OK, so I’m disappointed. We’re 77 days into the Obama Administration, and not everything is perfect. The economy hasn’t recovered. Carbon emissions haven’t stopped. My mortgage isn’t paid off. I still have to get up at 5:30 AM to get ready to go to work. I want a bailout but there wasn’t a cheque in the post today. It’s all Obama’s fault.

I’m kidding, of course. President Obama came into office with perhaps the most overloaded in-tray in the history of the American Presidency. It makes me wonder what the traditional letter from one President to the next said:

January 20, 2009

Dear Barack –

It’s all yours now. Bye!

Yours, Georgie

And then Barack discovered that the change in power relationships meant that his former colleagues were no longer his friends; this shift was almost immediate. Witness how he has had to cajole a number Democrats to vote for his budget. He’s also been having problems getting Congress to behave on earmarks; the stimulus package is loaded with items which make absolutely no economic and environmental sense. For example, I understand that a small part of it is going towards building a convention centre in Dallas. Why? The last time I passed through Dallas, I saw they weren’t short on big buildings, including potential venues for all manner of shindigs. I wonder if they intend to turn Dallas into an American Sheffield: Sheffield has a number of sports arenas, shopping malls and convention centres which were built in order to provide work to local people, now they sit empty half the year.

To add insult to injury, Joe Biden was right: foreign powers tried it on with President Obama very shortly after he took office. Witness North Korea’s recent launch of a ballistic missile: they claim they were putting a communications satellite into space. Obviously the Ministry of Excuses in Pyongyang is a bit irony challenged: a country that makes such a point of not talking to other people would be better off claiming they were doing it for the hell of it. Considering Kim Jong-Il’s behaviour, that would be more readily believed.

Europe has turned out not to be as helpful as President Obama hoped, and there are good reasons for this: first, Europe is broke. Speaking from where I sit in the United Kingdom, we’re having intermittent problems auctioning off government debt. The French economy has been sputtering for years. Spain’s property market collapsed, taking a lot of employment with it. Italy is now the private property of Berlusconi and Co. Germany is paranoid about having another Weimar situation. Of course, with no money, there’s no European stimulus, and there’s no funding of further missions to Afghanistan. Saving the Afghani government isn’t exactly a mission of the righteous either: Afghanistan’s President Karzai let Obama (and half of his country) down by signing into law a nasty piece of legislation that says that allowing sexual assault is a wifely duty.

So Barack is facing a world of trouble, and the first 100 days have been very short of quiet. Is any of it his fault? On balance, I’d have to say “Yes.”

Take it with a pinch of salt, after all, I’m just one person: however, I believe that President Obama is suffering from a problem that Winston Churchill once had. According to legend, Churchill, a renowned gourmand, turned away a pudding and told the chef, “it has no theme”. Similarly, I believe much of Obama’s policies and vision are in soft-focus, rather like how 1940′s films developed a slight ambient blur whenever they did a close-up of Olivia de Havilland.

This lack of clear direction is most evident in the stimulus package. I thought, and had assumed, that he was going to announce a new “New Deal” on Inauguration Day which would serve as an overall theme. Then within the “New Deal” vision, there would be a number of other clear, concise schemes. FDR’s model was ideal in this respect: to this day, people recall the National Recovery Act’s blue eagle, and the Tennessee Valley Authority. Furthermore, the purposes of Roosevelt’s plans were succinct: the TVA, for example, was there to provide electricity to people who didn’t have it before.

President Obama could have had his own TVA, except this one would have constructed a proper infrastructure for Green Energy. He could have had a clear programme for upgrading broadband and another for improving rail links. He could have dedicated a programme of infrastructure repairs to those who lost their lives due to the I-35W Mississippi River bridge collapse in Minnesota in August 2007. Instead, he put everything into one giant stimulus package and as a result he’s diluted the message. Worse, he’s made the progress of the individual schemes that much more difficult to track, not just for his own Administration but for the public at large.

The public needs this clarity; a lack of focus could be costly: I’ve already seen worrying signs that the stimulus is going to be wasted on worse things than the aforementioned convention centre in Dallas. My sister’s new boyfriend works for Perot Systems, a company founded by the former independent Presidential candidate. I was curious to see what kind of work they do, so I looked at their website. What I found was a large presentation about how Perot Systems could be spending the stimulus money (click here for more). Ross Perot is a billionaire, the last time I checked; why is the wealth of the nation going towards enhancing his bank balance? The moment that others find this out, I suspect the same question will be asked, and in stronger terms.

The soft focus approach is also evident in foreign policy. Yes, President Obama has done well by pledging to close Guantanamo Bay. Some of his overtures to Iran have been masterful; few recent spectacles have been more satisfying than watching the Ayatollahs scrambling for a response to the new, friendly face of the “Great Satan”. Their justification for oppression and mismanagement is dissipating. However, Obama’s overtures to the Islamic world have not been consistent: while extending the olive branch with one hand, he is sliding more troops into Afghanistan with the other.

A military solution to Afghanistan is not possible. The Soviet Union found this out in the 1970′s and 1980′s, and their tactics were far more ruthless than what the European Union and America will allow. No less a military genius than Alexander the Great had problems with Afghanistan. He invaded the country with his battle hardened troops in 330 BCE; it had taken him 6 months to conquer Iran (Persia), in contrast, it took him 3 years to conquer Afghanistan. It may have been these difficulties which persuaded him to take an Afghan bride, Roxanne, as a political gesture. Apparently, Alexander wrote to his mother that while she might have been under the impression there was one Alexander, Afghanistan was a nation full of them.

Given this, a full, clear, “peace out” strategy, which had a dimension for the Israeli / Palestinian conflict would have been infinitely preferable. But rather, we are stuck with the soft focus. In Olivia de Havilland’s case, soft focus only made her more beautiful; perhaps the President feels that present Gaussian blur will continue the impression of glamour around his Administration. After all, if the Administration maintains a set of unclear or conflicting goals, then everyone can read into him what they want. Tough questions can be avoided by yielding to speculation about the First Lady’s dress sense.

However, this form of governance contradicts the experience he had on the campaign. People voted for him because he was the clear one. He had one great big theme: America needed change and hope. The first 100 days have desperately lacked this; but fortunately, there is still time.

Recently, I was amused by a news item about what could generously be described as a “Christmas theme park” located on the Dorset / Hampshire border. Called “Lapland New Forest”, its website made some outrageous promises about a “magical” experience, frosted by realistic looking fake snow and augmented by a stunning “tunnel of light”. The price of entry was between £25 and £30 per head.

In reality, it was a muddy field with some unhappy looking animals, stalls that charged £2.50 for a plastic cup of mulled wine, and a cigarette addicted Santa sitting in a large, cheap garden shed. Needless to say, the suckers, pardon me, visitors were disappointed and angry: perhaps the most outrageous element was the two to three hour wait that parents and children had to endure before seeing Santa. Furthermore, once you got there, a picture cost an additional £10.

I doubt I’d ever heard of anything more brazen; however the immediate reaction of the organiser was to blame any problems on a rabble of disgruntled people, and to say that there was nothing untruthful on the website. He later had to backpedal somewhat, and after it was revealed that the owner of the park had been in prison for tax evasion, the “theme park” was closed.

There was an understandable level of outrage about this; parents were particularly upset about their children’s Christmas dreams being shattered. At the same time, I do have to wonder: what did they expect? A lot of modern capitalism is based on fraud, smug, smirking, outrageous fraud, and this is perhaps part of what has led us to the situation we’re presently in.

For example, a long time ago, I worked for an online travel company. Through our website, you could book a flight, and near the end of the process, you could tick a box to indicate you wanted to rent a car as well. The default, quite sensibly, was not to have the box ticked.

The company was not doing particularly well: then as now the profit margin on selling flights was very low. So my boss, the manging director, had an idea: he wanted me to make it so that the box, as a default, was ticked “yes”.

To the best of my ability, I refused. If people wanted to rent a car, they would do so – what he was hoping for was an uptick in sales of car rentals, which could help him cling on to his job. This was not actually going to increase actual sales, rather, it was going to increase accidental sales, all of which would have to be refunded. In other words, it would actually cost the company money, not make it.

I did some digging and found out that this had been attempted before; and the consequences were precisely what I thought they would be. Confronted with the evidence, and the certain knowledge I would have taken it to the CEO, he backed off. My understanding is after the company was sold and he was dismissed that he has been bumping along the bottom of the travel industry, a rare instance in which justice was served.

It might be possible to dismiss this as an isolated incident, however, I’ve seen other examples of this kind of behaviour. Perhaps the most insane boss I ever had, thought he could make thousands, if not hundreds of thousands of pounds, by acquiring domain names. You see, he was (in his own mind) truly clever and had spotted the value of these domain names well before anyone else had: he could stockpile them and make a killing. I warned him that he could not: the domain names, I said, don’t inherently have a value. It is the products and services that are offered by the websites that sit behind domains that have value. He didn’t listen; after all, “get rich quick” schemes had benefitted him before.

Confidences forbid me saying all that I know, but the owner of this company had and has a relationship with a certain African country which in recent years has tried to burnish its reputation as a tourist destination. The nation in question is governed by a military junta, whose leader believes that a herbal paste (and his touch) can cure AIDS, and has threatened any homosexuals with severe reprisals if they dare make themselves known. More recently, the country arrested some European missionaries for sedition on extremely shaky evidence. Because the owner could stomach dealing with such a regime when no one else could, he made his initial fortune. I found out recently that due to bad investments, he has lost much of it, and some of my former staff have lost their jobs as a result.

To be fair, Adam Smith had a beautiful theory: that in the pursuit of self interest, individuals would make decisions that would lead to prosperity. He thought that people would demand quality services and goods and that businesses would provide them. What has happened instead is that businesses try to trick the customer, and the customer tries to cope as best as possible. Corners are cut, fine print is added, plastic trees with fairy lights are called “tunnels of light” and Santa sits in a plywood garden shed. Brokers and investors try to repackage subprime mortgage debt into “instruments” which hide the toxic ingredients contained therein. We had only the appearance of prosperity as a result; the recession hurts so much because we’re discovering the truth behind the facade.

The recourse we have is to the law: if the regulatory framework is stronger, then perhaps businesses will live in fear of trying to cheat anyone. The other pillar should be a strong public sector, in particular in education and health: my work in the education sector has so far been inspiring. Academia, at least insofar as my university is concerned, actually appears to be concerned with achieving the public good: for example, the School of Education is keen on trying to reduce student drop out rates in secondary schools, and is developing techniques to achieve this. Other schools within my university have produced spin out companies which are producing energy from wave power and developing polymers for fuel cells; perhaps the most stressed individual I’ve met since I started in my new role is the gentleman who has to convince venture capitalists to put their money into such ventures. Investing for the long term is not something that causes their eyes to light up, apparently.

But it should. The edifice of modern capitalism has basically collapsed and people are scrambling around and wondering why: maybe, just maybe, it was because there were too many dishonest people doing too many dishonest things. I would hate to think that we need a Hobbesian Leviathan to punish chicanery; at the very least, we need to have a reckoning, and a rebalancing. “People not profits” has been used as a battle cry for so long that it has become a cliche: perhaps we ought to demand honesty, morality and ethics instead. This recession, after all, is a symptom of failing trust: all the remedies that are presently on offer are desperate attempts to go back to the time before trust was broken. But once trust is gone, it can’t be rebuilt without the truth: the sooner the politicians understand that, the better off we will be.

Slavoj Zizek, the Slovenian philosopher, once said a metaphor for cinema could be found in a scene from the 1974 film, “The Conversation”: Gene Hackman, playing a paranoid detective, flushes a hotel toilet experimentally and is horrified to see the clean water replaced with blood which overflows the bowl and spills all over the floor. Similarly, Zizek says, cinema is like a toilet out which we are expecting the excrement of the netherworld to flow.

I’m not sure if Slavoj has seen the latest James Bond film, the Quantum of Solace, but if he does, he may need to revise that thought: in this instance, the toilet is wired to a cannister of nitroglycerin and the viewer is greeted with a fiery explosion which takes out the entire hotel. Strike that, it would take out the entire town.

I had been looking forward to this film; the fact that it followed directly on, narratively speaking, from Casino Royale, hinted at a discipline that had been previously lacking in the Bond series. Each Bond film has been hitherto a set piece: the villains are different, the scenery is different, and no Bond girl manages to make it from one film to the next, even if she survives to the end of the film. It is this lack of continuity which perhaps has sustained the film series, as it makes it easier to adapt stories to a particular time and place. Furthermore, if I may indulge a Lacanian impulse, it may satisfy the need of the viewer that Bond is able to press the “reset button” constantly: Bond can change women, change vehicles, change locations and change clothes without any consequences. He has the ultimate “disposable” life, which includes being able to dispose of others.

A good symbol of this discontunity is not only found in the variety of actors who have played the lead: a more dramatic example is Bond’s CIA counterpart, Felix Leiter. Hitherto, Leiter has not only been played by a variety of actors, they have also come in different ages and even different races. Quantum is the first example of a Bond film in which Leiter was played by the same actor as in the preceding film. Quantum is the breaking of the habit. But is it successful?

From a storyline point of view, Quantum is an absolute disaster from its first moments. The director has chosen to eliminate the flow of motion for bursts of energy which are as staccatto as gunfire. We are not permitted to see how, say, Bond’s car swerves to avoid uncoming traffic: rather, we get a montage of the car and Bond driving in order to create the impression that somehow he is magically avoiding a crash through unseen manuevers. Most of the action sequences are done in this manner, which is entirely disorienting.

Bond has always been a rebellious character, but hitherto there was a humourous edge to his being an upstart: not so in this instance. Indeed, Bond is a moody, semi-psychotic loner in this film, who only associates with those whom he could find helpful.

This is not to say that touches of the original Bond series do not come through: for example, when Bond arrives in La Paz, Bolivia, he is greeted by a young woman from the British consulate wearing a short dress, who informs him that her duty is to put him back on a plane to London the following day. The idea that even the British government would put a young, attractive, unarmed woman in charge of handling a proven killer with a history of seducing and manipulating women is patently absurd from a narrative point of view, in any other film besides a classic Bond movie.

Even more absurd is a hotel which appears in later scenes: we are informed that its omnious gurgling noises have to do with the operation of its fuel cells. As the hotel is in the middle of a desert with an almost uninterrupted flow of sunlight, the idea that such an establishment would not be taking advantage of the solar energy potential is ridiculous. However, solar energy does not explode and the narrative needed hydrogen cannisters in every room for the purposes of using the studio’s arsenal of special effects.

To be fair, there are some delights to be found: there was a fleeting moment of narrative joy when it seemed as if MI6 and Bond were going to have to go up against the CIA as well as the standard supervillains of the piece; a long, prolonged war in which Britain’s intelligence services stood alone would have made for great suspense. However, the film backed away from this implication, and the CIA was presented as having been duped: they were more stupid than malevolent, which is probably closer to the mark.

Another delight was how the “board of directors” of the evil conspiracy met: rather than show the standard meeting room on a yacht or somewhere underground, it was done during a performance of Tosca using earpieces and small microphones. This led to the most satisfying moment in the film, in which Bond had stolen one of the earpieces and suggested that they should perhaps find a more secure place to discuss their plans.

The evil plot at the film’s centre also contains some elements of interest: the villains plan to steal water from the Bolivian people and store it in a vast reservoir beneath the desert. The reason why this is done is never resolved: one can only assume that this will be stated in the next film. However, highlighting the lack of potable water at the moment shows an awareness of environmental issues which is astonishingly better than any previous Bond film.

The finished product is a slurry of seriousness and silliness, half-finished ideas, some of which are good, others poor. It is slickly packaged, but has a great many defects. What it is definitely not is the Bond film of yore: a fantasy world of espionage that bears so little resemblance to our world it cannot possibly disturb us. The problem for the makers of the next film is if they want to continue onwards towards things which can affect the audience: do they want to use the context of illusions to inform us of the Real? If this is the intent, then far from finding any quantum of solace, this film could represent the next step in the series’ evolution to something more challenging.

As presented by the Long Johns (John Bird and John Fortune):

Less than twenty four hours after explaining to my colleague what created the credit crunch and the subsequent economic turmoil, my own job was swept away by the rolling tide. There is very little to tell; the processes involved were not transparent, all I know is that there was a meeting of senior shareholders, most of them looking grave and grey, and hours later, I was packing my bag and leaving my work laptop behind. I don’t believe I was alone; I went into London on Tuesday in my hunt for a new job and to my surprise, a former co-worker (who worked at a similar level of management) boarded the same train as I did. We didn’t speak to each other, and we barely acknowledged each other with a glance. He was dressed to the nines and was looking sheepish; the scene would not have been out of place in a film entitled “Middle Management of the Damned”. I’ve heard a lot of nonsense about the “dignity of work”; nevertheless to be unemployed does feel like one has a giant pimple right in the middle of one’s face. I’d rather not see my friends or colleagues in this “condition”.

I am better equipped than most to ride out this situation; I had a notice period payment, and I have a skillset which is still in demand. I’m also not the only income in this household. All may yet be well. However, the situation is not helped by the turmoil on the stock market. As I look at my handy stock ticker, the Dow was down yesterday by nearly 200 points, and, yesterday the FTSE closed down over 200 points. This is after massive intervention by the Federal Reserve, the Bank of England, and the European Central Bank to stabilise the situation. Indeed, the British government is now injecting capital into the banks directly and has made a £500 billion credit line available.

Despite all of this government cash, all of the bailouts, all the promises of buying toxic debt and basically begging the markets to behave themselves, here we are. Governments are obviously determined to continue molly-coddling the investors and bankers which got us into this trouble in the first place: everything hinges upon what precisely they think about the future. If they think things will improve, the market will rise. If they think things will remain in the doldrums, they will continue to hammer the economy. Creating this level of assurance is now so important that governments are falling over each other in order to make it happen, and in the process, creating an absurd form of socialism which hits the average person in order to prop up the rich.

I’ve tried to calculate the amount of money that has been thrown away so far in this pursuit; it is already in the trillions, most of it is in the form of new debt, which will be passed on to European and American taxpayers. All of this debt will have to be repaid, and mostly, it will be repaid to the Chinese and governments in the Middle East. And yet, if the stock market is any indication, they want more.

If at this point, you feel like you’re being robbed it is because that’s precisely what’s happening. Let’s be clear: the banks loaned money to people who could not pay it back. We all make mistakes in purchases: I wish I hadn’t bought the used car that I did, for example: it’s temperamental, and keeping it in good nick is a pain. However, as most of us are not banks, we accept and simply learn from mistakes, and write off the losses involved. Yes, there is a difference in scale, but if there is one emotional quality that is lacking in the banks it is maturity; though wisdom runs a close second.

What’s truly horrible is that the heist will get more expensive, the longer the situation lasts: the commitment is open ended. Furthermore, simply handing over the money is not going to help the poor and unemployed. There is no bailout for me, or for my sheepish colleague hiding on the train. Rather, we are simply expected to find work, even if the paralysis in the economy makes this very difficult. If I go down to the unemployment office, I will be faced with a government which is going to try and stop me from claiming any cash, in spite of the taxes I have paid into the system over the years.

If there is any good to come out of this, it should be the realisation that capitalism has reached a point of crisis. It was nice to believe that somehow it could be the quickest means by which poverty was alleviated: there was a point where one could offer it as a magic bullet and not be laughed at. Furthermore, it required little intellectual rigour in its application: politicians can be lazy, and just “leaving things to the market” sounds like a labour saving device. We should have known better: setting loose the market may have let many good entrepreneurs come to the fore, but it also unchained forces of greed and stupidity. Now that the government and business are so intertwined by necessity, we now have a choice: we can either continue to be subject to further muggings by big business, or the balance can be shifted in favour of stability, security and the environment. Favouring the latter would likely mean economic growth is not as sprightly, or that we don’t produce as many Bill Gateses or Steve Jobses as some would like, however perhaps it’s time to recalibrate our expectations. What’s better, being able to have the absolute latest in every gadget and the indulgence of every whim, or knowing that your home won’t be repossessed, and that your employment won’t go up in smoke?

I admit I’m writing as someone whose vice is spending money on my education; as such, I don’t have far to go in changing what I want out of life. A transition of this type would likely hurt others far more than me. However, there is a world of pain out there anyway; returning to the train carriage of several days ago, I saw no smiling faces, heard no laughter. This may not seem unusual in a train in the middle of a big city; however the overriding tension was new, not something I’d seen since the early 90′s. Back then, I hoped we’d never witness this again; this time, I hope we have the wisdom to make the choices to ensure that it doesn’t.

I think I’m a reasonably good manager in at least one respect: I try to shield my team from the horrors of what exists outside of our limited domain. I don’t rehash every argument I’ve had, or tell them every silly quip that has been said by my superiors; I try to create an atmosphere that is conducive to creativity.

However I’m beginning to wonder if some members of my team are almost too insulated: I got asked yesterday, “What is all this?” This being the economic crisis, the credit crunch and the subsequent fallout resulting from it.

I could sympathise; the present crisis is not easily understood. In fact, I’m not sure I understand all of it: what I do know sounds thoroughly crazy, but given that unlike fiction, reality doesn’t have to be realistic, perhaps it’s true. I attempted an explanation for his benefit and that of my team.

I asked him if he’d ever heard of a company called Yes! Car Credit; this is a British firm that sells cars to people with bad credit histories. He said yes. Fine, I told him, have you ever seen the interest rates they charge on their car loans?

He hadn’t. The interest rates, I explained, are much higher than they would be for a “standard” borrower. It’s a premium you get charged for being a bigger risk: Yes! Car Credit makes their money this way, by being a lender of last resort and socking it to those who have nowhere else to turn.

Similarly, subprime mortgages were attractive to investors because of this higher rate of return. If houses kept rising in value, these were not as risky as usual, because even if there were some “deadbeats”, the houses would still be valuable asset, and could be sold on at a profit.

This problem was made worse by the present banking culture; investment bankers are incentivised to get high rates of return on their money in the short term. Subprime mortgages offered these high returns, quickly. The bankers, eyeing big bonuses, Saville Row suits and Aston Martins, said “Yes, more of that please”.

“But,” my colleague said, “the people taking out the mortgages didn’t have any money!”

Right. A lot of people got into a financial hole and the only way to keep above water for some was to borrow against the perceived (rising) value of their homes. There was an insane situation, repeated throughout the United States, in which people were taking out loans just to pay their mortgages.

Government made the problem worse because they didn’t tell the banks to cut it out; indeed, in America, Fannie Mae and Freddie Mac provided guarantees for the issuance of these subprime mortgages. So long as the market kept rising, the day of judgement was kept at bay.

This is not to say the banks were oblivious to risk. The way they handled it was by issuing “derivatives”, which packaged the subprime debt into other securities which were sold on to other banks throughout the world. Banks, again, liked them because they offered a higher rate of return than more conservative investments.

I then had to lower the boom on my colleague: I said, “What if I told you that all banking is a con trick?”

“Say what?”

When one looks at their bank account, they assume that the nice figure on the ATM or computer screen is somehow stored in the bank’s vault. It’s not; for banking to make a profit, they loan the money out or invest it. Thus the money in your account is actually not there; all they have on hand is a fraction of total deposits, and a hope that you’ll believe the money is secure.

My colleague visibly paled. I continued: so let’s move on to recent times. Bought any petrol recently, I asked. He replied in the affirmative and complained about how expensive it was. I said, because of the constraints on the supply of oil, food and other commodities, prices have been rising quickly. This made subprime mortgages even less affordable for those who had them. Add to that the measures that central banks took in order to stamp down price increases, namely, by raising the main interest rate at which banks operate, those mortgages became even less affordable. Subprime deals began to collapse like a house of cards; in the United States, some people went so far as to evacuate their houses and hand their keys over to the banks without bothering to go through repossession. House prices have plummetted as a result: according to the Guardian, you can buy a two bedroom house in Detroit for £800. My colleague said, “Cheap holiday home!” I think he hadn’t heard the “Detroit” bit. However, the price is an indicator: subprime mortgages stopped meaning anything other than losses.

My colleague then wondered why it’s our bad luck; surely the banks should just tough it out and suck up the losses. I replied that in an ideal world, that’s precisely what would happen. The problem is that the derivatives bundled in these bad assets in so many wrappers and spread them so far and wide that the banks actually don’t know what their assets are worth any more. Furthermore, they don’t trust each other’s assets to be worth anything.

“Is that important?” he asked. Yes, it is: a lot of banks lend to each other to cover temporary shortfalls. They’re now treating each other like subprime borrowers, raising interest rates, and thus discouraging the consistent flow of credit. Furthermore, some institutions are regarded as being too risky lend to: Lehman Brothers failed because no one wanted to loan them any money, in spite of the fact that much of their business was profitable. This problem is made more complicated because the banks obviously mistrust each other even without a credit crisis and won’t get around a table to discuss the problem: new disclosure rules, for example, could show who is toxic and who isn’t. However, those who are toxic don’t want to show that they are until the very last minute.

Because of this mistrust and lack of lending, all credit is drying up: it’s not just affecting the flow of money between banks, it’s also affecting the amount of money banks have to lend. Individual savers are more inclined to stampede to get their money out: because of the con-trick at the heart of banking, a lot of banks can’t withstand that at the moment. They have to maintain higher reserves from now on in order to weather the storm. This means there is less to loan to businesses and individuals. Economic activity, as a result, is slowing down, if not shutting off.

My colleague asked how the bailout would fit in. The idea, I replied, is that the government would buy these toxic assets and thus flush the system out of what’s creating the mistrust. However, there is another way around it: make the subprime assets into good ones. This can be done through revision of the terms of these mortgages (i.e., at a lower interest rate) and also by giving cash to homeowners. This has the added benefit of making fewer people homeless. However, unlike buying toxic securities, there is no prospect of the government actually making a direct profit out of it: they are trying to get these assets at a bargain price, with the hope of making money after the situation improves, and thus minimising the cost of the bailout. But that’s just a hope; and it won’t reduce the number of tent cities of repossessed people that are springing up.

My colleague then asked the killer question: “How long is this mess going to last?”

I had to tell him the truth: I don’t know. If the banks can somehow manage to get rid of the toxic assets, and if the “bailout” is done in such a way that confidence returns, the worst may be over by the end of 2009. I did remind him that the worst performing business of all time is predicting the apocalypse: so far they’ve been wrong every single time. Somehow, we muddle through war, chaos, and economic catastrophe: even the Black Death didn’t finish off humanity. However, it could very well be that we are like Japan, which sleepwalked through a deep recession for over ten years. In any case, the era that we are coming into is a more modest one, a less reckless one, one in which we can and should be more aware of how things actually work. It may not make anyone happier, but at least, it should make us safer.

My colleague asked what he, personally, could do.

“Keep your head down,” I replied, “and if you’re religious…pray.”

I had to stop myself from shouting “Amen” and “Halleluiah” during this rant by Rep. Dennis Kucinich (D-OH):

The $700 billion bailout of American financial institutions is likely to be rubber stamped this week. I can’t say that I’m particularly happy about it, but at least this morning’s television news wasn’t as polluted as usual with bankers crying out for Uncle Sam to rescue them. It’s been reported that matters became so pathetic that US Treasury Secretary Henry Paulson got down on one knee before the Democratic leadership and begged them to pass the bill.

I liked Nancy Pelosi’s response to this grovelling: “I didn’t know you were Catholic.”? I have to admit that I would have found it somewhat difficult to come up with an adequately polite quip for this former “Master of the Universe”? (to use the Tom Wolfe term) reduced to prostrating himself in such a manner.

This incident is perhaps symbolic of an end of an era: we haven’t seen Wall Street this humble in a long time. Ever since Michael Douglas (as Gordon Gekko) said “Greed is good”?, we’ve been living in a world where investment bankers were a privileged minority: the dot com bust, Enron and the death of Savings and Loans couldn’t bring them down. Now they really need to be saved and the shoe is well and truly on the other foot: it may stay there.

I come from a banking family. Both of my parents held high level jobs in the technology departments of large institutions; my Dad in particular had a front row seat to much of the senior-level decision making. We had a chat yesterday about what caused the crisis; it’s partially correct to use words like “avarice”? and “stupidity”?. One word that didn’t instantly spring to my mind is “cowardice”?. After all, high stakes gambling is not an activity for the faint of heart.

However, according to my Dad, the bankers have known for a very long time that the financial incentives for short term gains were potentially destructive. A number of institutions have discussed restructuring investment bankers’ packages so that they would get only part of their bonuses up front. The remainder would be paid later, after it was seen that their bets had paid off. This alteration alone probably would have headed off some of the riskier ventures, and furthermore would likely have created at atmosphere of greater stability and employee loyalty. After all, if you’re not going to get a payoff for a number of years, it’s worth hanging around to get it.

So what stopped them? Apparently, the banks were afraid that if they changed the bonus structure, all their talent would jump ship for an institution which decided to keep present arrangements in place. Under these circumstances, no one was brave enough to fly in the face of the overriding culture; when times were good, this hesitancy bore no consequences.

It’s not the job of leaders, however, to just surf along the waves of prosperity: anyone can do that, and it’s not really exercising leadership if you indulge in a Lacanian outburst of “Enjoy!”? The jouissance of the markets needed to be curbed: real leadership would have taken into account the potential downside, and prepared for turbulence.

I don’t accept that the banks had any natural obstacles to change. I’ve been in a similar business situation in which rival firms hated and mistrusted each other; the only cure was courage, a willingness to talk and extend an open hand. In my case, I worked with others to achieve agreement on the creation of an open standard for data transmission; the firms who created it hadn’t ever spoken collaboratively prior to this venture. Admittedly, my business realm was quite humble. However, this example shows the fundamental simplicity of change: someone in Goldman Sachs or Morgan Stanley or JP Morgan Chase just needed to get on the telephone and say, “Let’s talk”?. It’s highly probable that they would have found they had more in common than previously realised, and would have been able to agree a solution.

Competition sometimes can bring out the best in people; after all, this is an Olympic year and we’ve had ample evidence of this. However being mindlessly competitive is destructive: it’s appalling to think of how many people are going to lose their jobs, how many homes will be repossessed (there are already reports of “tent cities”? of the repossessed springing up in American cities), how many dreams are going to be shattered because the bankers shilly shallyed and said to each other, “You first”? and “No, you”?. Paulson may think that he is being brought to his knees by political intransigence; the truth is, he and his ilk brought themselves down because they were too weak to admit that they should help each other.

As an American (as well as British) taxpayer, I’m not looking forward to getting the bill for decades of others’ spinelessness. I probably should have realised that I’d be picking up part of this tab some time back: a very long time ago, in what almost feels like a different life, I worked as a lowly intern in the technology department of my Dad’s Wall Street bank. I vividly recall a summer’s day, with 32 degree Celsius heat, on which I had to push a cart with a heavy UNIX workstation down to another office on Broadway. In my way was a photo shoot, featuring several male models dressed as bankers. I had difficulty, but I manoeuvred my cart around the scene: I noted that the models were uniformly tan, smiling, and hadn’t broken a sweat even though the air was so hot and oppressive that I couldn’t help but feel grimy just by breathing it in. I recall resenting them because of their air of arrogance and presumption. They embodied the spirit of the Street, as it stood astride the world. We will be better off if the bankers finally accept that it’s time for them to step out of the way; after all, their skins are going to be saved by the people pushing the carts.

As sent to me by Robin Yassin-Kassab:

Now here’s a bail out plan that works! I’m against the $85,000,000,000.00 bailout of AIG. Instead, I’m in favor of giving $85,000,000,000 to America in a “We Deserve It Dividend”.

To make the math simple, let’s assume there are 200,000,000 bonafide U.S. Citizens 18+. Our population is about 301,000,000 ± counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up.

Divide 200 million adults + into $85 billon; that equals $425,000. My plan is to give $425,000 to every U.S. citizen age 18+ as a “We Deserve It Dividend”.

Of course, it would NOT be tax free. So let’s assume a tax rate of 30%. Every individual 18+ has to pay $127,500 in taxes. That sends $25,500,000,000 right back to Uncle Sam. But it means that every American adult has $297,500.00 in his /her pocket. A husband and wife have $595,000.

What would you do with $297,500 – $595,000 in your family?

• Pay off your mortgage – housing crisis solved.
• Repay college loans – what a great boost to new grads.
• Put away money for college – it’ll be there.
• Save in a bank – create money to loan to entrepreneurs.
• Buy a new, fuel efficient car – create jobs & reduce emissions.
• Invest in the market – capital drives growth.
• Pay for your parent’s medical insurance – health care improves.

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back.

And of course, for those serving in our Armed Forces. If we’re going to re-distribute wealth let’s really do it … instead of trickling out a puny $1000 (“vote buy”) economic incentive that is being proposed by one of our candidates for President.

If we’re going to do an $85 billion bailout, let’s bail out every adult American! As for AIG – liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up. Here’s my rationale. We deserve it and AIG doesn’t. Sure it’s a crazy idea that can “never work.” But can you imagine the Coast-To-Coast Block Party! How do you spell Economic Boom? I trust my fellow adult Americans to know how to use the $85 Billion “We Deserve It Dividend” more than I do the geniuses on Wall Street or in Washington DC. And remember, this plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

You don’t want to even hear what I think about the stupid mortgage companies that loaned out billions of dollars to people who they knew had no way of paying back the loans, with both sides of the equation interested in one thing … fast money. But it didn’t work, and now we’re supposed to bail out those idiots too???

Kindest personal regards,
Bill

I am not sure I see the point in giving billions away only to have part of it returned to the government in taxes: just give out the after-tax amount, I think. However, the basic principle is sound: rather than bail out financial institutions who invested in bad mortgages, how about giving homeowners a boost so the “bad” mortgages are no longer “bad”?

It’s nice to see the people at Obama HQ are having fun: