The adventure of the money store: Part 2, markets
[Continued from yesterday’s in Part 1.]
Mycroft Holmes
The man who stood before us, beaming with hostly bonhomie, seemed at first glance to be his brother’s very antithesis. Where Holmes was narrow, he was wide, even portly. Where Holmes was indifferent to his dress, adopting a proper black on nearly all occasions, Mycroft wore an immaculate pearl-grey suit and waistcoat from one pocket of which hung the gold chain of a watch that I was confident could fetch several hundred pounds.
A moment later the tall and portly form of Mycroft Holmes was ushered into the room. Heavily built and massive, there was a suggestion of uncouth physical inertia in the figure, but above this unwieldy frame there was perched a head so masterful in its brow, so alert in its steel-gray, deep-set eyes, so firm in its lips, and so subtle in its play of expression, that after the first glance one forgot the gross body and remembered only the dominant mind.
– Arthur Conan Doyle, The Bruce-Partington Plans
Sherlock, Watson, and Mycroft Holmes
“Has Carlton Adams been enlightening you?”
“Admirably. May I present Dr. Watson?”
“Your servant, sir. Sherlock, what brings you here? And Carlton Adams has brought you only a short way to my lair.”
“He has been most helpful. My friend Dr. Watson is seeking understanding of the financial markets.”
“Well, then,” Mycroft said with a stride, “let us ascend, that we may better view the entire complex.”
“Now,” he continued when we four were squeezed into the little cage and with a lurching whirr it was ascending. Sherlock has undoubtedly shown you the gilt — everyone likes the flash, even the thieves! —
“I saw what I expected to see. The knees of his trousers.” — The Red-Headed League
— and the retail bank, with its line of tellers, each in his grille? I thought as much. Well, as we ascend, we pass by higher floors, and they, to my mind, are the real bank. There are the mutual funds — large pooled investments in equities — and equity brokers. Then we reach the level of structured finance. Our friend Ferdinand de Lesseps, for instance, who built the
Without banks, no
“Where did he raise his capital? He came here. Or for that matter the East India Company, the world’s most successful flotation, the commercial vanguard of our empire. Created here, supported here, financed here.”
“Why all these floors, each higher than the other?”
“Each,” said Mycroft with a rumbling chuckle, is a bit more sophisticated, a bit more able to assess risk. A bit better paid. And whom do you think ascends to these upper floors?”
“Those who cannot be accommodated below.”
“Precisely so,” replied Mycroft. “If our commercial lenders believe a venture has some value, but is too risky for a standard loan, they may discreetly press a buzzer and summon one of our investment bankers. Like Colonel Smithers here, temporarily on leave from another author’s works.”
From Goldfinger, to be precise
“An investment banker like Smithers has both authority and ability to structure customized debt and equity investments. Only in large sums. Only to clients who pass our more extensive screening and proper due diligence. Smithers seldom descends to the ground floor.”
“How does he then secure customers?”
“They come to the money markets — banks such as ours — and are referred upward. And if we are unwilling to take the loan, they try Lloyd’s, or Baring’s, or any of a half-dozen other banks in the City.”
Brought down in 1995 by a single rogue trader
“Just like Billingsgate,” I said in appreciation.
“Very like, although I daresay the fishmongers are more honest — and perhaps more intelligent as well!”
“All the capital providers, and all the capital consumers, in one place.”
“You can get anything you want”
“This whole edifice, all its floors and all of our competitors, one vast interconnected financial ecosystem that sifts risk down until it meets willing capital, and sifts yield up until it meets a hungry consumer. Rising and falling, risk and benefit, just as we rise and fall in this iron contraption. Adding a dimension to capital raising,” Mycroft finished. “And allow me to show you my own private sanctum,” he added, wheezing up a short flight of stairs. “The rarefied space,” he added with a slight gasp, “where I think grand thoughts.”
We blinked in the light. “The roof?”
The City of
“The place of no structure. Just above my plush office. Below, in my high wing chair, before my vast mahogany desk or at my burnished round conference table, there I exercise prudent judgment and shrewd credit assessments. But up here, with none other than myself and the pigeons, here I like to think of businesses and financial products that never were, and ask, Why not? “Here” — he handed me a glass — “what does this glass contain?”
I sipped. “Water and ice.”
He twinkled. “Two things? Or one?”
“Yes, each is just a form of the other.”
“So it is with debt and equity. Each is a form of the other. And in between? Slush, sleet, frost — all are intermediate forms, partly ice, partly water.”
Choose from Column A or Column B in each row
“Up here,” Mycroft said with satisfaction, “here I play with the two forms, inventing slush and sorbets — thank you, Carlton Adams — and crystalline concoctions, each to taste.”
He put his wide hands to the railing and looked out, breathing deeply despite the thick mists that now obscured, now revealed the view.
“The center of the world,” Mycroft said as if to himself. “Why, when a man is tired of the financial markets he is tired of life, for it is here that man demonstrates what he values, in all its diversity.”
“Sir, the financial pages are endlessly fascinating.”
“Money,” said Mycroft lovingly. “The measure of men. Ever since its invention, all that we have, someone trades for money, somewhere within a mile of this spot — within my very line of sight. Barter replaced by commerce, bluster by calculation. Future earnings swapped for present cash. Everything that people value comes here, comes together in this vast edifice, this money store we call the City of London and the Americans call Wall Street. And a very good thing too,” he murmured. “A very good thing it is indeed.”
