Greed was good

This posting is brought to you live from the Hotel Mignon, Avignon – great name for a hotel, a lovely (basic!) very typical French hotel in the centre of Avignon and a million miles from financial scandals and troubles.

I’m not one to delve into the murky world of finance very often – after all part of the reason I moved to France was to escape from investment banking. But while I’ve been sunning myself in Provence this week it seems the financial markets have been getting into a bit of a mess.

So I’m going to have a rant that has little to do with France or expats, except it’s going to make us all poorer and more uncertain about our futures and pensions. And because it affects almost everyone in the developed world, which even includes us.

Two years ago HERE I hinted at the problem for banks that pusue profit at the expense of all else  – I paraphrase here: big investment banks pay very high salaries in an effort to attract the best staff…what they actually attract is people who want big salaries, which is not the same…”

If you run an industry based on greed and short-term profits it is likely (read, inevitable) to fall apart sooner or later. Likewise if you gamble on ‘new economics’ you will likely go wrong. Tulip bulbs weren’t worth 100 guilders each in the 16th century, tech stocks weren’t worth 200 times earnings in 2000, and a three bed semi isn’t worth 10 times average salary.

But of course, all the bankers and politicians have long known it isn’t a sustainable game – an economy living and growing by spending artificial gains on house prices, and an industry where day to day profits are more important than long-term planning – but the short-term benefits and feel good factor made it (apparently) worth playing. But what I find amazing is to see politicians now announcing that it is such a terrible thing.

McCain said ‘it is a violation of a contract between capitalism and the American people’. Great words and completely correct…but he can’t pretend it’s big news to him, unless he’s spent the last 10 years playing at being an ostrich.

We’re presumably all going to have a couple of years of austerity now – redundancies, houses unsaleable, nobody booking our gites (?!) - until shares start to pickup, people stop walking away from enormous mortgages on not very valuable houses, and confidence slowly returns.

But meanwhile don’t let anyone tell you it’s a surprise or unexpected, because to a very large extent it has been completely predictable for many years…I got it wrong in thinking September 2001 was the precipice rather than 2008 – wow I could have stayed in banking for seven more years! – but the cards have been on the table for a very long time.

Don’t believe me? read Liar’s Poker by Michael Lewis (hehe I actually worked for Salomon Brothers in 1986, ahh happy times). Greed has always ruled the banking world. Or do you think it improved during the last 20 years?

I get very worked up to find that the games of the money-men can have such a negative effect on everyday folk, who wouldn’t know a mortgage backed security from a credit default swap and suddenly find they have no customers and no idea what happened.

End of story, I’m off for a last look at the Pope’s Palace, which has withstood many more troubles than we will ever face, to help keep things in perspective. Normal service will be resumed as soon as possible.