Turning Point by John Francis Kinsella
Michael Tomlinson as a reputed City editor of The Economist had been an ardent supporter of the square mile during its ten glorious years under New Labour. Tomlinson, a privileged interlocutor at press conferences, was often seen at the tables of deciders in the City. He was a regular guest at one of Fitzwilliams’ homes, or on the Marie Gallant II, in the company of the banker’s friends; notably the Parliamentary Secretary to the Treasury and Cabinet Member Paul Hopkins.
At forty eight Tomlinson’s journalistic experience in the world of finance covered the crash of 1988, the Asian financial crisis, the Russian meltdown in 1997 and the dotcom bust of 2000. If anyone should have seen the sub-prime crisis looming it was him, but no, he was part of the soft landing school. So much so he had himself surfed the property boom trading up his London home for a four million pound gentleman’s farm in the Surrey countryside, aping the City tycoons he admired so much and their cohorts of nouveau riche supporters.
After joining the The Economist in 1987, Tomlinson had taken out a mortgage on a home in Fulham, not such a fashionable area then, but an easy ride on the District Line into the business magazine’s headquarters in the City. When the price of property started to rise in the mid-nineties he moved to a better area of Fulham, closer to Chelsea, cashing in on the added value of his existing home and taking out a larger mortgage.
Tomlinson’s political leanings tended towards the centre. After graduating from the LSE he had voted conservative, but when Labour elected Blair to its head he was seduced by the youth and charisma of the young leader. In 1997, he like so many others gave Blair a landslide victory hustling the weary conservatives out the power. Blair lived up to his promise, it seemed like Cool Britannia could not go wrong as the country recovered its pride and self esteem, ultimately joining forces with George Bush to thrash Saddam in America’s war against terror as London became the world’s leading international financial centre.
In 2003, Tomlinson, at the peak of his glory as the City recovered from the dotcom setback, went from strength to strength. Property boomed and the price of his Fulham home rocketed, George Bush ruled the world with his sidekick Tony Blair dishing out lessons to the feeble hearted who recoiled at joining them in their war on terror. There was no reason to think that home prices would not continue to barrel upwards and with his wife’s modestly comfortable inheritance they set their target on a more ambitious home.
As financial editor of the Economist he became a regular figure at City lunches, the BBC financial desk and Bloomberg’s television shows. With his wife they became sought after guests for smart diner parties, including those of Fitzwilliams, where newly found wealth was the focal point of conversation.
The Surrey property seemed like a bargain and he snapped it up with the help of a huge loan cobbled together by the Irish Netherlands Bank in a special deal, stretching his finances far beyond that which his and his wife’s incomes could reasonably justify. However, the idea of being unable to repay the loan in a market where prices rose ten or more percent a year seemed so farfetched and it was dismissed out of hand.
His wife’s salary, as the editor of a fashion magazine, ensured the kind of life style that went with their property and it was only natural that they bought a flat in Earls Court to avoid commuting into town during the week.
Returning from what had become their established family vacation in Tuscany an unpleasant surprise awaited them: the magazine his wife worked for went to the wall when fashion businesses spooked by the looming crisis were forced to slash their advertising budgets.
Mortgages of over one million pounds and more were much more common than generally imagined and Barton knew it; it was he who had engineered Tomlinson’s loans. When the crisis hit mortgage repayments of ten or fifteen thousand pounds a month became an unsupportable burden when a family income dropped as did Tomlinson’s and selling became urgent, haemorrhaging money on heavy mortgage repayments needed fast action and the owners of trophy homes had to get out quick when the going got bad.
Tomlinson, as a financial commentator, had been naturally no stranger to derivatives; in fact he had followed their evolution ever since they had been invented by JPMorgan in the mid-nineties. But little did he think at that time derivatives could become one of the main contributing factors to a catastrophic financial crisis.
The word derivative was a broad label for a multiplicity of financial instruments. However, unlike conventional financial instruments such as stocks and bonds, a derivative was usually a contract rather than an asset itself. This meant a buyer promised to convey ownership of an asset, rather than the asset itself.
Futures and options were two of the most commonly traded derivatives. Options contracts gave the owner the right to buy or sell an asset at a set price on or before a given date. Whilst the owner of a futures contract was obligated to buy or sell the asset.
Such derivatives were used to limit the risk of losses of traded goods, the prices of which fluctuated with market conditions; for example when airlines hedged the prices of aviation fuel to offset losses that could occur when oil prices spiked, with the risk that the opposite could happen.
Tomlinson was no mathematician and as the demand for derivatives grew he like many other people only saw the bottom line, profits poured in and no one thought to question future risk. The people at the top had in reality no precise idea about what was happening on the trading floors, they only looked at the results not understanding the potential dangers linked to their booming profits.
As time passed derivatives, invented by JPMorgan, became commonly accepted and were used, and frequently abused, by investment banking to create vast profits. There were few rules governing derivative markets and nothing to hold back the fervour of banks and investors as markets flourished in a brave new world where profits and rewards were every man’s due.
So convinced were men like Tomlinson that they, like so many others, branded outspoken bell ringers as contrarians, a species of jealous ne’er-do-wells.
Russians
At forty eight Tomlinson’s journalistic experience in the world of finance covered the crash of 1988, the Asian financial crisis, the Russian meltdown in 1997 and the dotcom bust of 2000. If anyone should have seen the sub-prime crisis looming it was him, but no, he was part of the soft landing school. So much so he had himself surfed the property boom trading up his London home for a four million pound gentleman’s farm in the Surrey countryside, aping the City tycoons he admired so much and their cohorts of nouveau riche supporters.
After joining the The Economist in 1987, Tomlinson had taken out a mortgage on a home in Fulham, not such a fashionable area then, but an easy ride on the District Line into the business magazine’s headquarters in the City. When the price of property started to rise in the mid-nineties he moved to a better area of Fulham, closer to Chelsea, cashing in on the added value of his existing home and taking out a larger mortgage.
Tomlinson’s political leanings tended towards the centre. After graduating from the LSE he had voted conservative, but when Labour elected Blair to its head he was seduced by the youth and charisma of the young leader. In 1997, he like so many others gave Blair a landslide victory hustling the weary conservatives out the power. Blair lived up to his promise, it seemed like Cool Britannia could not go wrong as the country recovered its pride and self esteem, ultimately joining forces with George Bush to thrash Saddam in America’s war against terror as London became the world’s leading international financial centre.
In 2003, Tomlinson, at the peak of his glory as the City recovered from the dotcom setback, went from strength to strength. Property boomed and the price of his Fulham home rocketed, George Bush ruled the world with his sidekick Tony Blair dishing out lessons to the feeble hearted who recoiled at joining them in their war on terror. There was no reason to think that home prices would not continue to barrel upwards and with his wife’s modestly comfortable inheritance they set their target on a more ambitious home.
As financial editor of the Economist he became a regular figure at City lunches, the BBC financial desk and Bloomberg’s television shows. With his wife they became sought after guests for smart diner parties, including those of Fitzwilliams, where newly found wealth was the focal point of conversation.
The Surrey property seemed like a bargain and he snapped it up with the help of a huge loan cobbled together by the Irish Netherlands Bank in a special deal, stretching his finances far beyond that which his and his wife’s incomes could reasonably justify. However, the idea of being unable to repay the loan in a market where prices rose ten or more percent a year seemed so farfetched and it was dismissed out of hand.
His wife’s salary, as the editor of a fashion magazine, ensured the kind of life style that went with their property and it was only natural that they bought a flat in Earls Court to avoid commuting into town during the week.
Returning from what had become their established family vacation in Tuscany an unpleasant surprise awaited them: the magazine his wife worked for went to the wall when fashion businesses spooked by the looming crisis were forced to slash their advertising budgets.
Mortgages of over one million pounds and more were much more common than generally imagined and Barton knew it; it was he who had engineered Tomlinson’s loans. When the crisis hit mortgage repayments of ten or fifteen thousand pounds a month became an unsupportable burden when a family income dropped as did Tomlinson’s and selling became urgent, haemorrhaging money on heavy mortgage repayments needed fast action and the owners of trophy homes had to get out quick when the going got bad.
Tomlinson, as a financial commentator, had been naturally no stranger to derivatives; in fact he had followed their evolution ever since they had been invented by JPMorgan in the mid-nineties. But little did he think at that time derivatives could become one of the main contributing factors to a catastrophic financial crisis.
The word derivative was a broad label for a multiplicity of financial instruments. However, unlike conventional financial instruments such as stocks and bonds, a derivative was usually a contract rather than an asset itself. This meant a buyer promised to convey ownership of an asset, rather than the asset itself.
Futures and options were two of the most commonly traded derivatives. Options contracts gave the owner the right to buy or sell an asset at a set price on or before a given date. Whilst the owner of a futures contract was obligated to buy or sell the asset.
Such derivatives were used to limit the risk of losses of traded goods, the prices of which fluctuated with market conditions; for example when airlines hedged the prices of aviation fuel to offset losses that could occur when oil prices spiked, with the risk that the opposite could happen.
Tomlinson was no mathematician and as the demand for derivatives grew he like many other people only saw the bottom line, profits poured in and no one thought to question future risk. The people at the top had in reality no precise idea about what was happening on the trading floors, they only looked at the results not understanding the potential dangers linked to their booming profits.
As time passed derivatives, invented by JPMorgan, became commonly accepted and were used, and frequently abused, by investment banking to create vast profits. There were few rules governing derivative markets and nothing to hold back the fervour of banks and investors as markets flourished in a brave new world where profits and rewards were every man’s due.
So convinced were men like Tomlinson that they, like so many others, branded outspoken bell ringers as contrarians, a species of jealous ne’er-do-wells.
Russians