Financial Big Bang!
Monday, September 29th, 2008
During economic down turns world festivals and other outdoor gatherings tend to suffer. However an upside to this is that people may choose to explore festivals in their own backyard rather than take the mass transit route abroad. With five banks crashing today (the Belgian-Dutch Bank, Fortis; Iceland’s Glitnir Bank; the UK’s Bradford & Bingley; America’s Wachovia and Germany’s Mortgage Bank, Hypo Real Estate) and the US currently debating the mother of all bail outs, what does this say for the future of the festival industry throughout the world in the coming year.
This year fifteen festivals were canceled in the UK as a result of the freakish weather and the economic downturn. Even Norway’s Quart Festival was canceled due to poor ticket sales and filed for bankruptcy. The Florida Citrus Festival founded in 1924 was hurt by bad weather and poor ticket sales and this picture looks set to continue.
No matter how may articles you read about the economic downturn, there is still a perplexing conundrum as to why it was allowed to happen. It’s clear that banks don’t like to be regulated and yet the tried and trusted risk averse model does not make enough money for the banks or its investors. Creative minds thus set about instituting a period of wholesale banking and securitisation which began to sweep the world.
In the 196o’s banks began trading in foreign currencies and found this to be a lucrative income stream. Mass consumerism gathered momentum in the early 1970’s and the world’s resources were increasingly being drawn upon. Some smart cookie then realised that you could produce Futures in things like interest rates and began trading or betting in these going up and down. Then along comes another bright cookie and creates Hedges, an investment made to limit loss against the two proceeding products designed for the rich investor.
In June 1974 the privately owned German Herstatt Bank went into liquidation speculating in currencies. In 1995 Nick Leeson brought about the collapse of the oldest merchant bank speculating on Futures.
It makes you wonder what was to come next… and yet it did… another brilliant idea was the bundling up of mortgages and selling them on to other banks with incorrectly or perhaps fraudulently applied Tripple A Credit Ratings. The fact that the original banks did not fully vet their mortgage loan applicants reveals the inherent distrust currently experienced between banks. The banks made mind boggling profits and paid equally mind boggling bonuses to traders on the volume selling of these bundled up mortgage packages. After offering a free for all on mortgages, some borrowers were not able to meet their loan requirements. The bank owners of these bundled up mortgages don’t know what’s good and what’s bad and it all became toxic debt!
Yet financial bailouts are more common than we think. Now the mother of all bailouts is set to nationalise the banking system in the States - what a humiliating turn around for the home of the free market economy. Professor Patrick Honohan’s excellent article in the Irish Times on Friday shows that there is a long history of government bailouts and none of this is that new!
But let’s all look on the bright side, attending festivals is a form of escapism and right now that sounds like a very good idea!




