http://www.dailymail.co.u...runch.html

He's always been a trendsetter. But could David Bowie have caused the latest fad sweeping the nation - the credit crunch?

It may sound like a ridiculous question, but it's not as mad as it seems. Even when it comes to finances Bowie leads the way - and back in 1997 he did something called 'securitisation'.

He thought: 'I have a lot of money coming in over the next ten years from my back catalogue, but I'd rather have the cash now and not have to wait.'

David Bowie started a trend of 'securitisation' in 1997 by selling the royalties for his music upfront for a large lump sum

He produced some bits of paper - Bowie Bonds - and said: 'Whoever buys these gets my royalties.'

It meant he no longer had the money coming in but instead had a lot up front. His investors were guaranteed a decent income. It was a good deal all round.

And the banks were catching on to the idea. They thought: 'We have billions out there in mortgages which are going to pay us back very slowly. Why don't we sell those and get the money now?'

So the banks started doing what Bowie had done - in a big way.

It was a complete rebuilding of what a bank does. Normally, a bank borrows from people like you and I, then lends it out.

For example, a bank loans out £100,000 for a mortgage, and does the same for 10,000 people. They've now lent £1billion and will be getting the cash back over the next 25 years.

So the bank creates a piece of paper, a security, and says whoever owns it will have the income from the mortgages.

It then sells the security - effectively the bundle of mortgages - for £1billion to perhaps a pension fund, which then has the mortgage income - and the bank has £1billion to lend out again.

Everybody is happy: the banks are able to lend more and more as mortgages, and there's a conveyor belt where they lend a billion, receive a billion and sell the mortgages on.

Northern Rock were the market leaders in the UK for this kind of thing.

But then it started to go wrong. As the banks were selling the loans, any bad risk became someone else's problem. So the banks didn't have to worry so much who they were lending to.

Problem number two was that it wasn't just their standards that dropped - the banks just lent far too much.

And thirdly, the banks looked at these securities and said: 'These are so good we want to buy some ourselves.' Having got rid of a lot of loans and risks, they ended up buying them back in.

It all went pear-shaped for American securities because the banks had lent to people who couldn't repay them.

No one wanted securities, their value plummeted and the banks, having bought so many, lost a lot themselves.

Securitisation was a kind of magic bullet for banks. It looked a fantastic way of making them more profitable with less risk.

But they fired this magic bullet at themselves.

They became too dependent on it and then investors decided they didn't like securities because they didn't know what was in them and the loans were often bad.

No one wanted to buy securities even if they weren't bad - which Northern Rock's were.

It was fashionable when David Bowie did it once. Ten years later, it wasn't. Suddenly the banks didn't have any money coming in, so they couldn't lend any more - that's the credit crunch.
Vicious circle

Now the economy is in a vicious circle. The banks loan less, so the economy has money sucked out of it. With less money, there's less spending and job losses, which cause less spending, and the vicious spiral continues downwards.

So how do we get through the credit crunch?

The obvious thing to do is pump more money into the banking system, from the Bank of England or the Government. Or the Government can guarantee loans to encourage lending because the banks are so fearful about doing so.

So far, in return for shares in the bank, the Government has given them more capital but probably not quite enough.

The truth is the most sensible thing for people to do is be a bit cautious with money at the moment.

But it would be nice if we all tried not to be too cautious, because if everybody saves simultaneously, it causes a tidal wave which will drown the economy.

I have no idea but I just wanted to say hello and give you this.

Vendetta1 said:

this thread sucks.

hey thanks, nice new name !

jami0mckay said:

Thanks. If you have ever seen the show, my new name fits perfectly.

it crashed and burned for Bowie, so i HOPE they didn't follow that as an example.

Vendetta1 said:

my tv only seems to show endless repeats of Will & Grace

Desire2006 said:

As far as I'm concerned, David Bowie is to blame for approximately 97.2% of the worlds ills.

It all started with Let's Dance.

Ace said:

Ace said:

I'd trace it back to "The Laughing Gnome" I think. Just for good measure.

errant said:

I'm not familiar with that song, but just the title of it alone gives me the heebee-jeebes. I'm in!

Ace said:

jami0mckay said:

Man, I'm glad I was too young to have to deal with 1967 - 1974.

Ace said:

get yourself some 1971-1974 right now!

errant said:

I don't mean Bowie's output during that time, I'm actually referring to the era.

Ace said:

oh yeah. me too.

if this thread was a song it would be cloreen bacon skin

jami0mckay said:

I know the feeling Its because nobody likes you

LleeLlee said:

phew thats a relief


whats ocurring?

jami0mckay said:

Erm..life mostly.


How are you young Jamie?

LleeLlee said:

not life again? crikey.

I'm feeling somewhat under the weather, hows things in your neck of the woods?

would you like a snickers ?

jami0mckay said:

I'm sorry, woke up to find your feet missing? ear fallen off? mouth disappeared? get well soon.
Things are fine, cold, and yes I'd love a Snickers, would you like a Bounty?

LleeLlee said:

and a nice cup of tea, if you were in the big brother house how long would you last before either quitting or killing someone?

jami0mckay said:

Hmm..I wouldn't have talked the whole time, just gestured etc, eg. raise my hand to my mouth in mock tea drinking, for, make me some tea you skank.

LleeLlee said:

you'd make a good Orger Boss

I think this is a GREAT thread! I was thinking about Bowie's deal the other day. As I recall, he got $55 million up front in return for signing over his royalties. I don't know if he would have done better collecting his royalties instead or not, but I thought his creativity was brilliant.

But look - *I* issued a mortgage-backed security in 1993, so don't give Bowie any of MY props!

(FYI - my security performed perfectly and met all projections!)

if they didn't keep saying worrying things on the telly, like "RECESSION" and "DEPRESSION", would people keep on spending and things wouldn't be so bad? or was this inevitable no matter what?

RodeoSchro said: