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Funny Money vs Reality

February 10, 2012

Monday’s WSJ had two consecutive Business & Finance summaries on its front page.  One mentioned the $2.3 billion loss UBS suffered from unauthorized bets. The other was ABB’s offer to acquire Thomas & Betts (TNB) for $4 billion.  It got me thinking about value and the meaning of wealth and its relation to reality.

Coincidentally, TNB’s sales are $2.3 billion.  So one trader’s losing bets caused a damage equivalent to an entire year’s sales of a basic manufacturing company providing a living to 8,700 families and $190 million profit to its shareholders after payment of $68 million in taxes.  UBS’s loss is so large that it is hard to relate to or imagine.  Correlating it to an actual business can make the loss feel real, egregious, wasteful and perhaps sinful.

The ABB offer was for $4 billion, but the company’s market value four months earlier was $2.3 billion.  Looking at the pre ABB offer, the UBS loss, in realistic terms, is equivalent to the complete obliteration of TNB.

Is there a lesson to be learned?  Probably not – but probably yes, too.  The funny money players never seem to learn anything – the rush of their trading with big pay day potential provides the rationale for them.  There doesn’t seem to be any self-braking mechanism, and with the apparent absence of controls, oversight or accountability, there is no way to curtail or slow them down.  And, I feel they leave work with empty feelings seeking artificial bursts for temporary feel-good highs.  The people running product making businesses live with reality every day.  They deal with potentially empty coffers for the week’s payroll, have real pressures with production, cash flow, inventory, deliveries, and sales but experience real satisfaction. They work hard, continually juggle dozens of critical choices and go home tired but fulfilled each night.

If we can learn to identify what we do, what we are told and what we see done to real issues on a scale that we can relate to, I believe we can all make better choices and decisions. 

Originally posted on NJSCPA Connect

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