I was watching a Korean/American film the
other day; the film was good but not much to write
home about. What did get my attention was a scene
that features a half-finished Ferris wheel set in
a bust town somewhere in the Wild West. [1]
Watching that little piece of artwork made me
think it was the perfect analogy for the state of
post-crisis nations; a sobering report card if
there ever was one for anyone who still cares
about the denouement of what started during
summer, five years ago now.
For a few
minutes, imagine yourselves to be in the shoes of
the mythical town's founding fathers - and
meanwhile thank your stars that you aren't - and
ask the question: would you divert non-existent
money from the town coffers to finish the Ferris
wheel? This is surely a recasting of Bastiat's
broken glass pane anomaly
that results in false
economics; or perhaps it isn't that simple. [2]
Thinking purely about utility, it is an
extremely easy question to answer, that is: No.
After all, what does a Ferris wheel do except
allow riders to gawk at the city sights below. It
doesn't go fast enough to attract the thrill
seekers and certainly doesn't go anywhere in
particular to attract travellers. When the town
below starts looking like the ruins around that
famous visage described by Shelley as half buried
in the desert, [3] then as a city founder you
would much prefer that no monuments identifying
the hubris of denizens is ever left behind. After
all, who the heck wants some wayward poet to go
and write the following about the city that one
founded:
"My name is Ozymandias, king of
kings: Look on my works, ye Mighty, and
despair!" Nothing beside remains. Round the
decay Of that colossal wreck, boundless and
bare The lone and level sands stretch far
away.
Then again, you could consider
the more recent experience of Europe and the
United States with the crucial concept espoused in
a seminal book published some 38 years ago wherein
Robert Pirsig explored a living and tangible
notion of "Quality" in some detail. [4] The point
that follows from that of course is that having a
half-finished Ferris wheel is itself evidence of a
declining town, and its mere looming presence
simply helps to accelerate the decline of the
state of affairs. Don't care about Quality around
you, and somehow the point of no return is reached
far quicker and irretrievably than you'd ever stop
to think and consider.
3-6-3 going
crazy What started five years ago was,
purely and simply, a financial crisis that had its
roots in the avarice of homeowners in the US,
encouraged by greedy intermediaries in the form of
mortgage brokers and nefarious financial firms
that in turn were funded by greedy investment
bankers aided by their tame rating agencies, all
of whom were well aware that the clueless Asian
central bankers who entrusted them with the life
savings of their citizens would never figure out
the mess they were being lured into until it was
too late and they (the investment bankers, not the
central bankers) had their little plush pads down
by the seaside.
That was the plan anyway.
As it turned out, some incredibly dense European
(banks) got into the middle of that little
love-fest, and before you know it the Old
Continent had been lined up for some historical
levels of incontinence.
Finding their
banks in the deep end did not go down very well
with the European governments, which had always
imagined their citizens and bankers to have been
above the transaction bias of the Americans and
returns-chasing of the lesser bankers in emerging
markets.
Bankers on the continent, we were
told later, were expected to follow the 3-6-3
format, that is, borrow at 3%, lend at 6% and be
on the golf course at 3pm. Instead, here they
were, leveraging themselves six times over while
each handing over $3 billion to Wall Street and
paying themselves 3 million euro bonuses for the
effort.
The governments were of course not
entirely blameless either. They had taken all the
taxes from the bankers and started building the
big Ferris wheels all over Europe. Metaphysical
ones of course, built on the illusions of unified
monetary policy, free trade (only inside the
union, while imposing tariffs on agricultural
products from poor countries), and all the
political grandstanding that befitted a project of
that size.
Look at us, they shouted - a
prosperous European way of life handing euros to
each other whilst eschewing all the excesses of
American capitalism.
Oops.
So what
did the Europeans do with their half-finished
Ferris wheel? Well, they decided to stand around
and argue about what to do; that's what. Cut
through all the headlines for the past five years
and basically all that the Europeans have done is
to stand around and talk. They are no better off
now than they were at the time of going into the
crisis.
To be sure, the arguments have
been entertaining. A large group of folk wants to
blame the banks for what happened while absolving
themselves of all blame. Matters came to a head
last week, when the UK's Labour party - the very
group that turned a blind eye to banking
innovations while itself borrowing enough to push
the country into bankruptcy all by itself [5] -
got on the high horse about the Barclays scandal
around illegally fixing the London Interbank
Offered Rate [6]. That was just too much
entertainment even for someone like me.
Over on the continent, the folk in charge
of managing the little government debt crisis that
followed from crisis-ridden banks no longer having
the money to support the spendthrift ways of their
sovereigns decided to talk and then talk some
more. If talking could keep the public calm and
the military aggressive, ancient Rome would have
elected Cicero as its regent, not Caesar.
As for America, it appears that the
country has decided to go ahead and finish its own
Ferris wheel but with all the little gondolas on
only one side because the other side didn't really
deserve theirs. Of course, the two major political
parties disagree on who does or doesn't deserve to
be on the gondolas, but that's a minor detail.
So the Republicans have decided that poor
folk who borrowed too much shouldn't get any
bailouts, nor should they get medical insurance,
but are fully supportive of giving the rich some
tax breaks and protecting banks. Democrats on the
other hand are entirely sure that the rich are to
blame and would like to sock it to them; but only
so long as the banks are happy.
Meanwhile
economic growth remains in reverse, the debt
problem only seems to be getting worse every
month, and banks are simply not turning their
money over to deserving borrowers. The
half-finished Ferris wheel stands tall over both
Europe and the US.
Notes 1. The Warrior's
Way (2010) starring Jong Dang-Un and Geoffrey
Rush. 2. For Bastiat's "Broken Window", see here .
3. Ozymandias by PB Shelley (1819). 4.
Zen and the Art of Motorcycle Maintenanceby
Robert Pirsig (1974). 5. See G-8's
First Bankruptcy Asia Times Online, April 25,
2009. 6. See Who
put the lie in Libor? Asia Times Online, July
7, 2012.
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