It has been another bad bubble for Chris Gent, the well-known businessman who used to run the world's biggest mobile phone company, Vodafone. In 1999, at the height of the last investment mania—the so-called telecom, media and technology boom—Gent did what was in corporate terms the equivalent of buying a Semper Augustus tulip bulb in the late autumn of 1636. Under his direction, Vodafone paid £112bn for a German mobile phone company, Mannesmann. Despite doubling in size and becoming—in the modern parlance—too big to fail, Vodafone's share price has never recovered from this act of largesse. Even now the whole company is worth only £57bn: roughly half what it offered for Mannesmann.
One might have thought that after this, Gent would have steered clear of any business with a bubbly feel the next time there was a screaming investment boom. But in 2003, just as the housing mania was getting underway, he joined the board of Lehman Brothers, one of the prime movers in the business of peddling mortgage-backed securities. Unfortunately, Lehman was—as was discovered in September—not too big to fail, although its collapse did result in one of the biggest and messiest bankruptcies ever, one which almost brought down whole the global financial system.
As students of bubbles know, investment manias only tend to occur once a decade (hopefully after recent events, it will take a little longer for the next one to come along). By 2018 Gent will, hopefully for him, have retired.
Sage loses his onions
The saving grace for Buffett is that the options don't pay out until 2019, leaving time for markets to recover (although it's worth noting that the Japanese stock market is still 76 per cent below its 1989 peak). In the meantime these financial WMDs are smouldering like sticks of TNT in the balance sheet of Berkshire Hathaway, Buffett's quoted investment vehicle, whose shares are owned by thousands of hard-working Americans. Was it perhaps with this in mind that Buffett recently declared he was "buying American," while urging his fellow citizens to go out and buy shares?
The curse of crunch?
It is hard not to feel a shiver of schadenfreude at the news that Lewis Ranieri has become one of the latest victims of the credit crunch. Back in the 1980s, the American investment banker virtually single-handedly created the mortgage backed security—the financial instrument that made possible the whole sub prime debacle. Now Franklin Bank Corp, the Texas bank he subsequently founded, has been closed by regulators after running up huge real-estate losses.
It is as if the inventor of the atom bomb, having failed to retreat the approved distance before detonation, had been vaporised by his own invention. As Oscar Wilde said, it would take a heart of stone not to laugh.
Ranieri's antics in his days as an investment banker at Salomon Brothers were described by Michael Lewis in his book, Liar's Poker. He rose from the mail room to become a "big swinging dick" on the bond trading desk. A large man with a healthy appetite, Ranieri would send out for takeaway food from a local joint and then his team would indulge in what was known as a "feeding frenzy." The gorging bond traders would try to outdo one another with their gluttony. It was de rigueur to buy more food than you could possibly eat—for instance purchasing five-gallon tubs of guacamole with your Mexican food. This was greed incarnate. Ranieri was also blessed with a robust ethical constitution. Lewis quotes a colleague who says of him: "He didn't let morality get in the way. Well, morality's not the right word but you know what I mean."
Yet although these qualities seemed to fit Ranieri ideally for the murky world of subprime finance, his bank largely steered clear of this area. Indeed, Ranieri was a sceptic, fearing sub-prime debt to be a breeding ground for fraud and shoddy lending practices. The bank just screwed up in the old humdrum way, making duff commercial loans to housebuilders in California, Florida and Michigan. So for all that brilliant salesmanship, just a run-of-the-mill banker after all.
