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Oxford Street, Fun & Laughter
Jun. 10th, 2008 01:05 pmTwo interesting signs in Oxford Street outside retail premises currently being refurbished. Both, I think, indicate that purveyors of goods and services are generally getting ideas above their station.
HSBC informs me that there will be "another exciting branch opening soon", just opposite Borders. "Exciting"? Really? What, with dancing girls, free cinema, and the like? For heaven's sake, you are a fucking BANK. I don't WANT banks to be "exciting" (perhaps when you use their ATMs there's a 50% chance that you will get double your money and a 50% chance that you will get nothing. That would qualify as "exciting", I suppose).
And then Nike apologises for some minor rearrangement of their front window display, which is apparently taking place to "enhance my shopping experience". Ahh, I see. 'Cos, like, in the old days, when I got home from school and needed to pop down the the R.A.C.S. to buy some food, I "went down the shops". But, no longer, apparently. Shopping has gone beyond need. It has even, apparently, gone beyond desire for goods. It's the shopping itself that is the "experience". Roland Barthes would have a field day. Signifier has become sign. Or, to quote an older philosopher, Being has become nothingness.
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The banks are finding ever more ingenious ways to burn their past business models. A few months ago most of the "expert" commentators were saying that the bank sell-off was overdone. They reasoned that, once the liquidity crisis was over (and no banks would be allowed to go bust, for goodness' sake) the share price would bounce back. Those sages who recommended buying Bradford & Bingley at above a quid are rather quiet now. because the reason for the falls in the banks' share prices is more funadamental than that. The old revenue generators just keep disappearing.
Anyhoo, the latest thing to go wrong is the "drawdown facility". Here was something else that appeared like money for old rope. You gave a company a line of credit. You didn't even have to lend them any money, just the promise of money should it be needed. And for this, you charged them a fee.
You can obviously see where this is heading. Some companies, realizing (as did Birks) that "debt is good" in the current scenario (another terminology might be "borrow it while you can") and that it's easier and cheaper to use an existing drawdown facility than to issue company bonds or whetever, are availing themselves of these loan facilities, even if they are not in immediate need of the money.
This, as the banks have observed, "is not a desirable state of affairs", particularly if you are a bank that's running a little short of the old capital in any case. You are lending out at one rate and you suddenly find that you have to borrow it back at a higher rate. Ooops.
Two things have become clear from the current situation. One is that the old illusion that banks offered a higher return on equity and lower volatility than insurers could has been shown to be just that, an illusion. Banks offer investors a slightly higher return on equity for considerable periods of time, but then it all gets lost back very suddenly. The volatility is higher, not lower, and it's also very asymetric. Long periods of slightly higher RoE, followed by shortish periods of MUCH lower RoE. It seems counterintuitive to think of banks' earnings being more volatile than insurers, but banks do not have insurers' reserving system. Insurers KNOW that, even if there was no hurricane last year or the year before, a big hurricane is going to come eventually. Banks, however, deceived themselves into thinking that the hurricane-free period was "the norm".
The second thing that's become clear is that banks are not in the business of risk and actually don't really understand it. They might have risk management executives, risk mitigation experts, computer models, the lot. But when it comes down to it, they take the risk in one door and, hopefully, shovel it out the other. They are brokers. And when the banks start confusing things, they imagine that something which is really a dodgy loan is a 100%-safe investment. Because they don't really understand risk, they have no way of knowing when they have failed to pass that risk on. Sometimes, indeed, they don't even realize that they have accumulated risk that NEEDS to be passed on.
Personally, I blame Excel. That spreadsheet gives an illusion that everything is cut-and-dried numbers. It hides the Garbage In Garbage Out concept superbly. That's one reason it's so popular, I guess.
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HSBC informs me that there will be "another exciting branch opening soon", just opposite Borders. "Exciting"? Really? What, with dancing girls, free cinema, and the like? For heaven's sake, you are a fucking BANK. I don't WANT banks to be "exciting" (perhaps when you use their ATMs there's a 50% chance that you will get double your money and a 50% chance that you will get nothing. That would qualify as "exciting", I suppose).
And then Nike apologises for some minor rearrangement of their front window display, which is apparently taking place to "enhance my shopping experience". Ahh, I see. 'Cos, like, in the old days, when I got home from school and needed to pop down the the R.A.C.S. to buy some food, I "went down the shops". But, no longer, apparently. Shopping has gone beyond need. It has even, apparently, gone beyond desire for goods. It's the shopping itself that is the "experience". Roland Barthes would have a field day. Signifier has become sign. Or, to quote an older philosopher, Being has become nothingness.
++++++++++++++
The banks are finding ever more ingenious ways to burn their past business models. A few months ago most of the "expert" commentators were saying that the bank sell-off was overdone. They reasoned that, once the liquidity crisis was over (and no banks would be allowed to go bust, for goodness' sake) the share price would bounce back. Those sages who recommended buying Bradford & Bingley at above a quid are rather quiet now. because the reason for the falls in the banks' share prices is more funadamental than that. The old revenue generators just keep disappearing.
Anyhoo, the latest thing to go wrong is the "drawdown facility". Here was something else that appeared like money for old rope. You gave a company a line of credit. You didn't even have to lend them any money, just the promise of money should it be needed. And for this, you charged them a fee.
You can obviously see where this is heading. Some companies, realizing (as did Birks) that "debt is good" in the current scenario (another terminology might be "borrow it while you can") and that it's easier and cheaper to use an existing drawdown facility than to issue company bonds or whetever, are availing themselves of these loan facilities, even if they are not in immediate need of the money.
This, as the banks have observed, "is not a desirable state of affairs", particularly if you are a bank that's running a little short of the old capital in any case. You are lending out at one rate and you suddenly find that you have to borrow it back at a higher rate. Ooops.
Two things have become clear from the current situation. One is that the old illusion that banks offered a higher return on equity and lower volatility than insurers could has been shown to be just that, an illusion. Banks offer investors a slightly higher return on equity for considerable periods of time, but then it all gets lost back very suddenly. The volatility is higher, not lower, and it's also very asymetric. Long periods of slightly higher RoE, followed by shortish periods of MUCH lower RoE. It seems counterintuitive to think of banks' earnings being more volatile than insurers, but banks do not have insurers' reserving system. Insurers KNOW that, even if there was no hurricane last year or the year before, a big hurricane is going to come eventually. Banks, however, deceived themselves into thinking that the hurricane-free period was "the norm".
The second thing that's become clear is that banks are not in the business of risk and actually don't really understand it. They might have risk management executives, risk mitigation experts, computer models, the lot. But when it comes down to it, they take the risk in one door and, hopefully, shovel it out the other. They are brokers. And when the banks start confusing things, they imagine that something which is really a dodgy loan is a 100%-safe investment. Because they don't really understand risk, they have no way of knowing when they have failed to pass that risk on. Sometimes, indeed, they don't even realize that they have accumulated risk that NEEDS to be passed on.
Personally, I blame Excel. That spreadsheet gives an illusion that everything is cut-and-dried numbers. It hides the Garbage In Garbage Out concept superbly. That's one reason it's so popular, I guess.
____________
