This being my first blog, I thought it best to have a handle that everyone can grab onto... the credit crunch. My amazement is threefold:
1) How didn't they see something coming. Having had the pleasure of doing an internship at Lehman Brothers back in Summer of 2007, there were signs of tears in the fabric of modern banking already. All the interns from the Private Equity division had fuck all to do; they'd mill round the M&A floors drinking coffee and orating about their supreme level of greatness to no-one in particular. I mean, as early as August 2007, the credit had completely dried up in PE. I'm just saying the warning signs were there; but, like that old pair of threadbare socks that you'll just wear once more before you throw them away (until the next you run out of clean socks), the banks carried on as if it were all going to turn out OK. Lo and behold barely a year later, Lehmans files for chapter 11 bankruptcy, and all my fellow interns who took up an offer of employment and "certain" riches were, for want of a better and more erudite phrases, out on their collective arses.
2) Secondly, Credit Default Swaps (CDSs) just don't make much sense... they are clearly a mugs' game and it's simply amazing how the banks got themselves in such a but here's how I understand it. My friend buys health insurance
Picture this, you (the bank) buy your mate’s health insurance policy (the CDS based on a business that you’re effectively hedging your risk of investing in it) from the insurance company that issued it. In the good times, everything's hunky dory; you make some money since your buddy is making his payments to you nice and regularly. However, some exogenous shock (oh, I don’t know, let’s say the Cancer car crash of the Sub-Prime Mortgage Crisis) infects your friend and so he needs to call on his insurance. You now own the policy and thus face the legal obligation of helping him i.e. paying for his private chemotherapy, hair replacement therapy and whatnot. But, you (the bank) have spent all of your friend’s monthly payments on that dapper Hugo Boss suit you’ve had your eye on for some time now. Therefore, your friend can’t get the treatment he’s insured for! Justly, your friend feels somewhat aggrieved by the whole situation and sues you to pay up but you can’t unless you sell your new Boss suit on the cheap and pawn that gaudy sovereign ring of yours for a fraction of what you paid for it. The upshot is… your trip down the pawnshop was pissing in the wind and you have to file for bankruptcy because you are a tool. Add to that, by now, you’re about as popular as a pork chop at a Bar Mitzvah and your friendship is over. Your buddy also as to declare bankruptcy just to cover the consultant’s fees and the chain reaction begins! Multiply this to global scale and you get the picture – a fucking ugly one at that!
It’s all good and well saying this with hindsight, but if the banks don’t fully understand whatever god-awful instrument they’re dealing with then they’re idiots.
3) Sure, the government has had their head up their arses for sometime regarding regulation of this whole shebang but I'm sure I'm not the only one who feels society should shoulder some the blame themselves as regards this whole subprime thing. When people . Even now, on a credit card bill of c£800, my minimum monthly payment is £14.00 - now I'm no Chancellor of the Exchequer or Bank CEO but that strikes me as troublesome - £14.00!! 5 months later when I'm still paying it (all the while being butt-fucked on the interest payments) the bank assumes everything is going just smoothly - "well, if Mr. Dean can afford £14.00, we assess him as a good risk" - tools. When, people working in corner shops are driving new Beamers or Mercs, to a rational person such as myself this singles one of two things: one, this cornershop is a front for an international drugs cartel or two, the credit system in this country is deeply flawed.
That is all.
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