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Published by: Mirador Publishing
Contributors: David Luddington
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When Shadeys Bank loses yet another C.E.O. to a major scandal, they are desperate to show they’ve reformed. Who better to present their redemption to the world than a country vicar with a reputation for being annoyingly good?
Reverend Tom Goodman is ousted from his job as a country vicar for allowing a homeless family to stay in the church hall. Meanwhile, a major bank is trying to rescue its image after the latest in a long string of financial scandals. It seems like the perfect match and Goodman is hastily appointed as the bank’s new C.E.O. All they have to do now, is promote him as the new face of Shadeys Bank whilst at the same time, keeping him away from the day-to-day business of dubious banking.
However, Tom Goodman has other ideas. He’s not going to be satisfied with being used as an empty puppet for a PR stunt. Unfortunately for Shadeys, Tom is planning on actually making a difference.
And so begins an epic battle of wills. The might of a multi-billion pound bank versus a seemingly naïve country vicar. No contest.
“Yes Minister meets The Vicar of Dibley.”
John studied the plate in front of us as he seemed to struggle to find a way to explain complex financial machinery to an idiot. Finally, he picked up a piece of cheese from the plate and held it up to me. “Let’s assume you have a liking for cheese.”
“I love cheese,” I said. “Not so keen on blue cheese, but a nice piece of Old Tickler Cheddar... Mmm.”
He watched me for a moment then with the slightest shake of his head, he continued. “The price of cheese has been going up recently and —”
I touched his cheese hand to pause his flow. “Why?” I asked.
“Why has cheese been going up?”
His lips tightened in an attempt to avoid snapping. “It’s a hypothetical. A thought experiment.”
“Oh.” I felt a slight wash of foolishness. “Go on.”
“The price of cheese has been going up and you buy up a few packs as a hedge.” He looked at me as if tuned in to my confusion meter. “A hedge,” he repeated. “A safe investment in an asset which you can later sell.”
“Ah, yes. I think I knew that.”
“In your enthusiasm to buy into the cheese explosion, you don’t look too closely at the quality. Why should you? It’s cheese, it goes up in price as you watch...”
I tried to focus on his words, but my mind had drifted at the mention of a cheese explosion and I now had all the wrong images in my head.
“...but after a while, something in your cupboard is beginning to smell.” He waved his piece of cheese theatrically under his nose. “One of your blocks of cheese is going off. If you try to sell it, nobody will give you a good price but if you keep it, it’s going to go really bad and you’ll have to throw it out.”
“I could give it to a foodbank,” I suggested.
He drew back slightly as if I’d just turned into a bad smell myself. “You’re a banker,” he said. “You don’t give anything away.”
“Profit, it’s all about profit.” He placed the piece of cheese on the plate then stacked the other pieces on top of it. “So you hide the smelly bit in amongst some other cheese and sell the whole lot as a job lot. The person who buys it doesn’t look too closely. His logic is that it’s cheese, cheese goes up in price and even if there are a few smelly bits in there, he’ll still make a profit on the rest. Now, he buys up some more slightly smelly job cheese lots from other people and puts them all in one big box which he calls Mixed Cheese Assets and sells it on again. The next owner gathers several of these boxes of Mixed Cheese Assets in an even bigger box, and chucks in some Mixed Biscuit Assets.” He stacked some biscuits around the cheese. “For good measure, he also chucks in a lawnmower, an old computer and a couple of bubble lamps. Then he relabels the whole lot Mixed Saleable Assets and off we go again.”
“But who’s going to buy something like that?” I asked.
He looked at me with a slightly quizzical expression, “Have you ever watched that TV programme where celebrities buy a container load of unsorted junk at auction then see who can make the most profit?”
I shook my head. “I make a point of avoiding anything on TV which includes the word ‘Celebrity’ in its title.”
“I should imagine that’s quite a challenge.” He picked up a piece of cheese, balanced it on top of a biscuit and popped it in his mouth. He chewed thoughtfully for a moment then said, “The beauty of these mystery packages is that as they become more complex there is nobody left who can understand what’s in them anymore. Let alone put a value on it. Can you imagine trying to find somebody who can give an expert opinion on your smelly cheese at the same time as check the condition of the lawnmower, reformat the computer and issue an EU Safety Certificate for the bubble lamps?”
“I see,” I said. “So everybody keeps reselling these to each other and each time, they just get bigger and more complicated?”
“Exactly,” said John. “But that’s only the beginning. By now, your original cheese is going seriously rancid, the lawnmower is leaking oil all over the computer and the bubble lamps have caught fire. But the predominant component is cheese and people still think cheese is good, no matter how smelly it’s getting. The key is to re-bundle and sell quickly. Just before the big crash, these things were changing hands faster than a game of pass-the-parcel in a Baghdad pub.”
I felt a slight sense of smugness settle on me. “Now I think I understand,” I said.
John glared at me and said, “No you don’t. Nobody does. What I’ve explained is just level one.”
I knew I shouldn’t ask but I had to. “What’s level two?”
“Level two? Are you sure?”
I nodded, albeit unenthusiastically.
“Let’s say I have a particularly smelly box and already smoke is coming out of the lid. But I’m devious, I take out an insurance policy against making a loss and carry on trading boxes. In fact, these insurance policies seem such a good idea that I start taking them out on other people’s boxes as well, boxes I don’t even own. I look for the smelliest, smokiest boxes I can find and insure them. I know they’re going to explode soon and when they do, I will make a nice profit on something I didn’t even own. It’s a bit like taking out an insurance policy on your neighbour’s house then setting fire to it.”
“I thought that was illegal?” I queried. “I thought one could only insure your own property?”
“In real life, yes,” John said. “But remember, banking isn’t real life. These are private transactions, they don’t call them insurance, they call them Credit Default Swaps instead. Makes it legal. In fact, it’s quite normal for several people to all insure the same very smelly box, so that you end up with more people rooting for that box to explode rather than to rise in value. And if I can’t afford one of these policies? No problem, I can take one out on credit. I just pay a small deposit and the rest when the box crashes and I can collect my pay-out.”
“Is there a level three?” I asked.
“Oh sure.” He picked up another piece of cheese and nibbled at it. “I can gather up a selection of these insurance policies, along with a few of the credit agreements I’ve taken out for insurance on other boxes, then put those all in another box alongside some original Mixed Saleable Assets boxes and make an even bigger box to sell yet again. This box is now such a mystery they can’t even find a word to describe it, so they just call it a Derivative.”
“Something formed from something else,” Keeley said.
“Exactly,” said John. “To the point where nobody has the faintest idea how they work anymore, they’re just so full of so much random shit. Even Warren Buffett reckoned it was impossible for anybody to understand them. He called them Weapons of Financial Mass Destruction. And he wasn’t wrong.”