SUBPRIME FARCE

Watch the following comedy sketch about banking and the subprime crisis and listen out for the vocabulary highlighted in bold in the transcript below :




Transcript
George Parr, you are an investment banker?

I am, yes.

And as such you have your fingers right on the pulse of the financial markets.

Yeah, very much so, yes.

And, during the summer,there's been... great deal of turbulence and.

Volatility in the market. Volatility. Tremendous, tremendous, yes.

Yes and what's caused that?

Well, you have to remember two things about the markets, and one is that they are made up of very sharp and sophisticated people, who are ... these, are the greatest brains in the world. And the second thing you have to remember is that the financial markets, to use the common phrase, are driven by sentiment.

What does that mean? What does that mean?

Well, things, let's say are just going along as normal in the markets, and then suddenly out of the blue, one of these very sharp and sophisticated people says "my God,
something awful’s going to happen, we've lost
everything, errr, my God, my God what are we going to do? What are we going to do?" errr,

shall I jump out of the window?

Shall I jump out of the window. In fact let's jump out of the window. We've lost. or

Sell. Sell, sell. Sell, sell.

Yes, Precisely. Yes. And then a few days later the same sophisticated person says, you know, I think things are going rather well, and everybody says well yes I agree with you. I think we're rich, we're rich.

Rich, buy, buy, buy. Buy, buy,yes.

And that is, that's what we call market sentiment.

But err, well yes, surely we are exaggerating just a bit aren't we?

Well I don't know, I mean, in August, in the middle of August this year when the market absolutely plunged in London. The well known city firm, err State Street Global Markets issued a statement in which it said, and I quote... "Market participants don't know whether to buy on the rumour and sell on the news. Do the opposite, do both, or do
neither depending on which way the wind is blowing". Unquote.

Yes, this is the kind of rigorous analysis that companies will pay, will pay huge salaries for.

Huge, Yes, exactly and errr and few days later when the markets had gone up a little bit, the senior equities advisor on ABM, Amro Morgan said and I quote, "We're back to happy days again".

Well no price is too high for that. No. For that kind of mature wisdom. Certainly. Is it?

This is the reason these sorts of people are paid millions of pounds in bonuses.

Yes of course.

During this summer there have been actual causes behind the, the, the volatility in the market.

Yes. I mean specifically and especially in America, they're granting vast numbers of mortgages, errr to people who can't afford them. Yes. On properties which are diminishing in value. Yes, this is the so called sub prime, errr, errr, situation.

Sub Prime. Yes. How does that work in fact?

Well imagine if you can, let's say, an unemployed black man sitting on a crumbling porch somewhere in Alabama in his string vest and a chap comes along and says, would you like to buy this house before it falls down? And why don't you let me lend you the money?

And is this chap, who says this, is he a banker?

Oh no, no, no, he's a mortgage salesman; his income depends entirely on the number of mortgages he can arrange.

So his judgement to arrange mortgages is completely objective?

Completely objective, yes, absolutely.

And, and, and, what happens next?

Well then, this debt, this mortgage that is left, is taken and bought by a bank and packaged together on Wall Street with a lot of other similar debts.

Without going in too much detail about what is actually...

Without going into any detail, no it's far too boring. And so this is put into a package of debts and then it's moved onto Wall Street, and, then, this, this, this, it's extraordinary what happens then, that somehow,this package of dodgy debts. Stops being a package of dodgy debts and starts being a structured investment vehicle.

An, errr, S.I.V?

An S.I.V, yes. Exactly yes.

Yes, I see. And then someone like you, comes along and, and, and buys it.

And I buy it, yes and then I will ring up someone in Tokyo and say, look I’ve got this package, do you want to buy it? And they say, what's in it? And I say I haven't got the faintest idea. And they say how much do you want for it? And I say a hundred million dollars and then they say fine, and that's it. And that, that's the market.

And presumably this package, I mean that kind of thing can happen several times?

Oh it could. To the same package? Possibly yes.

And, and, and every time it does, of course then you, or someone like you, will get a fee and a mark up. And a profit. And, and, and so on?

Well you can't expect me to do it for nothing, it's hard work being, being...

In view of the fact that in these packages, there's a lot of dodgy debt, what is it about it that attracts the, financial, you know, risk takers?

Yes, well because errr, these hedge funds as they're called, which specialise in these debts, errr, they all have very good names.

You mean they're responsible companies? Oh no, no, no, it's nothing to do with the reputation; they have actually very, very good NAMES. The names they think up for them are very good. I'll give you an example. There's a very well known American Wall Street firm called Bear Stearns who have two of these hedge funds, which specialise in these, in these mortgage debts, and errr, they lost so much money, they lost so much in value that Bear Stearns announced that they would have to put in 3.2 billion dollars into one of the funds to try and keep it afloat.

3.2 billion dollars?

Yes, 3.2 billion, yes. And even then they said that investors couldn't get any money
out of it, and they were going to let the other fund go. But, one of these funds was called high grade structured credit strategy fund and the other was called the high grade structured credit enhanced leverage fund.

Well that sounds very good, doesn't it? Very good. It sounds very
trustworthy. Yes, in fact this is the magic of
the market, what started off as loaning a few
thousand dollars to the unemployed black man on the street in a string vest has become a high grade structured credit enhanced leverage fund.


I like the sound of it. It is good, it's sounds very trustworthy, I mean it's got good words in it. You've got words like high. High's good. High's good, better than low anyway isn't it. Yes absolutely. And structured is another good word.
Very good. Enhanced.I love enhanced. Enhanced is very. I mean I’d buy anything if it said enhanced.

Absolutely, yes. It might have been different if it said Unemployed black man in a
string vest fund, but, but, but, Yes, because then alarm bells might sound. Alarm bells… might ring.

But despite these all very plausible names surely the reality is, that the people that lent all this money, have been incredibly stupid.

Oh no, no,no, in reality what was stupid is at some point somebody asks how much money are these houses actually worth. That's stupid? I mean if they hadn't bothered to ask that question then everything would have gone on as perfectly normal, but they unfortunately they did.

I see, now you see that people are saying the crisis is likely to
turn into a financial meltdown. I mean can that be avoided?

It can be avoided, provided that governments and central banks gave, give us, the financial speculators back the money that we've lost.

But isn't that rewarding greed and stupidity?

NO, no it's rewarding what the Prime Minister Gordon Brown called the ingenuity of the markets.

I see, and, and, and.

We don't, we don't want this money to spend on ourselves. We want this money just to go into the markets, so that we can carry on borrowing and lending money as if nothing had happened without thinking too
much about it.

Yes, but, if the worst came to the worst, then you didn't get this money, what then?

Well then, there'd be another market crash, and then I would say to you, what people like me always say, it's not us that will suffer, it's your pension fund.

Thank you very much George Parr.

It's a pleasure.