Sunday, October 19, 2008

Explaining the credit crunch

A number of readers have written or emailed asking for a clear explanation of why the world economy is in its current parlous state, what they can do about it, and whether it would be a good idea to invest their life savings in a buy-to-let apartment in Greenland.

Frankly, in the immortal words of Patrick Moore, we just don't know. But that won't stop us in our mission to explain. At no small expense we have retained the services of respected investment analyst George Imallright- Jacques, and here, for the benefit of that dwindling group of readers who still have more money than sense, is his Bath Chronicle Cut-Out-And-Keep User Friendly Guide to Surviving the Credit Crunch and Global Banking Crisis.

Q: What is a hedge fund?

A: Suppose that Bank A is in debt to the tune of £1bn, while Bank B owes £2bn. This means that Bank A is £1bn richer than Bank B, and thus acquires what we bankers call leverage, which it can use to buy long-date Government bonds, offsetting the cost by liquidating its existing assets in Bank C and placing them on the Far East currency markets.

At this point the hedge fund facilitates the arbitrage on the operating surplus and recharges it to Bank B, making its own profit on the transaction by capitalising on the gearing ratio between short-term fluctuations in the inter-bank lending rate.

This of course is only a simple example, but it goes a long way towards explaining why some people are very rich and you aren't.

Q: If all you bankers are so clever, why are you broke?

A: It's not us bankers that are up the creek, it's our banks. Individual staff members have continued to enjoy large bonuses, all-expenses- paid skiing holidays and champagne hospitality at premier sporting events throughout the current crisis. There's no point in being envious, it's just the way things are.

Q: Why has no one been round to empty the bins this week?

A: The stagnation of liquidity in the local government sector is an indirect result of the freezing of Icelandic investment opportunities.

Q: Isn't that just a load of hot air?

A: No. Have a Glacier Mint.

Q: So what is a hedge fund? Really?

A: How simple do we have to make it? Look, everyone borrows from everyone else. Money makes the world go round. All's well that ends well. Too many cooks spoil the broth. End of story.

Q: I'm a 35-year-old man with a £100,000 mortgage. With property values going through the floor, what steps should I be taking to ensure I don't fall into the negative equity trap?

A: The National Lottery isn't such a bad punt. Alternatively, if you have a soon-to-mature Cash ISA or a woolly sock filled with £1 coins hidden away under the mattress, you might consider purchasing a stake in a Personal Toxic Debt Recovery Fund, which should see a higher return in direct proportion to the fall in value of your house. But this is a long-term option and will be tied firmly to the Bank of England base rate.

Q: What does that mean in layman's terms?

A: It means it might work or it might not. Listen, mate, there aren't any laymen in the financial sector. As soon as you open your first Kiddisave Account with your friendly high street bank you're swimming with the sharks. And don't even think about dabbling in property unless you've got the cunning of a sewer rat and the killer instinct of a wolverine.

Q: I bet you don't sleep much with this crisis on your conscience.

A: Maybe not, but I am solvent.

Q: You don't actually know what a hedge fund is, do you?

A: Not telling.

The value of your investments may go up or down as result of following or not following the advice in this article, either fully or in part. Can't be certain, really. Anything could happen in the next couple of weeks. You should consult your financial adviser before taking any decision which might affect your future prosperity. You already have? Oh.

Thursday, October 02, 2008

Eat your veg before it eats you

An hour and a half north up the M5 (on a clear Sunday at a steady lick) is the turn-off for the M50, gateway to the Malvern Hills and the Three Counties Showground.

There it was that the Dixons and young friend made their way, in search of horticultural inspiration – and maybe a bargain or two – at the annual Autumn Show.

Vegetables are big at the Autumn Show. Big in the sense of verging on the monstrous. It takes a special sort of gardener to grow carrots as long as your arm, leeks as long as both your arms and parsnips as long as your arms, your mum's and dad's arms and your Auntie Mabel from Droitwich's arms laid together end-on-end.

Mind you, by the time you got three or four inches down the tuber, the parsnips were pretty spindly and wouldn't have offered much to roast come Christmas.

But on they stretched, their thread-like taproots folded up and down the trestle tables in the competition marquee.
Click here!

One of the most noticeable things about giant vegetables, apart from their very size, is their sheer irredeemable ugliness. This is particularly so, we discovered, in the case of the swede.

Now your common-or-garden buy-it-at-the-greengrocers family- runabout swede is an unassuming sort of creature. Yellowy-orange with a few purple bumps, and embarrassed by its close consanguinity with the turnip, it sits in your vegetable rack waiting for its chance to be boiled, mashed with butter, left uneaten, made into soup, left again and eventually tipped down the drain.

But your Formula 1 competition swede is a vegetable of a different water. For starters, it's the size of a small suitcase. For seconds, it looks for all the world as if it's been rough-hewn from the trunk of a gnarled tree and then liberally doused in blue paint.

Edible it is not (and that's about the only thing it has in common with its smaller and smoother brothers and sisters). Uncanny it most definitely is.

Then there was the pumpkin.

Or Mongo the Pumpkin Monster, to give it its full name. Grown by two proud Brits, Mark and Frank Baggs, this was the new European record-holder, weighing in at 1,341.7lb. That's more than 600kg if you think in metres. By the time we got to it the stalk had fallen off, but even so it was a staggering example of man's ability to wrestle with nature and tame it.

There were of course smaller-scale encounters of the fruit-and-veg kind: rosy apples ready for the scrunching, succulent pyramids of tomatoes, earthy, glistening potatoes: all guaranteed to inspire the visitor to greater feats of growing next year.

But there was far more to see than just veggies. There were antique petrol engines of vaguely agricultural extraction, chugging away as they pumped water from one basin to another, at once purposeful and aimless and doing heaven knows what for their owners' carbon footprints.

There was the man on his ancient lawnmower, pootling up and down a narrow patch of greensward and entertaining an audience of maybe one or two.

There were the stands, selling everything from tatty toolkits to expensive whirlpool baths.

(Who goes to a country show to buy a whirlpool bath? The vendors were far from busy, except for a huddle of children, mostly of the Dixon party, trailing their fingers in the warm bubbling water and dreaming of the day when Dad would be able to afford one for each of their bedrooms. Dream on, dears, dream on.)

There were miracle cures for everything from dry skin to galloping gut-rot. There were country-style hats, country-style coats, country-style trousers.

Mrs D exercised amazing self-control when it came to buying plants. The young friend bought one of those sprinkler things that looks like a sunflower but whips around like a demented snake when you attach a garden hose. Won't his parents be pleased?