Sunday, 15 November 2009
Google Wave
Thursday, 22 January 2009
An idiot's guide to the Credit Crunch
1) A key cause of the problem was the trading relation between USA and China. It went something like this:
a) China's economy depended on cheap manufactured exports to the US. To keep these cheap, it was important to keep the Yuan low against the US Dollar. This was done by buying US Dollars with Yuan, so keeping the price of one high (high demand) and the other low (high supply).
b) China ended up with lots of US Dollars, and they put these to work by lending them so that Americans could buy even more manufactured goods.
c) This resulted in a very high supply of money available for loan at good rates, with the broker making a margin. There was so much supply that "normal" loan demand was satisfied and new destinations for loans had to be found. These new destinations were (necessarily) those not favoured before, such as less good risks.
d) In America, borrowers representing a good risk get a good "prime" interest rate. Borrowers representing a higher risk (less likely to repay) have to pay higher "sub-prime" interest rates to cover the extra risk. As we know, these guys toppled the house of cards.
2) Imagine someone has to pay you money over the coming years, perhaps because you made a loan that they will must repay by instalments. There is a "debt obligation" to you. That represents an income stream in the future, and you could sell that to someone now. For example, I'm owed $200 over the next 10 years so I could get someone to pay me $100 now (so I can spend it), and then they get the future repayments. This is a "collateralised debt obligation" (CDO).
3) There was a business model that many banks used, but Northern Rock (for example) specialised in. This involved borrowing money from another institution, lending it for a mortgage, then selling the resulting CDO and repaying the first institution. This is fine as long as the money flow continues.
4) CDOs didn't stay with the first institution to buy them, but got bundled with other financial instruments of varying quality and resold (and bundled again and resold again and again). The value of such bundles should depend entirely on the quality of the CDO (the risk that the underlying loan won't be repaid). There are companies whose business is to provide credit ratings on such things, and they were overoptimistic because high estimates made their customers extra money. Hence institutions overpaid for the bundles.
5) This wasn't a problem until some of the sub-prime borrowers started to default on their mortgages. Suddenly, whoever was holding the CDO wasn't going to get as much money as they expected. Trouble was, with all the rebundling and reselling, who could tell how much bad debt any institution owned?
6) Being unable to tell which institutions were holding how much bad debt, and so might not have enough assets to meet their liabilities, no institution could afford the risk of lending to any other. This was a huge problem because most money is tied up most of the time, and much of the operation of banks involves rapid movement via short-term borrowing of a relatively small amout of money (in bank terms), perhaps during the night-time on the far side of the world. This is like the "oil" that keeps the cogs of the financial machine running. When the oil dried up, the international machine siezed up pretty much much immediately.
7) When Northern Rock's money-go-round came to a sudden halt its own reserves, fairly small compared to its business volume, were insufficient to support its daily needs and it couldn't borrow enough money to make up the shortfall. An inability to meet ones liabilities is the practical definition of bankruptcy.
8) In 2000, the money source for UK loans and mortgages was mainly from UK savings. By 2007 the source was mainly foreign financial institutions. When they wouldn't lend any more the supply of loans to business or to individuals as new mortgages dried up.
9) The big government "bail-out" of the banks failed for two reasons. Firstly, it came as loans to be repaid in something like 5 years. Lending to a bank amounts to owning part of it, and having the Government own large parts of banks for longer than 5 years amounts to nationalisation of the bank. The repayment has to come from money received by the banks (e.g. savings). The loans are so huge that it might take all of the money received over 5 years to repay them. In other words there is no spare money to lend onward. This is compounded by a demand that banks increase the ratio between their reserves and their liabilities, and so they need to keep incoming money to build their reserves. Again no onward lending.
10) Reductions in interest rates are supposed to make money cheaper for banks to borrow, and so stimulate the money flow. However, this has little impact against the needs for reserves and repayments described above and can't actually make the banks start lending to each other again.
11) There is a view that the situation will cause the population to reduce and delay their spending. This will impact the cashflow of retail businesses and their suppliers, and they will not be able to borrow to tide them over. This would result in high-profile failures, including of otherwise-healthy businesses. Enough failures would result in enough existing loans to businesses going bad that more banks will fail. Resulting loss of confidence could damage the banking sector beyond a point of recovery by normal means.
12) Another concern arises from the practical/short-term privatisation of an increasing share of UK banks. It could be seen that the liabilities of the privatised banks (even pro-rata) are part of the national debt. I understand that this would make the national debt about 500% of GDP (the total cost of all finished goods and services produced within the UK during a whole year). As a guide, in 2007 Zimbabwe's debt:GPD was the world's highest at 218%, one of only 7 countries over 100%. So 500% would be quite bad then.
13) Such a fear undermines confidence in Sterling itself. This is partly because, after exhausting all other available measures, the option of "printing more money" (or other steps that amount to it) would make the currency worth proportionately less against money of other nations (buy less foreign goods). In the nightmare scenario, the UK government could default on foreign debts, rendering the nation effectively bankrupt (although that isn't actually possible). Sterling has already fallen heavily on foreign exchange markets, and could fall much further.
Are we facing a financial apocalypse despite the underlying "health" of the British economy? I can't tell, but counsels of despair seem to be becoming more common amongst those supposed to be "knowledgeable commentators".
Wednesday, 21 January 2009
So where's this trip then?
I took the view that most recent recessions have been two years. If so, then I'd have a choice between going away for the first year and being unable to get a job for a year after my return, or being gainfully employed for the first year, going away for the second and returning to benefit from the upswing.
In the meantime I'll concentrate on work and hope that nothing else changes in my personal circumstances or those of my loved ones to make it impossible.
Thursday, 8 January 2009
Home Again
I left the story on the way to Marrakesh.
We arrived well after dark, dodging horse-drawn carts jumping out of the darkness, we hit what seemed the edge of the town centre and started driving around looking for a hotel. Sarah was driving and the traffic made left turns unappealing, so we ended up heading out into the sticks again. I thought I had a vague mental map, based on the half-truths in the guidebook, so I volunteered directions. We did actually find a hotel, but while I went in to check rates, etc. The others had decided to hire a taxi so we could follow it to a hotel that looked good in the book, as we did in Tangier. This worked well as far as getting us in sight on the hotel door, but we needed a couple of tries to reach the underground car park at the back. It was worth it, though, as the hotel was much nicer than the one I'd found.
By now, it was after 10pm and the local Moroccan restaurant was closing, so we had to have a local Italian instead.
The next day was a) Friday and b) Ramadan so the taxi driver we called told us the normal shops would be shut until noon and took us to an government-regulated artisan shop instead. This worked out well, because the prices were fixed. I'm not confident enough in my haggling, especially against world-class experts, to imagine I'd generally beat those on my own. Besides, it saves time and makes buying decisions easier.
We loaded up on tagines, blankets, etc. And wondered around. We didn't find any fascinating alley-maze like Fez, so I don't know if there is one and we couldn't find it.
Keith and Sarah had wanted all along to bring back as souvenirs from Marrakesh some of the Green Mosque Alarm clocks that fans of The Apprentice (UK version) will be familiar with. They secured some and were delighted.
After a quick lunch near the hotel we hit the road to Tangier, stopping only for tea in McDonald's. Keith had been promising himself a Big Mac to celebrate his return to Europe, but pre-peaked. The place became noticably busier at about 6:20pm, the time recognised as sunset for Ramadan.
We stayed again, for our last night in Morocco, at the Continental Hotel, where we were welcomed back to our previous rooms.
The schedule said the ferries left every 2 hours, so the following morning we left with just enough time to get one. However, it turned out that the schedule hadn't been adjusted for the extra Ramadan hour, so we had to wait the extra hour. Processing was another series of palms wanting greasing. Unfortunately, we'd spent out of Moroccan paper money and had no Euros either. The "helpers" looked down on coins as "for children" and weren't at all happy with us. I wasn't about to break into my stash of 20 pound notes to provide tips! The guy organising the final queues for loading was the most unhappy. We scraped up all our last Eurocent coins to give him something and he literally threw them away, then returned once we'd gone aboard (admittedly, lovely and quick) and was disgusted that we hadn't magically gained extra cash to give away during our 100-yard journey.
The voyage was fun, standing out on the rear deck in the sunshine and watching as our view of Tangier gradually widened to span the whole coast of Morocco's Northern peninsular.
As we drove off the ferry in Tarifa, Keith said that he and Sarah wanted to drive straight to Paris non-stop. I think they were inspired to reproduce journeys their dad has made in the past. I didn't see any reason to disagree so that's what we did, 200km each, me first and then Sarah.
Over the course of the trip, the packing in the back had got worse and worse until there was only a small space to sit - very uncomfortable for a big geezer like me. Before Keith's stint, I insisted on re-packing the back, quite amusing Sarah when I stated my objective that I'd be able to lay down. Keith drove on with me in the back, and with a couple of pieces juggled, I was able to sit reclining against the pile with my legs straight out or curl up sideways. Smug and snug.
We drove on in turns round the clock until the small hours of the following morning when Sarah was too tired for her stint so Keith took over and wished he hadn't. That morning I was, surprisingly for the oldest, the most awake.
We'd decided on Versailles as our target, mainly because it's on the RER line so we could go into Paris for a night out. It came to naught, because the others basically slept through from a late lunch until the following morning. Ah well.
The next day was Sunday, and we decided that we only really wanted to be home, drove to Calais, went into both ferry company huts, just made a SeaFrance crossing and started using sterling again.
As we came round the M25, I reflected that the fabulous mind-expanding 3-week experience of Morocco, ramadan, Sahara and back was a world away from two package-deal weeks by the pool!
Sunday, 28 September 2008
I'm Home
I keep trying to finish off the final post, but plunged back into work, etc. and have still failed. Sorry.
Wednesday, 24 September 2008
Ali Baba's Desert Journey (Not)
Passing through Erfoud, Keith stops at a car workshop and one of the guys there, a mechanic I thought, agrees to guide us. I'm driving as we leave the town on asphalt and, due to a miscommunication, briefly get stuck in the very first deep-ish drift of sand across the road. Great!
Deserts don't turn out to be what I'd thought. Yes, there are great expanses of sand dunes, in various shades between yellow and red depending on the area, but there's far more area of hard-packed sand, covered with many small stones, mostly between the sizes of grit and grapefruit.
It is quite fun driving across the desert tracks, with the occasional patch of deeper soft sand that would be able to bog us down and so we have to go more quickly across or power through.
When we get to Merzouga, the mechanic claims the agreed price for his services was 700 Dirhams, not the already-exorbitant 500 Dirhams that Keith understood. He's a bit stupid, as we were considering employing him to guide us on the next, longer leg of our journey. No way now.
We find Merzouga horrible. It's just a tourist-trap on the edge of the dunes full of hotels all offering "chambres, camping, bivouac."
As the mechanic gets out, another guy introduces himself and tries to establish himself as our "fixer". We decline, and choose one hotel set a little apart from the others for a cold beer with a view of the dunes. Refreshed, we decide to shake the over-eager dust of Merzouga from our feet and head for the small town at the very end of Morocco's tarmac, Taouz.
We have to pass by the "fixer" chap on the way, and stop when he waves us down. He won't take "no" for an answer and stays hanging in through the window. We have to drive off to get away, and even then we see him getting onto a motorbike to chase after us, but we double back and lose him. I guess the mechanic told him just how much money he managed to get from us, and wanted similar for himself.
Another fixer approaches us when we stop just outside the town to check the map, but gives up politely at our disinterest.
We read in the guidebook that there are places to camp in the desert, with GPS locations on roadside signs. We're stopped by the roadside trying to make the TomTom simply show us direction and distance (which it won't let us do), when a Land Rover pulls alongside and yet another "fixer" introduces himself, explains his wares and gives us the card of his hotel. This guy does seem different, smarter and informative rather than persuasive. Also, he offers us a good rate of 200 Dirhams a head for dinner, bed (with aircon) and breakfast.
We drive to Taouz, find there's nothing for us there and reluctantly turn back to Merzouga, deciding to locate the hotel. It's one of the first we come to and the fixer, Hassan, is waiting outside.
We consume our own beer and wine before and with a pleasant dinner. Afterward, we discuss options with Hassan for cross-country travel through the Sahara. We settle on a two-day trip to Mhamid, with our bus folowing Hassan's Land Rover, sleeping in the desert "with family" and going over the mountains on the second day.
Hassan and his colleagues give us nicknames: Keith is Mohammed Tagine, Sarah is Fatima Cous-Cous (which she loves) and I'm Ali Baba (because of my beard).
We set out at about 11:30am (don't ask), with Hassan and brothers Achmed and Ibrahim plus either Sarah or myself in the Land Rover and Keith plus the other in the Landcruiser to minimise weight.
The trip is fabulous, and we see several different landscapes during the day, starting with areas of dark volcanic rock that we have to pick our way through, and including a super-smooth lake bed, which we race across at near-motorway speeds.
Toward the end of the day, we see puddles by the roadside and stop for a closer look. They aren't puddles - they're the edge of a huge flood which we walk onward to stare at from the top of a sand-hump. Apparently, a short way forward the road will be under 4 metres of water. This completely blocks our way forward to our overnight stop and to Mhamid. Judging from the last time this happened, the route will remain impassable for 20 days. Shortly after we turn back, the old men in a village tell Hassan that the water suddenly arrived between 9am and 9:30am this morning, which is why Hassan didn't hear about it when he rang ahead earlier.
The water has come from the Atlas Mountains. This is the same rainfall that fell on us there, causing the landslips that blocked the road! Now it's blocking our route again.
We return to the tiny hotel, on it's own in the desert, where we stopped before for cold drinks.
As a last flourish, the guys drive the Land Rover to the top of a high sand dune, giving me a fabulous view over the range of dunes stretching beyond, by the light of the evening sun. Keith tries to follow but, due to his narrower tyres, bogs down half-way up and has to be pulled out.
We catch the hotel owner just as he's getting on his motorbike to go home. It turns out that the rooms are still being built and don't have lights, power or bathrooms. There's a separate toilet block with at least one sit-down toilet.
Dinner is lovely, a lettuce-free salad dressed with olive oil laced with cumin, followed by a tagine filled with cous-cous, vegetables and some meat which I think is chicken but comes on very non-chicken-like bones.
One thing we've learned about the desert is that there always seems to be some wind, although its strength varies. The bus gets very hot with the windows shut, but driving with front windows open has been entirely bearable. I shut the outside door of the hotel sitting/dining room and the temperature rise means it soon has to be re-opened.
The guys suggest that we sleep on the flat roof rather than in our hot rooms, so we do. Under the substantial blanket the temperate is very pleasant. Lying there, the sky amazes me. With no light or air pollution, the million stars are stunningly clear. For the first time I think I see the milky way. Just before 4am I wake up and find the insects have too. Expecting the guys to get up soon for their 4am meal before the Ramadan daytime fast, I retire to my room.
The revised plan is to make our way to a town not far from our start point (hence not-travel, the flood is the non-desert part from the post title). Some of the way is across sand cut into continual humps by wind or water and proves very heavy going. As we emerge we see more water - our way is blocked again! The depth would only be 2 metres this way, but faster-moving and just as impassable.
We turn back again and head up into the hills, climbing ever higher. We hit water again, but this time the guys decide it's passable. For the first time, apart from one watersplash the first day, we drive into standing water. A bit further on we find the floods have swept away part of the river crossing, so we have to make another way across. Keith gets through with no problems, saying that this is right in line with his experience from Australia.
We find ourselves in an area with palm trees everywhere, some sitting in flooded fields from recent rainfall here.
The guys take us to a local co-operative where a very pleasant guy takes us inside, gives us water and sweet tea ("Berber whisky") and tells us a story about Moroccan history, ethnicity, culture and language, all as depicted in the carpets he shows us. Keith and Sarah say that they live in places too small for rugs like these and the chap takes it well. I decide to recompense him slightly by telling him a joke that a carpet salesman might find useful: (to a woman) "Why is a man like a carpet?" "Lay them properly the first time and you can walk on them forever." It's not a great joke, but the sales chap and his friend are simply delighted.
As we're leaving, the chap asks whether we have any books he can read to improve his English (not that I think he needs that). A little while ago, my dad took up the practice of passing on books and not wanting them back. I'm sure he'll be very happy indeed that a pleasant and cultured Moroccan on the fringes of the Sahara is now the proud possessor of works by James Herriot, Jack Higgins and some Napoleonic political actioner.
We're short of cash to settle with Hassan and co. and we have to go back to Erfoud to find a working ATM.
We round off the day with a 150km run through the dusk to a town with nice hotels to minimise tomorrow's drag to Marrakesh. We'll overnight there, and afterward face the long drive home.
