Putting your hands out you fall through the window,
And clawing at nothing, you plunge through the void,
Your terrified screams are inaudible, drowned
By the spiral ahead, and consumed in the shape.
It seems that They Might Be Giants had some inkling of what was in store for the world economy. The terms which have been used to describe what is going on — the “squeeze”, the “credit crunch”, the “subprime crisis” and so on, seem not so much euphemisms as ways of avoiding anything real. We are about to be sandbagged by a sandbag which everybody refuses to mention, as if the elephant in the living-room had turned into a gigantic hydrogen bomb without anybody noticing it any more than usual.
What is happening is, basically, nothing more than a collapse of financial confidence. That, surely, should not be serious. Pick yourselves up and pull yourselves together, financiers! Put on your top hats, tie up your white ties, brush off your tails —
But no, it isn’t so simple as that. What has happened is that gradually the finance-capital system has become completely disengaged from reality. The stock market has always been an instrument for pretending that the world was going to be better than it really was, but in the past it had some remote link with reality. However, in the modern world, the stock market has been going up and up while the real economy, at least in the West, has been increasingly stagnant; wages have remained stubbornly low and growth in real productive activity has been modest to put it mildly. This has been happening, not just for two years as happened during the Big Bull Market of 1928-9, which was the precursor to the Black Tuesday crash, which was the precursor to the Great Depression — this has been happening in various ways and at various levels, but increasingly, swellingly, for thirty years.
Thirty years of lying to ourselves.
Now what has been happening has been that people have understandably stopped investing in things which didn’t make much money — just as people stopped investing in things which didn’t make much money in 1928-9 — and preferred to invest it in things which did; in stocks. But stocks themselves were boring. They made money, on the assumption that some corporations whose assets were mostly elsewhere and whose profits were often nominal (and even then hideously falsified and inflated) would be very profitable at some unspecified time in the future. That wasn’t good enough. So trusts were set up to borrow money on the strength of those stocks and invest them elsewhere. Those trusts were further away from the real world and thus their stocks could be talked up more effectively; they had more “money” behind them because instead of depending on any physical plant they depended on the possible future existence of plant. Those were “derivatives”, shares based on the anticipated value of other shares.
Of course, shares based on the anticipated value of those “derivatives”, which were also derivatives — perhaps derivatives to a higher power — went up even faster because they had even more “money” behind them. The more “money” you allegedly created, the richer you were in practice. “Money” could be turned into money. Hence yachts with solid-gold taps and stretch limousines with Carrera marble floors. (The latter, one hopes, was just an invention of Don DeLillo’s, but it could well have happened.)
Similarly, where anything was made or dug or pumped out of the ground, it was not profitable to make money our of making or digging or pumping. What you did was buy the stuff that had been produced and then sell it again. And buy futures in it, and sell those futures again. And again. And again. The more you bought and sold stuff, the more money you could make out of it. Apparently some cargoes of oil are bought and sold dozens of times between emerging from the well and emerging from the refinery. Hence many people get rich from this buying and selling. Enron did this for a long time and became the richest and most corrupt energy country in the United States.
But it’s still the same oil.
But now you are rich, and can borrow more money. And invest it in companies which don’t do anything — Internet companies, for instance. Telecoms. Insurance. Real estate. All these things only go up, don’t they? Borrow more money to invest in them. Need more money? Invest in commodities futures. Those things only go up, don’t they? Invest in investments in investments in commodities futures — they go up faster. Then your expectations give you more money to invest . . .
And so when things start to unravel, when the stock market goes down instead of up, when commodities prices go down instead of up, when real estate prices go down instead of up, when insurance companies start looking for money to pay their growing weather-driven bills instead of paying dividends out to shareholders, suddenly there is no money. But there are debts. All those things you bought need to be paid for. The shares. The possessions which you bought in order to create the impression that you were rich enough to be loaned lots of money to, on the understanding that you would pay the bills when the money was paid over . . .
It’s gone. Go tell the bank you can’t pay them back. Go tell the companies that sold you the stuff you can’t pay for it. They can come and collect it if you haven’t used it up. Come on, you can do it. Send round the bailiffs to foreclose on the mortgage.
Yeah. They take your house away from you. You’re out on the street. Bummer for you. Hooray, the bank has your house —
Who’s going to buy it?
You aren’t buying stuff any more. Your company, such as it was, is bankrupt. Everybody was laid off. They aren’t buying stuff. Their cars have been taken away, but nobody wants to buy them. Hey, the bank has a lot of property, but the property isn’t worth shit, not if the bank can’t turn it into cash. There’s another bank that the bank owes money to, because the bank invested money in worthless investments whose worthlessness is now proved. That money was borrowed. Please return the money, says the other bank. We need it, because we have made some bad investments and some bad loans. Can we have our money? Quoth the three-metre financial parrot: “Polly wants a cracker — NOW!!”
But Polly the Banker doesn’t get her cracker, for the bank has no money, for it has no liquid assets. Whoops! Bank declares bankruptcy — bankrot, the bench is kicked over, the trading is at an end. It turns out that if you are a three-metre financial parrot you are still in a cage and you can’t get out. So the banks can’t pay, won’t pay . Asinamali.
So the bigger banks look around at each other. Who’s got any money? Not me, boss. I ain’t got a dime. Are any of the banks that owe us money technically bankrupt? I haven’t a clue, mate. I’m sure it’s all right. DON’T ASK SO MANY FLIPPING QUESTIONS! SHUT UP! SHUT UP! If anybody answers any such question, the answer might well be, “Yes, they are bankrupt.”. Meaning, “My bank does not have the assets to cover its debts and if three extra people make withdrawals tomorrow, we won’t be able to give them the cash.” And if that happens to my bank, what about yours? What happens if we are all going down, all going down, together?
Bail Out! Bail Out! Meaning, get the government to borrow money and give it to the people who have just pissed it away and are staring sadly at the drain down which their golden fluid has flowed. Borrow money from who? From banks which are, presumably, themselves not solvent. But what the hell, it’s only money. Borrow it! On the strength of the taxes we will supposedly be paying in twenty years time! Countries don’t go bankrupt, do they?
Yes, they do.
Bail Out also means, jump out of the plane. Oh dear, this does rather recall Laurie Anderson, doesn’t it?
So you better get ready
Ready to go
You can come as you are
But pay as you go
Pay as you go
Actually there is no jumping out of the plane. The crisis is caused by the lack of money and the fact that what money is there, is worth less and less, and the assets which supposedly backed the money are worth less and less, and, day by day, everybody is becoming more and more convinced that the whole system is not going to survive. That everybody wants to turn their money, any money they have, into something more or less useful.
Joke. Lots of people have portfolio investments in South Africa — short-term investments in South African securities, bonds and the like, valued in rands. They are now selling these. So the rand is falling in value because there are more rands floating around as people sell rands and buy, instead — dollars! US dollars, not even Zimbabwean. The country which has so royally stuffed up the financial system is the beneficiary, for a brief period, of that stuffing up, as the US dollar rises and the euro falls.
But, interestingly, the yen is rising. Japan is still, supposedly, in recession. But at least they make stuff in Japan. They build stuff that other people want to buy. They build stuff that Japanese people buy and walk on and live in. They have had their housing and stock exchange bubble long ago. Nobody puts money on the Nikkei except by way of a complex monetary joke. But the yen is rising because the Japanese have not invested all their money in imaginary cash. They can ride out the crisis. Their stock market can turn into a pile of rubble and ashes and the Japanese economy will march on a road of Toyota, Mitsubishi and bones.
But not the American economy.
And if not the American economy — who’s going to pay for all that shit that China produces? Not the Chinese; their worker wages are too low and there’s no money to boost them. Nobody else in the world has the cash that the Americans have — that the Americans had.
Standard and Poor’s rating of the US stock market has fallen 31% this year, says a commentator, before today’s stock market fall. The Dow is heading rapidly towards unbelievably low levels. More frighteningly, the NASDAQ, which supposedly reflects more realistic technology shares, is falling as fast. Or faster. Americans have put their pensions, their life savings, their current savings, into that stock market. Americans banks lent money to those Americans in the belief that the banks’ investments on the stock market would go up.
It’s not going up. It’s going down.
South Africa sells gold and platinum. But not enough to make our ends meet. We sell coal to China, but what if the Chinese stop buying? We sell aluminium, but what if the demand for aluminium falls? We sell cars. What if people stop buying cars? We import steel, we import bloody cement, we import cellphones, we import everything we need and a hell of a lot we don’t. The value of our exports are falling. The value of our money is falling. The cost of our imports (except, mercifully and for the moment, oil) is rising.
We are not so safe that we can pat ourselves on the back. We have no idea how badly off our banks are. We have no idea what is really going on. We don’t even know whether the present crisis, which is unimaginably bad, is the worst thing that can happen, or whether there are more knock-on effects to come, more discoveries that Western finance capitalism has discovered, as Scott Adams prophetically put it, how to steal in ways you’ve never even heard of. Maybe things are far, far worse than we think.
All we can be sure of is that, collectively we are certainly in a bad way, and individually we are likely to be badly off, and very probably the future is more catastrophic than we have dreamed for decades — not since the 1960s have we had to face this kind of catastrophe, and over it all looms the fact of global warming and the consequences of that, too; the hurricanes, the tornadoes (one hit Grahamstown — Grahamstown, of all places! — today) and the damaged crops and the new diseases.
Woe is us? You betcha.