Monday, 3 August 2009

Toxic Flaw

Oh, it was so obvious that I just wanted to scream it at someone. I even pointed the damn thing out on this blog - and believe me, that is not a good thing.

You see, it was obvious that the banks, in the turmoil of the credit crunch, had no idea how much their exposure to toxic debt was - and neither did the Government. So when invited into the Asset Protection Scheme(APS), banks just dumped whatever they could in there, irrespective of its true status. In fact they chucked whatever they could and probably with about as much attention to the whole process as when they signed the debts up. So, in applying for cover of £584bn of toxic debt insurance, they paid scant regard to whether any of the instigators of the debts wanted to restructure or repay them - they just assumed it was toxic and that was that.

They probably didn't even tell the companies affected by their actions. And so, when some of the companies whose debts were ring-fenced as toxic wanted to restructure their finances, they found that their debts were in a toxic quagmire and if they wanted to do anything about it then they had to negotiate with both the banks and the Treasury. It means that many companies affected by this are in 'limbo'. It's claimed that Private Equity houses (what? cast as the good guys) have been contacted by companies who want to write down or repay some of the debts only to find they are in the complete khazi known as APS and so they are just part of the confused mass of steaming toxicity that no one wants or is incentivised to deal with.

I parodied this before but how sad that satire mimics real life as the guardian of the APS is paid a mere £140,000 a year while his fat friends in the FSA, who have increased their borrowings by £200m no doubt to cover the vast salary base and bonuses for staff, who sat by and let all this calamity happen are in fact incentivised to cause financial disaster.

You really could not make this up - the owner of the APS process is not on any kind of incentive to reduce the public's exposure to the toxic debt by renegotiating with those who WANT to restructure or repay. The guardian is merely there to watch over it - I actually joked about this and feel sick in the stomach to find out my joke was in fact reality.

The seagulls in Private Equity are circling the ship as the crap is being thrown overboard as Eric Cantona might have put it. These chaps actually like all this delay and confusion as it means that those within the ring-fence are now seriously devalued and represent an easy target for a fast profit if they can pick them off cheap.

With the executives at Barclays and RBS about to stick their snouts seriously back into the bonus troughs, it is really heart warming to know that the whole toxic debt/bad bank catastrophe has played right back into the hands of the greedy swines who drove us into this mess.

For those private equity pirates, ring-fenced indebted companies represent vast fast bucks at the expense of the biggest bank rolling bunch of mugs in the country - we, the taxpayers.
Where do you look for answers on this or to blame? The Government has clocked up £millions in fees to investment bankers and lawyers to get us into this stupid state where the public bail out banks and then are shafted as fat private equity houses shaft us at our cost by picking off the ripest cherries from the Bad Bank. Brown, Darling, Mandelson and Myners burnt the midnight oil and must have sipped absinthe to have fallen for the slimy tricks of the very bankers who got us into this mess. It is just stupid, ill-thought through mistake after mistake and this one was so obvious that even I thought of it.
That's not the sort of thing Alistair Darling wants on his CV, honestly.

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