The London Paper – 25 Feb 2008
So, last week the Government finally decided that Northern Crock was to be nationalised – if this isn’t the culmination of greed and incompetence on a truly biblical scale I don’t know what is. It’s worth reviewing what happened because it gives such a beautiful insight into the short-term, self-serving ethos that runs the show in Wall Street and the Square Mile.
To recap then … a few years ago a wunch of bankers were sitting around on their fat arses wondering how they could make themselves even richer. In the low interest environment there was an abundance of cash to be lent out but a lack of obvious people to lend it to. But bankers like lending cash because that’s how they make money so they started looking around and they spied a vast amount of poor Americans who hadn’t been allowed loans before because they probably wouldn’t be able to pay them back.
Still, bankers like to think ‘outside the box’ e.g. come up with clever ideas that will inflate near-term bonuses though they may explode at a later date. So they employed predatory mortgage lenders to offer these poor suckers the chance of owning their first pad through limited-period discounts etc. Soon millions of poor Americans ‘owned’ homes they basically couldn’t afford.
These bankers then bundled up these piss-poor loans with better ones and sold them on to other banks and pension funds who found their relatively high interest rate attractive. Meanwhile bankers raked in massive bonuses for having created a new enormous market that generated loads of fees and commission.
Unfortunately, you can’t polish a turd. Things started going Pete Tong as interest rates went up and poor yanks started defaulting on their payments. Suddenly these collateralized debt obligations (CDOs) were shown to be not worth the paper they were written on.
The banks’ traditional secrecy ensured that they didn’t know what each others’ exposure was and so, fearing potential bankruptcies, they stopped lending cash to one another. Poor old Northern Crock had a high risk business model that involved lending long-term and borrowing short-term, so when banks refused to lend it any wonga it was soon in a whole world of pain. Things might have been OK if the Government, the SFA or the Bank of England acted decisively but instead they faffed around like a bunch of old ladies. Before you know it there’s the first run on a British bank for 150 years and the very real possibility that bank lending will dry up to such an extent that we now all face a hard-core recession.
So, if your home is repossessed or your business fails over the next couple of years I’d suggest you use your last few quid to buy a plane ticket to New York. Once there, head down to Wall Street and kick the nearest smug-looking Armani-suited tosser you meet in the gonads. It won’t do any good but it might make you feel a bit better.