I had always thought “Saving is Good”, but this new reading material begins with a headline that said “Big Savers Got Us into This Mess, as well as Big Spenders.”
You could be a cave dweller if you don’t know that Big Savers are China and Germany, and we in the U.S. of A and Britain – and with Spain and a few small countries from across the Channel -- are the Big Spenders.
The headline jives with a cartoon from the New Yorker magazine of a Chinese worker making sandals, herself bare-footed.
I got it.
I can now imagine a mountain of Cash sloshing around the world banks’ vaults doing nothing other than sloshing. I don’t mind the sloshing. But the Bankers of the World had a brilliant idea. Why not transform IT and spread it around, while of course helping themselves on a huge Chunk of it in the forms of multi-million-dollars apartments in sky-high buildings with amenities that regular folks have never heard of. People might have heard of the extravagant appointments of banker Thain’s New York office -- $35000 commode and $87000 rug, but I doubt that many people knew that there are apartments in New York with bathroom floor heated from below so that one can walk bare-foot in the depth of winter and not feel the stab of a cold stone on ones sole.
Bankers have been fond of saying that they are the ones who make “Your Money Works For You,” i.e. to turn your Savings into Investments. For years, it was their ambits. We knew it as CDs with differing maturity dates and varying sizes of income streams.
But within a decade from the late 90s, a new world of finance had begun to emerge, unbeknownst to the folks with the CDs.
The story was that a repeal of certain laws of financial regulations and the advent of computers and computation help to bring this free-range banking into being. The ambits for the bankers were widened. Bankers can now roam free, and they begin to assume the title of “Financial Engineers,” thus borrowing lock, stock and barrel the accrued reputation of safety, prudence, and design from the engineers who have built roads, bridges and buildings for centuries of public use. Roman aqueducts are still standing.
Instead of the materials of steel and concrete of engineers, the “materials” of the bankers are the “financial structures” of cleverly invented asset classes, which are “innovated” further into assets of assets of assets, which are in turn mixed and mashed and rated and insured and sold to various classes of investors for certain income streams. The investor may be the endowment fund of your alma mater, the police and fireman retirement funds of the county you reside in, or your rich uncle who has investments in a hedge fund.
Securitization is an old word but it now describes this new face of modern financial engineering, but the Nobel laureate economist Joseph Stiglitz has a different name for it, calling it “The Goldberg Machine,” which means a clever rigging of improbable and incongruous elements into a structure that in the end just do one simple thing: for example, produce an income streams for investors. I call it “Promises, Promises,” because honestly nobody can calculate the probabilities of complex-structured elements of differing origins working reliably as designed, whatever the provenance. Gods will not sign on the dotted lines!
In short, modern finance is collapsing under its own weight of artificial complexity and outright chicanery, taking the rest of us down in the process.
On this topic, Robin Wells of the Guardian online article “Big Savers Got Us into This Mess, as well as Big Spenders.” http://www.guardian.co.uk/commentisfree/2009/dec/03/financial-crisis-global-savings-glut has a different take as to the origin of the Financial Meltdown. She writes:
[Quote] Yes, we can blame the City and Wall Street for turning the global savings glut into fissile material. But that's like saying, "hyenas do what hyenas do". Given extraordinarily lax regulation and a flood of money to play with, bankers were just acting according to their incentive schemes. They merely took advantage of the opportunities the glut presented. The real culprits are thrifty Germans, and state-owned enterprises in China – along with governments of other countries, of course, turning a blind eye to the escalating problems. [Unquote]
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