Causes of the credit crunch: if you’re going to try to blame David Bowie, you really should also blame fifteenth century knights

David Bowie: the case for the prosecution

The idea that the credit crunch can in part be blamed on David Bowie is the, um…, slightly unusual thought thrown in the air by Evan Davis ahead of the broadcast of his TV documentary on the City. As Evan Davis put it in The Mirror:

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 10 years from my back catalogue, but I’d rather have the cash now and not have to wait”.

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 good 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.

David Bowie: the case for the defence

Paul Walter makes the point very clearly and firmly that the reference to “back in 1997” really misses the point, because securatisation was commonly used before then, as his quote from Rolling Stone magazine demonstrates:

We asked a friend of ours who works in real estate — and knows a lot more about these economic matters than we do — and he insists that “securitization” was taking place on Wall Street way before David Bowie masterminded his supposed scheme to cause a worldwide recession.

David Bowie: a case for the historians

But hey, why restrict your search for the origins of securitisation to Wall Street? That, after all, restricts your historical roaming to the seventeenth century at the earliest (what with Wall Street not existing before then). But don’t be so timid! Clutch your chronograph dear reader and roam free further back in time with me to the fifteenth century.

Come back with me to a time when notions of chivalric behaviour were reinforced by the knowledge that if the victor didn’t kill the vanquished, they could instead ransom them off and make a nice little pot of money to round off their victory. Such ransoms were often shared out amongst different people who had fought on the same side. You did not have to have personally taken someone prisoner to be able to share in the spoils; think sporting teams sharing the winning bonus amongst their members.

Of course, payment was not always quickly forthcoming so there was often the situation that someone was being held ransom, exact value of ransom somewhat uncertain but almost certainly greater than zero and date of payment not fixed. It could take a long time before any ransom payments appeared, and the ransom might not be paid off all in one go.

And what if someone who was due such a ransom slice needed some money sooner? Why, they often sold on their rights to the share of the ransom to someone else. Modern financial systems – meet the fifteenth century and its ransom financial markets which turned the promises of some sort of payment at some sort of time in the future into items that could be bought and sold here and now.

Some things don’t really change. Though sewage systems and personal hygiene have generally improved since then. And eating chocolate has been invented.

By the way, trading financial instruments in this way may predate the fifteenth century. It’s just my knowledge of medieval finance (gosh, that does make it sound grand doesn’t it?) doesn’t extend to the fourteenth century.

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  • David Wright 14th Jan '09 - 11:50pm

    Didn’t the Romans do something similar? They didn’t have double-entry bookkeeping, but they were pretty canny financially in other ways. Then there were the Babylonians – how did they fund that Ziggurat 🙂

  • “What have the Romans ever done for us?”

    Apart from the sanitation, public order, securitisation, central heating, moneychangers in the temple, irrigation, wise words of Pestonius and Cabulious, national A road system ….

  • Babylemonade 15th Jan '09 - 4:45pm

    Rubbish. Clearly The Daily Mirror knows little to nothing about securitisation. The concept of mortgage-backed securitisation dates from the 1970s and the Bowie Bonds were not issued until 1997. Although Bowie may have been a visionary in the artistic sense, he certainly did not spark the trend in complex risk transfer/repackaging (securitisation). The boom in securtisation occurred as a result of the advent of credit derivatives and FED de-regulation ; to even suggest that Bowie started it all is ridiculous and discredits Davies’ tabloid-level authority on economic/financial matters. In fact, securitisation of music/film revenues never really took off and is limited to a small handful of deals.

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