HOW'S THE WEATHER IN ZUG

"Securitisation, which started out as a clever way of financing mortgages, became a clever way of financing bankers. And when I say bankers, I do mean bankers, and not banks. Because when America's impoverished homeowners defaulted on their mortgages, they were not the only ones to suffer: so did the banks which took hits on the resulting losses (and there usually are some, even when the risk is supposed to have been offset or sold on).

Ultimately it is the shareholder who feels the pain, unless things get really bad, in which case, as we discovered, it is the taxpayer. If Greece ends up defaulting on its debt – a far from a remote possibility – the same pattern will repeat itself. But guess who definitely won't be hit? The bankers who sold these gizmos in the first place. They cashed in some time ago.

Here is how the system works. MyBank sells the Republic of Greater Fools – or maybe DumbCorp – an ingenious derivative product, carefully tailored to suit its needs, for a fee of, say, £2 million. MyBank books that sum as profit. I, Tracy the Trader, am the heroine of the hour for having persuaded my clients to cough up all that money. Naturally, I convince my boss that I deserve half the profit as part of my bonus; and I intimate that if I don't get it, I will flounce off to AnotherBank, taking my lovely clients with me.

I get my way. Unfortunately, when the economy falters a few years later, not only do the Republic and DumbCorp both default, but MyBank suffers a painful hit. With my usual foresight, I have already fled the UK's punitively high tax rates and am working for a hedge fund in Zug (OK, life isn't perfect)."

Read the rest here.