KEY POINTS:
I don't look like a financial journalist. I have deduced this because people always gapingly ask me, "How did you end up in business journalism?" as if somehow they can tell by looking at me that I gave up maths after fifth form. Or maybe my op shop frocks and Doc Marten brogues give me away. Anyway, the question is the cue for my standard explanation that I don't have an accountancy degree but business is about human drama and you should be able to explain complex concepts in simple terms anyone can understand. It sounds good, but I'm sorry to say, it's bollocks. Because these days business often isn't about entrepreneurial ideas or flogging more widgets than your competitor.
Increasingly, it's about financial engineering so complex that even a forensic accountant is useless. Sometimes it's not the boffin's fault - when companies like Hanover Group don't release consolidated accounts it is impossible even for brainiacs to get the full picture. At least in Hanover's case, you could tell it was a finance company - albeit raising money for oddities like the proprietors' superyacht. But nothing is plain vanilla anymore. In a radio discussion about the demise of the property company - or was it a financial services company - Blue Chip, apartment specialist Martin Dunn was happy to admit he didn't understand the company's business model. He's not the only one. Even now, no one seems to be able to explain it - least of all the duh-brained investors.
Expect more of this scenario as clever clogs financial products spread.
As they say on Facebook: "It's complicated." When I started in journalism, getting one's head around put and call options and the whole idea of futures trading was considered the height of financial chic. But that was a doddle compared with some of the more wacky derivative products around now - collateralised debt obligations (CDOs) were only the start.
These days, every investment product has an angle. You used to be able to rely on commodities being fairly straightforward - was the price of sugar or coffee going to go up or down? But analysts warn that commodities - including sugar, grains, metals, oil and gas - have been swept up in a fevered surge of investment in futures contracts, regardless of the real demand from daily users. Wheat has risen 112 per cent in four months, thanks to the excitement over biofuels.
Not that there is anything wrong with that. Innovation is what drives markets, but it's not so good for us. In this small country, we are a bunch of financial yokels without the nous to sort out the audaciously original idea which is so new it is hard to understand, from the usual smoke and mirrors used to obscure a financial position. It doesn't help that we're still easily impressed by anything complicated. It's the sucker's inferiority complex: "If I don't understand something it must be clever." No wonder punters found it so hard to assess risk. Financial sophistication might come easily if you're working on Wall Street or in the City and dealing day-in, day-out with rarefied nuances of risk. Then again, Citigroup's Chuck Prince and Merrill Lynch's Stan O'Neal weren't so flash at it. Maybe they dropped maths after fifth form too.
* deborah@coneandco.com
