Tuesday 12 January 2016

David Bowie, securitisation pioneer

I wasn't going to remark on the early death of David Bowie - after all, his work belonged to the youth decade that followed mine - but a sidelight on his career penned by James Moore of the Indy intrigued me.

I may not have followed the music, but I watched and read the interviews. Bowie was clearly an articulate, thoughtful, liberal. He was also a decent screen actor, as his turn as Thomas Newton in Nicolas Roeg's film showed. What James Moore pointed out was that Bowie:

became an innovator in business when he sold the rights to royalties from his substantial back catalogue for an upfront payment of £35m in the 1990s. A bevy of artists followed suit by producing cover versions of the “Bowie bond”.

So did a bevy of bankers, who’d started to do the same sort of thing with sub-prime mortgages which, like back catalogues, are supposed to offer stable and relatively predictable earnings streams.

The performance of the Bowie bond ran into trouble thanks to an unexpected fall in sales of recorded music fuelled by illegal downloading. Bankers like to point out that they couldn’t have predicted the economic shocks that wrecked what they’d been securitising. But in contrast to Mr Bowie, who sold classics, they’d been punting junk that spread a disease throughout the financial system.

With sales of Bowie’s work set to take off, it’s not inconceivable that his heirs could repeat his trick. There have been signs that the music industry more generally has started to adapt to the impact of the internet that caused problems for his first bond. The bankers? You’d hope people would have learned not to trust them a second time around. You’d hope, because scientists will have discovered Life on Mars before that industry ch-ch-changes.



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