NEW MILLIONAIRES - HOW ARE THEY MAKING THEIR MONEY Documentary

fortunes are being accumulated in the UK on a scale we haven't seen for a hundred years we've been told that the way the super-rich create wealth makes all of us well a bit better off but does it this time around they've used new and different financial techniques to enrich themselves and right now they're the big winners and we seem to be the losers I'm going to tell you how the new super rich are making their fortunes and why we're picking up the bill in a global greed game in the past few years the City of London financial services have contributed a third of all our economic growth London is the capital of capital London for the international community was a beautiful city a lot of people are living in London that they might find interesting to meet stop the restaurants has got the flags it's got the bars it's got the decent hotels that were nice houses it's safe its secure there's a lot going for it 50 billionaires called Britain home not since the 19th century had there been such opportunities for so many to make quite so much money at least 30,000 Brits now and more than half a million pounds a year in 2006 4200 - the executives took a bonus of a million or more and among hedge funds alone a hundred and fifty people have been earning more than 20 million pounds a year the only other period we have seen similar accumulation was during the Industrial Revolution in the Victorian age when the whole raft of Victorian industrialists made massive fortunes very quickly but even that was over a period of 40 or 50 years this has been in the last ten years when you're coming here with several billion pounds you travel around in armored limo was guarded by people who look after you the idea of the congestion charge is wonderful to you because it clears the roads of the riffraff you can get out to a private airfield quickly to get on your get to go and see far-flung operations as part of your empire and they created ghettos of fabulously expensive property this house in North London recently sold for 50 million pounds the new owner will be spending probably and arrived to 30 million pounds creating what will probably be the most desirable house in the world and just outside London is this brand-new 26 bedroom mansion it's on the market now for over 70 million pounds but it's the running cost of over a million a year that means only proper billionaires need bother to view it even so the developer knows the Allen burka tried his best with me so this is a private swimming pool is it simply for the owner of the house yes of course the owner of the house wants to allow people to use it the ensuite swimming pool why would you want five pools you because you got five cool certainly needs five balls you genuinely need to like swimming on this bathroom area is about 800 square feet putting it into perspective is about the size of the average two-bedroom flat in London that's just your towels that feel rather disappointing I haven't got one of those kitchens one of these in my home so have all these people become super rich in such a short time I like the fast it's not been about finding new resources or exploiting new technology the arts are lies in how they've funded with money itself and they were helped to become wealthy beyond anyone's wildest dreams by a sharp fall in the cost of money for them and all of us engineered by the US Federal Reserve it sets interest rates for America and in a way for the world a clear September day the American economy was already faltering after the bursting of the dot-com bubble and then the world's most powerful central banker Alan Greenspan feared the terrorist outrage would further undermine the confidence of businesses and consumers so he kept interest rates unusually low American interest rates were tonight cuts by 1/2 of 1% the federal reserve base rate now stands at just one of the quarter percent the lowest for 41 years after the bursting of the dot-com bubble and 9/11 Greenspan slashed rates to just 1% and the supply of credit soared because the great exporting nations such as Japan China and those of the Middle East were generating vast surfaces and lent much of their cash to us in the West finance is global so it became cheap to borrow money anywhere for private individuals and especially for business it's tycoons and financial institutions they went on the most frenetic borrowing spree the world has seen with so much money sloshing around the price of assets from paintings to houses to entire companies soared so people borrowed more against the inflated value of their assets the valuation of property the valuation of shares art jewelry etc was soaring and the central banks on the whole said this is not our business we don't manage assets we only manage price inflation with markets rising borrowing vast sums for investment was the route to magnificent fortunes it's what Bank is call using leverage leverage is simply borrowing to invest you are not investing your own money are you investing part of your own money but you borrow to invest more so that's simply that's leverage is borrowing to invest when we borrow for a mortgage we're leveraging as simple as that the power of leverage to multiply profits is a common experience for millions of us to borrow to buy a house if you put down a 10,000 pound deposit when buying a hundred thousand pound home and borrow the other 90 thousand pounds and that house then rises in value say a hundred and ten thousand pounds well your ten thousand pounds doubles 20 thousand pounds you make a hundred percent profit that's the magic of using the bank's money to finance most of the purchase and in a rising market the more you borrow the greater your profits the level of debt that became available for deals became very very high and what was really uncomfortable was that not only was it a high level of debt but every passing month you could get more and more debt with debt so chief deal makers were borrowing mind-boggling amounts to invest in financial markets in property and in commodities or to buy entire companies banks were willing to lend and multiples that they've never known before the past five six years have been unprecedented in terms of cheap debt quite frankly and have we better to benefit from that absolutely you know I would rather be lucky than clever every time so we'll take every bit of luck that's going our way at the Tom Hunter Britain was a pretty good place to be because since 1997 labour has tried to make the United Kingdom a land fit for the new super-rich well I think first of all you've got you've got to thank your lucky stars if you are an economy which has the vibrant and successful industries to a disproportionate degree because you know that is generating wealth that you can do something with so it's better have the wealth generated that you can do something with and not have the wealth generated at all there was a time however when our prime minister was explicitly hostile to the idea that tax rules should favor the super-rich and a Labour treasure it will not submit text release to millionaires in offshore havens we will end a situation where millionaires can pay no tax but in government Gordon Brown changed his mind labour feared that the super rich would flee Britain if they had to pay the same rate of taxes the rest of us and if enabling them to stay mental idling in the gap between the super-rich and the rest of us well Gordon Brown believed that was a price worth paying for the benefits that might accrue we want the best people in the world to come here because this has been off and the clusters and the multiplier effect of them building businesses within our country is phenomenal and why not have the best no doubt right here we've had the extreme case there are people in my industry who have literally lived in the country more than 40 years and claim to be non domiciled and pay very little tax now that seems to me both politically and he indeed at some danger the word morally fairly repugnant even some of the super-rich began to question whether it's fair that they should be taxed at lower rates than their servants there's lots of things about my industry I don't like quite frankly but I think that broadly speaking and I'm speaking personally now about for my industry the concept of hedge fund managers pay a lower tax rate on earned income then you know maids to clean their office I think it's just palpably absurd by the start of the 21st century these two factors the power of leverage and low taxes for enterprise gave birth to a new set of business superpowers among them are the private equity firms who borrow huge sums of money to buy Oh companies private equity has demonstrated that if you go into situations in the company's sector with clarity of purpose strong drive determination eye redness to pay people incentives to do the difficult things you can make big returns and again you make big returns particularly when there's lots of cheap money around the place and the fact that they're their success was over amplified and magnified by the macroeconomic environment they were operating in which made them very lucky and suspect mates or the rest of us rather jealous some of Britain's best-known businesses have been taken over and sold on by private equity for billions in profits they include the AAA saga home base and Travelodge the technique used by private equity of buying companies with borrowed money is also employed by philip green he owns much of the British high street Topshop Burton Wallace top man BHS that's a nice nice piece of real estate isn't it we actually own that there's probably worth in excess of 200 million so Philip and his family pocketed a 1.2 billion pound dividend in 2005 the equivalent of the pay of 54,000 British workers on average earnings and there was no tax to pay on it here because it was received by his tax exile wife lady green we had an extraordinary period of economic growth and confidence this is the the critical factor sentiment confidence was very high the Masters of the Universe seemed to be getting it right they had been producing extraordinary high profits great returns from their private equity fund it hasn't just been private-equity making billions out of borrowed money hedge funds it becomes the largest dealers and shares and securities across the globe they make their money by betting on price variations however small between what they can define how much they can sell for and they to use borrowed money and leverage to generate spectacular profit practically will take control of the company hedge funds will trade a company it's a very different they'll trade the shares of a company so it is a very different beast and how much do you have in the management and we've got about ten billion dollars hedge funds are enormously powerful now in the financial system there's a lot of them and they manage a great deal of money they're not regulated by Marx there are usually enough short jurisdictions where they are not regulated I would say that the top three trading institutions in the US Treasury market which is the largest securities market the world are in fact hedge funds they're not banks the only serious risk for a hedge fund is that if it consistently loses money the backers will take their funds back you can lose money you're allowed to make a mistake once but if it's a bad one you're you're gone I mean it's a very fragile I mean you're there is high return in that industry yes but you could also very quickly lose the appetite for risk that clans having you or the interest of clouds so now it's very very severe very you nothing is taken for granted because you are the ultimate risk taker and you here manage how much money now now we have around 4.2 billion dollars using funds from wealthy investors and huge amounts of borrowed cash colossal fortunes have been accumulated by hedge fund managers in 2006 an estimated ten of them earned more than five hundred million dollars each and five are thought to have trousers more than nine hundred million dollars in that single year they included George Soros a consistent winner who famously made a killing when he sold the pound on a colossal scale and helped a force turning out of the European Exchange Rate Mechanism in 1992 the average person did not get much benefit from the boom the super boom in the last 20 years the it's really the people like me who have really the enormous amounts of money we'll know it's me at the pearly gate the spirit of an age can be captured in its art so perhaps this is the symbol of all that debt-fueled financial excess Damien Hirst's for the love of God the glittering death's-head encrusted with 8601 diamonds is said to have been sold to an investment consortium for 50 million pounds but the details of its sale are shrouded in secrecy as are so many of the transactions of the new super-rich what's its intrinsic value there's quite an argument about that who actually owns it no one seems quite sure in many ways the glitter and the ambiguity seems to capture perfectly the spirit of this age of easy money one reason why so much cash was pouring into the pockets of the stars of the new financial industries was the pay structure they devised they wrote the rules of the Greek game so they couldn't lose though it turned out that most of us could the money-making skills of private equity and hedge fund stars were considered so rare and precious they were able to charge their backers astonishing fees these new breed of fund managers were performing extremely well for their class so if you gave them a billion pounds and if they turned it into 2 billion pounds that's a billion pound profit they'd take 20% of that as a success fee the tradition had been to take half of a cent a year of the back as money from managing it but private equity and hedge funds charge much more a basic fee of 2% a year on all funds under management plus 20% of all profits this was jackpot capitalism so long as that remuneration structure persists so it's an asymmetric Becket's of one-way bet if it makes a great deal of money then he gets his 20% plus of it and if you lose money wasn't it and I think once you've got that and that leads to earnings in some cases of literally hundreds of millions of dollars in the hands of individuals they're unlikely to change if you've got a deal that you did for a billion so for a billion in half made half a billion you've got a 20% carried interest on that 100 billion you'd probably have taken 30 or 40 million out of it in fees the reason private equity charge is what are considered to be high levels of fees is they're relatively few people in the private equity world and the relatively few new entrants into that world it's quite a rare combination of skills and the results the financial results that the industry is able to deliver to its investors means that the investors are continuing to pay those fees not only were the rewards massive but the bet was one way using borrowed money meant taking 20% of the gains but leaving all the losses for the original investor and what began to motivate many wasn't pretty do you think greed got the better of some people in that period well I don't know it was greed I think it might have been enthusiasm and I think in every cycle it always works the same people who are doing something keep doing more and more of it they lose a little of their grounding in terms of the amount of risk that they're taking because the rewards on offer from hedge funds and private equity firms were so huge the big bank saw much of that talent the fact to them so the banks too had to offer they're more financially creative employees the opportunity to pocket around 20 percent of the games individual bankers now have the opportunity to play the green game with their organization's money it's particularly inspiring when you get back to this central point that the the main things which have driven people's ability to earn that remuneration not every single case but the majority of cases have been two things a bull market and access to the bank's capital there's not their own money they're risking minimum do you think in the last two or three years that a fairly mediocre middle-ranking trader or investment banker and one of the bigger houses would have expected to take home you're probably talking about a million dollar bonus in those circumstances how high does it go and there isn't any limit and as the greed game intensified other professionals joined in they were eager to facilitate the deals which would reward them rather than ask for quick questions about all that debt that was being heaped on the system everybody else joined in the investment banks through selling companies the accountants who were increasingly doing less and less work to make deals happen quicker and easier the lawyers who are finding their ways through difficulties by pretending they weren't that everybody contributed it was a big bubble and people made a lot of money out of doing as many deals and as big a deal as quickly as they could if you were a Wall Street investment banker making three million dollars a year you are on top of the world you are the master of the universe suddenly that banker making three million dollars is looking at the hedge fund guy who he used to work with making three billion dollars or maybe 1 billion dollars a year so it's created this big class warfare and envy between what I call the haves and have mores many of the have moles feel a visceral desire to prove their superiority over them their haves so that's quite an industry catering to their needs for those little extras meet Charlie who provides what they want however eccentric the people typically use you for stuff they want for themselves or as a present oh it varies one of the members for his ill son asked for one of the punished ship footballers to play the dis son in his back garden there's a price on it which is plain either side of a good back what do you think it's eight and a half thousand I want to throw on my BBC salary more than affordable we now have some rings no yes they have their own submarines made you can speak to someone which is definitely unique and different I think I probably follow myself a bit one of our members called last week asking what for a jet fighter garden like that why I don't know why we don't ask we just say of course I don't we have to come up with more and more extraordinary experiences whether it be living with our tribe in the Sahara for six weeks to challenge yourself in your mental state through to you know climbing climbing Everest we have a Valentine's Day extreme event where you can have supper with your wife or husband on an iceberg up in the Arctic to walk onto boats that are and boats probably isn't a great description of in vessels that are larger than most homes that I've been into there are 200 feet long that can only go into limited ports because only so many ports can handle them but to walk into staterooms that frankly you would think you were in the Palace of Versailles or Buckingham Palace or the White House it is pretty amazing and every time I walk onto one of these these boats and have the opportunity to tour them it continues to take my breath away with such a boom in full swing by 2006 it looked like nothing could stand in the way of the players in the Greek game and yet the very methods they used to make all that money contain floors that would topple them derail the world's biggest economy and cause mayhem for the banks on which we all depend no interest rates didn't just make it cheap to borrow they gave little incentive to save and this had significant consequences for the banks which needed to raise money to meet the inexhaustible appetite for loans the first thing is that we had a significant decline in savings rates so the deposits fell the banks could not necessarily provide all the funding for the products they they they got demand for simply from deposits so they had to look for other forms of funding and one of the forms of funding was to repackage some of the assets they have sell them onto the market get cash for that because they are transferring the assets away and in this way they have now more cash and they can start lending again so in America Wall Street banks started by selling good-quality loans to raise money and then looked at what else could be sold but there was this machine in that Wall Street created which was really remarkable and they kept on pressing this technology to the point where they said well prime mortgages were work how about we expand this technology to include less creditworthy homebuyers and with there's no documentation law green-light financial services gives you the choice individuals often those with the worst of credit histories were given the opportunity to borrow to own that cherished home they were known as subprime borrowers and there were truly frantic attempts to lend to them the ads would be you know literally you know just released from prison never had a job can't document that you you know or even a citizen please come down we would like to make a mortgage for you in Cleveland Ohio the mortgage brokers wouldn't let any opportunity to earn a commission slip away they came out to my job it was a snowy day and I was told if I wanted the house I had to sign been there on the spot so I just signed hurriedly I was looking for a place for my children and myself and it was like either you sign or you don't have a home so I just signed the mortgage brokers which supplied subprime loans to the likes of Eleanor Hall didn't keep those loans on their books the capital for those loans came from banks on Wall Street and after the loans had been made they were sold by the banks at a profit to investors who might be thousands of miles away in Europe or Asia the new model says I make the loan I packaged it up I sell it on to somebody else it's gone as quickly as possible and there is no ongoing or continuing involvement or relationship or responsibility on behalf of the lending bank every time a mortgage was given the broker took a commission every time those mortgage loans were sold on by the banks that extended the credit the banks booked a profit and because the banks have sold the risk of that loan going bad to someone else there was little proper incentive to impose proper checks that the borrowers really had the means to repay their debts subprime you go from four times income to eight times income you go from checking the incomes to not checking the income from doing proper valuations to using Google Earth and postcodes to value houses which was done so everything was driven far too far there was a torrent of cash for subprime loans thanks to a banking breakthrough called structured finance which turned risky loans into supposedly safe investments this is how it works here are three risky subprime borrowers and over here are three investors who buy investments created from their origins one investor loves risk one likes a bit of risk and another hates taking risks and wouldn't normally lend to a subprime borrower now here's the great innovation known as structured finance which persuades the low-risk investor who controlled billions to lend to US subprime borrowers I don't have a bank up well let's pretend and I'll mix these three mortgage loans together and create three new investment opportunities to mr. no risk the pension fund manager I promise that he'll get first dibs on what ever cash is received from these three borrowers and the con is getting first dibs on the cash he thinks the money he's investing or lending is as safe as can be mr. medium-risk the investment banker I promise that he'll get the second bite and a lover of risk who runs a hedge fund she'll get whatever is left over in the unlikely event all my borrowers pay on time the three investors all do very nicely if one borough against its difficulties what we sort of assumed that would happen my investors are still pretty happy but if none of them pay then they're all facing losses and are pretty upset especially mr. Noah many hundreds of billions of dollars of low-quality subprime loans were transformed in this way into investments that were labeled as good quality and they were sold to investors all over the world there was a worldwide phenomenon this risk really was taken out of foster out of Massachusetts and really spread almost atomized like a fine mist around the world and what was the motivation for selling quite so much debt basically greed that's quite frankly but by repackaging them into these more exotic vehicles we could then yet again front-load the fees and I can't stress it how important it is the self-interest being moved forward in this process the market was booming so if we go back to 2006 you probably be talking 1.7 1.8 trillion of market volume not only my bank but many banks talking about the overall market that's a significant amount so everything is positive bullish there's fire going on so the overall market gets into a frenzy most of the world's big bags from Citigroup and Merrill Lynch in the u.s. to our own Royal Bank of Scotland and Barclays were stampeding to make profits by turning risky subprime loans into supposedly high-quality investments a situation where a guy who's organizing bank debt could take home a bonus quite literally 40 times his salary does bias behavior the guys wanted to do deals everybody has to get on board or they'll be left behind they couldn't refuse to play because if they did they wouldn't have been bankers the banks would have lost clients and so on the markets can't help they have to go to excesses of of euphoria and despair but the quality of the investments was not what the bankers thought it was because more of the borrowers defaulted than they expected guys ready let's look you're gonna start to get this eviction on a roll here Sheriff's Office when I started working about 12 evictions a week now we're getting 90 just go to show you that neighbors are you know going through the same sort of problems within weeks of each other literally subprime borrowers have been lured into taking on their mortgages by special load teaser rates would neither borrower nor lender worrying enough about what would happen when the low rates came to an end and when rates rose well for many default was inevitable at the end of her introductory offer Erina halls monthly payments went up by a painful 75 percent I was under the impression that I had a fixed rate of 625 a month I had no idea that I had a variable rate that would escalate every three to six months so my mortgage went from six hundred and twenty-five dollars a month to a thousand ninety-eight dollars a month you could borrow a hundred percent of the debt without any questions asked and with a teaser rate that would that really caught - sucked in the very word three teaser rate gives the game away the essence of good banking for millennia that the lender is supposed to check whether the borrower can actually repay had been lost when I grew up and I looked at banking and I was in banking indeed what used to happen was you went to see a bank manager to borrow money and he lent you the money and made sure that you paid it back or try to make sure you paid back as soon as you divorce those two things you're in trouble in the stampede to do deals banking common sense had been abandoned but for years the danger was ignored because all those dodgy loans had been converted into investments that had a triple-a rating which in the past had always meant that they were ultra safe when something is rated in the financial community triple-a the assumption of everyone is that it just can't go wrong in all of my years in finance which is now getting pretty close to 40 years I've never seen a triple a default triple A's don't default triple A's are like Exxon and Royal Dutch Shell there are very few triple A's and and they do not default but just how impartial were the agencies that awarded these triple-a ratings after all they were paid by the banks which wanted to sell the investments as triple-a none of us would hide the fact that we are paid by the issuers of the bonds that does create a potential conflict of interest what we would point out though is that we have a number of ways of managing that conflict to ensure the integrity of the work that we do but when giving the triple-a rating the agencies didn't actually go back to the subprime borrowers and check that they'd be able to repay their loans we do not do underline your diligence we do rely on information that's given to us the investor community was aware of that or should have been aware of that this is popping fire eventually the simplest and oldest financial logic would reassert itself the thing people forget about borrowing money is you gotta pay it back if that's the golden rule the aliens with my father's apron and somebody the bank was gonna come and see could I have my money back and then you see it or well it's in this house which isn't quite valued what I paid for it and therefore I need to sell it and therefore you know at all unhinges the bankers and rating agencies have been too clever for their own good they base their triple-a ratings on historical data they looked at how many subprime loans had gone bad when the market was tiny and used that information to calculate how many would default as the market grew and grew and grew it turned out to be a catastrophic error the red light was November oh six more than a year ago when what you call the first pay default a very important figure I people who have borrowed and at the first payment six months after boring are not paying the first interest that's pretty significant first play default historically was one and a half percent one to two percent in a matter of a month that figure jumped to five six percent that was a clear sign when you have people not paying that we should be worried default rates were bound to rise a subprime loans shot up from being one in every 13 US mortgages in 2001 to one in every four by 2006 I receive this notice - beginning of September it was plastered to my door it was bad enough it broke me down but I had to do everything to keep my children in control because I really didn't want them to know what was actually being done and in a hole like thousands of others can't pay that has been made homeless I don't ever see myself owning another home I just don't see it I don't trust I'm always looking over my shoulder people like thought had my best interests it was only out for a dollar here's what really shocked the bankers subprime loans were going bad faster than any other kind of load in a wholly unprecedented way in the past decades it was always the case that the general population would default on everything else in order to keep their houses or credit cards they fought on it learned to buy their fridge that default on their collards and then finally they would default on their mortgage they're keeping their credit card currents and the defaulting on their mortgage first this has never been seen before when the scale of losses from subprime loans could no longer be ignored the holders of all those triple-a investments made out of subprime loans had a horrible awakening in August 2007 a big French bank BNP paribas sparked a global financial panic when in announce that it couldn't value its holdings of investments created from subprime loans when BNP came out with that you know this was a little was saying he was trying to go home the children the party's over now thanks became reluctant to lend to each other because they weren't sure which of them were holding the subprime poison and whether they would ever get their money back the multi trillion-dollar money markets that underpin the global economy seized up the speed at which it happened the way in which institutions financial institutions just you know withdrew from the market because they were worried I think that was unprecedented and it surprised politicians who surprised regulators and certainly surprised the banks so once you're in that vicious circle lack of confidence that lack of trust like a you know you don't know who's holding the problem everybody then like lemmings run for cover once people got scared they started being less happy to lend to each other they start being less happy to to work with each other and again that that in itself led to all sorts of other other other activities specifically securities going down in price was that was that fear rational it's the over rational I don't know but the original I'll give you try as a yes the fact that people did not know the full exposure to the subprime area or or the city or whatever yes of course if you don't know something being fearful is rational once the river of money stopped flowing with banks and financial institutions loath to lend to each other there was a very high profile casualty in Britain one of Britain's biggest mortgage lenders needs emergency support from the Bank of England Northern Rock has problems raising money because of the crisis in the financial markets yeah absolutely clear there's no suggestion that this business is fundamentally bust but merely running out of money in this way for a bank is extraordinarily serious the company was very successful because it was taking a tremendous amount of risk Northern Rock went to the brink of insolvency because its business was dependent on raising money by selling its mortgages to international investors and when investors were burned by losses on subprime they refused to buy any mortgages northern rocks or anyone else's they were actually possessed enough capital to survive approximately a one-week shutdown in the capital markets that was all banks across the world in Germany France Switzerland and the US have lost tens of billions of dollars and have had to be bailed out by governments or by investors with deep pockets the Swiss bank UBS says it suffered much bigger losses than anticipated because of its exposure to the subprime mortgage market in the United States today Barclays said it had written off 1.6 billion pounds of risky investments related to u.s. mortgages global credit crisis has deepened with America's fifth largest investment bank our scene for emergency funding Bear Stearns which has been hit by the US housing market slump has been bailed out by another Bank and the Federal Reserve some of the bank is responsible for the financial losses or losing their jobs bonuses of investment bankers are going to fall drastically now that you're discovering that a lot of the banks investment banks are taking billions of dollars worth of write offs and these people are getting kicked out unceremoniously out of their jobs as for those companies bought by private equity well if they took on too much debt they'll experience difficulties which would be bad news for their investors and employees there are some clear examples of loans which are looking dreadful now some of the leveraged buyouts done fat-faced the retail of countrywide their state agent the loans on those companies are being dealt with regularly now at discounts of a quarter or more to their face value so clearly there are some bad loans out there but many of the super-rich who help create this unsustainable boom are sitting pretty there are a lot of people who have made enormous amounts of money created great mayhem and I'm afraid they're not going to get hurt greatly by what's happening now there is I understand at the moment for example quite a shortage of high-end hotel rooms in the Caribbean Mauritius and similar places and because these people have got nothing to do at the moment with lots of money having trousered so much the super-rich apparently have a problem many of us would love very top then people are very liquid I've made a lot of money in the last 10 years in fact probably find it quite difficult to spend the money they've earned and and that's why companies like us I think it's very successful because we help them spend their money frankly for companies that are producing such limited quantities of these very exclusive products they can't manufacture them quickly enough there's a new rolls-royce the drop head coupe that was launched last year if you were to walk into your rolls-royce dealer today if you were lucky you would maybe get one in two years they continue to indulge in their passions and I don't see that changing anytime soon a demand for the most expensive motoring experience on earth doesn't seem to have evaporated the car is not only the most expensive and fastest car on the planet but it's also one of the most usable cars the customer who pays 1.1 million euros plus tax gets a car which is really second to none the British have been the best European market and they still are the best European market they are only the second to the us our best dealership in the world a single dealership in the world is Jack Berkeley in London so for the super-luxe industry price cutting isn't on the agenda the 1 million dollar watch cannot be affected by know Christ that's the extreme the extreme is safe at the 1 billion they will always always always be demand for what dollar what that is for sure and if you want to build a new WordPress and you want to go safe start with 1 million your first price then you are saying the reason the super-rich can feel safe is that the Gamble's they've taken with other people's money have been so huge that the authorities have to bail them out or else the damage to the rest of us could be crippling these people who operate in the financial markets they're smart they know that they are too big to fail they know that the authorities will ride to their rescue and so everywhere along the line there are one-way bets and this means that you are incentivized to take big risks you're greedy the bigger the risk you take the bigger the profit for yourself and if things go badly oops not our problem your problem you pick up the mess it's a mess they've landed all of us in the losses incurred by banks hedge funds insurers and other financial businesses which could reach three trillion dollars have reduced their willingness to lend to any of us and badly damaged the global financial system it's as though the mechanism for injecting fuel into the economy has broken down and when that happens we all suffer I think it's a mistake for people to think these events don't apply to them and that you know they don't only need subprime mortgages or collateralized debt obligations or even equities so what does it matter to them and it affects us all and the the credit creation process is at the heart of everything in our economy and without that you cannot get normal functioning and I think the the damage that's been done to that is valid and it's persistent so when you talk about the average home owner and worker in the in its impact on them they probably will find that their mortgage cost more and whatever the absolute level of interest rates if they're unlucky they may find that their jobs affected by this as well I think there are some some very severe rule world effects on people's ability to to borrow banks less money to lend to us and they're charging more for what they will lend that's leading to falls in house and property prices which makes us feel poorer and it risks creating ambitious downward spiral as we spend less and the economy slows down just to translate that into what it means for ordinary people if people are borrowing less saving more that will translate into slow growth does it does it translate into a serious recession in your view I don't expect the worldwide recession I do expect the recession in the United States the severity of which cannot be predicted as a result of recent budget changes the British tax system may no longer be quite so favorable to the new super-rich as it was but what about the widening income and wealth gap between the super-rich and the rest of us it's more the way that wealth accumulated if wealth accumulated out of people growing companies successfully generally good it's hard to come up with a real negative on that if on the other hand it's some guy who's made all of his money out of making two or three huge financial bets then the social implications are much wider because there's bets will go wrong as well as right and when they go wrong there'll be a lot of victims other than the guy so there's a social and political issue there so the guy who's made a hundred million out of being the promoter of overloaded structures that's a political issue he's caused a lot of damage and he's got very rich I think it an economy which is characterized by extremes of wealth is not a secure and safe economy any more than one economy versus another economy extremes of wealth and income give rise I think to very serious moral risks that might not matter if we could be confident that lessens it be learn from the crisis but what we see is that America's central bank the Federal Reserve is once again slashing interest rates and pumping cash into the system now start the whole poisonous process you have a boom bust process similar to many that we have had in the last decades but it's also the end of a super boom that has lasted since the end of the Second World War from time to time the markers don't correct themselves you have a crisis and then the authorities have to intervene and inject liquidity and bail out the failing institutions and that is an system of asymmetric incentives where you are encouraged to leverage but if things really go wrong there is relief if those in charge of the system can't be relied upon to change their ways what chance that those who play the greed game might actually man bears they've been incentivized to take dangerous risks with other people's money in the hunt for big profits and last rewards those incentives been eliminated no no really I think that if you set up a basic remuneration structure where people get paid 20 percent of the gains from playing with other people's money I'm not quite sure what possible event could occur to make them learn anything from it you really just need to change the structure that's the only thing that will get their attention and who's gonna change that structure there's only really one group of people who ever came can change any structure like that and I think that's the owners right this is a matter of so long as people are willing to be shareholders in banks where traders are allowed to play with the bank's capital and walk off with twenty to twenty or thirty percent of the gains on it and none of the losses and where people to win to invest in private equity and hedge funds that allow the same thing to occur people occur if you're a hedge fund or a private equity firm there are fantastic opportunities to profit from the turmoil a number of hedge funds have already made billions than betting that all those subprime investments were overvalued and some have done very nicely from speculating the share prices of our leading banks would tumble as the private equity when a recession would be just the most glorious time to buy businesses that knocked down prices is this actually a period of tremendous opportunity for a firm like yes it's it's really it's it's gonna be a great opportunity the real golden age comes when you have a mess you have economies that are on their back you know capital inadequate and and when you start buying businesses at that part in the cycle you inevitably do extremely well unless you're too early and and right now it's a little bit too early but but as you wait and this develops it'll be a great time to be buying businesses so there are still plenty of opportunities for the new super-rich to increase their fortunes even though the global financial system is in intensive care and our prosperity is threatened with the greed game still being played if we're not going to end up the losers again the rules will need to be rewritten

Channel: TradingCoachUK

Views: 775,050

Keywords: Wall street, fx, forex, stocks, commodities, gold, oil, trader, warren buffet, anton kreil, mark zuckerberg, steve jobs, investment, market, analysis, documentry, music, movies, minecraft, learn to trade, billionaire, millionaire, trading, secrets, how to make money, education, investing, bloomberg, news, forbes, Rich, Top 10, life hack, top 50, Donald trump, richest, trillionaire, billionaire boys club, documentary, rich list, super rich, fast money, crypto, supercars, new, 2020, documentries, luxury

Id: eBa8qB5B92Q

Length: 57min 48sec (3468 seconds)

Published: Sat Nov 01 2014