So here’s the scenario: There is a group of people who are hugely well paid, powerful, and employed for their judgement and ability to assess risk. These people decide to ignore decades of common sense and industry wisdom, and start authorising ‘ninja’ loans. In this context ninja stands for "No Income, No Job or Assets." Sure, we’ll give you a loan, you might have to pay slightly higher fees, though…
Thanks to the wonders of securitisation, the risk is passed on as an asset, (much in the same way that the Lloyds Names did in Britain in the early nineties, remember that? Only ten years ago, these guys would have been practicing banking then.)
Gee the balance sheet looks good when risk is packaged up as an asset and coupled with an income stream of higher fees…
What were they thinking? Presumably, "I’ll have made my millions before it crashes, and then we’ll foreclose on the house anyway."
Now I would have been happy if the un-compromising forces of capitalism had sent the stupid to the wall, interest rates had hiked way up because suddenly (novel concept), money is not cheap. And the prudent had been rewarded for their wisdom and judgement (the truly scarce commodity).
In this light, take a bow Goldman Sachs; they stayed right away from the risky loans business, and currently have no problems.
But no! What happens is, the central banks of the world, and George W and all, get together to help out these poor professionals who have quite patently been not doing their jobs, on a grand scale, for years, and been paid huge bonuses on the strength of it.
Of course we are all sorry to hear that this year the bonuses for bankers on Wall Street are down almost five percent! And I’m sure you will all join with me in being thankful that those working in Mergers & Acquisitions, and Equities, were untouched and took home record bonuses again this year.
Olly Newland in his book "Lost Property" distilled these five lessons from his experiences in the ’80s:
- Never trust a banker.
- Put everything that you own into your wife’s or children’s names, or into a trust, so that if disaster befalls you, at least something will be salvaged.
- Always take a profit when it is offered.
- Remember that all too often justice comes through the chequebook. If you can afford the huge costs of a court battle you are far more likely to get a fair go. If you cannot pay, you will probably miss out. Tough Luck.
- See rule 1 above.
Olly is probably right. So we lend our money to banks, they give us pitiful returns on it, and then play this sort of malarky with it. Nice work if you can get it. Especially if George W and Ben Bernanke are going to bail you out when you stuff it up.
Become a banker my son. All you have to sacrifice is your integrity. Credit Suisse are said to be recruiting 10,000 more worldwide in the next year, because of the demand for their skills.
And if you are an ordinary man in the street, then get into hock way over your head in a completely irresponsible way. If there are enough of you, then the government will probably intervene to protect you.