Time is money

The stock market has risen 3000 points on the DOW and 2000 on the FTSE. So why don’t I believe the experts when they say the recession is over and the recovery has started?

One simple phrase will suffice – “Time is money”.

When you’re making money time is on your side. The more time goes by the more you charge and the richer you get. But when you’re losing money time is a bitch. Time won’t wait for you or help you out.

And that is my problem with the ‘recovery’.

The policy we have had forced on us with no discussion and no dissent is to hide or subsidize all bad debts and losses for as long as it takes for the markets to ‘recover’ and raise prices, values and consumption back to bubble levels. Once that has happened then there will be no losses. And therefore nobody who was rich need fret about being required to become less so. God forbid. Let’s face it, the poor have had so much more practice. They’re good at it and used to it.

But to do this requires that losses and debts must be hidden, lied about, or transfered from private companies to nations. The logic of this is simply that nations can carry larger debts and have an inexhaustible supply of income called taxes. Those future taxes are what everyone wants to have a claim on. It used to be that looking after the old, our children and teh sick was what had a claim on future taxes. Now its the welfare of the banks and the wealthy.

So the financial class persuaded our leaders not to clear their bad debts, but to transfer them to you and me. The argument at the moment of crisis after Lehmans collapsed, was two fold. To force banks and others to take their losses would have bankrupted them and this, they argued, would have been the end of civilization. ‘Whose civilization’ no one was allowed to ask. No time for lesser people to be allowed to hold things up.

Second, they argued, that the loss of value would only be temporary. We just need full and unaccountable access to your wallet for a while. Not long. Just till we say its OK. Once ‘confidence’ returns and the markets ‘recover’ so the lost value will return. We’ll be rich again and we’ll repay you ‘over time’ – we hope.

This was the ‘its only liquidity’ and in no way insolvency’ plan. The word insolvency was not allowed. And those who used it were to be ignored or patronized.

And so what was needed was for some bad debts to be hidden off-balance sheet, others would be hidden by just claiming they had not lost any value by changing accounting rules (no more irksome mark to market), and by getting Central banks to buy or insure hundreds of billions of the most toxic and explosive debts and assets.

Those debts still left on the banks books would require cash flow and that would now come from the bail out cash also given to the banks. The same bail out cash that would also replace lost capital holdings.

Once the debtors had conveniently had their debts assumed by us poor slobs who hadn’t been given a chance to question the plan or decline the offer – then relived of their debts they could strut around again dispensing advice, and making profits which they could then share around among themselves – as a reward for being so clever and invaluable.

All of this has been done. And the free money has allowed banks to speculate and therefore make profits. It has also allowed the markets to rise on a tide of easy money, low rates and implicit guarantees that some losses will never be taken and profits assured because institutions are not going to be allowed to fail.

The problem is that the bad debts and the losses stemming from them are still with us. The losses are still coming. Option ARM’s start to default right about now and continue for year. Heloc’s and Second Liens will come up zero for the big banks. Commercial real estate will collapse hundred of regional US banks.

This will mean more bail out money and more ‘stimulus’. More easy money and low rates. No withdrawal of government guarantees. But at the same time the COST of government borrowing for all this largesse is itself becoming a problem. Borrowing costs are growing. Rating agencies and the Bond markets are getting restive about the scale of the National debts.

So far we have borrowed. Soon the payments for that borrowing will start to pile up.

On top of this economic squeeze there will be a political one. As people finally begin to realize the savagery of the cuts and poverty required to pay for all this spending on the banks it will become more difficult to keep spending. But this itself will be a massive opportunity for profit as banks and hedge funds can speculate on currencies and defaults.

WHat we have done is simple. We have chosen ( or rather they chose for us) to spend future taxes on banks and NOT on our children, our retirement or our health. All the money has been and will continue to be given to save the banks.

It is the ultimate failure of imagination and courage when we are convinced we must save ‘the system’ upon which we are convinced we depend, rather than simply save each other. E.M Forster wrote the parable back in 1904 in a short story called “The Machine Stops”.

I think the financial class’s plan to save themselves and their position will not, in the end, work. The debts will eventually cause something or some nation to fail and a chain reaction larger than the last, will begin.

WIll this happen next week? No. It will not happen before even more extreme bail-out measures are forced on us. Like losing poker players they will say – we have already gambled and spent so much – more simply have to see it through.