Motivational indexing | FT Alphaville

Motivational indexing

The Wall Street Journal reported on Wednesday how — shock, horror — Wall Street banks may have actively created and pushed securitised products to some clients which they simultaneously advised other clients to bet against.

Sometimes they themselves, apparently, bet against those products too.

The WSJ reports with regard to the practices of Deutsche Bank in particular (our emphasis):

One firm that was a major player in mortgage securities, Deutsche Bank AG, illustrates a pattern investigators are looking at. While creating and selling mortgage securities to some of its clients, the big German bank was not only advising other clients to bet the other way, but also sometimes doing so itself.

A Deutsche trader helped create an index that made it easy to bet against housing, and the bank itself then used the index to do just that.

These sorts of findings might —  in hindsight — seem rather obvious. Still, we wonder if there are still lessons to be learnt, especially if the rampant and frenzied creation of index funds in all colours, shapes and sizes is anything to go by .

After all, can something like the Inverse S&P 500 VIX Short-Term Futures from iPath really be the direct result of pure institutional investor demand?

Or has it been structured, as some other ETF providers like SourceETF freely admit their products are, for the purposes of hedge fund shorting needs?

We wonder.

Related links:
Deutsche Bank Also ‘Victimized’ Goldman ‘Victim – The Atlantic
New ETF to Offer Fresh Ways to Lose Money – Investing with options
Shaking The Tree, A Few Eclectic ETFs/ETNs – Daily Markets
Dual Role in Housing Deals Puts Spotlight on Deutsche – WSJ
Did Socgen use ETFs to liquidate Kerviel positions? – FT Alphaville