Do you remember an old music hall act where an entertainer spins a plate on the top of a tall, flexible pole, waggling the pole until the plate is spinning so fast it stays balanced? The act was to see how many plates he could keep spinning. The longer it went on the more hectic it became. The more poles and plates he added, the more perilously close to falling plates would get, before he realised and rushed to their rescue.
There was an entertaining inevitability about watching it all get out of control. A slight feeling of hysteria to watching the forest of deftly spun plates, gradually disintegrate into tipping and lurching chaos.
I have that same feeling now, watching our financial system and its ‘recovery’.
During the bubble years, we, in the West, created a dazzling forest of spinning debt. More and more plates, of epic weight and size, raised higher and higher on spindly poles, spinning faster and faster, packed ever tighter together. Then came the ‘crash’ and suddenly every plate began to slow.
What we should have done, is let the bad debts fall. Let those whose greed was exposed, suffer the consequences. Then clear the stage of shattered plates and start again with perhaps a little more sense and a little less rampant gluttony and greed.
But the wealthy would not hear of it. And our politicians who are their lick-spittle’s concurred. And so no effort, no cost, has been spared to keep every plate aloft.
The UK has spent nearly a trillion Pounds to keep the plates spinning. The US, Europe and Japan even more.
Their ‘plan’ has been and still is, as stupid as it is simple – deny that anything has lost value, and keep it all madly spinning until ‘confidence’ and the value such confidence inspires, returns and magically wipes away the losses as if they had never been.
But the longer it takes, the greater the likelihood of some plate not being spotted in time for it to be saved. The whole affair is unstable and getting more so not less. Only an idiot thinks that one plate spun-up is a sign that the wider problem has been solved. So what, if one financial indicator spins faster by 0.3%!
The point is, for our present policy to work, they must all be kept spinning. Not just stock values, but bank capital reserves. Not just Greek debt, but Irish, Latvian, Portuguese and Spanish debt as well. The Chinese must keep buying US debt. The US must sell more and more of it. The cost of that borrowing must not increase or that in turn, will push up the costs of US mortgage lending which would kill any hope of a housing recovery. Commercial real estate in the US must somehow not be allowed to crash. The 700 ‘distressed’ regional and smaller banks in the US, collectively crippled with bad commercial real estate debts, must not fail or must be bailed. Alt-A, Option ARM and HELOC loans must not cripple the bigger banks. The Chinese must somehow re-establish central control over their own banking and real estate bubble, before it blows. AIG must somehow NOT have to pay out on the $150B of European sovereign debt swaps it wrote. Any significant pay out would kill AIG or require another bail out, over and above the $180B it has already bled from the US tax payer, either of which would send AIG’s plate crashing to the ground
And the list goes on and on and on.
I have seen this act. I know that the longer it goes on the worse it gets. I know how it ends. You can never tell which plate will be the one to fall nor the moment. That’s what makes it fun. Only this time it isn’t fun it’s tragic.
Hi Golem,
Very good analogy! The one with spinning plates.
You are right when you say the instable ones should be left to crash, if I continue the analogy. But I fear the reason why our governments keep throwing our futures down the toilet just to keep those plates spinning isn't just merely because they'd do everything to defend the system as it was and as it served us all so well. Or at least so they thought.
No, I think they do the spinning thing because they are (conciously or unconciously) scared to death. Let's face it, there's no way to clean this mess in an orderly fashion. Even as it is, with all bail outs etc., I fear there's quite a good chance words like "martial law" become a part of our everyday vocabulary in not so distant future. I could speculate further where that would lead, if it were to become true, but perhaps I'm just being pessimistic…
Anyway, my point is that the ruling elites either suspect or maybe even downright know, that letting the instable plates fall wouldn't only negatively affect their usual ways, but would most probably wipe out our Western Civilization (big word, I know, but then again…). At least in a way we know it. And that would mean wiping them out as well.
So our Masters keep doing their gimmicks in desperate hope that by some mirracle they will in fact work, despite they know just as well one can't make a cake out of crap. But as in theory there is a chance greater than zero, that tomorrow the sun won't rise, there's also a greater than zero chance you will evade the Apocalypse if you do anything when you know doing nothing will bring it on for certain. They are doing the senible thing, right?
Well, as much as I fear we have not even seen the worst yet (and by that I mean not only financial and economic mayhem, but serious political crisis and ultimately physical violence as well!), I tend to agree with you, Golem. All these bailing out sorcery would have to be stopped at once! There would be bloodbath, but as I'm pretty sure the sun will rise tomorrow just as it has been rising for the past few billions of years, I'm also pretty sure the bloodbath will come anyway. So we might just as well deal with it sooner, rather than later…
…or maybe I just need a good night's sleep… 😉
Hi Golem, thought provoking as ever. I have followed your writings across from the Guardian website – which I use for the majority of my business and financial news. I'm by no means a financial commentator, just an interested onlooker. My 'gut' feeling is that what you forecast will happen, will indeed come to pass in some shape or form.
But what I do not understand therefore is where the renewed confidence in the stock market stems from. It's around 1,000 points higher that this time last year – so does that not suggest that the worst is over, confidence has returned and it's business as usual for all but a small minority?
How does your 'doom and gloom' theory – sorry but that's what it is, correlate with what is being presented as the end of recession, investment restarting and an overall rosier picture that 12 months ago?
DM – Thanks
oldgustav –
The market has gained 1000 points amid a return of confidence. Who is confident of what? I would say that 1000 point rise shows the confidence of those in the market that there are great oportunities for them to profit some more. Why would they think so? Well why wouldn't they? Look at their situation. They have been given over three trillion dollars by various governments to play with. The debts and losses they had made, have been taken from them at face value, given government guaranteed insurance to protect them and allowed to hide the rest in accounting rule changes.
The market shows that those speculating are confident they are going to make more money for themselves at lower risk than ever before. I'd be confident too.
But does nay of this rub off on us? Well no. We are left having to pay for all that free money. They are profiting but we borrowed and now – NOW – not when the market recovers but NOW – we have to start finding the money to repay what we borrowed. That means cuts. That's the deal. We give them money and we suffer the cuts.
The plan was that unfait though this is, it would all be all right because the 'recovery' would take hold before these new debtsa got too big or the pay-back too crippling. Only it hasn't and the banks have said quite clearly it won't any time soon.
The losses are still coming and there is another wave of them to come. What they call a policy for recovery I call the construction of a vice which is now tightening.
This is not a sufficient response to your questoin. So if you don't mind I'd like to think about it carefully and offer a better more considered thought in a day or so.
Thanks Golem, I look forward to that!
Correction – 2,000 point gain since March 2009 🙂
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7424849/JPMorgan-Citigroup-helped-trigger-Lehman-collapse-report-argues.html