5 reasons why the F1 is like the US financial crisis

With one day to go to the first grand prix race that will run at night, one couldn’t help but see some similarities between F1 and the ongoing financial crisis.

Reason #1 – Everyone is just waiting to see a crash

Now you got to admit, while not wishing any injury on anybody, an F1 crash is spectacular, and if it happens live in front of you, and you got a picture of it, well, you’d be talking about it until next year.

Likewise, all eyes are now glued on the US financial market to see which bank will crash next. It’s exciting, but for all the wrong reasons. And if if you’ve got shares in the bank that collapses, well, you’d be talking about it until the next life.

Reason #2 – Both deal in complex instruments only a few understand

Only a few people know or care about how an F1 engine can rev up to over 19,000 revolutions per minute (rpm). Others just pretend to know a lot about the cars. The rest just show up to take pictures of grid girls.

Similarly, few know or even understand the financial derivatives that banks and financial companies hold which has caused the present crisis. Some of the folks running those banks didn’t even understand the financial instruments themselves. Celebrated American investor Warren Buffett read a 270-page report of a well-known investment bank and found 25 pages that he didn’t understand.

Reason #3 – Both burn through a lot of cash in a short span of time

From October 07 to September 08, the US financial markets lost USD4 trillion. That’s USD4,000,000,000,000. £100 billion was wiped off the London financial markets last week.

In the next three days at the Singapore Grand Prix, you will see what spending SGD150 million in three days looks like because that’s the cost of staging the race.

Reason #4 – Investment bank Lehman Brothers has a starring role in both

Lehman Brothers, a 158-year-old financial institution, collapsed last week in the largest bankruptcy in US history. That compounded a sense of panic that the US government is currently trying to stem.

The company is also one of the shareholders of F1. Lehman Brothers is believed to have lent another company, private equity group CVC, half of the USD2.3 billion debt which the latter used to buy its F1 stake. Lehman Brothers holds a 16.8% stake in the company that owns the commercial rights for F1 and they are the second-largest shareholder after CVC.

Reason #5 – Bankers party while taxpayers foot the bill

At the Singapore Grand Prix, there are 180 hospitality suites with space for 15,000 people and banks have bought a quarter of the suites. Standard Chartered Bank booked four suites, Citibank invited 1,000 clients and OCBC beat everyone else in the who-can-spend-more-money stakes by coughing out SGD2.1 million for 300 people when they booked the most expensive suite at SGD7,000 per head.

AIA is spending SGD300,000 on 50 clients this weekend despite the fact that its parent, American Insurance Group (AIG) destroyed USD180 billion in shareholder value last week and needed the US government bail them out with a USD85 billion loan. An AIA spokesman told a local newspaper: “We’re not having a party. There’s no party. We’re just hosting our clients during the F1 race.” We did not realise there was a difference between “partying” and “hosting”.

The Singapore government is footing 60% of the SGD150 million needed to host the race while the US government is now talking about a USD700 billion bailout package for the financial industry. The US Congress is now dragging their feet on the bailout because they don’t see why they should bail out the bankers, the same ones who enjoyed seven-figure bonuses on Wall Street and didn’t want any government oversight on their deals.

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