Saturday, 1 August 2009

You Lose, We Win

Well it didn't take long, did it? As you mull over your breakfast and worry about your finances and future, be comforted by the fact that life is getting back to normal.

A report by the New York State Attorney General has published the list of bonuses paid to bank executives last year. That's right, I said last year - the year when the taxpayers around the world paid the rather large bill for the bunch of voracious gamblers in the sophisticated world of Hi-Tech Finance which we seem to think we need to help our world be the way it is. So much so that we are willing to continue paying off the debt until 2032.

Put down your cereal spoon for fear of choking on the next mouthful as it gets better.

First up - Citigroup, who were until a year ago the most 'profitable' bank in the world but was the US version of RBS in the scale of their stupidity and greed requiring hundreds of $billions to bail them out by the US Treasury in terms of loans and guarantees. Well, their darling top earners pocketed a meagre $609m last year - and that was shared out amongst just 124 people. Three of the gamblers earned over $10m, 13 of them grabbed $8m or more while 44 people made off with $5m or more.

Merrill Lynch was at it too - the company that performed so badly that it had to be bought by Bank of America and even then had been less than honest about its liabilities and even as it finalised the deal, still paid out bonuses to its gambling executives. They clocked up a near $28bn loss last year but still managed to pay a total of around $860m in bonuses and that was only to the top 149 earners, of which the top 4 were paid a combined $121m, the next 4 around $62m.

There is plenty more - every state aided bank paid out huge bonuses again last year just as if nothing had really happened. The estimated global cost in terms of bail outs is far in excess of $5 trillion and the banking world goes on as if nothing has happened.

In the UK, savers have been compensated to the tune of £21bn after the collapse of the banking system and then there is the enormous bill we have been landed with by the world of finance far beyond that in rescuing the banks who failed so massively.

It's a real world that lacks any kind of similarity to real life.

A career in banking was once seen as the realm of the fuddy-duddy, striped-suited Oxbridge chaps who stalked the City effectively lunching to get inside tracks. Today, modern banking is just a sophisticated and complex system of gambling. The supply of endless money into the system means that comparatively unintelligent people can drive screens that just does the banking version of whirling weighted fruit machines - they cannot seem to lose and the rewards are fabulous. What we have done, in all the far-fetched sums we have collectively stumped all over the world, is to keep the whole thing going in exactly the same way.

There is not a hint of contrition. There has been no real cull of the people who caused this. There has been little or no action by Governments and scant real understanding of the extent of our dependence on the system to sustain our way of life other than the fact they 'had no choice' in bailing the system out to make sure it did not collapse and the world becomes some kind of wilderness of fighting tribesmen haggling for food with beads and goats.

The fact remains that the finance world had created a make-believe game that generated profits from thin air just as part of the solution is to create more money from thin air in 'Quantitative Easing'. The threatened implosion of that system did not trigger a clamour to change it but to merely save it and we came so very close, they would have us know, to a world foreseen by 'visionaries' like David Icke. It now seems that lunatics like Icke were actually the clever ones.

The problem revolves around us. We are now so 'well off' that we must have 42"+ tellies, more pods that you can listen to, phones that send video, the latest gadget, new furniture, holidays, kitchens - the list is endless - and we are all very prepared to spend far beyond our means in order to get it and forfeit anything to do with provision for our retirement. Our jobs are now in far greater jeopardy than they were two years ago, more of us have lost our jobs since 1997 and our average take home income has actually dropped in real terms over the same period.

The fact was that we afforded this 'Utopia' by drawing down on our asset values - we created our own banks to conjure up money out of nothing.

Many will tell you that there is a concept of 'zero sum finance' which means that all the money in the world flows in credits and debits and always adds up to zero. So in that farcical view of the world, some may get richer at the cost of others but the amount of money has not changed and so the world is no worse off. But it is worse off. Just as the Bank of England literally conjured up £175bn out of nothing in order to increase the money supply, each of us created our own cash out of the supposed value in our assets. And then we gave it all away by spending it. We did not buy any really tradable assets as what we bought were effectively disposables or services - we did not invest in fine art, stamps or precious metals. We effectively increased the amount of money in the world and gave it away.

The bill for all that came right back to us because it was not real. As the value of our assets dropped the whole system shredded itself and we had to dip into our pockets for the actual cashflow to pay for our own mortgages again - this time in incremental tax over the long term.

What the whole collapse has taught us is that you can get nothing for nothing. You can create as much money as you like but there is a price to pay for it. And boy has the real person found out.

Up the there in 'Bank World' that hasn't happened. Reality was a close call for them but thankfully a bunch of mugs known as taxpayers and real people worldwide saved their pathetic necks. And now they are playing the whole game again. In the zenith, or nadir, of the crisis, I saw excerpts of the African Nations Congress or similar. Speaker after speaker expressed how incredulous they were at the enormity of something they simply could not understand. They also were at pains to point out that they had not caused this Credit Crunch and so the developed world should not forget them - but we did. There are always losers in the world of 'zero sum finance' and it is those who are unable to play the game. As in any lottery, you have to be able to afford ticket to play - the Third World just watched wide-eyed as the sophisticates of the developed world simply gave away money they did not have to a small number of incredibly wealthy people and then paid for it again. Meanwhile people were dying in front of our eyes and the planet is getting a less healthy place to live.
We must be mad.

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