It take Rory Bremner to analyze the financial crisis?

This banking crisis is no laughing matter...

...but that hasn't stopped one of our leading satirists making a comedy-documentary on what happened to our money

Rory Bremner

Times 29 October 2008

You could almost sense the relief last week as the attention of the media turned from trying to make sense of the banking crisis to a good old-fashioned political scandal. So much easier to understand, with a promising pantomime cast - a millionaire hedge fund manager, a Russian oligarch, Peter Mandelson (of course) and George Osborne, the Tory party's Buttons, now apparently undone. No more talk of liquidity, of deleveraging, of recapitalisation. The credit crunch is over, isn't it?

Well, not quite. Bankers still haven't a clue what disasters lurk in the tangle of complex derivatives contracts they and their hedge fund borrowers all piled into, so what hope is there for the rest of us? At times like this, I take comfort in the words of Donald Rumsfeld, the former US Defence Secretary: “There are known knowns - things we know we know. There are known unknowns... things we don't know. But there are also unknown unknowns - things we don't know we don't know.” He was talking about Iraq, of course, but there are a lot of similarities, as in both cases the Great American Rescue Plan was written on about three sides of A4, cost $700 billion and quickly fell apart.

There's certainly a great deal I don't know about banking. But as we've all seen recently, there's a lot the bankers don't know about it either. Their ignorance has been all over our screens this year. Mine gets an airing this weekend.

The inspiration to make a series of comic documentaries - comdoms, if you like - about money came from a piece that John Bird and John Fortune performed on The South Bank Show last year. Written at the start of the crisis, their satire on sub-prime lending received more than two million hits on YouTube - a phenomenon by any standards, let alone for an eight-minute exposition on banking. It's certainly clearer than any conversation you'll have with a banker. If my own experience is anything to go by, you lose the thread after about a sentence and a half, and the will to live soon after.

Yet as the year went on, what started out as an attempt to understand the credit crunch became the biggest story of the year. “Isn't it exciting!” said a make-up artist on one show I did this month. Well, yes, kind of. But it's also truly shocking. The curtain has been thrown back on the world of banking and we've seen the Emperor in all his bare glory. As Warren Buffett, doyen of investors, put it, when the tide goes out, you find out who's been swimming naked. Gazing out over a sea of butt-naked bankers, no wonder the Bank of England's Mervyn King has decided it's time for “the long walk back to boredom”. Bankers don't like exposure that much. But how did we get into a situation when derivatives, an instrument that few people understand (even bankers), were worth $283 trillion, seven times more than the entire world produces in a year?

It's the numbers that are staggering - so much so as to be incomprehensible. When Barings went bust in 1995 (the year after its chairman Peter Baring told a director of the Bank of England that “it's not actually terribly difficult to make money in the securities business”) its loss was £862 million. Today that seems almost laughably small. When announcing its $700 billion bailout plan this month, a US Treasury spokeswoman admitted the amount of money involved was “not based on any particular datapoint. We just wanted a really big number.”

At the time of its collapse last year, Bear Stearns was borrowing $33 for every dollar it had. It was able to do that under a regulatory system that let banks opt in or out of supervision voluntarily - the banking equivalent of putting a ravenous fox in charge of a Bernard Matthews farm.

On both sides of the Atlantic, fingers are being pointed at the incumbent government, when it was their predecessors who started the rot: over here with the great Tory deregulation of the City in the 1980s, and in America with Bill Clinton's repeal of the Glass-Steagall Act 1933, separating investment banks (the gamblers) from deposit banks (ordinary savers) and his push to extend home loans to lower-income households, taken up with gusto by the mortgage finance company Fannie Mae. (Not the only time Fannie caused Mr Clinton problems.)

But it wasn't just greedy bankers and compliant governments. The madness affected us all to a degree. People took out loans in their pet's name. Others signed up to 120 per cent mortgages. One woman even took out a loan to have her husband murdered. We wanted to get more for our money, however unlikely the source. Why else would people sign up to Icelandic internet accounts with names that sounded like a new brand of razor? “Kaupthing Edge”; “Iceshave”. Why would you do that? Surely it's just one step up from replying to one of those e-mails from Nigeria offering you hundreds of thousands of pounds in return for your banking details. I suppose the excuse, as it has been for bankers and the public down the ages, is that everyone else was doing it. In which case, what precisely distinguished Stan O'Neal (the former boss of Merrill Lynch, severance package $160 million) from Joe Sixpack (average American, income $35,000)?

Yet this is just the visible tip of the iceberg towards which we seem to be steaming. I find it extraordinary that the US economy is kept afloat by the savings of Chinese peasants, or that a £100 share in a Scottish hospital PFI scheme could net you £89 million over 30 years. But I'm not a banker. I just wanted to try to find out how the thing works. Come to think of it, I'm not sure it does.

One thing is for sure. Your relationship with your bank manager has changed. That's inevitable, given that the next time you discuss a loan it's just as likely that he will be borrowing money from you as the other way round. But then he always was. The difference is, we know that now. It's one of the known knowns.

Bremner, Bird and Fortune: Silly Money starts on Sunday at 7pm on Channel 4

Moral of the bank crash?

Why the bank crash is an opportunity to think about the way we live and why

Jeanette Winterson

The Times 17 October 2008

I was in the electrical shop in Stow-on-the-Wold in Gloucestershire when I heard a man behind me say, “I've just popped in with my Goblin”. I didn't look round because what I wanted to see was a cross creature, 3ft tall, chewing the lampshades and pinging the toasters. I know he was really referring to a vacuum cleaner, but it set me thinking about fairy stories, especially as the present global crisis reads like a demented version of The Emperor's New Clothes mated with The Fisherman and his Wife.

We all know the one about the emperor walking around with nothing on, while everyone admires the finery of his garments - garments so fine that only really clever and smart people, such as investment bankers, can see them. The rest of us thought that debt, was, well, debt, but the bankers said no, debt is asset. It's just that we couldn't see it because we were so stupid ...
We had already lived through this story with the dot-com saga, when old-fashioned things like goods and services were worth nothing at all, and anything with a website address and enough marketing was the way to earn millions.

With the banks, the idea that Nothing was really Something was much more serious than dot-com mania, because the smart clever people who don't have time to read fairy stories didn't care that they were creating a monstrous fiction of their own. The Fisherman and his Wife is a lesson in greed - sorry, aspiration. A fisherman catches a flounder and lets him go, and in return the fish gives him a wish. The simple fishermen wishes for a nice cottage with roses round the door, instead of his miserable smelly hovel. When he gets home, his wife is ecstatic, they live happily for a while, and then, of course, she sends him back down to the beach to see if he can get a better deal ...

So it's a bijou Georgian house next, and after that a Queen Anne mansion. Then she wants a country estate like Madonna's, then a fancy palace in Tuscany.

On it goes, and the fisherman is getting more uneasy and the waters are darkening, but still he goes and talks to the flounder, and sometimes they have philosophical conversations about happiness and meaning, and when the fisherman tries to raise these things with his wife, she thinks he means a charitable donation or a night at the opera. The fisherman is lonely.
At last his wife gets bored with houses and moves on to power. She wants to be queen, then she wants to be pope, and yippee, it all happens. Then one day, when the sea is crashing over the shore, and the sky is so dark that the sun can't be seen, she tells her husband to go and find the stupid fish because she wants to be God. But the fish is gone. And the fisherman and his wife are back in the hovel.

Well, here we are, hovels coming up fast, and there will have to be a few conversations about happiness and meaning, though not in the nauseating David Cameron language of Gross National Wellbeing. This isn't a moment to let speechwriters talk about real things. I have always felt and often said that writers and artists need to be on the boards of big companies, need to be advising all these people who don't have time to read the simple stories that tell us more about human nature than any of the slew of management guru books written in the fantasy land of hyper-capitalism.

This shouldn't be a rush back to business as usual; it could be an opportunity to think about the way we live and why, and a time when everyone should be in on the discussion. If this is just about cashflow and net worth we have missed the point.

Yes, we need to stabilise our present situation, and then, perhaps, we could ask a really simple question - far too simple for the clever people - what is money for? At least that way it stops being an end in itself.

It's a question the stupid hero asks in The Princess and the Tower, where having rescued his bride, he is offered an island made of gold instead. His brothers have already given up the princess and taken the money - only to find that they can't have any children. In other words, the future is paralysed by short-term greed. Maybe it's set in Iceland.

Credit crunch in Dubai?

Boomtown of Dubai feels effects of global crisis

Robert F. Worth

International Herld Tribune October 5, 2008

DUBAI, United Arab Emirates: On the surface, this glittering Arabian boomtown seems immune to the financial crisis plaguing the global economy.

The skyline still bristles with cranes an estimated 20 percent of the world's total and the papers are full of ads promoting spectacular new building projects. On Sept. 24, tourists from around the world flocked to the opening of Atlantis, a gargantuan, pink, $1.5 billion resort hotel built on an artificial, palm-shaped island. There was no shortage of people willing to pay as much as $25,000 a night for a room, to gaze at the sharks and rays in a vast glass-lined aquarium in the lobby and to dine at marquee restaurants like Nobu and Brasserie Rostang.

But as recession looms in the West, cracks are appearing in the oil-fueled boom that has made Dubai, with its futuristic skyscrapers on the turquoise waters of the Gulf, a global byword for unfettered growth.

Banks are reining in lending, casting a pall over corporate finance and building plans. Oil prices have been dropping. Stock markets across the region have been falling since June. After insisting for days that the oil-rich Gulf region was fully "insulated" from financial troubles abroad, the Emirates' Central Bank made about $13.6 billion available on Sept. 22 to ease credit problems, in an echo of bailout measures in the United States. Already, some bankers are saying it is not enough.

Some of Dubai's more extravagant building projects the ever-bigger malls, islands and indoor ski slopes are likely to be dropped if they do not already have financing lined up, bankers say. The credit crisis could also reduce demand from buyers, who will have a harder time getting mortgages.

The shrinkage will be more severe if the financial crisis worsens in the West. Property prices and rents, which have remained steady until now, are widely expected to start dropping soon.
At the same time, investor confidence has been harmed by a long string of high-level corporate scandals, jeopardizing Dubai's long-term ambition of becoming a regional financial capital.

"Plenty of people are worried," said Gilbert Bazi, 25, a real estate broker from Lebanon who moved here a year ago. "They are waiting to see if what happened in the United States will happen here." When he first arrived, Bazi said, making money was almost absurdly easy. "Iranians, Russians, Europeans everybody was buying," he said. "I didn't have to call people; they were calling me." Now, Bazi stalks the lobbies of hotels, trying to find clients. "The market is sleeping," he said.

In fairness, Dubai still looks rosy when set against the financial turmoil elsewhere. Although it lacks the oil wealth of its sister emirate Abu Dhabi, Dubai has huge budget and current account surpluses, and the government of the Emirates federation is able and willing like its Gulf neighbors to inject an almost unlimited amount of money into the system to ease credit problems.

The governments of Saudi Arabia and Qatar have reaped so much profit from oil and gas in recent years that they are more worried about how to spend it than about managing any downturn. But the Gulf's governments face real economic challenges, albeit ones that are profoundly different from those in the West.

Until recently, credit in Dubai was growing by 49 percent a year, according to the Emirates' Central Bank a rate almost double that of bank deposits' growth. That unnerved some bankers here, who felt it could lead to a collapse. "In the U.S., the challenge is about keeping the banks going," said Marios Maratheftis, chief economist for Standard Chartered Bank. "Here, the economy has been overheated, a correction is needed, and it's about making sure the slowdown happens in a smooth, orderly manner."

If that sounds like an easy problem to have, consider the manic vicissitudes of Dubai's real estate market. Speculators often got bank loans to put down 10 percent on a property that had not yet been built, only to flip it for a huge profit to another buyer, who would do the same thing, and on and on. That was easy to do when housing prices here were surging so fast that some properties multiplied tenfold in value in just a few years.

But the Dubai authorities began getting nervous about this and imposed new regulations this summer to limit speculation.

Many analysts say the slowdown in Dubai's economy, assuming it does not worsen to a slump, will make the city's growth more sustainable and healthy by reducing its dependence on loans and speculation. Similarly, the authorities hope that recent arrests in corporate scandals will root out the culture of corruption that plagues so many Arab countries. Some of those arrested have been Emiratis with connections to the ruling family, in a gesture clearly intended to send the message that no one is exempt.

As Dubai's frenzied growth slows, whether there is a hard or soft landing will depend in great part on the banks, the link between the region's declining stock markets and its still-thriving property sector. "Banks will have to start lending to end-users," said Robert McKinnon, a real estate analyst and head of equity research at Al Mal Capital here, referring to people who actually plan on occupying properties as opposed to trading them for profit. "There are some questions about how the banks will handle that transition."

At worst, if the global economy worsened and some Dubai banks failed, there would be a firm crutch to lean on. In the early 1980s, after several Dubai banks stumbled, the government rescued them and relaunched them as the Emirates Bank International. In the early 1990s, two more banks were rescued. At that time, of course, Dubai was far smaller. The repercussions of such a government bailout today would be far more damaging to Dubai's image as the epicenter of Gulf development.

The government cushion appears to be part of the reason most local people do not seem anxious right now. "We don't worry about it," said Hassan al-Hassani, 26, a civil engineer and an Emirati citizen, who was drinking coffee late Wednesday night with relatives and friends at a faux-Bedouin-style tent, set up among Dubai's hypermodern skyscrapers in honor of the Muslim holy month of Ramadan. "Maybe it's good for things to calm down."

A few yards away, guests admired a miniature model of a new residential and commercial Dubai development called the City of Arabia, which includes what will be if it is really built the biggest mall in the world.

"Sometimes we wonder, will people really come to live in these places?" Hassani asked. But he quickly brushed off the thought with a smile, reminding his listener that native Emiratis unlike the foreigners, who make up a majority of Dubai's 1.3 million residents have a different perspective. "Remember, 30 years ago almost nobody had phones here," he said. "There was maybe one tall building. My family only had one car."