Tony Jones asked Will Hutton last night whether the interbank credit market was “run by cowboys or run by reputable people?” But between these two moral poles is enormous material and cultural complexity:
If a bank wants to borrow money, a broker needs quickly to find someone prepared to lend at an attractive rate; if a bank wants to lend, he – it’s a predominantly male profession – needs to find a borrower ready to pay a good rate. So a broker needs continuously to know who wants to borrow, who is prepared to lend, and on what terms. As one of them said to me, a broker might ‘speak to his big clients … have conversations with them maybe twenty-five times a day, which is twenty-five times as often as they speak to their wives’.
A broker needs to pass information to his clients as well as to receive it: that’s a major part of what they want from him, and a good reason to use the voicebox rather than the screen.
Continue reading ‘Unlocking the metaphor of frozen interbank lending’
Markets are, in very important ways, metaphors.
And three metaphors have really stuck out in my mind over the past few days. The first comes from the inimitable Daniel Beunza, who spent 34 months in a participant-observation study of an investment-bank arbitrage trading room in New York some years ago. Beunza writes:
To answer this question, one needs only ask whether tainted meat scandals ever led to the disappearance of the hamburger. In effect, CDOs and processed meat are ontologically not so different: take some parts, create a whole. Just as it is cheaper to do a single slab of hamburger meat out of different scrap parts, it is more efficient to combine mortgages in a bond that to finance them individually. It is no coincidence that the US –home of the hamburger and McDonald’s– gave the world securitization…
He draws some interesting parallels with Enron, that go beyond the obscene payouts to directors. Fwiw, things are so bad that McDonalds can’t get credit either. Continue reading ‘Burgers, Metaphors and the End of Kapitalism.’
Whether exuberant or pessimistic, market expectations tend to gather momentum:
“It is a chicken-and-egg issue,” said Tanya Azarchs, an analyst at S&P. “When Lehman looks as if it’s having trouble raising capital, shares fall. When shares fall, raising capital by selling shares gets harder. Regardless of whether the rumour is true or not, in a way it becomes self-fulfilling.”
Continue reading ‘Diagnosing Market Collapse’
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