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Before Lehmans, there was Leeds Utd

WITHOUT getting too technical here, it seems that we have to reconsider our idea of what it means to be rich. For example, many of us would still have a very old-fashioned idea that rich people have loads of money. And that they made this money by building railroads or making whiskey or some such lucrative activity for which there was great demand.

But we are finally starting to put away such childish thoughts, and to realise that there is a different sort of rich person out there now. That at some point it must have occurred to various ambitious individuals that building railroads and making whiskey was just a bit too much trouble. A bit too time-consuming and stressful. All in all, just a bit too hard.

In Ireland and throughout the Western world we have discovered -- too late -- that many rich people actually have no money at all, as such, in the sense of money that they made themselves, from modest beginnings, producing something that other people want to buy. What they have is other people's money, which they persuaded some institution to give to them, and which some other institution -- say, a football club in which they "invest" -- will hopefully pay back, with interest. Maybe a lot of interest.

Again, without getting too technical on yo' ass, the "rich" person of today might borrow a few hundred million to buy Man Utd or Liverpool, from its owners. And then the football club, from its vast earnings, would pay back the money which the "rich" person had borrowed to buy it in the first place.

Ah, but there would be a law against that, wouldn't there? I mean, you couldn't just have a situation whereby any likely lad who could somehow persuade a bank to give him loads of money to buy a football club, could then have the club paying that debt, just for the privilege of having the likely lad as its owner?

I mean, without getting too Fr Dougal about it, that would just be mad, wouldn't it?

Well actually, mad and all as it is, we have been learning that this is a perfectly legitimate practice and there is a name for it -- the leverage business.

Yes, before anyone had heard of that bit of trouble at Lehman Brothers, the football community had been learning how the world worked.

And, long before anyone else, we were starting to realise that it didn't work very well.

It wasn't just the "leverage business", it was words like "securitisation".

The first time some of us heard the word "securitisation" was not when Bear Sterns went down, but when Leeds Utd was on the way up.

We would hear that word "securitisation" in the context of colossal borrowings which Leeds was making to buy the best young players of their generation, a policy which couldn't possibly go wrong as long as Leeds succeeded in reaching certain targets -- like, say, winning the European Cup 12 years in a row.

And when these projections didn't quite pan out, year on year, Leeds started to go down. Slowly at first, and then very fast. Just like the world would go down a few years later, due to other dream-like projections, such as the notion that an unemployed alcoholic male in Mississippi could pay back $12,000 a month to service the mortgage which he had been given in the spirit of optimism which prevailed at that time.

Leeds was the "Anglo" of football, for whom so many things needed to go right, not just the 12 European Cups -- even then, it would be relying on a bumper butter bean harvest in Georgia, so to speak. Leeds was the warning from history.

And yet there was still some amazement last week when it was reported that Man Utd is currently paying about 47 grand an hour to service its debt.

Forty seven grand an hour, eh? That's a lot of leverage there for a football club which, in the conventional old-fashioned sense, is actually making heaps of money.

According to the money men, Man Utd has announced plans for a bond scheme to be introduced in a bid to raise £500m to replace some of the existing debt. And, lapsing into layman's language if we may, did we mention that 47 grand an hour?

Meanwhile, football men have been wondering why they, and not these American bigshots, couldn't have bought Man Utd -- or Liverpool for that matter -- now that they realise that they didn't need to have any money as such, to do the deal.

It was probably just conditioning, on their part, that gave them the illusion that if they wanted to buy Liverpool for £350m, they would need to be rich to the tune of, say, 350 million quid, or something in that ballpark.

The fools, the fools.

Which is where we reach the kernel of the matter.

The people who succeed in these complex and apparently counter-intuitive transactions are not lacking in ability. You need a certain amount of talent, albeit of the entirely self-serving variety, to persuade someone to give you hundreds of millions of pounds. And to persuade the existing owners to sell you a venerable sporting institution, when those owners supposedly have the best interests of that institution at heart.

Lads in the pub might think they could do it, but it takes a special sort of man to go out there and talk the talk, and walk away with the wonga.

It takes a pretty unique skill-set to be able to tell Liverpool fans when their new stadium will be finished, but not when it will be started. Just think about that -- a finishing date but no starting date -- and then tell me whether the lads in the pub would be capable of putting on such a show.

It is now quite clear that such irrational exuberance in the financial services sector virtually destroyed the Western world. Destroying football will take just a little bit longer.

Sunday Independent