Thursday, February 26, 2009

The New Collection-Based Economy

How bad will it get?

One of the scariest examples of the world economic melt-down is the experience of Iceland. Yes, the tiny but proud country with the Björk-based economy likely did themselves no favours relying on the quirky but prolific pixie-like recording artist for over 45% of their GNP.

(I know that's true cuz I saw it somewhere in an Onion article once...)

All kidding aside, Iceland's real problem was that their banks' finances were way too heavily beholden to the Bullshit Bush financial model, where carefully concealed Bullshit is repackaged to become the investment option of choice for organizations worldwide.

It wasn't Björk's fault the Icelandic banks found themselves holding six times as much debt as real capital to cover it late last year.

The relative health of Canadian financial institutions should be a source of comfort for those of us lucky enough to live here, right? Well, not entirely:

Lost in Traslation?
Apart from the obvious need for political cover, I really don't see the point in Quebec Premier Jean Charest's decision yesterday to haul the Caisse de dépôt et placement du Québec onto the carpet after suffering its worst year on record.
"As with all other investors, the first element that explains our return this year is the global financial crisis that broke out in the fourth quarter," said Caisse president and CEO Fernand Perreault.

However, he said the fund's decision to delve heavily into asset-backed commercial paper (ABCP)also cost it dearly. The Caisse invested $12.6 billion in the form of short-term debt, making it the largest holder in Canada.

With the market for the debt frozen, ABCP accounted for $4 billion of the Caisse 's total losses in 2008.

Perreault now admits investing so heavily in ABCP was a bad idea.

"In hindsight, we placed too much confidence in these securities …. It was a mistake to accumulate so much ABCP," said Perreault.

"We mistakenly believed that these products were as safe, or almost as safe, as other money market instruments."
Of course, the decision to go so heavily into asset-backed commercial paper can be easily explained by the usual Quebec excuse of the unfair language barrier sticking a knife in our backs. (Mais Jean, c'n'est pas juste! We thought they said "acid-backed paper". We thought it had industrial applications, hôtie...)
[Note to Icelandic bankers looking for some kind of excuse: you're welcome, and don't worry, we won't bill you.]

What knee-jerk Quebec media don't understand is that mammoth funds like the Caisse handles are too big not to be a reflection of the underlying economy on the whole. Yes, Quebec lost 25% of the supposed value of its nationalized pension fund (if you choose the highest benchmark as your relational point), but what else did we expect? Of course the fund managers did the same things as their counterparts worldwide who were using paradigms for risk that assumed triple-a securities were rated accordingly.

From there, the need to get in the game and follow the other lemmings takes over naturally. If everyone else is doing it, it must be okay, right? Over the cliff with us!*

The Bush Trickle-down Bullshit Model
Not if the "assets" on the backs of all that paper amount to utter Bullshit.

It all boils down to the Bullshit right-wing deregulation of the financial markets in the United States. The United States under their Bullshit President and their Bullshit Republican-controlled Congress became a bastion of utter Bullshit generally. And if the right-wing "trickle-down" concept applies to anything, then surely it applies to Bullshit (especially when coupled with governmental leadership).

Because as Bullshit ruled the White House, so did Bullshit rule the way American financial markets were run.

As did it rule the way American companies were run.

Right down to American household economies, where buying a house with nothing down and a 40-year amortization on a mortgage with no principal paid-down in the first few years became common-place. And then, they get a new flat-screen TV and cable and end up watching home renovation shows where the illusion is propagated that 22 minutes later you've got a beautiful, modern kitchen gleaming in the morning sunlight. Add some happily-scrubbed children's faces, munching on microwaved pizza pops and you're in the Promised Land.

So it becomes normal to not just over-leverage your household income, but to dream about over-leveraging it even more (like all the other lemmings in your neighbourhood), and go to that beautiful church-like Home Reno warehouse store and get a Home Reno Platinum Card (fine print showing 28.75% interest, compounded daily, subject to change at the issuer's discretion), and spend, spend, spend to make your own home the temple You Deserve since you don't have any other spirituality to cling to and make sense of your daily existence.

That's what it meant to be a good little consumer in the consumer-driven economy of the Bullshit George W. Bush America.

Dead Stop
And what are we left with? A world where the Bullshit has trickled down world-wide. Hence Iceland. Hence pension funds exposed to have little real value. Hence world-wide panic that filters down to a financial and economic dead stop.

No one is paying anyone for anything unless they absolutely have to. So the new economy is a collection-based economy. At least that is how it appears when I look in my email inbox, where I see the hard-working little application at Workopolis.com has sent me links to the day's new job postings - and more and more of them are related to people trying to lean on other people to pony-up (three out of four today):
Your Job Search Results
We’ve found new jobs that fit what you’re looking for! Click the links below to find out more.

AN UNNAMED COMPANY
Bilingual Customer Service Rep- English/French Required (2/25/2009)

GROUPE MONTPETIT RESSOURCES HUMAINES INC
Collection administrator bilingual - (english and french) (2/25/2009)

HSBC Finance
Collector (2/25/2009)

HSBC Finance
Collector (2/25/2009)
Please, World, Scare me Some More
Meanwhile, with the unknown effects of what's looking more and more like runaway global warming, will all this seem quaintly anti-climactic a generation from now?
Antarctic glaciers are melting faster than previously thought, which could lead to an unprecedented rise in sea levels, scientists said Wednesday.
The warming of western Antarctica is a real concern. "There's some people who fear that this is the first signs of an incipient collapse of the west Antarctic ice sheet," said Colin Summerhayes, executive director of the Britain-based Scientific Committee on Antarctic Research.

Sea levels will rise faster than predicted by the Intergovernmental Panel on Climate Change, Summerhayes said.

An IPCC panel in 2007 predicted warmer temperatures could raise sea levels by 76 centimetres to 120 centimetres this century, which could flood low-lying areas and force millions to flee.

"If the west Antarctica sheet collapses, then we're looking at a sea level rise of between one metre and 1.5 metres," Summerhayes said.

Researchers found that the southern ocean around Antarctica has warmed about 0.36 F in the past decade, double the average warming of the rest of the Earth's oceans over the past 30 years, he said.

Obama doesn't have a monopoly on change. A complete shake-up of society is upon us.

- 30 -

*Turns out the meme of lemmings mindlessly running over a cliff to their deaths is another piece of US-propogated bullshit - this one exposed long ago by the Canadian CBC. The staged lemming "mass suicide" part comes just over a third of the way in.

1 comment:

Monique said...

Hi Scott,

I found your blog via Rural. I like your posts - they're informative AND funny - good stuff (ok, I don't understand all that money stuff but that's just because I don't understand money stuff). I like your lemmings analogy and I just used a buffalo analogy in something I'm writing too. Rural and I have started a blog about democracy - www.democracyunderfire.com
Maybe you can join us there sometime.