This Bleeding City - An investment bankers views on why capitalism is bad for the health

http://www.carlyle.com/Team/item9820.html


Alex Preston works for The Carlyle Group, the world’s second largest Private Equity firm, as the Head of Trading for cash and derivative products within Global Leveraged Finance. With the Houses of Parliament and London Eye as a backdrop, he sits alongside Oliver James (author of the bestselling Affluenza), about to read a passage from his new novel This Bleeding City.

Private Equity were the guys before the bust, passing around Companies like hot potatoes, each time selling them on for a higher multiple of their earnings (PE Ratio) than they paid for them. No one wanted to be left actually owning the business as by the end, before the crash, they were paying too much for the business and with too much debt ("leverage"). When the profits disappeared after the crash the companies couldn't generate enough income for Private Equity to pay the interest on the debt it had incurred to buy it in the first place, ending up being worth less than had been paid for them.

"My phone was ringing somewhere in a pocket.

‘Hello? Yes? What!’

I had got the job. It was the CEO of Silverbirch, an institution I had heard about even at Edinburgh. Sharp and violent moneymakers who were paid bonuses that read like telephone numbers. The CEO said that he had liked my anarchic approach to the markets. Thought I would be a useful contrary voice on the team of analysts."

Alex Preston trades securities (bits of paper) based on the debt Private Equity racked up buying these companies. Imagine his market is maybe 300 companies, each with €50million - €2bn worth of debt in its name. Like bonds, but this market calls them Loans. Why? Because they have certain properties: mainly they are secured lending, i.e if a company goes bust, they sell all the stuff and you get paid back first because your loan has security over the company. Bonds might get paid back next, but there will most likely be nothing left, maybe 10% of the face value of the bond (I.O.U note) if you're lucky.

Debt was both the shaky foundation of the previous period of global growth and the cause of its collapse. As we venture further into debt (not to mention being confronted by peak oil and global warming), it appears that while not yet recovered from the panic and horror of the last crisis we should be readying ourselves for the next.


Preston’s novel is meant to exemplify this condition. A heart-wrenching tale about the damage wrought by unbridled desire, it has overtones of Deerhunter, charting the lives of starcrossed lovers excitedly emerging from student life in Edinburgh, bound for the city. Just as humankind is destined to have its heart broken, the financial world is geared up to be a boom and bust economy.

"…fluttering southward in our evening dress, champagne spilling from plastic cups as we landed.

In the headlong rush towards experience, we blasted ourselves away from our youth, towards a future of wrinkled disappointment. But no one stopped to tell us that we should be sucking it all in, searing the images onto our memories, baking the emotions into our hearts. Because soon it would be all that we had."

Thankfully for Preston, both his personal and professional life is fully intact. Instead of being spat out onto the cold streets holding the contents of his desk, he tells us that the result of the crash was that things became ‘deathly boring’ at work. The upshot was that it allowed him time to write this book. When a point about the womanizing traits of his main protagonist is raised, he is quick to emphasize that the novel is a work of fiction and fiction alone. We are meant to suspend our disbelief about his own status as an exemplar of city success, ourselves learning a lesson on how we will learn nothing from ‘dehumanizing bankers’ from the flowery words on the pages.

It would be unfair to argue that a writer has to be intrinsically and autobiographically linked to his work – certainly not. It’s a great skill and sign of a greater author to be able to write about issues outside one’s frame of experience. But being presented with a novel specifically about a culture that results in crises such as these, in the knowledge that its author managed to become a key player, was a little hard to chew.

Oliver James’ Affluenza thesis argues that whether rich or poor, aspirations for prosperity often end up relative to one’s circumstances. I’d like to believe that perhaps the reason he was so happy to join Preston in marketing the book was that entire project seems to be a fitting example of this phenomenon. It might even explain how Preston has somehow convinced himself – as somebody who continues to prosper from debt – we would want to listen to his musings on what will be left at the end.