David Barrie

Crunching on credit

It was on this parade of shops in Whitechapel, London in the 1970s, in a kosher restaurant called Blooms, that I had my first gherkin.

The British call the cucumber a Wally which is a bit of a shame since - in shape at least - it has graced the gardens of the Chatsworth House stately home in Derbyshire, England.

In some weird twist of fate, the (slightly) uncouth vegetable turned totally luxe when someone decided to call Norman Foster's chic Swiss Re building in the City of London "The Gherkin".

 

But now thanks to Norm and financial journalist Chris Blackhurst, the small, bitter and not actually very pleasant gurka has come of age.

Writing in real estate magazine Estates Gazette [subscription required], Blackhurst turns Foster's building in to a ready reckoner for measuring demand and supply of office space in the City of London.

Everywhere I go, should I meet any property developer with an interest in the Square Mile, the chat quickly gets on to the Gherkin.

So we've had a warning of 40,000 City job losses - or the equivalent of eight Gherkins (500,000 sq ft each, at 100 sq ft per person).

Meanwhile, Lehman Brothers analyst Mike Prew has calculated that a total of "11 Gherkins" are being built by developers.

All hail the Gherkin!

The indigestible cucumber has become as august a measure as the Roman Mile or French meridional definition.

5000 people = 1 Gherkin

30 people = a nibble on an indigestible stalk end.

Image of Whitechapel High Street, courtesy of Danny McL. Chatsworth, courtesy of  Dr Loplop.  Gherkin packers in Bangalore, courtesy of Lefranz. Foster's Gherkin, courtesy of  acampm1.   

Dark and new Satanic Mills

Over the last ten years, according to the London Financial Times, loans for prospective small-scale landlords have risen from 2% to 10% of all mortgages.

Thousands of newly built flats have been constructed in English cities such as Leeds, Manchester and Nottingham to fuel and sate demand.

But over-valuation, fake discounts, skimming by lenders, increases in mortgage costs and a simple lack of demand is witnessing thousands of these flats remaining empty or let at rents that do not cover mortgages.

Newspaper reports highlight the plight of investors with portfolios valued in millions now turning to dust, personally owing millions and fearing repossession of their own front doors.

Time to re-cast a famous poem?

And did those feet in ancient time

walk upon England’s mountains green?

And was the holy Lamb of God

on England’s pleasant pastures seen?

And did the countenance divine

shine forth upon our clouded hills?

And was Jerusalem builded here

among these dark Satanic Mills?

Pictures courtesy of Aeschli, Martin Q and  Sternology.

A new age of purgatory

According to Alex at Worldchanging

Optimism, especially optimism which is neither foolish nor silent, can be revolutionary.

I'm certain of this but just now nothing beats private equity investor David Rubenstein, CEO of the €1.1bn Carlyle Group, and his recent comment on the financial markets.

According to the London Financial Times,

Mr Rubenstein said that if 2007 was private equity's golden era, then 2008 marked the start of a new "purgatory age".

Thank your lucky stars that in Catholicism, Purgatory is a temporary punishment.

But remember that according to Dante, there's a problem...it's just one step up from Hell...and for a moment just check out who else is on the beach:

:-o

Despair image courtesy of Bruce Sterling.

Who owns your house?

The crunch in the credit markets and bailout of investment houses' bad debts has revealed the globalization, complexity and connectedness of financial markets.

It has highlighted a fistful of opaque financial instruments designed to spread or hedge risk.

And it has cast as savior, sovereign-wealth funds operating out of countries like Abu Dhabi, Saudi Arabia, Singapore and China.

Today's Financial Times reveals that the Chancellor of the Exchequer is about to reveal plans to 'kitemark' mortgages according to risk: part of a plan to ease the market for wholesale mortgage lending.

But can I ask a simple, naive question: who owns the mortgage on your house?

Until the current financial crisis, I thought that I knew: a building society, a bank or other lender.

Now I am confused.

Is the bank's equity owned by the financial institution you signed up with and kept somewhere safe, secure,  local and known? Say a box with a brass-plate on it?

Or has it disappeared in to the global morass, held by the Bank of Kazakhstan, Abu Dhabi Investment Authority or another institution answerable to those you have not democratically elected?

Is it being used as collateral to help finance other borrowers - at super-risky Northern Rock-style rates?

Or is it being used to support the buying of shares in Gazprom or to enable the risk incurred by contractors working on early ground work for a new terminal at Heathrow Airport?

Just now there is an emerging move to provide people with green mortgages.

Also for many years there have been well-established - if poor-performing - ethical investment funds.

In the future, will there be demand for more traceable mortgages and debts - products that make it clear who owns what and to whom?

Will the current crisis press for a review of the extent to which we are prepared to allow our livelihoods to be invested in the globalized economy?

The global-local debate is usually framed to take in issues of labor, natural resources, politics and culture.   

Perhaps now is the time to widen that agenda to include the roof over our head.

A seat guru speaks

 

The Wall Street Journal reports that

The current business cycle will go down in the history books as one which confirmed that leadership in the global economy is now shifting from the old industrial countries to the emerging market countries.

One eccentric indicator of the strength, value and nature of that emerging market is in medical tourism.

A recent research paper by a professor at the Harvard Business School plotted the rise of medical tourism for everything from cardiac care to plastic surgery to hip and knee replacements.

What used to be rare is now commonplace: traveling abroad to receive medical treatment, and to a developing country at that.

And a recent report in the Financial Times, London pointed up key destinations as Argentina, Brazil, Costa Rica, India, Malaysia, Mexico, Panama, Philippines, South Africa, Thailand and Turkey.

Some researchers are looking at whether US employers would be willing to pay for a covered employee's medical procedure of equivalent quality abroad so as to lower overall healthcare costs.

This change (or hobble) in the demographics of air travel is interesting.

Medical tourism also marks the purchase of services from emerging markets way beyond technical support for banking transactions, escape from IT hell or heavy-breathing.

But first things first.

Please take special care when retrieving your luggage from that overhead locker.

And when you can't get that seat by the emergency exit, kindly refrain from smoking in the toilets and discover your inner Mother Teresa.

Image courtesy of Geraldi.

Evolving Britain

Sometimes the ability of capitalism to absorb debate, trends and just get on with it is a joy to behold.

This is the headline of an advertisement by U.K. property development company Land Securities in last week's edition of real estate magazine Estates Gazette [subscription required].

The company is marketing one of its shopping malls that has space devoted especially to local and regional independent retailers. The ad goes on to say:

Evolving Britain needs cities with local character and identity. So in our recent redevelopment of the Princesshay centre in Exeter we reserved a street just for independent retailers.

In the last few years, Britain's high streets have become the battle-ground for debate on Clone Towns, with focus thrown on the prevalence and might of national and international grocery stores.

Hostilities have just broken out again with the publication by the Competition Commission of proposals to improve competition between grocery retailers in local markets and address relationships between retailers and their suppliers.

Journalists have taken up pro- and anti-supermarket positions. 

On one side is India Knight of The Times:

Supermarkets are like tower block housing: what once looked like the future now feels mired in the past and what once felt thrilling and new now seems tired and passé.

On the other is Sathnam Saghara writing in the same paper:

Does it matter to shoppers in Watford that their main shopping thoroughfare resembles the high street in Inverness? Isn't your average branch of Boots a nicer place to be than your average independent Happy Shopper?...And is it really true that independent retailers have character? One independent Indian convenience store/Portuguese café/fried chicken outlet seems much like any other to me.

Meanwhile the property market brilliantly adjusts its pitch.

Next month, there's a Slow Food Festival at LandSec's mall in Exeter, hosted by a deli called Chandos featuring wine by the glass and baguettes made up with their own shop produce.

In effect, Evolving Britain continues on its merry way, angsting about food and its distribution, rather than supply.

For grain prices are currently at record highs around the world.

Pakistan recently launched ration cards to provide subsidised food for nearly 7m households.

And last week an undersecretary at the (alarmingly called) Ministry for Social Solidarity in Egypt - the world's largest importer of wheat -  revealed that

The bread subsidy alone went up by around $820m last year to reach $2.45bn.

There's a simple message in all of this: Evolving Britain...worry not about where you buy your bread - but do worry about what it costs.

I am Jérôme Kerviel's girlfriend

It's been agony following the London Financial Times' handling of the story of Jérôme Kerviel: the man who cost French bank Societe Generale €4.9bn.

Over the last few weeks, the paper has blushed at the temptation to go large on the financial world's one and only genuine human interest story.

But over the last few days, the newspaper has set aside its faux sang-froid.

In an analysis piece, the FT milks its contacts and knowledge to gave a first inside view on how a €1.4bn profit for Kerviel at the end of 2007 became a loss of €6.3bn.

But the best elements of the story are the small but dramatic chinks in the armor of the boring narrative that is the stock-in-trade of investment banking journalism.

Jean-Pierre Mustier, the head of SocGen's investment banking division spent hours interrogating Mr Kerviel in the aftermath of his Icarus-like plunge...

When questioned by about 15 people from SocGen's back office risk control division, according to Mr Mustier, the young trader "took some persuasion" before he would admit having breached his authorized limits...

"I kept him in front of me for a long time," says Mr Mustier.

Now this sounds scary.

15 interrogrators! Sounds more like a death squad.

Then when Mr Mustier told Daniel Bouton, SocGen's chairman, that there was a problem with hidden trades in the equity division

The SocGen chairman was so sickened by the actions of the trader who had tarnished his lofty reputation that he refused to meet him and later called him a "terrorist".

How much would you have paid SocGen to have been a fly on the wall of Mr Bouton's office that day?

For more personal engagement with the story, I'd recommend connecting with Kerviel at Linkedin.com?

If you're looking for alternative starf**king, get a T-shirt from MissKerviel.com with the slogan Jérôme Kerviel's girlfriend.

However you're positioned on Kerviel, I'd recommend one simple Woody Allen-ish lesson: if you have to go on the fiddle, just stick with the office squash ladder.

Over the counter avant-garde

According to Estates Gazette, the real estate magazine, artist Damien Hirst is to open his first art shop in Marylebone, London.

Known as Other Criteria, the store is to sell artwork, T-shirts, postcards, plates and books featuring the artist's work.

The London Evening Standard reports that

Among the Hirst items on sale will be an 18-carat gold charm bracelet featuring different types of pills as the charms. It costs £250,000, while a set of 12 plates decorated by the artist costs £10,000.

A key reason for the venture, according to one of the directors of the new retail company is that

Art has to be experienced and the shop is where people can experience it in a democratic atmosphere rather than a West End gallery.

In an age in which Kate Moss designs clothing for Topshop and pitched battles mark the opening of sales at Primark, it feels right for the avant-garde to see the shop floor as the contemporary Palace Square.

Even better, Hirst's diversification suggests a total revision of the history of art - as a canon of artists as unfulfilled shopkeepers, not angst-ridden expressionists.

Duchamp doing bathroom fittings.

Fragonard retailing cosmetics.

And Caravaggio doing Pinot Grigio - with a personal shopper service downstairs devoted to Colt Leather.

A sexy graph

Buried in a survey of sovereign-wealth funds in the Economist is this sexy graph.

It shows the extent to which those obsessed with sustainable development, one planet living, energy security and peak oil have to set their sights firmly on the financial markets.

The graph shows how much the value of equities outdid oil between 1985 and 2007.

And it tells a simple story:

Better for an exporter to sell as much oil as it can today and invest the proceeds, than to leave the stuff in the ground in the hope of spreading production over the decades.

In other words, produce now while the going is good.

In my work in urban development, I'm starting to work on ways and means in which financial products linked to property might induce a more sustainable, efficient and healthy local market.

But the graph from Morgan Stanley suggests that innovation of consumer products is almost beside the point.

Financial performance of major listed companies and the relationship between sustainability and shareholder value is what matters.

And elsewhere in the Economist, there's bad news.

In a survey of corporate social responsibility, the magazine reports that two of the best-known indices - the Dow Jones Sustainability Index and the FTSE4Good - under perform the market.

And that AccountAbility, a British think-tank

admits to the inconvenient truth that its 2007 ranking of the Fortune Global 100 companies by their progress on building sustainability into their business shows no connection with their financial performance.

There is a message in this.

Unless and until we find ways to boost the price and value of virtue, sustainability may remain a composite, common sense, piecemeal phenomenon, rather than a critical object of competitive advantage.

Bankrupt avatars

The Wall Street Journal reports on a bank collapse in the make-believe world of Second Life.

The company that runs the online world has 

pulled the plug on about a dozen pretend financial institutions that were funded with actual money from some of the 12 million registered users of Second Life.

Linden Lab said the move was triggered by complaints that some of the virtual banks had reneged on promises to pay high returns on customer deposits.

According to The Inquirer

Avatar bankers have ruined the game where people pretend to own land, run businesses and build homes.

The banks of Second Life courted deposits by offering interest rates. While some paid interest as promised, others used the money for dodgy SL land and gambling deals.

In a virtual re-run of the panic surrounding Northern Rock

The shutdown has caused a real-life bank run by Second Life depositors. Though some players managed to get their Linden dollars out, others are finding that they can no longer make withdrawals from the make-believe ATMs.

I haven't a clue what this means for Second Life.

But ten minutes after reading the story - spread-eagled in Seat 66c on a flight from Bangkok to London - a thought from free software pioneer Eben Moglen jumped off the page of my book:

It's an emergent property of connected human minds that they create things for one another's pleasure and to conquer their uneasy sense of being too alone.

Sure.

But if people suffer from the dodgy-dealings of bankers in Second Life, we're reminded that digital networks can cause not just cure isolation.

And I do wonder: are the rivers of Second Life lined with the remains of bankrupt avatars?