Today at the Financial Crisis Party

Yesterday, the party was a blast.

Gee we had fun.

The Chinese were behind the bar serving drinks, and every time we went back the prices got lower and lower. (Sometimes the beer was watered, and I shudder to think of the melamine that ended up in the whiskey, but hey, that’s market economies, right?)

The beer miners were in a corner, whooping it up. Mr Rio Tin-tin, and his pal Mr B. By-the-ton were gloating about how every last skerrick of beer they dug up could be sold ┬áto the Chinese behind the bar, at higher and higher prices. The wanna-be beer miner, Mr Wood, was in on the act as well. His game was to rush around behind the big beer miners, dig a few holes, find some murky ground water and pass it off as beer. The Chinese wouldn’t notice, would they?

The bankers were in another corner, figuring out schemese where they could sell the beer before it was dug up. Then they got some really bright ideas and decided they could sell the empty bottles to some guys outside the party wanting to get in, only the empty bottles were disguised as full ones. A couple of fancy names helped. You should have heard the roar of laughter when “Beer Default Swaps” was suggested! And “Securitised Beer Obligations” had them going so hard they were crying.

The speculators were in another corner, egging on the beer miners and the bankers. The miners and bankers thought their enterprises were so good they formed corporations and sold shares to the speculators, who ignored what the businesses actually did. They traded the shares between themselves and pushed the prices higher and higher – much to the amusement of the miners who pissed themselves laughing.

The great unwashed wanted the music turned up louder, and demanded a few mirror balls, dancing girls, and Kylie Minogue. Somebody was sent out at midnight to try and find them all. They failed, but came back with a ute-load of corporate regulators who joined the mad scramble at the bar, demanding drinks.

Thinks got really ugly when some of the miners and most of the bankers decided to make the whole operation more “efficient” by dispensing with the bottles and glasses, and just sticking their heads directly under the draught beer tap. When questioned they said “PISS OFF, ITS BONUS TIME AND WE DESERVE THIS. YOUR TURN LATER.”

Then some neighbour called the cops.

The bankers gathered in a circle, grabbed all their money, looked really really serious and said “go away, you can’t have any of this, its OURS”. The bankers pushed half their group out, saying “sorry you lot, nice knowing you, we had a blast”, and those left agreed among themselves the speculators were a bunch of bastards for ending the party.

The speculators stopped trading the miners stocks. Lack of demand and basic economics meant that the miners stock prices promptly fell. The speculators then turned on each other and started a huge fight. After the blood, snot, and hair had been flung in all directions they stalked off in a huff and blamed the bankers for ending the party.

The miners stood around looking dazed, told Mr Wood to piss off and get serious, and decided to try and screw the Chinese behind the bar one more time anyhow, figuring that hey – the party isn’t over yet, right? Right?

The Chinese behind the bar looked at the turmoil, decided nobody was buying beer anymore, and it was time to shut up shop. When the flow of beer stopped, EVERYBODY then blamed the Chinese for ending the party.

The corporate regulators blinked in the bright lights, and did the finger pointing act: both hands pointing in opposite directions: “It was his fault. I didn’t stop the party. I wasn’t REALLY asleep in the corner, it just looked that way. I was monitoring the beer consumption REALLY CAREFULLY. Really.”

And Joe Public, outside, finally looked at those beer bottles they’d been buying off the bankers and realised they were empty.

“Dudded!” they screamed. “Those bastards have sold us empties. We believed all that stuff about them being as good as a real one in spite of funny names… like a Collateralised Securitised Beer Swap Obligation… everybody knew that was just a full bottle.”

And the bankers shook their heads NO wisely, but wouldn’t give anybody their money back. “No”, they said, “You see, we need that money for ourselves. And besides, you DID read the product disclosure statement, didn’t you? 150 pages should have been sufficient for you to know what you bought. Caveat Emptor, and all that.”

The police rounded every body up, and then decided that a special bail-out beer package was needed. A hair-of-the-dog. Easily paid from the special reserve they had been taking earlier in the evening in the form of a beer-tax. What goes around comes around, right?

Joe Public wanted to use his beer allowance to drink half, and pay half back to the bankers to service his loans. The miners were still off drunk, in some land of delusions, the speculators were passed out under a table and not interested. And the bankers said “Sure. We need a bail out. After all, we have to get OUR beer bonus from somewhere”.

AND NOW KIDDIES… you know why the world is in the hung-over, bleary-eyed mess it is today.

4 Comments

Wonderful . . now I understand completely! You should publish this!

Comment by Baino | February 1st, 2009 5:12 am | Permalink

Hmm,

Well, your post is a semi-amusing exploration of the current economic issues. But I got lost in the complexity of the allegory, sorry. Maybe you’ve nailed it.. Maybe you didn’t? Here’s my take.

The root of the financial crisis lies in the fact that the American Economy has been growing solely based on the massively increasing debt of its citizens for the last 20 years. The credit to fuel that debt has dried up because everyone got greedy, banks, governments, and citizens.

America (and Australia to follow) are now being forced to live within their means for a change.

Its back to basics time in the US. Actual assets, real liabilities, real incomes, actual expenses. Everyone from individuals up to the largest corporates are being forced to make their Profit and Loss Statements and their Balance Sheets reflect reality. Not because they want to but because they have to. The Ponzi Scheme has collapsed (and it’s massively bigger than Bernie Madoff’s tiny effort).

America’s citizens can no longer live their ever more lavish lifestyles. They can no longer fuel it with debt.

American’s corporations that rely on consumers that have access to debt must now, necessarily, fail.

America’s business can no longer be “Business”.

America, once more, needs to be a producer of goods that it sells to the world without artificial subsidies from its Government. Subsidies funded by taxes on citizens who pay them with debt.

The US Government still fails to appreciate all this though.. the citizens have stopped borrowing so they have stepped in and started borrowing on their behalf to prop up their ailing corporations, and thus their lifestyles.. Its pointless, they can put off the inevitable for 6 months, maybe a year, maybe two.. but the shift in the structure of the world that is taking place is like a Tsunami.. the US Governments row of little sandbags wont stop it. Its chickens have come home to roost.

Dunc.

Comment by Duncan Margetts | February 1st, 2009 9:27 am | Permalink

Yes, Duncan, I do agree. Joe Public in the USA, and Australia, have on average been spending around 106% to 110% of income, for the last decade.

That party has to end sometime.

Corporations and executives have likewise had their trotters in the trough. And investment bankers with structured products, all spin and no substance… don’g get me going.

The post is an allegory which I though was especially apt, because the investment bankers in the USA have just paid themselves the 6th highest bonus pool ever, and they are currently mounting spirited defenses of why bonuses are a good thing and they should be paid a truck-load more of them.

Ha bloody ha to that one.

Comment by Wally | February 1st, 2009 11:12 am | Permalink

Note to self. Do not invest in beer. Or Banks.

Comment by river | March 3rd, 2009 7:16 pm | Permalink

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