Chartering A New Course

You could say that the wedding and subsequent month off has really knocked me out of my rhythm since getting back. That has certainly been a really good thing, as there is nothing worse than letting life's undercurrents pull you along in whatever direction it chooses.

I have taken the title of my last entry (time to reassess) to heart and have been taking a long, hard look at what I want to do next both professionally, not to mention spending all of yesterday looking at houses, as I think 2010 will be the year I finally pick up a place at last.  Buying your own house (as opposed to properties to rent) are a total waste of money, and should never be viewed as investment.  

Their 'return' is largely an illusion given the multitude of hidden costs, not to mention the opportunity cost from what returns all that money tied up in a property could yield elsewhere.

Anyway, It was over drinks with a number of former colleagues that I got into some serious banker-beer analytics on why I find my current job at the bank so utterly dull these days. I think it is easy to explain: ever since the work become reactive (the Time Wasting Insolvency Initiative, which was panic fuelled by the events of October 2008), the work is not remotely analytical based.  As such my role has increased in responsibility but decreased in actual interest.

So it was that on my fifth pint with a good friend of mine, who has moved over to one of the other banks, concluded I ought to get out of what I am doing and become an investment analyst with a view to eventually trying to climb the greasy pole into full asset/portfolio management.  It was the sort of matter-of-fact statement that makes it sound like the easiest thing in the world.

Despite that, it was a bit of a lightbulb moment, as I had not seriously considered the prospect of a complete move out of my area until now.  However I am certainly never one to rule out ideas as 'impossible' simply because they might be difficult. So despite my inebriated state I filed that and mulled over it at work for the next week, eventually concluding that doing something I have been meaning to for the last 5 years would be a useful first step.  

As such I signed up for the CFA (Chartered Financial Analyst) programme a couple of weeks ago, and that is naturally going to take up a great deal of time over the next 6 months alone.

To anybody who has taken the time to read some of my previous entries, it probably won't come as a great surprise to realise that I have a passionate interest in investing, not to mention an unusual willingness (and bizarre enjoyment) in carrying out the associated due diligence and analysis required to make sure the important decisions are the right ones.  The CFA course itself looks to be largely areas I know a lot about anyway, so this should just be useful in really ensuring I fill in the knowledge gaps as I go along.

The benefit for all of you guys, is that I will start producing far more concise, better quality research and analysis over the coming months as I go forwards.  Unlike the hoards of people blogging and making recommendations ultimately to make money, I'd rather help in my own small way in the development we all undergo as investors from those first, emotion-driven small dips in the water, through to spending hundreds of thousands based on a cold, worked analysis thesis.

And on that subject, we can celebrate the first anniversary of my initial position that I took in General Growth Properties.  I have obviously been following developments with the company with a great degree of interest over the past fortnight regarding GGP's lender blueprint that it has fast-tracked with many of its major secured lenders, and of course the news the day before from Simon Property Group that they have hired Lazard Frères with a now open interest in acquiring some or all of GGP.

All excellent news for the share price of course, which has rightly repriced upward sharply into the $6 territory, and will almost certainly continue rising over the coming months as further news regarding lender settlements and takeover rumours begin to gather pace.

To anybody sitting on the sidelines, now remains a very good time to look at General Growth Properties as an investment.  Despite concerns regarding the impact of share dilution from many, this is becoming an increasingly less important factor as the company market capitalisation increases.  Limited asset sales to raise a couple of billion could easily be agreed with SPG or rivals to reduce that $6.5bn figure further, so I see this as a minor downside on the upward direction of the stock price over the next two years, as risk perceptions reduce and the market continues to reprice the stock accordingly. 

Oh, and on a final note, the job market here in the City of London has bounced back hugely in the last few months.  After screwing up the global economy, there is no irony that the sector is the first to be firmly out of recession.  The major banks are all haemorrhaging good people now - people who are generally fucked off after the last two years of being treated badly and overworked by employers that are now making plenty of money (courtesy of cheap and easy government money).

As such, the already understaffed banks are now desperately hiring - my own being no exception.  Naturally I am never one to turn down an opportunity, so have already had a couple of interviews in the last week and could take jobs with them now if I wanted based on the feedback.  It is the best market I have seen since 2005/6, and so despite the longer term aim, I shall probably use this as a moment to cash in on the prestige/name of where I work and up my earnings by 30-40%.  It would be rude not to...

G20 Truffle Hunters

Oktoberfest Awaits

What better way to ready myself for a long weekend of Germanic excess later this month than to start drinking as much beer as possible in my evenings going forwards? In truth this is going to be one of several legs of my stag do (aka bachelor party), although doubtless the messiest if everything I have heard about Munich is true.

Meanwhile the pace of life has accelerated significantly, hence the lengthening gaps between entries - although with the wedding just a month away now, perhaps that is not too surprising. Bloody hell, there's a thought - I suppose I ought to put some effort into listening to what L's talking about now as it's getting so close.

Bonuses: Political Truffles

The G20 meeting of finance ministers in London last weekend has proven as pointless as I expected, with politicians continuing to mine the rich seam of public resentment around banker bonuses that has always been there - good times or bad. Of course, the fundamental problem with this is that the political focus remains on the symptoms rather than underlying causes.

Bonuses are a small part of the problem that lead to where we are now. Certainly traders need to be deincentivised to ever make short-term decisions, hence the idea of performance assessment relating to any bonuses is a good idea. Additionally if I am being entirely honest (and I can be here), an awful lot of the financial products devised in the last 30 years are not as wonderful or essential to economic growth as bankers would like to pretend.

There is nothing new about packaging up of debt and selling onto multiple counterparties to enable the efficient flow of investment capital to where it is needed. The value of related products that enable speculative trading to take place on such processes is an entirely different point however. Do products that do not create wealth but only transfer it from one party to another serve any real purpose? Arguably they help markets determine value, but in many cases, as with speculative short selling, can instead skew valuations or undermine confidence in otherwise healthy companies.

One of the fundamental issues of the economy is it propensity to the 'boom and bust' cycle. As an asset bubble begins to form, the existence of these speculative trading instruments now enables traders to move in to capitalise on this very quickly. That would be fine if the markets rationally assessed value and pulled back, but instead the ability to hedge such strategies gives traders an incentive to 'bet' on how long the bubble will go on and to make as much profit from it as possible.

My view has long been that government and regulatory failure have actually been the root cause of the situation we find ourselves in. Banks need controls around their behaviour, and it is somewhat naive to expect such a large industry to all have the high level of morals and ethics to make the right decisions at all times if they have a choice not to. The quest to make money is an overriding factor that guides many if not most into finance after all, and unlike in politics at least bankers don't try to pretend otherwise.

What About GGP?
I know, I know - it's not like I could actually go an entry without mentioning it could I? Well, actually nothing visible is going to happen for some time now, so anybody sitting around watching daily charts would find the time better spent looking into other investment opportunities (and holding, I might add).

However there have been a couple of quite interesting commentaries that I recommend taking a look at. This commentary by Goodwin Procter on the GGP ruling provides an interesting expert summary on perceived weaknesses in the SPE structuring exposed by Judge Gropper's ruling last month. The most pertinent of these is that independent directors going forwards should rightly also be considering the interests of the parent entity shareholders, despite the theoretical silo within which SPE's are designed to operate, external from such concerns.

Much more interesting is this detailed critique of Judge Gropper's ruling by Alston & Bird. This is definitely worth some comment, as there are a couple of points I disagree with them on, although the conclusion in particular is excellent.

The commentary firstly notes the "unsettling" impact of the decision on the CMBS market, in particular several assumptions that lenders had previously made. It then moves onto the Court's assertion that its responsibility is to be viewing the issues at the corporate rather than individual entity level. Alston and Bird do not appear to agree with the one-sided slant to Gropper's reasoning, stating:

"The response of a secured creditor (of an SPE) might be to wonder why it suddenly must bear the burden of the parent’s financial difficulties. The court, however, sees an alignment of interests between the parent and the SPEs, asserting — wrongly perhaps — that the inability of the parent to restructure would inevitably impair the financial situation of the SPEs."

They go on to conclude:

"In reaching this conclusion, the court stops short of the full discussion one would expect in applying, and arguably expanding, the 'corporate family' doctrine to the GGP case... the corporate family doctrine should apply when the parts are worth far less than the whole, or, put another way, when the unity of interest protects not just the entities, but more importantly the underlying asset value.

It is not clear that this logic is sound as applied by GGP. The GGP SPEs, while part of a large, complicated corporate structure in one sense, were (or at least could be) operationally distinct, in that the malls could have been operated or managed independently from one another and the parent, either by GGP or another shopping center company or a sophisticated institutional investor. As such, the parts were not worth less than the whole—many healthy performing shopping centers could continue to operate successfully without the corporate parent."

Alston & Bird's analysis ignores several key factors. On the notion that assets could be sold off to rivals, it does not seem to account for a far from normal commercial real estate market. Where valuations of low volume, high value assets cannot accurately be reached, there is a significant scarcity of both credit and confidence, along with an industry wide requirement to deleverage. That being the case, any decision that had lead to a significant number of assets reaching the market in a short space of time would have been very unlikely to secure sufficient buyer interest to attain what could be deemed fair value in a functional market, and instead we would return to the 'fire sale' conditions reserved for companies forced to accept an uncompetitive price on an asset due to extenuating circumstances.

As for allowing the malls to be separately managed - that ignores the centralised management model that GGP operates under, as well as key functions around mall management that presumably the individual mall would have to pay for separately. While that might be coverable by the cashflows generated on that asset, there is no doubt that this would be inefficient and indeed would only ever be taken by creditors with interests unaligned with the underlying asset or wider collective.

"While the emphasis on preserving value for the collective enterprise is clearly the court’s focus, it seems unduly dismissive not even to discuss the contrary position, namely that separate loans to separate entities by separate lenders on separate properties should be treated separately."

I think it is for the reasons I have touched on above that Judge Gropper chose to not even entertain them in the ruling. It was quite intentionally dismissive, because to even hint at this avenue being viable would be to encourage activity that is detrimental to Chapter 11.

Risk Mananging Asset Backed Securitization

GGP Q2 Results
General Growth Properties Q2 results were better than the markets expected. When you strip out exceptionals, many of which are related to Chapter 11 costs, the fundamentals are encouraging, and have rightly been reflected in a significant rise in the share price.

Taking a look at the breakdown, the immediate comparisons appear poor: Funds From Operation (FFO) are down by 73.8% year on year, Core FFO is also down 43.9%. However of much great importance is GGP's Net Operating Income (NOI) - down a much more modest 11% in total, and a very good figure both in comparison to GGP's major peers and market expectations. In fact, excluding the main drag from the MPC's (Master Planned Communities) - with those stripped out we reach the headline figure reported for the main Retail businesses, with NOI down a mere 2.1% on the previous year.

Relatively strong fundamentals adds further credibility to the GGP business model. The increasing market capitalization of the firm is a direct reflection of growing confidence across the market in its ability to successfully restructure without excessive equity dilution.

Bubbles & Risk Management
I fully admit to not seeing the credit crunch coming until it was too late, and if most people are honest they did not either. In fact, nor did most of the noted commentators - it was a rare few who warned of the dire effects of a credit withdrawal with the years in advance required to avoid these problems.

I thought the dot com and recent housing bubbles were both glaringly obvious, and stayed well out of both. However as I discovered with the credit crunch, bubbles are not always so clear - they have to be hard to spot to enable them to build up.

Risk management was a dirty word on the Street a few years ago. On a few occasions, I remember sneering with the best of them, as calls from risk management about positions being taken were viewed as unnecessarily cautionary. And consistently unnecessary as the high earners and income generators within my former bank confidently dismissed them as overly conservative. I was naively a believer in the pure capitalist argument that too much collateral tied up money that could and should be actively and productively used as part of the development of the 'new economy'. The financial instruments now in use were different; these managed risk as inherent in their design.

Whenever anybody starts justifying practices that generate extraordinary profits and inserts the word 'new' in the context of economics, it is time to beware. Things really weren't different this time of course, just as recessions and crises have occurred with startling regularity throughout the last century. My take on this is that it is the different generation of investors ultimately ensures that reoccurrence. Much like investment, few take the time to research before jumping in, and hence do not learn the lessons of history.

Additionally throw in the less sophisticated consumers in the emerging markets and bubbles in India and China in particular are a virtual certainty – that means the potential to exploit significant, quick profit in the coming years ahead for those willing to take the time to invest in these markets and not play safe at home (much more on this theme another time).

Risk Management of Asset Backed Securities
The one plus of this learning process for our generation is that the regulators have been taking a hard look at the woeful risk management practices in many of the large banks - particularly in the context of asset backed securitization.

The US government is proposing several key legislative changes, which are worth understanding for those inside and outside the industry:

1. Any bank, non-bank issuer or underwriter of an asset-backed security must retain at least a 5% interest of the credit risk in such assets for an as-yet unspecified period or form. Crucially that would be without hedging - the theory being that if firms are themselves exposed to what they are trading, they as shareholders and owners of the banks will take the issue of risk a great deal more seriously.
   
2. Requirement to continue reporting by issuers of asset-backed securities even if the number of holders falls below 300 - this has relevance to the low level issuance/ownership of Structured Purpose Entities (SPE's) that we have seen in General Growth Properties bankruptcy, whereby some creditors have effectively been the sole lender. At present these structures escape under the reporting radar, but soon no longer.


3. Requirement to disclose standardised asset-level or loan-level data and standardised compensation and risk retention information. This really does not have much bearing on risk management, and seems to have been inserted to placate those wishing to have some disclosure of bankers compensation.
   
4. Regulations on the use of representations and warranties in the asset-backed securities market that would require credit rating agencies to include additional analysis in their reports - this would require disclosure permitting investors to identify originators with clear underwriting deficiencies.


5. Elimination of the offering exemption for certain real estate mortgage notes and related participation interests.

If these proposals are adopted, the impact on the securitisation market will depend on the nature and scope of the regulations that are ultimately developed. However it is that first proposal relating to forced exposure which knowing the banks will be the most effective means of ensuring responsible behaviour.

As the cocky young traders I describe in my last entry have long proven, it is easy to play dice with other people's money – and in the right period for the economy a total muppet can make money. However put your own money on the table, and you think about the risk far more seriously. This links back to what bonuses are meant to be about - a performance linked assessment that incentivises traders to trade as effectively as possible – it is that glaring short-termist flaw in them that has been exposed and is rightly attracting criticism.

Bonus reforms remain another vital change that needs to be imposed on the sector, and if I can recognise that then you know there is no excuse for those disagreeing.

Small Bang Time as GGP Takes Control

I have got far too little time at the moment with the Time Wasting Insolvency initiative nearing its crescendo - hence the lack of entries. Still it's the weekend, it's not like L had plans that might involve taking up more time with wedding preparations surely...

General Growth Properties Extension
A very big plus this week was the news on Tuesday that GGP got the hoped for time extension for the exclusion period to file a restructuring plan, along with a less important extension to the time allowed to file schedules of assets and liabilities.

So what does this actually mean? To Absolutely Confidential's question, yes the commentator you mention did get carried away with regards to General Growth Properties now spending the next six months piling up cash.
General Growth proposed in the original cash collateral motion back in mid-May to continue their prepetition cash management practices. Unless the SPE inclusion decision is overturned - still no formal news on this, but the extension suggests this has been made - then this means GGP has committed to the following as part of the ruling:

• continue the practice of a centralised cash sweep from its various sub-entities into the central firm accounts
• provide 'adequate protection' of creditors cash collateral by providing a replacement lien on intercompany loans - this is the notion of ensuring there is no substantive consolidation of CMBS
• continue to pay interest on CMBS loans at the non-default contract rate
  

It looks like somebody else made the same point in the comments, including referencing back to the Cadwalader court commentary. Sullivan's response: "correct but there is approx. $5B in default that is now another 7 months from being resolved and I believe another $8b that will fall into default during that time frame.."

Just because more loans will fall into default during the next period does not mean they will be treated differently from those pre-bankruptcy. Presumptuous at best, although in most cases firms within Chapter 11 cannot service debts and so do use this period as an effective 'breather' (a significant criticism of Chapter 11, since it can provide weak companies with an unfair competitive advantage during the process).

However GGP have committed to not doing so, partly to illustrate the viability of the existing business model and add credence to extensions being a viable solution.

Regardless this is excellent news for the stock in increasing incentives of creditors to negotiate - and was rightly reflected in a 10% upturn in share price since the announcement. It is striking that every bit of news since General Growth filed for Chapter 11 has been positive.

Industry Changes to Structured Credit Products
Related to changes in the credit markets that I have mentioned previously are the industry protocol updates made by the International Swaps and Derivative Association (ISDA) for restructuring events of credit derivatives. Firstly there was the release of the Big Bang protocol in April 2009, which has been designed to add certainty for investors when defaults occur. Something as we are seeing in recent months has been a significant grey area with existing products when finally tested with a default event.

Big Bang was the final step in a process known in the industry as 'hardwiring', which has crucially incorporated auction settlement terms into standard CDS documentation for the first time. The big bang protocol includes the following:

1. Introduces auction settlement as a means of settling transactions - eliminates the need for defining credit event protocols for every potential scenario to cash settle Credit Default Swaps.
2. Makes resolutions of the Determinations Committees binding by adding into standard CDS contracts - for issues including i) dispute on whether a credit event has occurred, ii) whether obligations are deliverable, iii) whether an auction should be held.
3. Adds credit and succession events (aka backstop 'look back' provisions) into the CDS documentation - to provide a common standard effective date for CDS transactions.
   

Further refinement to resolving restructuring disputes has been added by Small Bang, which took effect on Friday, details of which are covered in this ISDA web presentation. Key additions are to provide buyers with a five day window (sellers with two days) to trigger a credit event after a restructuring has taken place. Once triggered the evidence is then presented to the Determinations Committee to argue the case - a combined arbitrator and judge in the process.

It is all about clarifying how credit derivatives will work in future, and ensuring that buyers and sellers have a clearer idea of what protection (and liability) they are entering into. For those interested in finding out more about what credit companies companies will be entering into over the coming years, and how disputes will be handled, take a look at this analysis.

Additional Reading on re-REMIC's
For recommended additional reading on how structured products are evolving and what are impacting the recovery of the credit market this Bloomberg article illustrates how re-REMIC's are being used by the banks to refinance real estate. This article by Deloitte into re-REMIC's is dry but provides a very detailed examination of how these function and their impact.

Finally this report by Andrew Cuomo into bankers bonuses has to be the least surprising set of observations since the credit crisis of October 2008 plunged the world into recession, although this is the choice quote:

"When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."

Welcome to my world Andy...

Hard Dose of Reality

I think the blog stereotype would be to spend this entry whinging on about how unpleasant it is being back at work, and how I'd like to win the lottery. On the latter point I would, but getting up today and going in was fine - helped no end by allowing yesterday for recovery and catch-up.

Having carefully managed my inbox remotely, I have had a relaxing morning back, and found time to continue work on my business plan yesterday evening at long last. Working on the plan remains my absolute top priority; nothing else in my life right now provides a glimmer of hope from escaping the daily grind of commuting into the office like this. Work is stale, and I am yearning to inject change into my life once more - however in a controlled way, without impulsively quitting and costing myself dearly.

On the plus side, the holiday really has been inspirational after my chance meeting with Peter, as I mentioned previously. Even if my site does not take off as planned, I will persist with the venture and look at what needs to change to make it work.

Once married in October, I am seriously looking into travelling to Asia and Australia for 3-4mths next year with L, although the site might make that impractical. It's really quite simple though: if we don't do it now, we won't do it in the next 15-20yrs assuming a family, as logistics will simply prevent it. The cost is of course lost income, which is a big draw that works so effectively in preventing most of us - another reason why unexpected job losses in a recession can be a blessing.

Anyway the other fun event looming next week will be the G20 economic summit here in London. Given the sheer level of anger towards the City and Wall Street these days, not least over the various bonusgate scandals, I expect to see the kind of violent protests that haven't taken place in the City for a decade or more. Last time, I recall stories of traders coming back from lunch with a dozen eggs ready to pelt protesters from the office windows - and know several who got involved in fights out on the streets. Ideological conflict of the more direct kind, I suppose.

This time I suspect we'll see none of that. Given my bank is arguably the highest profile, we'll go to usual rear-door entry only procedures while the protesters waste everybody's time with this pointless nonsense. If anybody going believes they will actually change anything then they are naive.

"Down with capitalism!" they scream.
"And replace it with what precisely?" we reply.
"ANARCHY!" yells a lone teenager bunking school.

Silence from the hopefully more mature masses, because unless there is a manifesto I am yet to see, these protests are not sure what they want - only sure what they don't want.

When driving around the United States, the world's richest and most capitalist country, it seems inherent that there will always be significant wealth imbalances throughout the population. Some is hugely unfair, but some is quite right, even if those worse off cannot see it.

Governments need to ensure opportunities are provided for everybody and restore genuinely unfair imbalances. However it is critical to have a system where those who innovate, create and/or work hard - for example on a business plan and website - deserve to be much better off than the majority who choose to sit around watching TV or playing on their XBox 360's every evening.

Political Posturing For The Cameras

The politically self-serving vitriol from politicians of all sides continues on Evil Banker today. With Average Man On The Street convinced that every aspect of his current woes are down to overpaid bankers, it provides politicians with the perfect excuse to continue deflecting their attention from the real questions.

Both Brown and Cameron are continuing to spout populist soundbites, for the primary purpose of further exploiting this to their own advantage while pandering to their support base. Of course that is hardly surprising given that this is what 90% of modern politics is all about.

However the reality is that both political parties can sit there making demands of the banks all they like, but they have less leverage when it comes to negotiations than you might think - not least because the country needs successful banks. Additionally the UK government has no actual stake in Barclays and HSBC, they just borrowed funds. And both will happily give them the two fingers and quietly threaten to rebase abroad should there be any sort of meaningful attack on their competitiveness, such as enforcing salary rates.

Even Sir Fred Goodwin, the former CEO of RBS dragged in front of the camera's for some token contrition today, and who made the biggest mistake of all in his ridiculously overpriced takeoever of ABN Amro, had to point out the truth by saying: "..if bankers felt they were not paid enough, they would leave."

And here lies the crux of this particular issue. Bankers salaries are already falling, and falling fast. Banking is a capitalist system that is a hell of a lot more efficient at setting pay levels than the public sector - take a look at politicians and civil servants. Banks are busy laying off thousands of people, most of whom are not rich, just hard working victims like those in other areas of the economy. The banks are cutting back discretionary bonuses now, and new joiner wage packets on thousands more bankers lucky (or good) enough to find work. In short, the industry is busy doing precisely what is being asked of it in terms of reassessing the worth of its workforce.

Interfering with that process by enforcing lower than current market rate salaries for some banks is a ridiculous idea. All it will do is begin an immediate talent drain from those with salary caps, and increase the competitive advantage of the others. Unless this could be imposed at the industry level, which it cannot, this idea of playing up to populist opinion for the cameras will ultimately damage Britain's two weaker banks even more significantly in the long run.

It's like this other meaningless drivel by Gordon Brown that people should waive bonuses. All well and good Gordon, but how about you lead by example? If we work out how much you have cost the country from just a couple of decisions, I'd say you should pay every penny you ever earn on the lecture circuit once we get the chance to boot you out in two years time.

Let's not forget that Gordon sold off a large part of the country's gold reserves 11 years ago, which is estimated to have cost the country over £5bn. His other decision 11 years ago to abolish tax credits on pension funds, bleeding £5bn a year from pensioners, has lead to an appalling funding deficit, with companies being forced to plug that each year from profits - an effective tax - all while the demographics mean ever more pensioners are needing money.

All I can say is, go right ahead Gordon. You can't touch me, and having just written you a £35,000 cheque for capital gains last year, you can fuck right off if you want to try and tax me further. There's plenty of places in the world I can choose to work, and if you don't see net contributors like me as an asset, then you'll soon find out - sadly it will be to the detriment of Old Blighty.

Compensation Tube-erculosis

I think my journey into the City this morning was divine retribution for last Monday. Ah, that wonderful snow and slacking off, it was such a delight. All manner of Tube lines had problems today, with the requisite passengers falling ill, and in my case a woman going into labour at Holborn station.

Am I the only person to question what is wrong with the British 'stiff upper lip' in these circumstances? It is one thing to show steely resolve to pull through a situation like the Blitz. It is quite another to accept crap public services as the norm and without raising sufficient uproar and objections.

As L commented to me on the way in this morning (aside from asking when we are going to make good our escape to the countryside), is that if this had been anywhere else in the world, senior management would be flooded with complaints. Expectations would be such that they took action to improve service. However Transport for London is a woeful public sector institution, which revels in a monopoly position, and appears to learn nothing from its continual failures.

What most rankles many people are the Tube drivers. Not many such unskilled jobs have a huge waiting list to become one, which says immediately that something is wrong. It's a bit like why there were queues of illegal immigrants and an entire camp at Sangatte in France set-up to help them make their way across the Channel to the UK.

In the case of Tube drivers, that waiting list is because of the abuse of power by that socialist dinosaur Bob Crow, leader of the RMT union. I think unions frequently serve as an important counterbalance to big business, and fighting to ensure employee rights are upheld (and increased to appropriate levels in the past). However as the 1970's proved, that balance can be abused both ways, and Crow is an absolute disgrace.

Rather than acting in the best interests of we the people of London, Bob Crow shamelessly cites health and safety concerns for all manner of initiatives, many quite reasonable (such as improving the efficiency of the system which, shockingly, might lead to some job cuts), and holds the people of London to ransom at regular intervals with strikes - usually to ensure completely undeserved, over-inflation pay rises for his leeching, overpaid members. As with Norman Tebbit back in the 1980's, this is one particular union that needs to be faced down - the problem here is that London cannot function without its public transport, so would lose billions. Instead the problem perpetuates, and drivers steadily get more overpaid.

There is no doubt that anybody who pushes a lever back and forth to speed up and slow down a train, (oh and stops at red signals if we're lucky), is amongst the least skilled in the workforce. Nor do they work long hours. So how they deserve to be paid twice that of a hard working nurse is beyond me. Bear in mind this is public money, which is what makes it so outrageous.

The irony of a banker criticising such modest earnings is not lost on me, and is quite deliberate. I am, however, pointing out a truth - that the whole system of public sector remuneration needs immediate reform and to be shaken up every bit as much as banking.

On that note, the public reaction to investment banking continues to be highly entertaining. It is in part a knee-jerk reaction from many, who are simplistically assigning blame based on what they have heard in the press. Many do not really understand the large numbers of different groups, people and other factors globally over a long time period that has fuelled the situation we are now in. Do they even understand the role of China in all this? Instead, better to latch onto a fashionable, pantomime villain known as 'Evil Banker'. That is helped because governments are busy laying into us as well, and as usual with politicians, that is not to better inform the public but to deflect attention from their own gross failings - in this case with regards to previous spending and regulating the financial and housing sectors.

Just take a look at this article from the Motley Fool today. I don't normally read it, but some of the vehement responses from its readers illustrate what I am talking about. Pious, righteous indignation without a willingness to take on board anything from the article. It reminds me of the bizarre, national lynch mob hysteria fueled by the Daily Mail surrounding Jonathan Ross and Russell Brand a few months ago.

One interesting fact never noted by such people is that none of the senior bankers on the boards of any of the major banks have taken any bonuses this year.

I suspect many do not even know that, but it all started from something called 'Lloyd Watch', back at the end of last year. The entire industry was closely watching for the decision by Lloyd Blankfein, CEO of Goldman Sachs and the most successful bank. The board decided that on principal none of them should take a bonus that year despite the bank still making profits. A commendable attitude, but it does not mean that key people within GS will not receive large bonuses.
The justification of bonuses needing to be paid by the writer of the above article is largely that due to banking being a capitalist and highly competitive sector, should a bank lose its best performers it is like a football team underpaying its star players compared to the market rates and watching them walk. You might save £10m for the first couple of years, but quickly will find yourself relegated and losing vastly more for being so short-sighted.

This is not really a defence but more an explanation of why the part-nationalised banks are so desperate to pay bonuses now, and others are looking to pay back government money. In the end, when you put this crisis into perspective, it will pass and the banks need to retain their top talent. That means educated, experienced, hard working staff, prepared to do more than push a lever back and forth for a living.

More Baracking Gets A Reaction

I am a firm believer in the need for regular, institutional change at the highest level; you only have to look at how power corrupts over time, or leads to grotesque complacency of the worst kind. For examples in politics, you need only think back to the detachment from reality of Margaret Thatcher towards the end, or New Labour now, and of course George W Bush for the last.. 8 years. Okay he's a special case but you take my point.

With institutions such as banks, that complacency (and in some cases corruption - you know who you are Bernie), has had longer to fester right up to the top. As we all know, it has been spectacularly laid to bare in the last year, what with the problems requiring vast government bail outs to save many financial institutions. A recent point of major angst with the politicians and public at large are the continuing ramifications from the presumption of bonus payments as some kind of right by many at the top of those banks which have performed worst.

One point on that is to note that some are indeed contractually guaranteed - particularly the rainmakers that bring in vast sums for a bank and could walk to a competitor in a second. However, that is a small percentage of the overall pot so it is not an excuse.

However an interesting development today was Barack Obama's latest announcement that all banks that have received bail outs will need to cap executive pay to a mere $500,000. I think that I can safely disclose that we are one of the 90% of banks that have received some kind of financial package from a government. The reaction here at the bank has been impressive - faced with the prospect of having their pay limited to such trifling levels, the order has come from the very top to immediately investigate ways to pay back the government.

It is hilarious how the moment executives at the top find the trough being emptied, they're squealing with indignation and looking for ways to get their snouts back in. So let me see - your priority is helping fund all those businesses suffering as a direct result of the systemic failure of which you have to accept a proportion of responsibility? No, it seems to be working out how to squeeze internally through the coming cull, or externally via recalling loans, to ensure we remain fully independent of the US government.

Away from the subject of bonuses, it is interesting to see that momentum is building up through the press for the strong case of investing in gold as a good option for 2009. I continue to recommend placing significant funds into a gold ETF and moving some away from Sterling and the US dollar this year, but the linked article gives a good summary with some options.

Otherwise I have found out some interesting office rumours from a recent night out, as well as confirming whether I am to be included in the coming job cuts. Both can wait for another entry.

Oh, Stop The Baracking

Well, I'll have to put aside my discussions on investment briefly, as there has been an interesting development at the bank.

By good fortune, one of the junior team members has just decided to quit. The reason is being kept secret for now, but he was a veritable Lothario despite ears that stick out like dinner plates, and there are rumours he has been sleeping with the personal assistant of a particularly senior MD in synthetics. If that got found out then it was never going to go down well - particularly if the MD was also getting some on the side.

What was more interesting however is how this fits into the impending job cuts here - our Boss announced his departure rather cryptically this morning; that is was his own decision (yeah, right), and mentioning his leaving date was still to be confirmed "pending some negotiations".

From talking to the chap in question who is leaving, this is all about when he can hand over his work, which sounds reasonable enough on the surface. However our Boss is a sly old fox, and is more likely to be delaying the whole process so that our boy counts nicely in the round of cut backs next month. A splendid idea, and at the same time the Boss can avoid making any of those nasty decisions that reduce team morale.

Otherwise I have a couple of sources dotted around in the Bank, one of whom works for global security. They are very useful to know, because as a group they need to be informed in advance when we're about to fire people so they can be ready for the odd disgruntled former banker who might come storming back into the office to vent their views on life, the universe and anti-Capitalism. Global Security's usual tactics these days has therefore been to simply lock the doors on the day of the cull - unfortunately we all know that game now so it is also taken as a sign that something is afoot.

Apart from confirming my suspicions that a cull is on its way "within a month", he also confessed his team had even gone to the length of locking the office doors periodically on other days recently, to try and make it seem more of a usual event! It sounds like they haven't got enough to do if they're wasting time with antics like that, and a few of them should join the exit queue.

Otherwise my highlight news of the day was waking up to find that the new, incoming President, Barack Obama, is taking the time to make sure we bankers are lined up as the sole fall guys for the global economic crisis. In an age of irresponsibility, there is no doubt that the City and Wall Street ought to be hung out to dry. But so too should the governments that steadily reduced the regulatory framework for years to the point where all this was possible. To use a zoological comparison, if the government is an animal keeper and the City a tiger, it's like putting the tiger in an enclosure next to some lambs, with only a low, wooden fence between them. And then blaming the tiger the next day when you get in to find a blood bath (but a fat, happy cat).

And while we're on the subject of personal responsibility, let's have a moment to think of Average Man On The Street and his stupidity in spending far beyond his means for years by borrowing against the value of his house.

In reality, Barack's barracking is a response to 'Bonusgate' - the scandal currently engulfing Bank of America / Merrill Lynch, in which former Merrills CEO John Thain opted to pay his people a fat bonus before the inevitable bad times engulfed the firm. Thain's head rolled quickly enough this month, although BoA made a poor job of trying to stitch him up by pretending they had no knowledge or influence over the decision.

In reality that is a load of rubbish, as Thain made clear in public interviews that could not be convincingly denied by Bank of America. As such we ought to see Ken Lewis (CEO of BoA) on his way soon as well. It's entirely fair given the amount of public money being used to keep the combined bank afloat, and is probably the first signs that the compensation culture of global banking is changing forever.

Meantime for a man who spent his campaign talking about rising above finger-pointing and blame, and focusing on resolving the problems, the President seems to still have had a spare moment to give a mid-digit to Wall Street for all the problems they are going to cause him for the next couple of years. Fair enough.

"Oh My God, They Killed Kenny!"

As I mentioned in my first post, it amazes me how little financial common sense many people have - in particular my colleagues. After all, these are the supposed 'Masters of the Universe' (where exactly did that ridiculous phrase come from?), who are experts in the many financial products and options for investing our money. Yet it's amazing how many are really just Average Man On The Street when it comes to making those all-important decisions that determine whether you end up with some freedom in life.

On that note, let me be clear that I see money as nothing more than an enabler in life - specifically it gives you personal freedom to decide what you want to do and when. That's why the ultra rich who wander around the shops in Knightsbridge and New Bond Street look so happy and relaxed. You can spot them a mile off, with their designer everything, styled hair, moisturised skin, and most importantly no bags under their eyes from the constant strain of life in the rat race in which we all struggle. Instead they do as they please - it's when they show all the gratitude of Paris Hilton for their position in life that the resentment rightly comes in from the rest of us.

Unlike a lot of people, I have no like or dislike of money. I think those who do are usually scared by it, because it is either a constant problem to meet bills, or they don't know what to do with what they've got. But like all fears, it's facing up to it that helps, not sticking your head in the sand and pretending it isn't important. Money ultimately will decide whether I own that house in a good area in a couple of years time, and whether I can provide for the family that L and I plan to start one day. That's a quick insight into my reasoning, along with why I have no interest in pissing my money away on ego boosts like a flash car, phone or watch.

We all know the type who do that, like a friend of mine, Big H. He's enormously proud of his house, along with his flash company car and likes to be conspicuous with his wealth by showing off various electronic gadgets like his smart phone. In short, he's the kind of overstretched financial idiot of the worst kind: shallow, materialistic, he seems to actually define himself by what he buys. He also thinks he has been clever by racking up £9000 of credit card debt, which he has been flipping every 6mths between company intro deals.

A number of financial websites have advised people to do that in recent years, but as the country is about to find out - it is always a stupid idea to encourage spending beyond your means. Now those deals are drying up fast, so Big H finds himself with an uncertain future regarding his job, and no means to pay that back easily. Anyway back to my colleagues at the bank, as I heard an interesting story on Friday about an investment decision made by one who was an unfortunate lamb to the slaughter in the first big cull back in October.

Kenny's just one of those unfortunate types who was always one of the team comedy characters. We laughed AT him as much as with him, and he hasn't had the best run of luck in recent months. As you'll see though: calling most of it 'luck' is partly to excuse stupidity. Firstly he decided to take a holiday in the summer to Sardinia of all places, and despite the warnings from a colleague who knew the place well to not drive there, he hired a car - and promptly crashed it within 2hrs of arriving, and spent the remainder of his two week holiday in hospital recovering.

Kenny's a good chap, and was well liked around the bank to my knowledge. Unfortunately he was also not politically astute enough to ensure he massaged the ego of the most important person - the Boss. He made the mistake of complaining a little too vehemently about his bonus in December 2007 (that's the last time we expected bonuses). That seems to have been remembered, as he was first on the list our of the door. There's complaining by grumbling and looking like you expected more, and then complaining by making it personal or with veiled threats - and I heard he crossed that line.

Around that time was when all the fun with the banks was really kicking off of course: Lehman Brothers collapsed, and the vice tightening on Goldman Sachs and Morgan Stanley. Overshadowed but still high profile was Iceland, which quickly defaulted on all foreign debts, forcing the UK government to bail out UK savers. Guess who had over £100k stashed away in an Icesave account?

Although Kenny will eventually get that back, meantime he decided to 'invest' his generous redundancy package in a couple of other banks in December - namely RBS and Lloyds TSB. I can only assume his logic was that given they had fallen a lot up to now, it therefore meant now was the time to buy. I should probably point out that Kenny is no trader, but such simplistic reasoning also showed spectacular naivety to assume that more crap was not lurking under the surface at both of those banks. Particularly given that each has swallowed up a terribly run, overexposed competitor in ABN Amro and HBoS respectively. You only have to look at how Bank of America is now suffering from its forced purchase of Merrill Lynch for another example.

Everybody in the City knew both were as contaminated as Lehman Brothers.. or should I say anybody who spent some time doing some research into the matter, which is another key rule of investing.

Since Kenny decided to put in an unspecified amount into those banks, they have tanked an impressive 79% in value, which just goes to prove my point that you should never assume bankers are always competent with their money. Having said that, after the last 6 months I am likely preaching to the converted when it comes to assuming we're all incompetent, overpaid slime.

I must admit, a few of us at the bank couldn't help but laugh when we heard - it was just such a Kenny way to invest. In a post soon, I'll tell you what I have been doing with my own money in the last 6 months, and why I have been making a lot of money out of the downturn.