Imagine a pyt comes to you and is selling you a complex currency and interest rate derivative. Your Director Finance and CFO do not understand the product after 3 rounds of explaining. So the pyt goes to a rating agency and gets a certificate saying this product is “Category B”.

Now the ego of the CFO and Director Finance takes over.

They have now got to accept that they understand the product! Once the interest / currency moves in a direction OPPOSITE and your company starts making losses, panic steps in.

The pyt has just put in her papers and moved to a bank – to handle a bigger desk because she brought your account (oh lala la). She just had a party for her friends in Marriott out of the bonus she received.

The consultancy company (or bank) have already shown the income in their books and justified the p/e of 50 to the press.

The CFO is anyway on notice period, because she is moving to another life insurance company to handle portfolio risk (Oh my God!).

Your Director Finance is red in the face when the lawyer shows some clauses which are patently stupid.

But you have to face the Board – not that it matters because they are all your Dad’s friends. However, one of them was your prospective father in law. He is re-considering. That is worrisome.

Your Merchant Banker has just called to reprice your rights issue. Your auditor is talking about MTM…and some mumbo jumbo about his institute. They luckily also call your Dad a member, and he is reconsidering whether to let you handle finance. That is a bother.

Your shareholders..ha ha..they watch business channels do they not? After all when an anchor tells them they should do a “fundamental analysis” before investing why did they not listen? Their fault. The should know sub prime, interest rate derivatives, mark to market, naked positions, open positions, open interest, melt down, mark down,…etc. come on they listen to it everyday, do they not?

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  1. Very good post. I think this pretty much summs up the way the sub prime virus has spread throughout the financial sytem. What i find interesting is will the sub primes crisis spread economic downturn to the rest of the world, including the UK?

  2. Thanks froginvestor. Any man, woman, organisation or country cannot live beyond its means for too long. So if a big group (called banks) are willing to support some idiotic life style based on “home equity” it is foolishness. Bernanke who talks about a “free” market had no business in the bail out of Bear Sterns (to me it looked like burial) and interfere with the market. This sounds like Keynes, not like a free market.

    But we cannot argue, can we. If Blair and Bush think that they have suddenly become Gurus for the Iraqi’s – and the world will be a better place if Iraqi’s learn democracy and women’s rights, we can only switch channels, right?

    How come the only 2 people who think that US has won the Iraq war are Blair and Bush?

  3. I believe all that will come out of this is a whole heap more regulation for the credit markets, similar to what happened in the accounting world after the Enron debacle. This will get the markets by and convince everyone everything is ok again until the next bubble goes pop (china perhaps?). I think this is just a function of the free market.

    As for Bush and Blair……don’t get me started!!!

  4. Pingback: Now a complexity index! at Sub Prime on The Finance World For News and Information Around The World On Finance
  5. Was it just a coincidence that Alcoholics Anonymous shared its acronym with a big auditing firm? Regulation cannot bring common sense, can it?

    Greed, using money as a scorecard, and a complete divorce of salaries from the “real” value add are the main reasons for such dumb “mistakes” in the financial sector.

    High time school teachers got paid better, and merchant bankers lesser. That will bring sanity to the work place and to the world

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