Bird and Fortune Financial Crisis Vocabulary
Turmoil(n) engulf(v)
suspicion(n) nitpick(v) a silver lining consolation (n) moan(v)
pathetic(adj) backwater(n) sophisticated(adj) compassionate(adj) conservatory(n) desperate(adj) dribble(n)
parcel(v)
1.
Feeling pity and sympathy
2.
Having lost all hope
3. To swallow up
4.
Complain
5.
Having acquired worldly knowledge or refinement;
6. Arousing pity or sadness
7.
To be concerned with or find fault with insignificant
details
8.
A hopeful or comforting prospect in the midst of difficulty.
9.
A state of extreme confusion or agitation
10. Package
11. A state of uncertainty;
doubt. the feeling of mistrust
12. A green house.
13. A place or situation
regarded as isolated, stagnant, or backward
14. A week unsteady stream
15. Comfort
1.
A state of extreme confusion or agitation Turmoil(n)
2.
To swallow up engulf(v)
3. A state of uncertainty;
doubt. the feeling of mistrust suspicion(n)
4.
To be concerned with or find fault with insignificant
details
nitpick(v)
5.
A hopeful or comforting prospect in the midst of
difficulty. a silver lining
6.
Comfort consolation (n)
7.
Complain moan(v)
8.
Arousing pity or sadness pathetic(adj)
9.
A place or situation regarded as isolated, stagnant,
or backward backwater(n)
10. Having acquired worldly
knowledge or refinement; sophisticated(adj)
11. A green house. conservatory(n)
12. Having lost all hope.
desperate(adj)
13. A week unsteady stream
dribble(n)
14. Package parcel(v)
15. Feeling pity or sympathy compassionate (adj)
If
you look hard enough
|
there’s
a silver lining to the financial crisis.
|
If
other people had done what I did
|
they
wouldn’t be moaning about their food going up.
|
If
it hadn’t been for us
|
the
city of London would be a pathetic
backwater instead of the financial centre of the world.
|
Think
how much tax it would be
|
if
people like me paid.
|
If
you were a partner in a private equity firm making millions out of deals
|
these
millions would be taxed at %10.
|
If
an office cleaner threatened to clean an office in the Cayman Islands
|
the
government would say “ well, p++++ off then.”
|
A
risky loan is not risky
|
If
you parcel it up with a lot of other loans and some other ventures of good
quality.
|
If
you do that
|
the
bad loans get better.
|
If
one risky loan which is put in with a whole lot of other loans which are the
same
|
it
increases the risk
|
If
one loan goes bad,
|
the
others are very likely to.
|
If
you look hard enough
|
If
you parcel it up with a lot of other loans and some other ventures of good
quality.
|
If
other people had done what I did
|
the
government would say “ well, p++++ off then.”
|
If
it hadn’t been for us
|
the
bad loans get better.
|
Think
how much tax it would be
|
there’s
a silver lining to the financial crisis.
|
If
you were a partner in a private equity fir making millions out of deals
|
it
increases the risk.
|
If
an office cleaner threatened to clean an office in the Cayman Islands
|
they
wouldn’t be moaning about their food going up.
|
A
risky loan is not risky
|
the
city of London would be a pathetic
backwater instead of the financial centre of the world.
|
If
you do that
|
The
others are very likely to
|
If
one risky loan which is put in with the a whole lot of other loans which are
the same
|
these
millions would be taxes at %10.
|
If
one loan goes bad,
|
if
people like me paid.
|
Comprehension questions:
1.
What is John Bird’s reaction to being
called “an investment banker”? (an insult/name
calling)
2.
How does Bird describe the “Golden
Age” of banking? (The world was a
simpler place with a sense of certainty and order and the word of a banker was
gospel.)
3.
How has the attitude changed towards
bankers after the crisis? ( nitpicking, finger pointing and asking difficult
questions like: Where’s the money gone?)
4.
How are investment bankers
responsible for the financial crisis? ( They gave too much credit, paid too
much, were stupidly greedy.)
5.
What are they going to do about it? (
continue as before then go to the government and say they’ve been terribly
stupid and get 15 billion.)
6.
What is the “ silver lining” for
Bird? ( he lost other people’s money and he’s still rich.)
7.
In which way are the people
ungrateful?
8.
What was Gordon Brown’s generous tax
cuts?
9.
How does the business cycle work? (up
and down/ greed and fear)
10. How
did the banks show their “public spiritedness”? ( lending money to the poor)
11. Why
is securitization “absolute magic”? ( The bad loans disappear with the good
loans)
The Long Johns: Silly Money- The Financial Crisis
John Fortune: George Parr, you are an investment banker…….
John Bird: Well, I don’t think there is any call for insults or name calling.
Fortune: Sorry, I was just…
Bird:
We have after all just been through a very difficult situation.
Fortune: Well, but let’s face it, you are an investment banker, and I just
wanted to get your view of the turmoil that is now engulfing the financial
world.
Bird:
Well, I’m of a certain age, there aren’t many of us left from my generation,
and I can look back at a time when the world seemed a simpler place, with some
sense of certainty and order. I think of this as a golden age of banking.
Fortune: You’re thinking of the 60′s perhaps or even the 50′s.
Bird:
No, I was thinking more of June last year. Why can’t we go back to the time
when people took the word of a banker as gospel? Now we get suspicion, finger
pointing, people arguing, and all sorts of difficult questions.
Fortune: What sort of questions?
Fortune: What sort of questions?
Bird:
Oh well, I don’t know. Nit-picking pointless sorts of things like, I don’t
know… Where’s the money gone? As if I’m supposed to know.
Fortune: But it is generally thought that it is people like you who are
generally responsible for this crisis.
Bird:
Yes, well I think that’s broadly true. We’ve given far too much credit, we’ve
been paid far too much, and we’ve been stupidly greedy.
Fortune: And so, what are you going to do about it? I mean, where do you go
from here?
Bird:
I’ve given this a great deal of thought. And what I’ve decided to do is
to go on doing the same things as long as I possibly can.
Fortune: Surely that is an extraordinarily irresponsible attitude.
Bird:
Well, yeah, you might say so, but I’ve considered all the options, and what
seems to be the way it works is that I go to the government and I say, “I’m
sorry, but I’ve done something exceptionally foolish which will cause enormous
damage to the economy.”And they
say, “have you? Oh. Well, then, here’s 15 billion pounds.”
Fortune: So like nearly everybody else, you lost a great deal of money on
property and derivatives.
Bird: A
colossal amount of money. But there is a silver lining to it all, if you look
hard enough.
Fortune: Is there?
Bird:
Yes. Luckily, I lost other people’s money and not my own… that’s something of a
consolation.
Fortune: It must be. So, you’re all right personally.
Bird:
Well, you know over the last decade it’s been up and down, sometimes I’ve had
good years. Sometimes I’ve had incredibly good years. But with the
best job in the world, it’s been impossible to spend the amounts I’ve earned,
so I’ve still got quite a lot of it left. If other people had done what I did,
they wouldn’t be moaning about their food going up.
Fortune: Many people would say that it is those who could least afford it who
will suffer most from your mistakes. Those with mortgages and credit card
debt, and the lower paid.
Bird:
Well, I think it shows extraordinary lack of gratitude by these people for what
we’ve done. I mean if it hadn’t been for us, the city of London would be just a
pathetic backwater instead of the financial center of the world. Think of the
billions which flow into London every day, or used to. Think of the
enormous amount of tax revenue that generates.
Fortune: But people like you hardly pay any taxes.
Bird:
Yes, but think of how much it would be if we did!
Fortune: But haven’t people in your world insisted on light regulation by the
government? And a generous tax regime. In 2002, the Gordon Brown cut the
capital gains tax on business assets held for two years from 40% to 10%.
If you were a partner in a private equity firm making millions out of deals,
these millions would be taxed at 10%. In effect, they would be paying
income tax at 10% while their office cleaners were paying 20%.
Bird:
Yes, as is often said, but it’s quite simplistic a lot of private equity partners
weren’t paying anything like 10%.
Fortune: No?
Bird:
No, a lot of them were paying 5%. Some of them were paying nothing.
In 2006 there were 52 billionaires in this country, 32 of them didn’t pay any
income tax at all.
Fortune: Well, why did the government go along with this?
Bird:
Because the private equity firms went to them and threatened to move their
businesses abroad, and the government said, “Please don’t do that. We want you
to stay here.” If an office cleaner went to the government and threatened to go
and clean an office in the Cayman Islands, the government would say, “Well, piss off then.”
Fortune: George Parr, as an investment banker, why are we so poor when last
year we were so rich?
Bird: Well
of course, I still am rich. But I take your general point. It’s to do with the
business cycle.
Fortune:The business cycle. How does that work?
Bird:
It is a very sophisticated mechanism. Sometimes it goes up and sometimes it
goes down. When there’s more greed than fear, it goes up and when there’s more
fear than greed it goes down.
Fortune: So, you’re saying that the banks have been too greedy?
Bird:
No, no. Not at all. Not at all. The opposite is the case. The banks have always
been noted for their public spiritedness, for having the interest of the poorest in mind.
Fortune: Have they? I must have missed that.
Bird:
Over the last few years, the banks have been saying to themselves, “ We’ve lent
all the money we can to people who’ve got some assets and some prospects , how
can we start lending to people who haven’t got any money or prospects or any
hope of paying it back?”
Fortune: The banks were being compassionate, were they?
Bird: Oh,
very, very much so, very much so. Of course we can charge much higher interest
from those sort of people. A commercial bank will go to one of their poorest
customers, say a single mother who hasn’t worked for five years, whose
constantly going over her credit limit, is behind on her credit card payments,
who can’t keep up the mortgage and then somebody’ll ring her up and say “ How
would you like us to lend you the money for a new conservatory?”
Fortune: And what does she say?
Bird:
She says she’s not sure about it.
Fortune:Why not?
Bird:
Because she lives on the tenth floor of a tower block. But the man at the bank
goes on trying. What you have to remember is that these people are really desperate.
Fortune:The people in the tower block?
Bird:
No, the people at the bank. They’re not paid very well so they need their sales
bonus just to make a decent living. So this woman gets a second mortgage.
Fortune:But isn’t that terribly risky for the bank?
Bird:
Well, you would think so, wouldn’t you. So would I but then I’m not very good
with figures. But I have some very clever chaps working for me and they found a
way around this risk. They came up with what’s called “Securitization”.
Fortune:And how does that work?
Bird: It’s absolute magic. The first thing is, it’s no good for the bank just to
hold onto a mortgage on its own. All it means is that we get some pathetic
dribble of interest a every month for the next 30 years which does absolutely
nothing for our bonuses.
Fortune: You might not live that long.
Bird: That’s slightly unnecessary, if I may say so.
Fortune: I’m sorry.
Bird: No, no. But you’re quite right. So what we do
is, we take this mortgage, put it together with a lot of other mortgages and a
bit of debt, parcel it up into what is called a Structured Investment Vehicle
or a Collaterized Debt Obligation and we sell it.
Fortune: The advantage of that being……..
Bird: Being that we can book the whole lot straight
away as being a profit and that does wonders for our bonuses.
Fortune: And you don’t have to wait 30 years for the money.
Bird: Precisely.
Fortune: But a risky loan is still a risky loan. Isn’t it?
Bird: Not if you parcel it up with a lot of other
loans and some other ventures of good quality. It you do that, the bad loans
somehow get better.
Fortune: All on their own?
Bird: Sort of all on their own. Yes, because I mean
we’re in very deep waters here, mathematically and the people who devise these
financial instruments are incredibly clever. You see, one of the things which
makes loans risky when you mix them all up together is what is called
“correlation”. If one very risky loan is put in with a whole lot of other loans
that are very much the same, it increases the risk.
Fortune: So if one loan goes bad, the others are very likely to.
Bird: Exactly, so we had to be sure there was very
little correlation in the loans in the
CDO (Collaterized Debt Obligation).
Fortune: Such as their being a lot of subprime loans to American house buyers
with no chance of paying them back.
