Issue: December 08/February 09


A real Yorker

David Bullard

Bullard... out to reminisce

The institutions in northern England have bowled themselves out. DAVID BULLARD reflects on how they, and so many others, have suffered because the ways of yore were abandoned.

About 30 years ago, when I was a youngster in the new-business division of an elite London banking organisation, I drove up the A1 to solicit business from two building societies. One was the Bradford & Bingley; the other was the giant Halifax building society. Both were headquartered in the unfashionable north of England. Halifax was the more aggressive, having spread its deposit-taking tentacles to below the Watford Gap (the traditional dividing line of north and south in class-ridden Britain).

My aim was to persuade the dour Yorkshiremen, who managed the finances of these institutions, to lend us some money on the security of British government Treasury Bills. We could better the interest rate they were receiving from their local Yorkshire Bank branch and still make a profit.

The meeting was cordial. But I was young and they were old, so they reminded me of their reason for existence. “It’s very simple, see Mr Bullard,” they intoned in patronising Yorkshire accents. “We take deposits from them what has money to spare and we lend it to them what wants to buy houses to live in. The bit between the deposit and the lending is our profit. The system has worked well for 120 years. If we were to invest in all sorts of fancy things we don’t understand, we soon wouldn’t have any money to lend.”

Despite my protestations that you couldn’t get much safer than the security of a Treasury Bill, I didn’t get any business because they preferred to stick with what they knew and trusted. Pity the organisations’ more recent management didn’t continue with that philosophy.

Instead, we’ve arrived at the sort of global banking crisis currently experienced. It’s rather like the financial equivalent of 9/11 with sub-prime planes crashing into the egotistical edifices of our great financial institutions.

It’s all very well blaming the Americans for lending to hillbillies and then packaging the debt and selling it to greedy suckers on Wall Street. That’s only part of the story. The fact is that the wheels eventually had to come off because we’ve all been stupid.

As an investor as opposed to a borrower, I should have smelt a rat long ago. I’ve even written articles saying that lending to people who can’t possibly repay is a recipe for disaster, but did I do anything? Did I, hell! I fell for the same greed-is-good smoke-and-mirrors claptrap that we all fell for. After many years in the financial markets, you assume that central banks will come up with a plan. Now we know they haven’t a clue and have been just as bamboozled by all the terminology and rating-agency puffery as the rest of us.

We must still get our heads around the problem of a nation already trillions of dollars in debt even being in a position to inject $700bn to bail out its banking system. The wise men of Bradford & Bingley and the Halifax building societies had a good point all those years ago. Once you start “investing” in things you don’t really understand and are chasing higher returns, the rot sets in.

Several years ago, when trading derivatives in SA, I couldn’t believe how much money could be made (particularly in a volatile market) from dealing in something that was merely a leveraged version of a government stock. Always suspicious that such instant wealth creation couldn’t last, I creamed off as much as possible, paid off my debts, invested the rest and became that rarest of things, a financially independent newspaper columnist.

Sure enough, the boom days of the bond options market came to an abrupt end when volatilities hit the roof in the late 1990s and local banks couldn’t honour their deals. If I was bright enough to see that then, you can bet that the super-remunerated Wall Street investment bankers were too. They knew it would all end in tears one day.

Why else would they have demanded (and got) $300m bonuses? Not so lucky are the millions of people around the world who will lose their houses and their livelihoods because the banks have become terrified to extend credit. As they say in the movie industry, this one will run and run.

David Bullard writes for a variety of publications. His iconic ‘Out to Lunch’ column can now be found on