Friday, July 13, 2012

Half a ferris wheel.....

Half a Ferris wheel
By Chan Akya

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 anomalyilbert 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.


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.

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.

No comments:

Post a Comment