“The story of the great credit boom and bust is not a saga that can be neatly blamed on a few greedy or evil individuals. It tells how an entire financial system went wrong, as a result of flawed incentives within banks and investment funds, as well as the rating agencies; warped regulatory structures; and a lack of oversight... And while plenty of greedy bankers play crucial parts in the drama - and, perhaps, a few mad, or evil, ones too - the real tragedy of this story is that so many of those swept up in the lunacy were not acting out of deliberately bad motives.”So it wasn’t all Gordon Brown’s fault. Yes, I am reading Fool’s Gold, Gillian Tett’s wonderful account of “how unrestrained greed corrupted a dream, shattered global markets and unleashed a catastrophe”. Superb stuff. But it can be heavy going. Take this, for example, the simple (it gets more complex later) explanation of derivatives:
“As the name implies, a derivative is, on the most basic level, nothing more than a contract whose value derives from some other asset - a bond, a stock, a quantity of gold. Key to derivatives is that those who buy and sell them are each making a bet on the future value of that asset. Derivatives provide a way for investors to either protect themselves, for example, against a possible negative future price swing, or to make high-stakes bets on price swings for what might be huge pay-offs. At the heart of the business is a dance with time.”A dance with time? Lovely metaphor. But imagine me, huddled in the shade beneath an umbrella on the terrace of a Spanish bar, temperature in the 90s, the condensation on my glass of beer matched by the beads of sweat trickling down my forehead, reading the fair Gillian on my Kindle and trying to get my head round collateralised debt obligations (don’t ask!).
Worth every moment … I think.