Saturday, 11 October 2008

Back to the Future (Past)









Ever since Pottymummy and East Anglian Troy blogged on the "Credit Crunch" a.k.a "the Credit Cremation" I have been wondering whether I ought to blog on this subject or not. I suppose I cannot help myself. So here goes...

I joined a very well known high street bank as a graduate trainee in 1990. I didn't really want to go into banking but a certain somebody thought it would be a good idea. I endured the rigours of learning how branch banking worked for 12 months at a branch in Cheapside (strangely enough the branch was in a building owned by The Bank of England, City of London) and then 6 months in the West End of London (a very posh area). I then worked in Corporate and Institutional Banking for another twelve months as a graduate trainee firstly in Correspondent Banking and then in Marketing. I much preferred the latter twelve months because I was rubbish at branch banking. One day I was put in charge of sorting out direct debit mandates and standing order mandates (ever thought they were one and the same thing!!!) needless to say the whole branch ended up working late that day to sort out the backlog!

In Correspondent Banking I was in my element. This is the part of a bank which deals with other banks (usually all foreign i.e. non-UK banks). All banks have to have accounts and lending facilities (it is how they work) and this is business to be won. Ever wondered what happens to your cheques and travellers' cheques which you use abroad...the business where you spend your hard earned dosh e.g. Luigi's pizzeria in Milan, then sends them to their own bank (e.g. Gelato Bank) which sends them back to your UK bank (and asks for the money to be transferred from your account). This all has to be processed, costed and charged for. (This is just one small example.) Anyway I could bore you to death about how banking works but I won't. It, banking, may not even exist next week's time anyway...and life is too short...

I'm afraid I'm a bit of a history nut (as you may have gathered from the title of this blog). I first encountered "the City" as a sixteen year old as I wandered around the deserted streets of a Sunday, as my family had been lent a flat in the Barbican by a friend of a friend. I was amazed that this quasi medieval world still existed and I was bowled over by the fabulous architecture all crammed into the ancient, narrow, winding streets with deliciously sounding names: Threadneedle Street, Lombard Street, Pudding Lane, Cornhill, Tokenhouse Yard etc. etc. Just wandering around absorbing the details of the London Guilds' buildings left me speechless. So I suppose that it was more the history of "the City" which beguiled and lured me in rather than "the finance" side. Although the latter helped a little to persuade me admittedly.

And so after ten years of being part of the racket and being exiled to the 49th floor of Canary Wharf away from my beloved quirky buildings, sumptuous church squares, forgotten alleys, sudden pockets of greenery in all sorts of unexpected corners I decided to part company with "the City". Another life awaited me...
As for the shenanigans which are affecting all markets worldwide (not just the City)...I also fear that history is repeating itself. Look no further than the oft-mentioned South Sea Bubble crisis which affected the whole country, even King George I and his mistresses lost money, as a result of that bubble bursting. The link to Channel 4 website nicely sums up the cautionary tale . What it does not mention that five well-established banks failed as a result of the bubble bursting and it also meant that there was a run on the Bank of England (still a private company at the time). The run on the latter was only stopped by a ruse used by the Bank:
"To avert failure in 1720, "the Bank organized its friends in the front of the line and paid them slowly in [silver] sixpences," writes Charles Kindleberger in his Manias, Panics & Crashes , quoting a Victorian history.
"These friends then brought the cash back through another door; it was deposited, again slowly counted, and then made available for paying out once more."
Round and round the silver sixpences went...out over the counter...and in through the back door! Slowly counting out the deposits, only to get them back and then count them out once again, the Bank's diligent tellers helped it survive until the Feast of Michealmas on Sept. 29th. Once the holiday was ended, the panic had passed."
Thus the Bank of England stopped underwriting the South Sea Company's debts. "The Bank of England, in short, had done well to withdraw its support for the Bubble. Honouring the South Sea Company's false promises had nearly destroyed it."
The current government is trapped between a rock and a hard place right now. It is attempting to restore trust in the financial system, as are many governments worldwide, because if we, the borrowers and savers, do lose trust in the system...what happens then? Apparently we can survive for a while as happened in the 1960s ("most grocers and pubs became bankers overnight") when there was a prolonged strike by Irish banks for several months but how long can we really survive or do we go back to a barter system? (And spare a thought for everyone's pensions, savings, mortgages, healthcare, education. You name it...anything that is anything is affected by that long tentacled monstrosity called "The City"!) Deep breath. Gulp!
So.......Expatmum polish up those tapdancing skills as they may well come in very handy!

23 comments:

Maggie May said...

This is the second blog I have visited this evening writing about this! It is scary. We have all been encouraged to save, but is it safe!
Seems the average Joe Blogs cannot win what ever he does.

Hadriana's Treasures said...

I know Maggie. Luckily we only had £70 left in Icesave when we heard the news! It is absolutely mind boggling what is going on (or not)! They have to get the confidence back or it will be scary as you say. Having said that I was with my grandfather (aged 92) who's seen a thing or two...he said we got through the thirties and the war so....all is not lost (yet)!

rosiero said...

Reminds me of a joke I heard today.....

Q. What is the difference between a pigeon and a banker?

A. A pigeon can still put a deposit on a Ferrari.

Lindsay said...

As I do not understand much about the banking system - I do not panic - just hope for the best.

Hadriana's Treasures said...

Like the joke, Rosiero, and Lindsay I'm not sure the bankers understand the system right now. I think it has to come right in the end. It may a hard few years though. Hxx

Gill - That British Woman said...

we are lucky in Canada, it hasn't hit us as hard as the US or Britain, but that's not to say it won't. I must admit, dh's shares have taken a kicking this week and we have lost thousands of dollars.

My advise, sit tight and wait it out.......

Gill in Canada

Fat, frumpy and fifty... said...

Yeah!! I was wondering how long it would take you...I thought you'd be icthing to post about this...and wondered if when and what you would say... feet frimly on the ground Hadriana!

Hadriana's Treasures said...

Hi Gill and FFF, I must admit I was trying not to blog about it because I might be seen to be one of the guilty parties! But in my defence I have been away from all of that for eight years + now. I think I am utterly astonished at how these banks seem to have thrown the rulebooks out of the window. Everything we were taught about lending seems to have been disregarded. What on earth did they think they were doing?!!

I think it will be OK in the end as long as the panic stops. I know from my scuba diving days that panicking gets you nowhere (in fact it makes it much, much worse)!

BTW Gill, I'm very impressed by your money management and I think the banks could take a leaf out of your book.

East Anglian Troy said...

The scary thing is that many people saw this coming - saw the overinflated house prices; saw the total amounts outstanding on credit cards (and zero interest on balance transfers); saw the historically very low interest rates; saw enormous trade inbalances between the West and China/Arab States. But still the majority believed the mantra that "its different this time". That "boom and bust have been abolished". Instead the whole system was expanded ever upward like an giant inverted pyramid and now they are all surprised when it starts to finally fall over!

Expat mum said...

Gulp - they must be around here somewhere!

nappy valley girl said...

It is fairly terrifying isn't it. As if all the old certainties are being swept away and nothing is sacred/safe. I too had my moment of panic re Icesave last week - I am still not totally convinced that I will see my ISA again....

Hadriana's Treasures said...

Yes...E.A.T. can't argue with that!
It has all been sheer madness but somehow I think it is pure human nature!!
expatmum...your tap dancing skills sound quite advanced. We were bought tap, ballet and ballroom shoes (my sister and I) and only went to one lesson!
Hello Nappy Valley Girl thanks for passing by...I'm sure your ISA will be safe but when the initial news breaks it's heart in mouth time...

Sandi McBride said...

You've tired me out, but I've learned a lot...course we bury our money in the yard, cause you know you can't trust a bank, right? LOL
Now, lets see you dance!
hugs
Sandi

Hadriana's Treasures said...

Hi Sandi...did not mean to tire you out! My Scottish Highland Dancing could be brushed up....:-) Hx

Potty Mummy said...

Really interesting HT, especially as you (unlike me) do actually know what you're talking about!

Hadriana's Treasures said...

Thanks, PT, your account was pretty plausible to me...glad you broached the subject of the elephant in the room. Although now it's morphed into the T-Rex in the room!!

French Fancy said...

What a fascinating story - your time in banking and the 18th century Bank of England.

Hadriana's Treasures said...

Hee! Hee!..French Fancy (like your name BTW)..."18th century and banking" do go together, to be honest, because it felt like that at times...I was once told off because my skirts were TOO long!!!!

Dumdad said...

We (bankers, governments etc) never learn. But greed was ever thus.

And now many more people won't even consider paying more into a pension because they feel there'll be nothing there when they come to collect. So, we'll all go on another binge and to hell with the consequences.

I'll drink to that!

The Dotterel said...

I know nothing of banking, but I did study economics for a time at university. As I understand it, the whole financial world runs like that Bank of England tale - i.e.completely irrationally (in spite of what economists like to think).

PS: Thanks for the 'Minimus' info!

Hadriana's Treasures said...

Cheers dumdad! But I guess it'll be pints and not jeroboams?!!

Absolutely The Dotterel!...people know more than they think about the whole shebang...

Can Bass 1 said...

I doubt I'll be affected. I get paid so little I can barely afford to stand my round in the pub post-evensong, let alone save or, worse still, invest. Poverty does have some advantages.

Hadriana's Treasures said...

Hello Can Bass 1...sorry I've taken a while to reply. I've been putting the finishing touches to our accounts so can sympathise with you on the money front. We're much more hard up than when we both worked for big organisations in the City but we're much happier not being in the rat race...:-)