Tuesday, 10 November 2009

Investment Banking: It’s a bit like Lego

The other night at the pub I got a very interesting lesson in the art of Investment Banking. I thought I would share it with you.

Investment Banking is like Lego. In a Lego set you have 5 or 6 different colours and lots of different size blocks made out of those colours. Each of those colours represents a product and each different sized block within that colour represents… something else. I can’t remember what he said; I think Girls Aloud came on so I stopped to have a bit of a dance.

But anyway, so you have all these different blocks made out of different colors that can be rearranged into a magnitude of different things. But the fundamentals of all structures are the same… just constructed in different ways.

On Friday night, while nursing not one but two glasses of wine I found this analogy fascinating. So on Saturday morning after my trip to KFC I figured I would try and expand on what was explained to me. This is what I came up with.

The world economy is like a Lego village, you have the town part and the houses/suburb part. The economic down turn is when you’ve run out of blocks. All construction stops and all the Lego Men loose their jobs. Mum won’t buy you more blocks and feed a false village, so you have no choice but to evict your Lego men and make them all live together in a small one bedroom flat on the wrong side of the village. You use the blocks from their now empty houses to expand the town. This is called 'Repossession' and 'Public Sector Spending'.

Now all of this could have been avoided. The Lego village was working just dandy until the neighbour came over to the play. The motto to the story is quite a simple one. Don’t let your children, who are the master craftsman of such a complex system, play with kids called Gordon.

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