Tuesday, February 26, 2008

Clueless Beeb Laments Record Fees

This is almost too easy. In this item about investment banks making a lot of fee revenue last year, the BBC editors continue to document their own lack of knowledge about basic finance/economics.

They showcase their stupidity in the very first line.
Fees earned by investment banks worldwide hit a record in 2007 for the fifth year running, despite the losses caused by the credit crisis.
Actually, fees generated by originating a credit has no connection to whether or not the loan is subsequently performing or non-performing. Just as the commission a car salesman earns on a sale is not contingent on whether the car turns out later to be a good car or a bad car.

Then they top themselves in the last paragraph.
The credit squeeze has also made it harder for companies to borrow, which could lead to a decline in corporate takeovers and the fees they generate for investment banks.
Actually, with the easing of interest rates and expansion of the money supply by the Federal Reserve and a dropping of interest rates by the Bank of England, it has recently become easier for companies to borrow, not harder. Whether or not companies take advantage of the lower rates is another question, dependent mainly on profitability.

I suggest that the BBC editors stop reading Karl Marx and start reading Adam Smith and Milton Friedman.

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