Crunchy

What have they done to the earth?
What have they done to our fair sister?
Jim Morrison

Friends have been asking me what I think about this whole crisis thing. Of course, it’s hit me very hard indeed, but I am trying to see the big picture. It’s no oil painting. I’ve tried to make it all hang together, but the Ratmen posting below still says it all for me. The rest are thoughts, unconnected, but parts of the whole. Here’s the first.
Money is not a natural resource. It won’t run out soon - unlike oil. It is not even a real thing. It is only a symbol that stands for real things. It is very easy to forget this. In 1995, the K Foundation burned a million pounds in cash as a performance art work. Many people ignorant of economics attacked them on the grounds that they had destroyed the earth’s resources, cheating the poor of bread. In fact, they had done the reverse. Just as forgery creates inflation, the destruction of bank notes boosts the value of a currency. Every remaining pound was worth very fractionally more. The size of the British economy was exactly the same as it had been.
Gold doesn’t have any real value either. It only seems to because we believe it does. Gold does not rust, granted, but its tensile strength is rubbish. You couldn’t build the Forth Bridge out of gold, it would sag in the middle. Massively heavy gold trains would fall off their bendy gold rails before they even got out of their drooping gold station.
Food is a real value thing, and it’s a finite, though renewable resource, unlike energy, which is finite but not renewable.
The sub-prime thing is nothing new. In the words of Carl Giles, for those too young to remember and for those whose memories may have grown short, back in 1989, the Savings and Loan crisis was just the same. Having bought into the junk bonds market, all America’s local savings banks went bust at once and the first George Bush agreed to bail them all out. I remember reading that it was equivalent to the entire cost of World War Two to both Allied and Axis powers combined, plus the Marshal Plan. I recall PJ O’Rourke writing in Rolling Stone magazine (“Piggy Banks”, 24th August 1989, pp. 43-4) to explain how much the public would have to pay. In layman’s terms, he said, it was like taking a New York cab all the way to the planet Neptune, ‘and that includes going over the Brooklyn bridge twice because the guy thinks you’re from out of town.’
Effectively, Junk Bonds were shares in bankrupt or even non-existent companies. Yet they could be traded as if they were real money. In that sense, they’re little different to sub-prime mortgages. Just as long as everybody went on believing in them, they could be treated like something real. The only problem with them came when someone asked for them to be turned into actual money without understanding that that’s not what you’re meant to do. Likewise, sub-prime mortgages can be bought and sold and, as with junk-bonds, they all come tumbling down the moment the bearer demands to be paid.
The S&L crisis was bailed out to tune of 124.6 billion US taxpayer dollars, and now the big banks have run what is effectively the same balls-up, US and UK taxpayers are rushing in to bail them out too.
The banks have now been bailed out twice, and now the bail-outs have come to look like business as usual. That’s how it goes. You put all your money on the armless, legless ‘living torso’ to win the World Kick-Boxing Championship Smackdown and the bookies gave you great ‘sub-prime’ odds, so how could you possibly lose? But don’t worry... big government will give it you all back again.
Just like the Ratmen of Rodencia, the bankers are holding hostage the very thing they are demanding as ransom.
“If you don’t pay us a vast amount of money, we’ll kill a vast amount of money!”
Unlike Saddam, they really do have WMDs, weapons of monetary destruction and they will use them until liberal democracy cries “Uncle”.
The New Capitalism runs like this: the banks make hay while the sun shines and when they crash, they get all their money back from the state. Heads I win. Tails you lose. Hold on, though. This doesn’t really sound very much like capitalism at all to me.
Let’s be honest about this. The credit crunch is not a natural disaster. The banks could stop it any time they liked. I don’t think it began deliberately, but they’re keeping it going on purpose. This is a corporate war and it’s being fought with money. It is also the banks saying to liberal democracy that it needs them more than they need it.
The crunch will carry on until Obama or McCain (but probably McCain) becomes US president and signs on their dotted line. In fact, it’s started already. In agreeing to buy up all their debt, the US government is effectively nationalising its banks... just like Charlie boy Marx said budding Communist administrations should do first on taking power. Welcome to the U.S.S.A. and its client state the Soviet Socialist Kingdom of Britain. You lucky people!

For further reading: From Buildings and Loans to Bail-outs: A History of the Savings and Loan Industry, 1831-1989 by David Mason (Cambridge University Press, 2004, ISBN 052182754X, 9780521827546)

“The great Ponzi-scheme rescue act of 1999” by PJ O’Rourke, Rolling Stone magazine, volume 148 (810), 1999

Parliament of Whores: A Lone Humorist Attempts to Explain the Entire U.S. Government by P. J. O’Rourke and Andrew Ferguson (Grove Press, 2003

“When Hell Sleazes Over” by Kathleen Day, New Republic Mar. 20, 1989

“Looking for Lessons From Agency That Mopped Up 1980s Thrift Mess” by JOHN M. BRODER
(published: New York Times, September 19, 2008)