yeah fortunes are being accumulated in the UK
honest scale we haven't seen for a hundred
years we've been told that the way the
super-rich create wealth makes all of us well a bit better off but does it this time around they have used new and
different financial techniques to enrich themselves and right now they're the big winners
and we seem to be the losers I'm going to tell you how the new super
rich are making their fortunes and why we're picking up the bill in a global
greed game in the past few years the city of london
financial services have contributed a third of all our economic growth in
London is the capital of capital london for the international community is a
beautiful city and that's what people are living in London that they might
find interesting to meet stop the restaurant has got the tabs it's got the
bars got the decent hotels at the nice houses it's safe its secure there's a lot going
for it more than 50 billionaires called Britain
home not to the 19th century has there been such opportunities for so many to
make quite so much money at least 30,000 Brits now and more than half a million
pounds a year in 2006 4202 the executives took a bonus for a million or
more and among hedge funds are low a hundred and fifty people have been
adding more than 20 million pounds a year the only other . we have seen similar
accumulation was during the industrial revolution in the Victorian age when the
whole raft of Victorian industrialists made massive fortunes very quickly but
even that was over a period of 40 or 50 years yeah this has been in the last 10 years when you're coming here with several
billion pounds you travel around in armored limo is guarded by people in the
CAF to you the idea of the congestion charges
wonderful to you because it clears the roads of the river you can get out to a private airfield
quickly to get on your get to go and see far-flung operations as part of your
empire and they created ghettos of fabulously
expensive property this house in North London recently sold for 50 million
pounds the new owner will be spending probably
another 30 million pounds creating what will probably be the most
desirable house in the world and just outside London is this brand
view 20 six-bedroom mansion it's on the market now for over 70
million pounds but it's the running cost of over a million a year that means only proper billionaires
these bother to view it even so the developer has the Allen
Birkett tried his best with me so this is a private swimming pool is it
simply for the owner of the haps unless of course the owner of the house was to
allow people to use it on sweet swimming pool why would you want five pools because
you're five cool 70-foot up family needs vitals you genuinely need to likes women this bathroom area is about 800 square
feet putting it into perspective is about
size of the average two bedroom flat in London that's just the towels that really fits
your brother disappointed i haven't got one of those of a decent-sized kitchen
from his lack of children crust is cold and very good thing after all of these
in my head so how all these people because
cigarettes in such a short time I like the past it's not been about
finding your resources are exploiting new technology are the lies in how they
hunted with money itself and they were helped to become wealthy
beyond anyone's wildest dreams by a sharp fall in the cost of money for them
and all of us engineered by the US Federal Reserve it
sets interest rates for America and in a way for the world a clear sep tember day the American economy was already
faltering after the bursting of the dot-com bubble and then the world's most powerful central banker alan greenspan feared the terrorist
outrage would further undermine the confidence of businesses and consumers
so he kept interest rates unusually low American interest rates were tonight
cuts by a half of one percent the federal reserve base rate now stands at
just one of the quarter percent the lowest for 41 years after the bursting
of the dot-com bubble and 911 Greenspan / straight to just one percent
and the supply of credit sword because the great exporting nations such as
Japan China and those are the middle east with generating vast surfaces and
let much of their cash to us in the West finances global so it became cheap to
borrow money anywhere private individuals and especially for business
it's tycoons and financial institutions they went on the most frenetic borrowing
spree the world has seen with so much money
sloshing around the price of assets from paintings to houses to entire company's
sword ii 5,000 pounds so people borrowed more against the inflated value of their
assets the evaluation of property evaluation of shares art jewelry etc was
soaring and the central banks on the whole said this is not our business we
don't manage assets we only managed price inflation with markets rising borrowing last sums
for investment was the root two magnificent fortunes it's what bank is called using leverage
leverage is simply borrowing to invest you're not investing your own money are you investing part of your own money
but you borrow to invest more so that's simply let's leverage is
boring to invest when we borrow for a mortgage we're leveraging as simple as that the power of leverage to multiply
profits is a common experience the millions of us to borrow to buy a house if you put down a 10,000 pound deposit
when buying a hundred thousand pound home and borrow the other ninety
thousand pounds and that house their lives in my face a hundred and ten thousand pounds well
your 10,000 pounds doubles - 20,000 pounds you may a hundred percent profit that's
the magic of using the bank's money to finance most of the purchase and in a
rising market the more you borrow the greater your profits the level of debt
became available for deals became very very high and what was really
uncomfortable was that not only was it a high level of
debt but every passing month you could get more and more that with debt so
chief deal makers were borrowing mind-boggling amounts to invest in
financial markets in property and in commodities or two by entire companies
banks were willing to lane and multiples that they've never known before the past
five six years have been unprecedented in terms of cheap debt quite frankly and how it will benefit
benefit from that absolutely you know i would rather be
lucky than clever every time and so will take every bit of luck that's going our
way and for Tom Hunter Britain was a pretty
good place to be because since 1997 labour has tried to make the united
kingdom I'll and fit for the new super rich well i think first of all you've got
you've got to thank your lucky stars if you are an economy which has the vibrant
and successful industries to a disproportionate degree because their
data generating wealth that you can do something with so it's better to have
the wealth generated that you can do something with the not have the wealth
generated a tool there was a time however when our prime
minister was explicitly hostile to the idea that tax rules should favor the
super rich the neighbor Treasury will not the myth
can't release the millionaires in offshore havens we will end the
situation where millionaires contain no time but in government Gordon Brown changed
his mind never fear the super rich would flee
written if they had to pay the same rate of texts the rest of us and enabling
them to stay mentally widening the gap between the super asian the rest of us
well Gordon Brown believe that the price
worth paying for the benefits that might accrue we want the best people in the
world to come here because it's sped off and the clusters and the multiplier
effect of their building businesses within our country is phenomenal and why not have the best no don't right
here we've had the extreme case there are
people in my industry who have literally lived in the country more than 40 years
and claimed to be non domiciled we pay very little touch now that seems to me both politically
and indeed some danger the word morally fairy opponent even some of the super rich began to
question whether it's fair that they should be taxed at lower rates than
their servants there's lots of things about my industry
i don't like quite frankly but i think that broadly speaking and speaking
personally now that for my industry the concept of hedge fund managers pay
lower tax rate on earned income then you know maids to clean their office i think
is just bubbled oops by the start of the 21st century these
two factors the power of leverage and low taxes for enterprise gave birth to a
new set of business superpowers among them are the private equity firms
who borrow huge sums of money to buy whole company's private equity has
demonstrated that if you go into situations in the company sector with
clarity of purpose strong drive determination I redness to pay people incentive to do
the difficult things you can make big returns and it can you make bigger cells
particularly when there's lots of cheap money around the place and the fact that
their their success was over amplified and magnified by they've macroeconomic
environment they were operating in which made them very lucky and and suspected
so the rest of us around the jealous some of Britain's best known businesses
have been taken over and sold on by private equity for billions in profits they include the AAA saga home base and
travel large the technique used by private equity of
buying companies with borrowed money is also employed by philip green he owns much of the British I street
probably heard about 12 dorothy perkins topshop button Wallace
topman DHS has a nice nice piece of real estate isn't actually on there it's probably worth in excess of 200
million so Philip it is family pocketed a 1.2 billion pound dividend in 2005 the
equivalent of the pay of 54,000 British workers on average earnings and there
was no tax to pay out here because it was received by his tax exile life lady
green we had an extraordinary period of
economic growth and confidence this is the the critical factor center of
confidence was very high the Masters of the Universe seem to be
getting it right they had been producing extraordinary
high profits great returns from their private equity fund it hasn't just been private actually
making a million-dollar borrowed money hedge funds together largest dealers and
shares and securities across the globe they make their money by betting on
price variations however small between what making and how much they could sell
for and they to you borrowed money and leverage to generate spectacular profit
practically will take control of the company which ones will trade a company it's a very difficult trading shares of
a company so it's a bit is a very different beast and how much do you have
a new management in total we got about 10 billion dollars and friends are
enormously powerful now in the financial system there's a lot of them and they manage a
great deal of money and they're not regulated by and large they are usually
in offshore jurisdictions where they are not regulated i would say that the top
three trading institutions in the US Treasury market which is the largest
securities market world are in fact hedge funds they're not banks the only serious risk for a hedge fund
is that if it consistently loses money the backers will take their funds back you can lose money you're allowed to
make a mistake once but if it's a bad one you're you you're
gone I mean it's a very fragile I mean you're
there is a high return in that industry yes but you could also very quickly lose
the appetite for risk that class having you are the interest of clouds so now it's very it's very severe very
do nothing is taken for granted because you are the ultimate risk tick a new
here manage how much money now now we have a
around 4.2 billion dollars using funds from wealthy investors and huge amounts
of borrowed cash colossal fortunes have been accumulated by hedge fund managers
in 2006 an estimated ten of them add more than 500 million dollars each and
five are thought to have trousers and more than 900 million dollars in that
single year they included george soros a consistent
winner who famously made a killing when he sold the pound on a colossal scale
and help the four sterling out of the European exchange rate mechanism in 1992
the average person did not get much benefit from the boom is super boom in
the last 20 years the it's really the people like me who have really a earned
the enormous amounts of money will know with me the early game the spirit of an age can be captured in
its art so perhaps this is the symbol of all that debt fueled financial success Damien Hirst's for the love of God the
glittering death's-head encrusted with 8601 diamonds is said to have been sold
to an investment consortium for 50 million pounds but the details of its
sale are shrouded in secrecy as are so many of the transactions of the new
super rich what's its intrinsic value is quite an
argument about that who actually owns it no one seems quite
sure in many ways the glitter and the
ambiguity seems to capture perfectly the spirit of this age of easy money one reason why so much cash was pouring
into the pockets of the stars of the new financial industries was the pay
structure ray devised they wrote the rules of the
great game so they couldn't lose it turned out that most of us could the
money making skills and private equity and hedge fund stars were considered so
rare and precious that they were able to charge their backers of dollars in fees these new breed of fund managers were
performing extremely well for their clients so if you gave them a billion pounds and
if they turned it into two billion pounds that's a billion pound profit they take
twenty percent of that as a success fee the tradition had been to take half of a
tent a year of the back as money for managing it but private equity and hedge fund charge
much water and basic theory of two percent a year on all funds of the
management last twenty percent of all profits this with jackpot capitalism so long as that remuneration structure
persist so it's an a symmetric better to one way back if it makes a great deal of
money then that he gets his twenty percent plus of it and if you lose money of course it is and I think once you got
back and that leads to earnings in some cases
of literally hundreds of millions of dollars in the hands of individuals
they're unlikely to change if you've got a deal that you did for a billion so
four billion and a half made half a billion you got a 20-percent carrot and
Trust on a hundred million you probably have taken 30 or 40 million
out of it in fees reason private equity charges were considered to be high
levels of fees is they're relatively few people in the private equity world and
the relatively few new entrance into that world it's quite a rare combination
of of skills and the results the financial results that so the
industry is able to deliver to its investors means that the investors are
continuing to pay those fees not only with an award massive but the
bet with one way using borrowed money meant taking twenty percent of the games
but leaving all the losses for the original investor I want began to motivate many wasn't
pretty do you think we got the better of some
people in that . well I don't know it was great i think it might have been
enthusiasm and I think in every cycle it always works the same people who are
doing something keep doing more and more of it they lose a little of of their grounding
in terms of the amount of risk that they're taking because the rewards on offer from hedge
funds and private equity firms were so huge the big bag so much of that talent
effect to them so the banks to had to offer they're
more financially creative employees the opportunity to pocket around twenty
percent of the games individual bankers now have the opportunity to play the
green game with their organizations money it's particularly inspiring when you get
back to the central point that the the main things which have driven people's
ability to earn that remuneration not every single case but the majority
of cases have been two things a bull market and access to the bank's
capital it's not their only there risking was
the sort of minimum do you think in the last two or three years at a fairly
mediocre middle-ranking trader or investment banker one of the bigger
houses would have expected to take home you're probably talking about a
million-dollar bonus in those circumstances of how high does it go and there isn't any limit and as degree
game intensified other professionals joined in they were eager to facilitate the deals
which would reward them rather than ask awkward questions about all that debt
that was being heaped on the system everybody else joined the investment
banks to a selling companies the accountants who are increasingly doing
less and less work to make deals happen quicker and easier the lawyers who are finding their ways
through difficulties by pretending they weren't that everybody contributed it was a big bubble and people made a
lot of money out of doing as many deals and as big a deal as quickly as they
could if you were a Wall Street investment
banker making three million dollars a year you were on top of the world you
are the master of the universe suddenly that banker making three million dollars
is looking at the hedge fund guy who he used to work with making three billion
dollars or maybe 1 billion dollars a year so it's created this big class
warfare and ND between what i call the haves and the have more many of the have more field of visceral
desire to prove their superiority over the mirror halves so that's quite an
industry catering to their needs for those little extras with Charlie who
provides what they want however eccentric the people who
typically use you for stuff they want for themselves or as a present other it buries one of the members for
his little son asked for one of the parish of footballers to play with his
son in his back garden what you are able to really be able to
specifically from your ship for one yes you were acting for a future
opportunities that little off the ground it is their price on it which is
cleaning the side of a good back what do you think kick your ass eight and a half
thousand i would have thought on my BB salary that more affordable we now have a quest of the Marines not
really yet have the right submarines my aging speech someone that you're in
summary which is there definitely unique and different have you taken your class they got
probably find some food at a cost of over definitely one of our members
called last week asking for a jet fighter regarding what you wanted to jet flights
that and in her go ahead on as an ornament yes that's what she wanted but
why I don't know why we don't ask we just say of course matter we have to come up with more and more
extraordinary experiences whether it be living with our tribe in the Sahara for
six weeks to challenge yourself a little mental state through to you know it
climbing climbing Everest we have a Valentine's Day extreme event
where you can have supper with your wife or husband on an iceberg in the Arctic
to walk onto boats that are votes probably isn't a great description
vessels that are larger than most homes and I've been into that are 200 feet
long that can only go into limited ports
because tell me some reports can handle them but to walk into state rooms that
frankly you would think you were in the palace of the side or buckingham palace
or the white house is pretty amazing and every time I walk onto one of these
these boats and have the opportunity to tour that it continues to take my breath
away with such a boom in full swing by 2006 it looked like nothing could stand in
the way of the players in the great game and yet the very methods they used to
make all that money contained flaws that would topple them derail the world's
biggest economy and cause mayhem for the banks on which we all depend no interest rates didn't just make it
cheap to borrow they gave little incentive to save and
this had significant consequences for the banks which needed to raise money to
meet the inexhaustible appetite for loans the first thing is that we had a
significant decline in savings rates so the deposits fell the banks could not
necessarily provide all the funding for the products they they got demand for
simply from deposits so they had to look for other forms of funding and one of
the forms of funding was to repackage some of the assets they have sell them
on to the market get cash flow out because they're transferring the assets
away and in this way we have now more cash and they can start lending again so in America Wall Street bags started
by setting good quality loans to raise money and then looked at what else could
be sold there was this machine that wall street
created which was really remarkable and they kept on pressing this technology to
the point where they said well prime mortgages rough work how about we expand this technology to
include less creditworthy homebuyers with no income verification no bank statement and no tax returns David and with
there's no documentation loan green light financial services gives you the
choice individuals often those with the worst of credit histories were given the
opportunity to borrow to own that cherished how they were known as
subprime borrowers and they were truly frantic attempts to lend to them the ads would be you know literally just
released from prison never had a job can't document that you you know or even a citizen please come
down we would like to make a mortgage for you in cleveland ohio the mortgage brokers
wouldn't let any opportunity to earn a commission slip away they came out to my job it was a snowy
day and I was told if I wanted the house i had to sign been there on the spot so i just signed her italy i was looking
at your place for my children and myself and it was like either you sign up you
don't have a home so i just signed villages guys the mortgage brokers which supplied
subprime loans to the likes of El in the hall didn't keep those loans on their
books the capital for those loans came from
banks on Wall Street and after the loans have been made they were sold by the bags at a profit
to investors who might be thousands of miles away in Europe or Asia the new
model says I make the loan I package it up I sell it on to somebody
else it's gone as quickly as possible and there is no own going or continuing
involvement or relationship or responsibility on behalf of the lending
bank every time a mortgage was given the broker took a commission every time those mortgage loans were
sold on by the banks that extended the credit the bank's booked a profit and because
the banks and sold the risk of that loan going bad to someone else there was little proper incentive to
impose proper checks that the borrower's really had the means to repay their
death subprime you go from four times and come
to eight times income you go from checking the incomes to not check in the
income from doing proper valuations to using google earth and post codes to
value houses which was done and so everything was driven far too far you are are you looking for the lower
market yeah you can help me with that there was a torrent of cash for subprime
loans thanks to a banking breakthrough called
structured finance which turn risky loans into supposedly safe investments this is how it works here are three
whiskeys subprime borrowers and over here are three investors who buy
investments created from their origins one investor love this one likes a bit
of risk and another hates taking risks and would normally led to a subprime
borrower now here's the great innovation known as
structured finance which persuades the low-risk investor who controlled
billions to lend to us subprime borrowers I don't have a back-up plan let's
pretend and i'll mix these three mortgage loans together and create three
new investment opportunities to mr. no risk the pension fund manager I promise that he'll get first dibs on
what ever cash is received at least three borrowers and because getting
first dibs on the cash he thinks the money he's investing or landing is as
safe as can be mr. medium risk the investment banker I promise that he'll get the second bite
and the love risk who runs a hedge fund she'll get what ever left over in the
unlikely event all my borrowers pay on time the three investors all do very nicely
if one borrower get into difficulties but we sort of assume that would happen my investors are still putting happy but
if none of them pay then they're all facing losses and a
pretty upset especially mr. know many hundreds of billions of dollars of
low-quality subprime loan were transformed in this way into investment
that were labeled a good quality and they were sold to investors all over the
world there was a worldwide phenomenon this
risk really was taken out of foster out of Massachusetts and really spread
almost atomized like a fine mist around the world and what was the motivation
for sending quite so much debt basically agreed quite frankly but by repackage them into
these more exotic vehicles we could then yet again front-load the fees and I can't stress
how important is the self interest being moved forward in this process the market was booming so if we go back
to 2006 you probably talking 1.7 1.8 trillion of
market volume not only my bank but many banks talking about the overall market that's a significant amount so
everything is positive bullish this fire going on so the overall market gets into a frenzy most of the world's big bags from
citigroup and merrill lynch in the u.s. to our own royal bank of scotland and
Barclays were stampeding to make profits by turning risky subprime loads into
supposedly high-quality investments a situation where a guy who's organizing
bank that could take home a bonus quite literally 40 times his salary does bias
behavior and the guys wanted to do deals everybody has to get on board or they'll
be left behind they couldn't refuse to play because if
they did they wouldn't have been bankers the banks would have lost clients and so
on the markets can't help they have to go to accesses of of
euphoria and despair but the quality of the investment was not what the bankers
thought it was because more of the bar was defaulted than they expected get ready let's looking else and start
to get the selection on the room Sheriff's Office yeah when I started we're getting about 12
evictions a week now we're getting 90 just goes to show you that people
neighbors you know going through the same sort of
problems within weeks of each other literally subprime borrowers had been lured into
taking on their mortgages by special low teaser rates with neither a borrower nor
a lender worried enough about what would happen when the low rates came to an end
and when rates rose well for many default was inevitable yeah at the end of her introductory offer and
the holes monthly payments went out by a painful 75% I was under the impression
that i had a fixed rate of 6 25 a month I had no idea that I had a variable rate
that would escalate every three to six months so my mortgage went from six hundred and
twenty-five dollars a month to a thousand ninety eight dollars of mine
you could borrow a hundred percent of of of the debt without any questions are
and with a teaser rate that would that really got to sucked in the very word 3
t's very healing rate gives the game away the essence of good banking for
millennia that the lender is supposed to check whether the borrower can actually
repay have been lost when I grew up and I looked at banking
and was in back indeed what used to happen when you went to see a bank
manager to borrow money and he led to the money I made sure that you paid it
back or try to make sure you pay back as soon as you divorce those two things
you're in trouble in the Stampede to do deals banking common sense had been
abandoned but for years the danger was ignored
because all those dodgy loans had been converted into investments that had a
triple a rating which in the past had always meant that they were ultra-safe
when something is rated in the financial community triple-a the assumption of
everyone is that it just can't go wrong in all of my years in finance which is
now getting pretty close to 40 years I've never seen a triple a default
triple a's don't default triple A's are like Exxon and royal dutch shell there are very few triple A's and and
they do not default but just how impartial were the agencies
that awarded these triple-a ratings after all they were paid by the bank
which wanted to sell the investment as Triple A none of us would hide the fact
that we are paid by the issues of the bonds and that does create a potential
conflict of interest what we would point out though is that
we have a number of ways of managing that conflict to ensure the integrity of
the work that we do but when giving the triple-a rating the
agency's didn't actually go back to the subprime borrowers and shake that they
be able to repay their loans we do not do underlying your delicious
we do allow information is given to us the investor community was aware of that
should have been aware that is popping that eventually the simplest and oldest
financial logic would research itself the thing people forget about borrowing
money as you gotta pay it back if that's a golden rule the aliens at my father's
apron and someday the bank is going to come and see could
have more money back and then you see well as in this house which isn't quite
a while you twurk a paid for it and therefore i need to sell it and if ur
you know at all unhinges the bankers and rating agencies
have been too clever for their own good they base their triple-a ratings on
historical data they looked at how many subprime loans have gone bad when the
market was tiny and use that information to calculate how many would default as
the market grew and grew and grow it turned out to be a catastrophic error the red light was number 06 more than a
year ago when what you call the first date default a very important figure I
people who have borrowed and at the first payment six months after burning I don't think the first interest that's
pretty significant first date default historically was one and a half percent
one to two percent in a matter of months that figure jumped to five six percent
that was a clear sign when you have people not being that you should be waiting default rates were bound to rise as
subprime loans shut up from being one in every 13 us
mortgages in two thousand and one to one in every 4 by 2006 I received this notice the beginning of
sep tember I'm it was plastered to my door it was bad enough it broke me down but i
had to do everything to keep my children in control because I really didn't want
them to know what was actually being done and in a hole like thousands of
others car pay that has been made homeless I don't ever see myself only another
home I just don't see and I don't trust him
always looking over my shoulder people like thought he had my best
interests it was only out for a dollar here's what really shocked the bankers
subprime loans were going bad faster that any other kind of load in a
holy unprecedented way in the past decades it was born as the case that the general
population would default on everything else in order to keep their house at
four credit cards at Fort on loan to buy their fridge the default on on on on
their conference and then finally they would default on their mortgage they
keeping their credit card currents and the defaulting on their mortgage first this has never been seen before when the
scale of losses from subprime loans could no longer be ignored the holders
of all those triple-a investments made out of subprime loans had a horrible
awakening in August 2007 a big French bank BNP
paribas sparked a global financial panic when it announced that it couldn't value
its holdings of investments created from subprime loans when the MP came out with
that you know this was a little saying we're trying to go home children the part is over now thanks
became reluctant to lend to each other because they weren't sure which of them
were holding the subprime poison and whether they would ever get their money
back the multi-trillion dollar money markets
that underpin the global economy seized up the speed at which it happened the way
in which institution financial institutions just you know withdrew from
the market because they were worried i think that was unprecedented and it
surprised politicians are surprised regulators and
certainly surprised the banks so once you're in that Fisher circle
lack of confidence that lack of trust like that you know you don't know who's
holding the problem everybody then like lemmings run for cover what's people got scared that they
started being less happy to link to each other it's not being less happy to to work
with each other and again that that in itself late lead to all sorts of other
other and other activities specifically security is going down in price was that
was that fear rationale is forever action i don't know but the this is a
very rational and i'll give you as a yes the fact that people did not know the
full exposure to the primary all within the city area whatever yes of course if you don't know
something being fearful is rational once the river of money stopped flowing
with banks and financial institutions load to lend to each other there was a very high-profile casualty
in Britain one of britain's biggest mortgage lenders needs emergency support
from the Bank of England Northern Rock has problems raising money because of
the crisis in the financial markets absolutely clear there's no suggestion
that this cut this business is fundamentally bust but merely running
out of money in this way for a bank is extraordinary series the company was very successful because
it was taking a tremendous amount of risk northern rock went to the brink of
insolvency because its business was dependent on raising money by selling
its mortgages to international investors and when investors were burned by losses
on subprime they refused to buy any mortgages northern rocks or anyone elses they were actually possessed enough
capital to survive approximately a one-week shut down and the capital
markets that was all banks across the world in germany france switzerland and
the u.s. have lost tens of billions of dollars and had to be bailed out by
governments or by investors with deep pockets the swiss bank ubs says it suffered much
bigger losses than anticipated because of its exposure to the subprime
mortgage market in the United States today Barclay said it had written off
1.6 billion pounds of risky investments related to us mortgages global credit
crisis has deepened with America's fifth largest investment bank <time> six
</time> for emergency funding their stones which has been hit by the US
housing market slump has been bailed out by another bank and the Federal Reserve some of the bank is responsible for the
financial losses are losing their jobs bonuses of investment bankers are going
to fall drastically now that you're discovering that a lot of the bank's
investment banks are taking billions of dollars worth of right tops and these
people are getting kicked out and ceremoniously out of their jobs ad for those companies bought by private
equity but if they took on too much debt they'll experience difficulties which
would be bad news for their investors and employees there are so clear
examples of loans which are looking dreadful now some of the leveraged
buyouts done that face the retailer countrywide their state agent the loans
on those companies are being dealt with regularly now at discounts of a quarter
or more to their face value so clearly there are some bad lands out
her but many of the super rich who helped create this unsustainable boo sittin pretty there are a lot of people who have made
enormous amounts of money created great my head and I'm afraid they're not going
to get hurt greatly by what's happening now and
there is I understand at the moment for example
quite a shortage of high-end hotel rooms in the Caribbean and Mauritius and
similar places and because these people got nothing to do at the moment and lots
of money having trousered so much the super-rich apparently have a problem
many of us would love very top 10 people are very liquid have
made a lot of money in the last 10 years in fact probably find it quite difficult
to spend the money they've earned and and that's why companies like us I think
that's very successful because we helped us win the money frankly for companies that are producing
its limited quantities of these very exclusive products they can't
manufacture them quickly and a dozen rolls royce the Drophead coupe that was
launched last year if you were to walk into your
rolls-royce dealer today if you were lucky you would maybe get one in two
years they continue to indulge in their
passions and I don't see that changing anytime soon and demand for the most expensive
motoring experience on earth doesn't seem to have evaporated the car is not only the most expensive
and fastest car on the planet that is also one of the most usable cars the customer who pays 1.1 million euros
+ tax against a car which is really second to me average have been the best european
market and they still are the best european market they are only the second
to the US our best dealership in the world a single dealership in the world is Jack
Barkley in London so for the super luxe industry
price-cutting isn't on the agenda the 1 million dollar watch cannot be
affected by know christ that's the extreme extremely safe at the one minute
then will always always always be demand for one dollar what that is for sure and if you want to build a new watch
breath and you want to go safe start with 1 million that your first
price that you are the reason the super-rich can feel safe is that the Gamble's they've taken with
other people's money have been so huge that the authorities have to bail them
out or else the damage to the rest of us could be crippling these people who
operate in the financial markets they're smart they know that they are too big to
fail they know that the authorities will ride
to their rescue and so everywhere along the line there are one way bets and this
means that you are incentivized to take big risks you're greedy the bigger the risk you take the bigger
the profit for yourself and if things go badly oops not our problem your problem you
pick up the mess it's a mess they've landed all of us in the losses incurred
by banks hedge funds insurers and other financial businesses which could reach
three trillion dollars have reduced their willingness to lend to any of us
and badly damaged the global financial system it's as though the mechanism for
injecting fuel into the economy is broken down and when that happens we all
suffer I think it's a mistake for people to
think these events don't apply to them and that you know they don't own any
subprime mortgages or collateralized debt obligations or even equities so
what is the matter to them and it affects us all and the the the credit creation process
is at the heart of everything in our economy and and without that you cannot get normal
functioning and i think the the damage has been done to that is valid and it's
persistent so when you talk about the average home owner and and worker in the
end its impact on them they probably will find that their mortgage possible
and whatever the absolute level of interest rates if they're unlucky they
may find that their jobs affected by this as well I think there are some some
very severe real-world effects on people's ability to to borrow our banks
have less money to lend to us and they're charging more for what they will
land that leading the falls in house and property prices which makes us feel
poorer and it risks creating a mission and down with spiral as we spend less
and the economy slows down just to translate that into what it means for
ordinary people and if people are borrowing less saving more that will
translate into slow growth does it does it translate into a serious recession in
your view I don't expect the worldwide recession I do expect the recession in the United
States the severity of which cannot be predicted as a result of recent budget changes the
British tax system may no longer be quite so favorable to the new super rich
as it was but what about the widening income and
wealth gap between the super-rich and the rest of us it's more the way though the wealth
accumulated if wealth accumulated out of people growing companies successfully
ask yes generally good it's hard to come up with a real negative on that if on
the other hand it's some guy has made all of his money out of making two or
three huge financial batch that the social implications are much wider
because those bets will go wrong as well as right and when they go wrong there
will be a lot of victims other than the guys so there's a social and political
issue that so the guy who's made a hundred million
how death and being the promoter of overlay root structures and that's a
political issues caused a lot of damage and he's got very rich I think it an economy which is
characterized by extremes of wealth is not a secure and safe economy any more
than one economy versus another economy extremes of wealth and income give rise
I think - very serious moral risks that might not matter if we could be
confident that lessons are being learned from the crisis but we see with
america's central bank the Federal Reserve is once again slashing interest
rates and pumping cash into the system now did not start the whole poisonous
process you have a boom-bust process similar to many that we have had in the
last decades but it's also the end of a super
boom that has lasted since the end of the second world war from time to time Marcus don't correct themselves you have
a crisis and then the authorities have to intervene and inject liquidity and be
allowed to failing institutions and that creates an air system of asymmetric a
incentives where you are encouraged to leverage but if if things really go
wrong there is a relief if those in charge of the system can't
be relied upon to change their ways what charts that those who play the
green gay might actually man bears they've been incentivise to take
dangerous risks with other people's money and the hunt for big profits and
last rewards those incentives been eliminated mongolian I think what if you set up a
basic remuneration structure where people get paid twenty percent of the
games from playing with other people's money I'm not quite sure what possibly could
occur to make them learn anything from it and you really just need to change
the structure that's everything will get their attention and we're going to
change the structure there's only really one group of people
who ever came can change any structure like that and i think that's the owners this is a matter of so long as people
are willing to be shareholders in banks where traders are allowed to play with
the bank's capital walk off or twenty twenty thirty percent of the of the
games on it and none of the losses and where people are willing to invest in
private equity and hedge funds and allow the same thing druker people to come if you're a hedge fund or a private
equity firm there are fantastic opportunities to
profit from the turmoil a number of hedge funds have already made millions
from betting that all those subprime investments were overvalued and some
have done very nicely from speculating share prices of our leading banks would
tumble as the private equity when a recession would be just the most
glorious time to buy businesses that knockdown prices is it's actually a
period of tremendous opportunity for a firm like yes it's really it's a it's a
it's going to be a great opportunity that the real golden age comes when you
have a mess you have economies that are on their
back you know capital inadequate I and and when you start buying
businesses at that part in the cycle that you inevitably do extremely well
unless you're too early and and right now it's a little bit too early but but
as you wait and this develops it will be a great time to be buying businesses yeah so there are still plenty of
opportunities for the news super rich to increase their fortunes
even though the global financial system is in intensive care and our prosperity
is threatened with the green game still being played if we're not going to end up to lose
again the Wolves will need to be rewritten ok it's new its life it starts in a few seconds Estelle and
James Taylor on later with jools next on - and over on BBC for the hard sell
reveals high advertiser's persuade us to buy new technology ok