Forget the Lippizaners. Check out these central bankers on their huge white steeds. Charging to the rescue, the double edged swords of public money flashing in the sun, saddle bags stuffed with notes and hosing cash on to every little conflagration they can see. Markets just love lashings of liquidity and this lovely loot has brought the bull stampeding full speed into the arena and the vicious bear that was tearing everything to shreds earlier this week has vanished.
This has been a week to remember in the markets. Especially in the USA. The Lehman Brothers ran out of brotherly love and the Thundering Herd went over the cliff. The US taxpayer has become the owner of the insurance company that they expect will meet their claims for rebuilding Texas-by-the-sea; and simultaneously has became a sponsor for a not very good English soccer team. It has been smoke and mirrors of the highest calibre.
Have you noticed that the TV pictures seem to show only the largely blameless low level employees being spat from the revolving doors of their erstwhile employer’s office block? The chaps at the top of these now smelly heaps have firstly ensured that what remains in the treasury has been appropriately redirected to themselves and then purred from the basement garage in the limo. I am wondering at what stage the term “performance bonus” changed its meaning.
An ironic comment has been doing the rounds pointing out that the amount of money paid by bank A for bank B just a few months ago would today be more than enough to add banks C and D to the shopping basket and still have enough spare change to buy a major high street retailer. Even though this story is about the British situation, recall that some far eastern fellows not very long ago bought a chunk of a local bank for a price which is now nearly double the current level. This capitalism stuff is tricky, believe me.
For example why are the survivors sniffing around the corpses and offering large sums for certain organs and entrails that they think are still healthy. After all the principal assets of a functioning division of a bank are mainly the people – who we have already noted are shuffling down the street with their photo of the kids, favourite coffee mug and flash memory stick of models and client phone numbers in a kit bag – and the book of business, whose worth these days is very uncertain.
The financial landscape is undergoing enormous tectonic shifts. As usual the politicians and regulators are swarming all over the place promising to fix things so that it will never happen again. The sole certainty is that they will fail. Already emerging from the wreckage I am sure are ideas and plans to profit from the various rescue programs. Even in soon to be devalued dollars, the amounts of money being talked about are awe-inspiring. Everyone is going to want a piece of that action.
The economic landscape will not be unscathed by these developments and growth will be lower than any of us would like or need. Unfortunately political events can also have an influence in this area, and I think that particularly foreign investors are bewildered by the sight of the local ruling party waging civil war on itself. Ideally, provided they keep to themselves and limit their larceny to reasonable proportions the rest of the nation can ignore government and get on with their own lives. Sadly this is definitely not the case at the moment.
Several readers complained last week that I had renamed the rugby trophy after a local spice. Will they also moan about the spelling of Umfolozi, which is where I am now going to look at rhinoceros and beer?
James Greener
19th September 2008.
