motive is to gain financially by attempting to predict the outcome. I hope the government will put measures in place to prohibit this avaricious plan by financiers to benefit from information that belongs to every voter. “

But why?  Why should the information be made available to everyone at the same time?  This is why I titled the post “Ignorant Populist Rage,” and why I’ve used that term multiple times here-in.   There’s no reason this information should be made available to everyone at the same time, even though advocating as such may be appealing for a politician pandering to his populace.  There is of course a reason that we here in the U.S. (and it seems from the article that England does similarly) don’t release exit poll numbers *publicly* before the polls close: because we don’t want the polls influencing the vote.

Matt Levine did his usual thorough job commenting on this issue in his daily linkwrap this morning – I could have just posted these few paragraphs instead penning my ownpost, as Levine completely nails it:

What could it mean that the information belongs to every voter? Presumably each voter owns the information that she voted for or against Brexit. If a hedge fund’s pollsters ask her, she can tell them. It’s her information, after all. (She can also decline to tell them. Presumably she could also lie. Why not?) If the pollsters asks enough people the same question, they can get a statistically useful sample and make a prediction about how the vote went. And then they can trade on it.

If you think that this is bad — and Watson probably isn’t alone in thinking that it’s bad — then it seems to me that you have to identify which part is bad. Is it asking someone how she voted? Is it asking lots of people how they voted? Is it making a prediction about the Brexit vote? Is it trading based on your prediction? Which specific thing would you make illegal?

Watson goes on to criticize opinion polling, so maybe he’d ban asking questions about votes. But the problem is more general. The business of investing is largely about getting an informational edge. You go out and ask people questions and do research, and the investors with more time and money to spend on research tend to do better research, and then you end up in a world where hedge funds can predict the Brexit results — or Apple’s earnings, or whatever — before everyone else. And there is a temptation to say that that is bad, or “insider trading,” or even “front-running,” even when it is just research, just going around asking questions of outsiders. Why should hedge funds know things before other people know things? So there is a temptation to restrict research, or at least research at some level of hedge-fund fanciness. But research is how we learn things, and restricting it seems dangerous.

 

Related:

Levine

Watson: Ban Hedge Funds From Cashing In on Referndum

-KD