Thursday, February 26, 2009

Making bank

Here's what gets me. We gave billions to the banks and they spent it on jets and redecorating their offices (okay, they also spent it on buying more risky assets and giving themselves bonuses because they have greater responsibilities with the increase in asset base). But still they don't lend money to business and still they are lumbered with the toxic assets. And the talk is all about how we can take the bad assets from them and save the banking industry.

Well, here's my plan: fuck the banking industry. It's possible and the only real downside is that shareholders in banks, who have enjoyed the upside, will now have to swallow the downside.

This is what we do. Instead of capitalising RBS or Lloyds, we capitalise new state banks. They are not permitted to deal in securities except within strict restrictions, so they cannot accumulate "bad" assets. They lend to business and benefit from an implicit guarantee from the sovereign, so they are safe for other financial institutions. Depositors (you and me) will flock to them, abandoning the bad banks, because we do not want our money to be held at brokearse establishments.

If banks such as RBS are bust, let them go bust. If they are sound, they can compete with our state banks. We are not then lumbered with the bill for the wild fucking party the City, and other financial sectors, have had for the past ten years.


The rest of it is fairly easy: massive stimulus -- and I mean massive -- preferably spent on infrastructure that does not have huge ongoing maintenance costs (roads are good; aircon in schools not so good). It doesn't matter that this is "make-work". We want to make work. By the time the work is done, the economy should have picked up and there will be jobs for those we made work for. It's not a tough theory to get your nut round.

I know that this doesn't fix the broader problems of our world. But it's not the case that we can just allow what we have to collapse and then a new, better order will spontaneously come into being. No. Let it fall apart and we'll all be eating mud and hoping there will be an earthworm in each mouthful. It's not fair that we have to pay for what the rich pigs made, but it's what it is. It would be a lot less palatable to have it all fall to ruin, because believe it, the rich have enough resources to ride out chaos, but you just don't.

Is it that bad? Could we be on the brink of a new dark ages? Yes, I think it is. I don't think most people get the scale of how bad things are because they have never been educated in how the world actually works. God forbid. The elites would long have found themselves up against a world if people understood how they are fucked over. Most of human history has consisted of small elites' shitting themselves that the poor will figure out that they could just take the wealth if they wanted to, and trying to lessen the poor's access to knowledge of why that is and how they could do it.

But really, ruin? Well, think. How far are you from busto? I'm a couple of grand from it. If my boss went out of business tomorrow and Mrs Zen was laid off, we'd be fucked. I'd be about a month from needing a sawnoff.

The economy is the same. As long as people stay in jobs, keeping the money spinning round, we're okay. The money circulates, the government takes a nibble at points in the cycle so, among other things, it can provide some consuming ability for even the unemployed, and there are goods in the shops for us to buy. Cut enough of the jobs and the money doesn't flow as quickly, the government has less money, of course, and supporting the unemployed becomes a huge burden. Less money in our pockets means less we can spend at businesses; they have less to pay workers with, so sack more. Some go bust. Those left borrow less, invest less, hire fewer, sack more. So at each point less money spins round. Etc, and finally the money is moving so slowly, the whole thing falls apart. We realise that the currency of money creates a sort of centrifugal force that keeps the world in the shape it is. It falls apart and we realise then that we cannot get what we need.

You're going to need tinned goods at that point, and sooner or later, some of your neighbours will realise that if they want stuff, they will now have to take it. Well, at least we won't have boring Saturday nights in any more.


At 10:13 pm, Anonymous Anonymous said...

boots sez:

"Is it that bad? Could we be on the brink of a new dark ages? Yes, I think it is."

For me this is a guilt-strewn morning with fuckall sense anywhere beyond the woodstove and I hope what you're seeing is simply an hallucination because of your hormone balance or some shite. Because after all I have been saying for nearly a decade that a new dark age is where civilization is headed, in fact the never yet profitable corporation I was silly enough to set up in 2002 has a bit of that in its name. And like you, success terrifies me, though unlike you (I think) failure holds no more fears for me than anything else so familiar.

"But really, ruin? Well, think. How far are you from busto? I'm a couple of grand from it. If my boss went out of business tomorrow and Mrs Zen was laid off, we'd be fucked. I'd be about a month from needing a sawnoff."

It looks worse than it is, really. The couple-grand scenario, you're in better shape than many (perhaps most). On average peoples' net worth is well below the waterline, maybe a couple hundred thousand for the average homeowner.

See, I've gone through the busto scenario. Never needed a sawnoff, in fact I sold what guns I had several years ago to buy propane so we could fail to freeze that winter. Probably will never own a gun again, fuck knows what I'd do with one, the ammunition is too heavy to lug around.

Thing of it is, what's happening out there is not just random shite, it has a cause. People refuse to wake up, they keep hitting the snooze button. That only goes on for so long before some pounding on the door begins.

The dire imaginings you turn over in your mind? They're not real yet.

"I don't think most people get the scale of how bad things are because they have never been educated in how the world actually works. God forbid."

[Wby 'forbid' rather than 'forfend'?]

Are you certain that you know how the world actually works? What I'm looking at as the dust and detritus covering something else, you're seeing that as the reality of it.

One of us has it wrong, and even fearing success as I do, I'd prefer that be you.

I've not been moved to write anything useful since the "Fred" piece, but I'm feeling an urge though whether it's to write or to take my morning dump has not yet become clear.

I'll not ask you to have faith because then you'd want to know "in what?" but I do suggest that you consider a bit of applied apathy, it's one of the few things that helped me through my own busto phase. Just maybe practice up, in case you need to use your apathy skills, you know?

You may now delete my post, or tell me that I have nothing to say and write like shit (that's quite the vogue lately). Be well, friend.

At 1:40 am, Blogger Robert McClelland said...

fuck the banking industry.

Well said. I've never understood how free market capitalists can tolerate one of the biggest impediments of free market capitalism; the banking sector with its totalitarian control over the movement of money and extortionist behaviour toward capitalist ventures. The very idea that people should have to pay some guy a monthly fee just for the privilege of owning a home or putting others to work should at the very least send libertarians into an apoplectic rage. Yet these private sector gatekeepers are seen as one of the pillars of our society. Very odd indeed.

At 8:14 pm, Blogger Sopwith-Camel said...

I personally think the government *had* to bail out the banks, otherwise we would have transitioned too quickly into the next stage. We're going into it anyway, just with slightly more time to get ready for it.

I do wish some people could learn to whisper to themselves "it's only a nightmare" from time to time.

Not picking on you personally, Dr., I do still value your insights.

At 8:17 pm, Blogger Dr Zen said...

I don't think you understand the problem or why they bailed out the banks.

I suppose you could just as well say "it's a nightmare" and not pay it too much mind, because there's not much you can do about it. I'm not actually losing any sleep over it. I know things are bad and could get very bad, but you know, we'll endure whatever it is, won't we?

At 1:39 am, Blogger Sopwith-Camel said...

I believe that the problem was that the banks would have been pwned by foreigners, who could have demanded their investments back, and the banks might then have been in the position of having to go bankrupt, no other option, and the subsequent rush by everyone to get their money back out and into solid assets before the crisis went to far would have shut down the entire system of buying and selling everything and anything. Your car would have run out of gas and you could have pushed it to the filling station and then stood there helplessly because your card would no longer allow you to purchase petrol. Your salary would not have been paid into your account at the end of the month. Your broadband would have stopped, your electricity died away, not because of any outstanding debts on your part, but because the supplies of them were unable themselves to purchase their essential supplies to maintain the system.

In the world of power transmission, where I did work for a while, there was a hypothetical situation called a "black start", in which every generator in the country had been shut down, and the problem was that you couldn't just start them up again one by one, because each set would see an infinite load (demand) as it came up, and would effectively have been trying to pump voltage into the still-powerless spots. There was software to try and work out the optimal order in which the sets should be brought back online. It has never, ever, been used so far.

There is not, to my knowledge, any similar software to do the same sort of thing to a financial system which has completely shut down.

But, at the end of this, as I'm sure you'll tell me, "I know nothing" (Save for the fact of my own ignorance)

At 8:51 am, Blogger Dr Zen said...

Well, you described what would happen if the banks vanished tomorrow, but it's not exactly why they got bailed out.


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