Martin Vander Weyer’s Any Other Business
I can’t claim to have invented the off-balance-sheet sleight-of-hand used by the Greek government, under the guidance of Goldman Sachs, to beggar itself so spectacularly. But I was certainly a pioneer in the field. Long ago, at Barclays, I devised a scheme to help a famous brewery (now, needless to say, a ‘hotel and leisure group’ operating under a different name) to deceive investors and analysts into believing its debts were smaller than they really were. My handiwork en-abled the brewer to borrow a seven-figure sum in order to lend smaller parcels of cash to its tied pubs — but through a special company that did not have to be consolidated in the brewery’s published accounts, which gave no indication of the liability involved.
Elegant when sketched as a diagram and just the kind of financial fashion access-ory big companies expected to be offered by bankers in those days, it became such a Heath Robinson contraption by the time expensive City lawyers had drawn up the contracts that I’m not sure it was ever used to fund so much as a new dartboard for some long-since-demolished Rover’s Return.
But it was nevertheless a forebear of the exercise by which, according to reports this week, the mighty Goldman Sachs managed billions of dollars worth of bond sales for Greece after arranging large-scale swap transactions that enabled the Greek treasury to disguise the true extent of its fiscal deficit. Some 15 major banks are believed to have done similar swaps, and those same banks are all likely to have sold Greek bonds to investor clients — on more favourable terms for Greece than would have been the case if the bond salesmen had known what their own swap dealers had been up to.
Ah, but it was all within EU accounting rules at the time, says finance minister George Papaconstantinou, perhaps soon to find a new career as an Athens taxi driver. Likewise, my brewery scheme broke no British banking rules. But in the Greek case, the effect was to allow Europe’s most profligate government to run up a E300 billion deficit, more than four times the supposed limit for eurozone states. Both cases illustrate the perversity of high finance, in which no one ever pauses to ask: if we’re a party to deception, how can we possibly assume anyone else is telling the truth?
HBOS folly
John Paulson, the unassuming New York hedge-fund manager who holds the record for the largest annual pay packet ever earned — $3.7 billion in 2007 — once made almost $70 million in 25 minutes flat by betting that shares of British banks would fall. Or so I learn from The Greatest Trade Ever, an account by Gregory Zuckerman of Paulson’s rise from obscurity to market superstardom. Among the shares Paulson shorted so mercilessly were those of Lloyds and HBOS, and only now can we see not only how smart he was to do so but how misguided the Lloyds board was in allowing itself to be bullied (if I can use that word without provoking the attack dogs) by Gordon Brown into buying the Halifax-Bank of Scotland bag of tricks.
HBOS did not come to grief on the outer frontiers of derivatives trading, where few people predicted the scale of the meltdown, but in commercial property at home and in Ireland. Lending against office blocks and industrial units is cyclical-as-clockwork textbook banking, the stuff they teach you on the induction course. Yet the HBOS boys (the Scots were a lot more gung-ho than the Yorkshiremen, I hear) managed to rack up more than £20 billion worth of ‘impairments’, or bad debts. Anecdotal evidence suggests they were still going at it with gusto, to the joy and amazement of hard-pressed developers, long after real-estate values embarked in mid-2007 on a peak-to-trough plunge of 44 per cent in the UK and 56 per cent in Ireland. All I can suggest is that they sign up for refresher courses at New York’s Center for Responsible Lending, to which — presumably with a wry smile — John Paulson donated $15 million, or five minutes’ worth of his profit from their folly.
Stark cultural choices
Shadow culture secretary Jeremy Hunt has launched a paper called ‘The Future of the Arts with a Conservative Government’ which speaks of ‘secure, long-term funding… based on the mixed economy’, meaning a combination of cash from taxpayers, philanthropists and commercial activity. That offers cold comfort to those in the arts world whose entire existence depends on the taxpayer, and who now wait to find out how hard the axe will fall after the election, despite fine words from all parties about the intangible value of culture. Funding through local government is especially in jeopardy, since grants for dance workshops and life-drawing classes are so much easier to chop than union-defended council jobs. But spare a thought for Arts Council England, the prime distributor of state largesse: ‘We will insist that funding bodies spend no more than 5 per cent of their annual budget on administration,’ says Hunt. ACE spends 9 per cent, and may end up literally having to shrink itself by half. No wonder it has appointed regional directors for the east and north who rejoice respectively in the surnames Stark and Tough.
And in another corner of the coming battle, prepare to defend your local library — if it hasn’t already been turned into a wine-bar. Shadow culture minister Ed Vaizey has been accusing his Labour opposite number Margaret Hodge of a ‘secret plan’ to let local authorities close libraries, by removing a statutory requirement to provide them. Even if the Tories position themselves as library champions, it’s easy to imagine hard-pressed councils arguing for closures on the grounds that everything’s on the internet these days, books are old hat, and all those dusty shelves offer another relatively easy place to slash costs. Worth noting, then, that ‘circulation’ figures (numbers of books taken out) for London libraries have risen by 7.4 per cent since 2008, with a bumper rise in use by teenagers — attributed to new online catalogues that make it easier to reserve the books they want. And as one London reader points out to me, libraries are just about the last ‘solid, quiet, respected public spaces’ we have in modern life. So let’s stand up for them: when candidates finally appear on your doorstep, be sure to ask them where they stand on libraries.
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