Friday, 17 October 2008

The perfect crime

The other night Newsnight offered an explanation of the way in which Credit Default Swaps work. These are financial instruments to which Royal Bank of Scotland (market capitalisation around £11 billion) has an exposure estimated at £2.4 trillion - more than 200 times its current value. Barclays' position is almost as bad. If I understood it correctly, a vast amount of purely theoretical money is notionally secured on assets worth a fraction of the total sum. Like remortgaging your house 200 times. But as long as the banks don't collapse no-one finds out and the bankers can collect their enormous bonuses. Amazing to discover that what all these years we imagined was the global financial system was little more than a gigantic pyramid scheme.

It reminded me of this:




Perhaps we should start learning the lyrics to Springtime for Hitler

2 comments:

valdemar said...

Excellent analogy - I got the pyramid selling thing quite early on. But the producers is at least as valid. After all, Bialystock and Bloom weren't bad people, just misguided about the public's taste. The wild-eyed old crank and the unworldly accountant are certainly more like real bankers than all that 'masters of the universe' rubbish we've been fed for so many years. Silly little men being far too greedy. Just like last time. And, I suppose, like next time - unless the socialists get in and nationalise everything!

passer by said...

We will know the answer to this question on Tuesday. (HAVE NOT SEEN NEWSNIGHT BTW)

If Greenspan was right about CDS then all will be well and the market will rise with a big smile on its face. If not then some bankers might be jumping out of canary wharf.

In this incredible story Tuesday is the DDAY

CDS