The Global Financial Crisis - a bedtime story
If your asset portfolio is splattered with the blood of the financial turmoil of recent years and you’re feeling slightly befuddled by it all, we here at the Daily Maverick, will now attempt to make sense of the madness for you. A financial crisis bedtime story, narrated by STYLI CHARALAMBOUS.
To make some sort of sense of this complex mess littered with jargon and financial terms, we’ll make use of simple analogies and a little story-telling prose. Forgive us if we make a mockery of complex financial issues and concepts, but that hasn’t exactly stopped far more influential people doing the same thing.
Imagine for a second the main protagonist of our story is a wholesome all American kid we’ll simply call Johnny. Johnny was born in 1941 to parents who had suffered greatly in the times before little Johnny came along. Johnny’s parents knew of hardship and suffering for they had been very sickly in years gone by, struck down by the dual ailments of a wartime economy and a Great Depression. These diseases had nearly ended both Johnny’s parents, had it not been for the saving grace of some foul-tasting medicine and strict nursing by Johnny’s respective grandparents.
So to make sure Johnny never got as sick as his parents, they insisted little Johnny take his daily vitamins and eat a healthy balanced diet. For 40 years Johnny ate his bowl of high fibre regulation and his vitamins of accountability. During this time Johnny grew big and strong with nothing more than a sniffle or slight cold along the way. Johnny’s parents were proud to have raised such a strong and healthy son.
But after such a long time of clean and healthy living, Johnny had a mid-life crisis. The lure of the dark side had been too much for Johnny to resist any longer. For years he had shied away from the temptation of a gluttonous existence being peddled by the Gordon Geckos of the world. Not having the opportunity to rebel in his teenage years and being coerced into a boring diet of straight-line business and strict regulation all his life, Johnny quickly forgot the tales of woe and despair his parents had endured in the years before his birth.
The 1980s were a decade of decadence for Johnny, who smoked cigarettes and consumed alcohol like it was an Olympic event. Johnny first started drinking and smoking at parties held by his friends down at the Savings & Loans offices. These parties started out as once-a-month affairs and soon became weekly until eventually Johnny was getting high on the thrill of deregulation almost every night. Anything went, and if Facebook had been around in those days, Johnny most certainly would have been reprimanded for the kind of behaviour he was displaying. And because Johnny was such a fit and healthy man with no-one around to scold his errant ways, it took almost 10 years for his wayward living to catch up with him. Once Johnny’s liver failed, he knew it was time to admit he had a problem and checked himself in for rehab. Many of his friends at Savings & Loans weren’t so lucky, ending up in state penitentiaries across the US of A.
Johnny spent much of the 90s in rehab, regaining his strength and the willpower to say no to vices that could get him in trouble for disorderly public conduct or sick with the cancer of greed. For the most of it, Johnny steered clear of friends that could lead him astray and was back to his healthy ways of old. The Internet had been born and Johnny was having fun exploring this new way of meeting people and sharing information. They were certainly exciting times and once again, all seemed right with the world. Of all his friends and family born around the same time, Johnny was by far the biggest and tallest (and with a better paying job too). His cousin, Roger in London would always look up to Johnny and never put up a fight, even when Johnny bossed him around on annual family get-togethers. Together they picked on other less fortunate kids, because Johnny said so. But that’s another bedtime story.
The fallout of the Savings & Loans era meant the bad guys had been rapped over the knuckles, but, as with all good Hollywood villains, they never die. Instead, they melt down into oozing liquid metal and become merchant bankers (with a “b”). Reincarnated, their thirst for wealth at all costs, was greater than ever before. So they began hatching a plan to take advantage of poor, gullible Johnny. After so many were scammed in the dot.com crash of early 2000, they still managed to convince Johnny to try a hallucinogenic they had concocted, called the Ninja Mushroom.
Little did Johnny know that Ninja was an acronym for “No Income, No Job or Assets” and that millions across the world were being fed these poisonous American-grown mushrooms. Although highly toxic, one of the many side-effects was the delusion of financial bliss, thereby making these shrooms extremely popular and even more dangerous. To make matters worse, the people entrusted with checking the ingredients of exported food, Johnny’s friends over at the rating agencies, had told everyone that would listen these mushrooms were safe as houses. They had given an A+ export quality grade stamp of approval to these Ninja mushrooms.
By now, these evil bankers with no-one to answer to, were becoming too big and powerful for their own good, dispatching those who stood in their way, to side-lines with disdain. The high of Ninja mushrooms was no longer enough for them, so they added the spice of leverage that made the financial drug trip even more intense. Johnny, and his cousins around the world, became deliriously high with the financial ecstasy these mushrooms were providing. If Johnny’s behaviour in the eighties was bad, this time around he made Keith Richards look like Justin Bieber on a sugar high.
But as with all drug-fuelled trips that end once the money to pay for them dries up, Johnny would come to experience first-hand the adage of “you reap what you sow”. The Ninja Mushrooms were rotten, made from raw lies and deceit and flavoured with the essence of greed. And hell, they were expensive. Because Johnny was buying them on credit, he didn’t realise that with interest and penalties his (first) bill came to $700 billion to make sure the banks who were supposed to be peddling legitimate cookies to the people of America, didn’t all crumble like a house built on Ninja mushrooms.
Even though Johnny managed to borrow money to help his merchant banker friends, he was still left to deal with the cancer that remained from the greed-induced revelling that had taken place. Johnny was sick and in desperate need of chemotherapy. So he and his merchant banker friends checked into the oncology clinic on Wall Street, and began an intense course of chemo treatment. As with treatments of this type, there was nothing pretty about it. There were victims and sacrifices along the way, and some of Johnny’s friends at the banks were forced into permanent vacations.
In years gone by, this treatment would have normally taken 10 years to cure the disease. But Johnny’s banking friends made sure to introduce him to this miracle drug called “Quantitative Easing”. Johnny was assured by his buddies that this drug would help them recover way quicker than the traditional ugly tasting medicine his parents had to take back in the 40s. All Johnny had to do was tell his other friends down at the Federal Reserve to hit the “Ctrl + C” and “Ctrl + V” buttons on the dollar printing presses about 10 billion times, and his disease would be gone.
No one wants to be sick and hospitalised for ages, so this wonder drug seemed like the perfect plan. Johnny was assured that he would be back and shaking his money-maker with his merchant banking buddies in no time. His buddies Sachs, Stanley and Stearns made sure not to remind Johnny that the drug Quantitative Easing had been given to Johnny’s cousin Yamaha-Suzuki in early 2000, which resulted in her growing a third-nipple that she dubbed “carry trade”. As many western men growing up on Asian porn can attest, the prospect of a Japanese carry trade third nipple was too much to resist, thereby also contributing to the debauchery that led Johnnie to end up bed-ridden and undergoing chemotherapy.
So Johnny took not one but two courses of QE, and in no time was prancing around the paddock like a Lipizzaner stallion. The miracle drug had worked just as Sachs and Co. had predicted it would and soon enough Johnny was flexing his pecs in the IMF mirror. The recovery time was incredible, almost unheard of in medico-financial circles. Whenever sceptics questioned the recovery time of this home-brewed remedy, his buddies down at the merchant banks would crow about the miracles of modern science and how far technology had progressed. So the rest of the world went about its business, hoping Johnny wouldn’t fall ill again anytime soon, even though they knew how likely it was he could relapse.
And while Johnny was back at work, merrily tweeting about this new Internet 2.0 to everybody who had liked his FB page, his medical bills started arriving by post. Everyone knows that the cost of good healthcare can kill you and Johnnie had been in the most intensive of care while checked in at the Wall Street clinic for serious diseases. Interest seemed to be accruing every second and pretty soon Johnny needed a wide screen calculator just to fit the amount of digits to which his bill had escalated. Fourteen-trillion dollars and change, this was the cost of his reckless behaviour and partying with those financial sorcerers with the shiny black shoes and gel-backed hair.
Johnny’s trust-fund only allowed for a $14.3 trillion credit limit which was only a few compounding sessions away. The trustees of Johnny’s trust-fund, wanted to know what Johnny was going to do to fix his debt problems if they were to raise his debt limit, because they knew Johnny was addicted to promiscuous financial behaviour and didn’t want a repeat of everything that had happened before. Johnny made promises to stop spending like a rock star and change his lifestyle to include a more regimented diet of self-regulation and tax measures. The trustees believed Johnny would do as he said and upped his credit limit by another $2.4 trillion dollars. Instead of making the rest of the world feel more comfortable now that Johnny had some breathing space to start work on repaying his debt, other signs were there to show that he might get really sick, yet again.
S&P, the boy geniuses that had labelled the Ninja mushrooms fit for consumption and export back in early 2000, now felt it was a good time to tell the world that Johnny is no longer as creditworthy as he once was. (This is kinda like one of the three boys who forgot to cry wolf during five previous attacks, now crying wolf just to be heard.) The rest of the world felt nauseated to hear this news because Johnny owed a lot of people, a lot of money. The Chinese triads in particular, were not a bunch to whom you should default on your debt.
As we draw to closing this chapter of the story of Johnny’s life, these past two weeks have been a reminder about just how great the possibility of relapse is for Johnny. And everyone is now starting to feel a little queasy, uncertain whether this was a common cold for Johnnie or something more sinister that would require the taking of more foul-tasting medicine. DM
Photo: Traders work on the floor of the New York Stock Exchange, August 1, 2011. REUTERS/Brendan McDermid.