29 September 2008

Pecunia, si uti scis, ancilla est; si nescis, domina

I wonder if we will all look back on the events of this week with the same sense of history that accompanies the week the Berlin Wall came down.

As I write this Congress just voted down Treasury Secretary Paulson's €700Bn rescue plan, with 2/3 of House Republicans and 95 Democrats voting against it. In theory Republicans don't believe in interfering with the free market, Democrats don't want to reward Wall Street for its reckless behaviour. In reality all 435 members of Congress are up for re-election in just over 30 days time, and very few of them want to have their names attached to a very unpopular peace of legislation; with millions of Americans worried about losing their homes, jobs and life savings, supporting the Bill is political suicide in middle America.

As Congress act to save their own seats, Wachovia today became the latest US bank to be rescued from extinction by the Federal government, this time by brokering a takeover by Citigroup and assuming $12Bn of Citigroup stock in the process. Almost simultaneously the UK government assumed control of Bradford and Bingley, following on from the nationalisation of Northern Rock some months ago.

Where is all the money coming from to buy these institutions? In the US it is a combination of money taken immediately from the tax payer, and longer term loans taken by the Federal Government from groups like the People’s Bank of China. Even with the prospect of raising taxes, which neither Presidential candidate will countenance discussing, there simply is no way to raise the money needed to pay the agreed bail-outs, let alone the now-defeated $700Bn general amnesty fund, through the public exchequer alone. The US government will have to go even further into debt to China, further reducing any chance that pressure will be applied by global leaders on the Chinese to improve internal freedoms, get out of Tibet, and stop poisoning the rest of the world with lead toys, milky sweets and saccharine pop tunes over the closing credits that spoil otherwise kick-ass Wuxia flicks*.

Its not just financial institutions that are in trouble, my former company has lost 50% of its market value over the last 11 months, any stock options** issued to employees in the last 24 months are essentially worthless today. This story is repeated across the tech sector, and what was even recently held up as a recession-proof industry is proving to be as volatile as the rest. Its as if the whole free market economy is nothing more than a precariously stacked house of cards, and we're just noticing now that the prison labour used to make the cards in Shenzhen were told to cut back on the thickness of the cards just a tad to save a few bucks. Oops.

Ronald Reagan is often credited for the destruction of the Soviet Union and the collapse of Communism by outspending it. Maybe one day George W. Bush will be remembered for destroying Capitalism in the same way.

In the meantime, I'm putting some fiddle videos up on YouTube; might as well try and monetize me a silver lining from the mushroom cloud of the global economy.

*nobody would ever have let Enya warble over 'The Fellowship of the Ring' if "Crouching Tiger" hadn't won the Oscar. I blame you Coco Lee, the blood of my ears is on your hands.

**Stock Options are the modern opiate of the capitalist society, promising a future heaven for accepting lower wages and harsher working conditions today. Kids, just say "No!".

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