BISTRO

 Hi All, 

People often talk about 'toxic assets' and in popular thought it makes you think that these assets are some kind of radioactive jelly than one shouldn't touch for fear of being killed in a painful way. To some in the press a toxic asset is something that no-one can put a value on and is therefore worthless, but in fact this is only partly true, A more accurate definition of a toxic asset is an asset in which the seller cannot agree the price that a buyer is willing to purchase that asset. An asset might have a face value of 100 units of currency, but in the market place where things are bought and sold, the price could go up or down, but if this asset was suddenly being  offered  for half or a quarter of a unit (thus there is still some 'value' being attached to it) what seller would be willing to let that asset go at such a loss? This is exactly what happens to toxic assets: those wanting to sell the assets don't want to do so at the price a buyer is offering, thus the market place breaks down and it really becomes impossible to put a fair value onto the asset. 

This was the case in 2115 with  derivatives- an asset backed by an underlying asset-  traditionally used in day to day and short term trading, either as hedges or as nothing other than bets, one or two whizz kids at investment banks decided that derivatives could be deployed and sold long term. Thus the BISTRO ( Bankers Indexed Security Treasuries Offering) was born. Simply put BISTROS were bonds, with the underlying value being a jumble of different assets: everything from mortgages, stocks, shares, government bonds, local government securities, personal, commercial, corporate loans etc etc, the fee/interest/coupon being the interest rate charged on this mixed bag of assets, some of which were purely synthetic.  There was one BISTRO offered at $30 billion  (the latest price of a Picasso), with the interest being 1.4% plus the percentage increase for whatever the next Picasso sold for, if the price didn't go up, neither did the interest rate.  The Falklands has a population of 13,000, yet there were a dozen BISTROs which were based upon 10 million Falkland Mortgages, the cost of the BISTRO based upon the average house price and the interest being determined by the average local rate and the average annual increase in local house prices plus 1%: but the BISTRO would also automatically follow the average rate of default, repossession and falls in prices.  The BISTROs also evolved into ever bigger products, first the BISTRO book, then the BISTRO bible (in the sense of a collection of books) , followed by the BISTRO Library (containing millions of BISTROs, thousands of books and hundreds of bibles). 

The BISTRO was meant to reduce risk, by spreading out and balancing it around the galactic system. What they did do was the opposite, because traditionally banks- who take money and lend it out -  were the deciders of who got credit and because this would actually effect a bank's profit and loss, were actually cautious about who got this credit and would be hands on for those who did get credit. With BISTRO, all a bank had to do was make a loan and convert it into a BISTRO and then it didn't matter to the bank as they were now off the hook for things like defaults and non-payments, so anyone could get credit, even up to the so-called 'NINJAS' (no income, job, assets or securities ). 

This worked all right, up to the time when it didn't. As these loans became bad and houses were  foreclosed, it did of course have an impact on the real economy and therefore these BISTROs which had become so complex and large, that to value them properly would take more time than anyone thought they had. Even the best BISTROs would have losses attached to them and because they'd been spread all over the interstellar financial system and because they were 'over the counter', rather than traded on a public exchange, no-one really knew who held what and how good or bad these BISTROs were. The result was a 'credit crunch' were banks and other financial institutions refused to lend to each other: if left unchecked this would lead to banks not only refusing to lend to good companies and borrowers, but for them to call in existing loans, thus forcing businesses and people to cut their own lines of credit and spending, resulting in a depression. 

At this point the central or reserve bank of Earth, The Bank of Earth, took on its role as lender of last resort, pumping in trillions of Earth Dollars into the financial system, in an attempt to kick start interbank lending. Chairman Jerome Sven, a mild mannered Swede, was on the space phones, trying to cajole his counterparts in the 4 other institutions that mattered to help out and within 24 hours the National Bank of Albion, The GECO Central Bank and Her Imperial Majesty's Treasury of the Byzantine Empire had flooded the system with trillions of bricks of Gold encased Liquidium and collectively issued a statement to their own banks to 'continue to lend'. 

This brief rally was halted by the actions of a different Earth body - inter agency turf wars being part of Earth politics -the Earth Insurance Reserve Fund, whose job was to place insolvent banks into administration and to pay out deposit insurance. This works well with local banks who had  a minimal interstellar presence, the Fund takes over 3,000 banks a year in good times, thanks to the fragmented Earth banking system, where there are millions of banks. However the EIRF unilaterally took over Bank Alba, a massive Interstellar Scottish Bank....