Economic history teaches that the great banking houses have at some time gambled the bank. About 130 years ago in Malta, the financier turned extravagant philanthropist Marchese Vincenzo Bugeja, tried to persuade his fellow countrymen that he earned his hundreds of millions in the leading casinos of Europe. What nonsense!
Nobody earns money in casinos and Baden Baden celebrates the name of Bugeja and that of Prince Ranier as great gamblers, but by no means for breaking the bank in that casino. Bugeja was the main arms merchant of the British Empire, operating from Paris, who, after arming Garibaldi with Hambros money, gave in vain, artillery superiority to the France of Napoleon III.
I only discovered this information about Bugeja after 46 years of research and study of European history, along with Bugeja family anecdotes. The great man gambled financially, but with the right underpinnings.
Great financiers have always been great gamblers - with the difference that their gambling is by no means ordinary casino gambling, and so consequently they have in the majority of cases been successful. The rich man ventures on the stock exchange armed with knowledge and research, while the poor man, who is invariably much poorer in his intellectual equipment than in his pocket, rushes in most often by impulse where angels fear to tread.
There is plenty in Malta's banking experience which helps us to understand perfectly what is happening on Wall Street. The National Bank of Malta saga is the exact prototype of recent investment bank disasters on Wall Street: these have been foolishly borrowing short and trading long with that money. The world economic system has suddenly contracted because of the ominous noises of serious war in the Persian Gulf against an Iran led by politicians making maniacal utterances; 80 per cent of the world's oil reserves are located in the Gulf area. They are all in the hands of potential enemies of the US.
A war psychosis always ruins business, at least temporarily, and it sucks money out of the banking system for which an explanation is only sought years after. When the very survival of a great nation is at stake, who cares about the bones of a few merchant bankers? The subprime mess smells of gunpowder smoke about which few dare to speak about.
In these days of unspeakable financial crises, of which the worst part is definitely over with the Fed's decision to save the insurance giant AIG, and with Bank of America coming to incorporate Merrill Lynch, it is refreshing to note how a seasoned gambler but not an ordinary casino gambler, staked his fund on a Treasury bail-out - and won.
The Financial Times reported this event prominently: "In a doleful week on Wall Street, one of few people in the financial world who had something to cheer about was Pimco's Bill Gross. He took the biggest bet of his four-decade investing career this year, putting most of his $132 billion (€93bn, £47bn) bond fund into Fannie Mae and Freddie Mac's mortgage bonds in the belief they would survive the housing crisis and the two agencies would be rescued by the government. He was right. His investors have something to cheer, too - their fund is up nine per cent in the past year."
Knowing something about casinos and a gambler's psychology does no harm to any money man. At least, it trains his nerves.
The serious gamblers who scored gains during this past historic week have been those who had inside knowledge of an unusual sort. That is inside mastery of Keynesian economic theory reinforced particularly by historic experience of the last 80 years.
The American and British governments have acted ruthlessly and wisely. The US was ruthless in sacrificing Lehman Brothers as a salutary lesson, and wise in staging the massive $800 billion to finance a banking system which had ceased to respond to the interest rate mechanism.
There were money men who played the obvious game last week of buying on a financial downside induced by bankers who were caught by paranoia.
The expectation among knowledgeable analysts was that once the US government made its Keynesian injection into the economy, banks would advance by almost 20 per cent. They were correct.
In the event, certain banks advanced in about 20 minutes by much more than that, while wily Lloyds TSB made the banking coup of the century in buying HBOS, enriching itself and saving the world economy.
Asia is coping with the US credit crisis. More gains for serious and informed financial gamblers, but by no means an opportunity for widows and orphans. The most exposed bank remains UBS. It will probably provide the best money-making or money-losing opportunity. It depends on whether one is a bluffer or an economist. These are the facts at 9.30 a.m on Saturday. The fate of UBS is a serious matter for Malta.
Mr Azzopardi Vella, currently economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P.
johnazzopardivella@hotmail .com