Volgograd was a lifetime ago. A plea for help. A hastily scribbled note and a copy of The Rider’s Digest. Roman and Slava had raced to our rescue. Under their protective wings in an amazing city of plenty, we were wined, dined and lavishly entertained. With Roman’s help, we tracked down new tyres in Moscow. Metzler Tourance’s for the rear and Pirelli Scorpion’s for the front. Not ideal, but infinitely preferable to riding on canvas. Six days later, with tyres replaced and personal batteries recharged, we pulled out of the “BikeCity34” workshops and onto the wide and perfectly paved Strasse. The compass pointed East towards Saratov but the Tiger‘s were reluctant to follow. Around the first corner and safely out of sight, we pulled to the side of the road. Something was wrong. Tyre pressures too low? Steering bearings too tight? We checked and adjusted everything possible but both bikes had adopted new and dangerous personalities that we just couldn‘t seem to cure. The once reliable and precise steering of the Tiger was gone. The new tyres weren’t working as new tyres should. Individually they were probably fine tyres, but as a mismatched pair they were certainly an experience. At any speed below 40 mph, the handlebars oscillated violently and the bike gave a constant feeling of “falling over“. The front wheel just refused to steer. Where once a gentle nudge would tip the Tiger into any corner, every turn now required a threatening memo giving notice of your intention. It wasn’t a pleasant experience but I was confident that miles and wear would eventually solve the problem.
The mounting miles did little to improve the steering and the silky smooth roads of North America only highlighted the problems. In New York, 18,000 miles after the tyres had been fitted, I replaced the now threadbare Metzler Tourance. I couldn’t bring myself to replace the offending front tyre. In 18,000 miles the Scorpion had used less than half of it’s tread, the bloody thing just refused to die. Sadly, there was no improvement with the new rear. Granted, an undersized Pirelli Diablo Corsa wasn’t the ideal partner for the part worn Scorpion on the front, but it was all that I could find and came at an amazingly low price. Beggars don‘t make good choosers.
Back in Blighty and with only 3,000 miles under it’s belt, the new Diablo Corsa was already beginning to show-off it‘s canvas undergarments. The lovely people at Jack Lilley Triumph in Ashford Common replaced the rear tyre with a previously enjoyed, but free and lovely, Bridgestone Trail Wing. For another 3,000 miles through the summer, I wobbled on with the 24,000 mile Pirelli Scorpion before finally screaming “enough” . I now hated riding the bike, it was always awkward, like walking in flippers or dancing in clown shoes. Calling time on my frustration, this morning I headed down to Essential Rubber in London N1. The Pirelli Scorpion was removed and a new Michelin Anakee was fitted. For the very first time I‘d changed a tyre long before it was legally necessary. I rode out of Essential Rubber wearing a giant smile. The transformation was instant and amazing, riding the Tiger was once again an absolute pleasure. If only I hadn’t been such an arsehole, I could have changed the offending tyre in the Spring and enjoyed a Summer of motorcycling fun. 24,000 miles is a damn fine innings for a tyre, but I wasn’t sorry to see the back of it. Lesson learned.
For those uninterested or unaffected by the current economic conditions, then this is an ideal time to go browsing elsewhere. I’ll return to biking matters in the next post, but to celebrate the first anniversary of Financial Armageddon, the following is my layman’s take on the why’s and how’s of last years financial meltdown.
One year ago this week, I was riding happily across America with a fistful of dollars and not a care in the world. Tents and motorbikes are not the most media friendly environments, but despite being divorced from economic reality, it was impossible to overlook the simultaneous collapse of the world’s banking system. Gas stations were the ideal place to freely read the front pages of newspapers like ‘USA Today’ and the road was the ideal place from which to observe the economic effects on everyday people. Possessions in front yards were labelled with handwritten ’For Sale’ signs and ’U-Haul’ trailers were carrying the possessions of the displaced in every possible direction. The population of Middle-America was selling-up and moving-on. The world had changed overnight, Wall Street had collapsed and Main Street was ’For Sale’.
Collateralized Debt Obligations (CDO‘s), Credit Default Swaps (CDS’s), Asset Backed Securities (ABS’s), Contracts For Difference (CFD‘s). For most people, these terms might as well be from an alien based language and that’s exactly why the Banker’s developed them. Such terms are designed to impress us into a false sense of security and to prevent us from asking questions that we fear might leave us looking stupid. Complex financial instruments are not a new concept, they’ve been in use since the 11th century, so why did it all go so horribly pear-shaped in 2007? The answer is basically ‘Greed’ and below is my layman’s explanation of why things went so horribly wrong.
Building Societies were great institutions. If you had excess cash, you invested it into a savings account and the Building Society paid you a regular rate of interest. In order to afford the interest that they paid on the savings, the Building Society lent out those savings to people who wanted to buy, and more importantly could afford to buy, a home. The interest charged on the ’Mortgage’ was 8% and the interest paid on the ’Savings’ was 3%. The Building Society enjoyed a margin of perhaps 5% that would cover it's operating costs. If the new homeowner stopped making the monthly loan repayments, then the Building Society would recoup their losses by repossessing the house and selling it back into the market. Each Building Society shouldered the risk of every loan that it made. To reduce this risk to an absolute minimum, the Building Society vetted the mortgage applicants and only loaned money to those people that they deemed to be financially worthy and had a healthy initial deposit. The ’Mortgagee’s’ got their homes, the ‘Savers’ got their interest payments and the Building Society ’Members’ shared in the organisations success. It all worked remarkably well, but each Building Society was limited to lending out in mortgages no more than they received in savings. The management of Building Societies began to change and governments encouraged the development of home ownership, the Retail Banks became more aggressive in the residential mortgage markets and the Building Societies looked on in envy. A Building Society’s capital came from the savings deposited by it’s members, but a Retail Bank was owned by shareholders and could borrow additional capital on the open market. Retail Banks had a seemingly unfair advantage and the answer was quite simple ……. Building Societies would become Retail Banks.
We all got our Halifax and Abbey National Shares, the names on the High Street began to change, our regional Building Society became a Retail Bank, the Retail Bank was then swallowed up by an International Retail Bank and the International Retail Bank bought a sexy little Investment Bank with a nice address in London EC3. These new megalithic Financial Institutions had cheap money thrown at them from every direction, annual profits rose and the decimal points moved to the right on the rocket scientists bonus cheques. House prices were rising. Regan, Clinton, Bush, Thatcher and Blair all encouraged the concept and reality of home ownership. New money flooded into the housing market, mortgages once only available to Mr Prime were now being made available to his less reliable half-brother, Mr Sub-Prime. The profit margins were good, Mr Sub-Prime was less worthy than his half-brother and therefore paid a higher rate of interest. He kept up his repayments, why wouldn’t he? His house was rising in value every year. If financially things became a little difficult for him then it wasn‘t really a major drama because a no-questions asked re-mortgage was never more than a mouse-click away. Everything in the financial garden was flourishing and everybody was much more financially aware than the generation before, ’Risk’ was no longer an important factor.
The Rocket Scientists at Investment Banks such as Lehman Brothers, had rediscovered the CDO, the Consolidated Debt Obligation. For the Retail Bank this was a way of reducing the risk involved with homeowners defaulting on their mortgage repayments and for the Investment Bank, often part of the same institution, it was just an amazing way to sell the same profitable product several times over. A CDO is basically a box-file, a container for documents, in this case those documents are Mortgages. Into that container, a bank will put a selection of it’s own mortgages, otherwise known as ’Debt Obligations’, and attach a value to the box, a selling price. Human and corporate nature being what it is, the Retail Bank will hide a few of it’s Mr Sub-Prime Mortgages in with it’s gold-plated Mr Prime versions, thus off-loading some of it‘s more dangerous loans. The Investment Bank buy’s a van full of boxes from various Retail Banks, shuffles the documents into larger boxes, attaches a new selling price to each new box and finds a willing buyer. It works well, each sale generates a small profit and each container can be rearranged and sold again and again. Each subsequent box becomes so big and so diverse in quality, that it becomes impossible to assess the true value of it’s contents. These boxes are on a merry-go-round, Banks are re-purchasing bad mortgages that they’d off-loaded weeks earlier, but now at a slightly inflated price. Finally, somebody asks the sixty-four billion dollar question - ’’why is this box full of crap?’’
The answer to that sixty-four billion dollar question is CDS, the Credit Default Swap. It’s not really an answer to the sensible question, it’s more of an escape mechanism that deems a meaningful answer unnecessary. The fact is that the there is no real ‘answer’, nobody can really understand what the hell is in each box. The boxes of mortgages are now so far removed from the original lenders that even the Bank’s Rocket Scientists can‘t calculate an accurate value for it‘s contents. The reaction of the Bankers is to bury their heads in the communal caviar, continue turning the profits on the CDO’s and to introduce an additional means of making new profits; the CDS.
It’s almost perfect. When the Bank sells CDO, a box of assorted mortgages, it now sells an insurance policy that sits happily alongside it, a Credit Default Swap. The Bank charges an additional premium for the CDS, and if the underlying mortgage asset turns sour, then they compensate the buyer accordingly. At the same time, when the Bank buys a box of assorted mortgages, it buys a Credit Default Swap as part of the same deal. The risk is spread again, everyone is protected and more profits are being made. Suddenly, the world’s largest insurance group AIG, pricks up it’s ears and wonders why it’s missing out on what they deem to be ’Insurance’ business. The Investment Banks are more than happy to let AIG in on the action. I can just imagine an AIG underwriter looking into a billion dollar box of assorted mortgages that’s passed twenty times through various institutions and wondering 'WTF?' Long story short, AIG seem to accept the ’Retail Price’ stamped on each box, they collect the premium for providing the CDS and announce record annual profits on the back of this entirely new business. By the end of 2007, the global trade in CDS’s exceeded $60,000,000,000,000.00, that’s sixty trillion dollars.
Historically, a Building Society could lend no more money than it held in savings. Their profit was limited by the amount of money that they had available to them. By the end of 2007, many Investment Banks were leveraged to a factor of forty. This means that they had borrowed amounts equal to around forty times their actual value, forty times more than they were worth. To put that into context, it’s equivalent to a person earning two thousand pounds a month taking on a mortgage of one million pounds, it’s financial suicide. Adding to this leverage problem, the loans taken on by these Banks were in nature, short-term, but these loans were used to purchase mortgages, which are long-term. The situation was beyond precarious, the entire worlds financial stability rested on the value of our houses.
Much of governmental economic thinking revolves around controlling the rate of inflation. The rate of inflation is determined indirectly by the supply of money, and the supply of money is determined in part by interest rates. As higher inflation became a possibility, Interest rates began to rise which meant that monthly loan and mortgage repayments increased. Added to this problem, many of the Mr Sub-Prime mortgages were falling from their ‘Introductory Discounted Rates’ and homeowners were confronted with a double whammy. The housing market slowed and homeowners began to default on their monthly repayments. Houses were repossessed, new buyers stopped entering the market and prices fell further. A vicious circle had begun. The Banks also had massively increased repayments on their own debts which added pressure to their already overstretched cash holdings. They were no longer able to loan money to other institutions, the financial squeeze was coming from all sides. Northern Rock were the first to break cover. The short-term loans that they’d used to provide long-term mortgages for their customers were not being renewed, they quickly ran out of money. Northern Rock approached the Bank of England and the first run on a British Bank in living memory began. To the public, the failure of Northern Rock was reported as a blip, the result of a flawed business model, an individual case of gross mismanagement. The rest is history; Fannie Mac & Freddie Mae, Bear Sterns, Bradford & Bingley. Lehman Brothers bankrupt, Lloyds saving HBoS and RBS falling into government hands.
The Banks got greedy and the greed was rewarded with the payment of stellar salaries and bonuses. Smoke and mirrors were used to disguise the true value of their business transactions. Profits and bonuses were annual calculations but the mortgages upon which those profits were based were not. Governments were happy with the application of soft-touch regulation for financial institutions while they spent the enormous tax income on popular vote winning projects. Nobody emerges from this global fiasco looking good, but some will emerge looking wealthy. Unfortunately, those are the same people who’s actions created this whole mess in the first place. Governments and Customers don’t design and sell complex financial instruments …. That’s all down to the Bankers.
After four days in Isaan, Bangkok slaps your face and steals any remnants of tranquility that you'd managed to find in the provinces. It's a different world, a different country, a different culture. We've fallen lucky. I've found a shiny new boutique hotel just off the Kao San Road that's batting well above it's introductory room rate. All the mod cons, three tourist stars and not one of them borrowed or faked. It's a short walk from the 'SleepWith Inn' to Wat Phra Kaeo (The Temple of the Emerald Buddha) and Phra Borom Maha Ratcha Wang (The Grand Palace), but as it's Hannah's first visit to Bangkok, that means taking a tuk-tuk. Tuk-tuks used to be the main means of transport for those who couldn't afford taxi's, but now they're strictly for the tourist and priced accordingly.
The roads are congested, busy even for Bangkok. Within minutes the reason becomes clear. We're surrounded by thousands of protesters. 'Red Shirts', supporters of ex-prime minister Thaksin Shinawatra. A man in exile, a man accused of massive corruption, of electoral fraud and of buying votes by giving away a million free cows to the farmers in the north. Tens of thousands of people form an ocean of red in Sanam Luang, a huge parade ground just to the north of the Grand Palace. Organisers use microphones to whip the crowds into a political frenzy. I have no idea what they're chanting but they seem more than enthusiastic about their cause. It's not intimidating, but it becomes quite claustrophobic as they spill out onto the streets. They stop the traffic and surround our tuk-tuk. It's good spirited, they pose for photographs and wave at Hannah who seems to take it all in her stride. There are no masks to cover their faces and the only visible weapons are banners and long strings of jasmine and orchids worn around their wrists and necks. Then without warning, everything stops, not a single person moves and a comfortable silence falls across the entire area. The sound of Thai music replaces the protesters chanting, the Thai national anthem begins to play. At 8am and 6pm every day, all outdoor spaces across the length and breadth of Thailand are filled with the sound of the national anthem. Everybody stops, everybody stands still and everybody listens. Thaksin Shinawatra might be popular here, but the King is in a whole different league.
We avoid the smiling touts who surround the main entrance from dawn till dusk. They inform unsuspecting tourists that the complex will be closed for two hours, two hours in which they'll escort them to various tourist shops, fashion boutiques and gem stores. In exchange for escorting tourists to these establishments, the tout will receive a healthy introducers fee before returning them to the always open Grand Palace. Nobody seems to stop it, many seem to fall for it and it's the one thing in Thailand that is guaranteed to test my saint-like patience. Thankfully today the touts didn't ask, probably because Tassaneeya was with us, but many other tourists seemed to be falling for their no doubt convincing charms.
Once inside the grounds of the Grand Palace, tranquility is restored. A hundred well armed Thai soldiers march past us at the double and block the entrance against the protesters. Good timing, one minute later and we too would have been denied access. Hannah and Tassaneeya are shocked, not by the demonstration or by the appearance of our well armed guards, but by the fact that they have to rent sarongs in order to cover their lower legs. As we'd left the hotel an hour earlier, the girls had laughed at me for wearing jeans on such a hot and humid day. But I'd known the 'Rules' and no matter what they're called here in Bangkok, I really don't do skirts of any description. Appropriately attired, we reach the turnstile and Hannah is shocked again, ''Foreigners 400 Baht, Thai's Free''. Discrimination she cries.
Dating back to the late eighteenth century, The Grand Palace complex with it's tall golden tower is probably Bangkok's most famous landmark. A complex of richly decorated palaces, rooms and temples that has developed and grown over the centuries. It's a rappers utopia, blingtastic in every sense. Everywhere that you look there is gold, gold and more gold. In the centre of the main temple stands the Emerald Buddha, a statue made entirely from Jade, hence the name, 'Emerald'. The Siamese once covered entirely in gold in order to make it appear worthless to invading forces. I've no idea if the Khmer or Burmese invaders ever reached this far south, but if they did, then the gold diversion had clearly worked because the Emerald Buddha is still here. Of all of the temples that I've visited here in SE Asia, this is my least favourite. It's undoubtedly beautiful but with each additional visit, I get an increasing sense of 'Disney Land'. I prefer the ancient ruins of Ayutthaya or the faded magnificence of Wat Po. But this is for Hannah and no visit to Bangkok is complete without a tour of Wat Pra Kaew and The Grand Palace.
After several hours of wandering, the girls return their temporary sarongs and we escape the tourists and pack sardine-like onto a water taxi along the Chao Phraya River. From the river, you see a side of Bangkok that's invisible from the street. The only open spaces are the perfectly manicured lawns of the luxurious hotels bordering the river; the Mandarin Oriental, the Shangri La. Between them and hidden behind high white walls, are shanty homes that cling to the banks supported by wooden stilts that sink down into the depths of the river. Rows and rows of clothes hang drying on makeshift washing lines and every ramshackle home represents a platform upon which another can be built. No planning permission, no permits, illegal living awaiting the inevitable fall of the developers axe.
We leave the still overcrowded commuter boat at Thaksin Bridge and take the BTS (Sky Train) to Nana Station. I love Thai food and will happily sit all day long at a street stall and eat until way beyond capacity. But this is a holiday and Hannah needs a reintroduction to menus and crockery. It's not the cheappest, but I take the girls to my favourite restaurant. It's unusual and the name sounds strange, but the food is quite possibly the best that I have ever tasted. 'Cabbages & Condoms' is located a few hundred metres along Sukhumvit Soi 12, but it's well worth the walk. The restaurant supports Thailand's Population and Community Development Association, a non-profit organisation founded by a former Thai Health Minister. It promotes safe and responsible sex in a fun, and I guess, practical way. All around the beautiful outdoor dining area, light shades, art work and statues are made from condoms and as the delicious meal comes to an end, instead of the usual after dinner mint, each diner receives a condom. It's difficult to explain this unusual place, you really have to go there, but for the food alone, it's well worth the journey. Hannah and Tassaneeya loved it. After the meal, production of a receipt at the adjoining clinic entitles the presenter to a free vasectomy .... an offer that I politely declined.www.justgiving.com/geoffgthomas