Client blow-ups and lawsuits over the years have taught banks a lot about selling complex products. Some take a two-step approach. First, the bank provides its customer with a ‘risk management tool’ or computer model. It allows the customer to fill the blank space of the future with some financial market data and call it a ‘prediction’. This may be tenuous, but it immediately anchors peoples’ beliefs.
Once the customer’s belief is anchored to something, the bankers devise a structured product that amounts to a bet on this prediction coming true. Rather than the bankers taking the risk of pitching a product whose suitability might be questioned, they merely respond to the customer’s wishes. The beauty is that the ‘tool’ convinces customers to sell the product to themselves.
I noticed this theme when studying the latest disclosures obtained from Newham council. In particular, we now have the full details of the council’s lender option borrower option (LOBO) portfolio, obtained during the summer by local Green party candidate Rachel Collinson.
My analysis appears in the interactive visualisation below, whose numbers reinforce the picture of Newham as one of the UK’s most financially challenged councils.