Could My Son Have Saved Iceland?
Evansville, Indiana, features an annual fall festival called, very imaginatively, The Fall Festival. You know the drill: Deep-fried food and carnival rides that look as if they’d fall apart, were they sentient, from sheer boredom. So of course my family and I had to go.
My older son, with a pass to all the rides already in pocket, realized there were games to play––and this child loves games. I told him I wasn’t going to pay for these games, and that many were rigged to provide little or no return. Undaunted, he asked if he could borrow money.
I agreed, remembering the excitement I’d felt at his age when confronted by shiny games of skill and chance, but with a ceiling of five dollars.
Money in hand, off he went with my wife trailing after, and he returned shortly with a massive plush-toy chipmunk approximately the size of an ice chest. Amazingly, he’d won! I never did figure out exactly what it was he’d won at, but no matter. Securities speculation of some sort, no doubt.
I can’t help but be proud of him for winning, even if the chipmunk is poorly made and dopey-looking, but mostly I find the whole thing to be an interesting analogue of the world’s current fiscal meltdown. So: Let’s pretend that I’m the government and my son is a large-scale bank intent on guarantees that their cash needs will be met.
“Okay,” I say, “I’ll loan you 1% of my available reserves, which in this case is five dollars.”
“Grand,” say the banks, and off they go with my five dollars to make widgets or purchase imported plush chipmunks, or whatever it is they do. Thanks to my loan––and yes, they have to pay me back, just as my son already has––the world’s economic engines will once again lurch into gear.
But wait. What if my son and I enact a different event?
“Dad, can I borrow $6,358 dollars for midway games?”
“Sure,” I say. “But I only have five bucks right now, because that’s what my household is currently worth.”
“No problem,” says my son, and off he goes to play on credit, which the midway operators (stupidly) give him. But he isn’t smart about it; he doesn’t spend just five dollars. He spends, let’s say, $6,358.
When the midway operators come to collect their dough, my son has nothing but a single stuffed chipmunk and a lot of paper IOU’s. So what does he do?
He comes running to me.
“I need bucks, Dad! Fast!”
“No dice,” I say. “I only have five dollars in my treasury.” (Read: bank account.) “So that’s all I’m worth right now, and besides, you’re the one who owes me five dollars.”
“Help!” screams my son. “I’m bankrupt!”
You see where I’m going with this, right? This is almost exactly what’s happened to Iceland in the last few weeks. National Public Radio reported tonight that Iceland’s banks owe twelve times––get that, twelve times––what their government can reasonably take in from a year’s worth of taxes. And these crazed bankers expect the government to bail them out! With money they not only do not have but NEVER had.
These Icelandic banking execs went to business school to behave like this? Are they crazy???
I bet they even went to U.S. schools––Harvard and so on, or at least the London School of Business. Is this really what capitalism teaches?
Me, I teach home economics and basic finances via Parker Brothers and our household’s Monopoly ™ board. When my son and I play, he tends to buy too much too fast, and then he runs out of liquid cash. This makes it tricky to pony up for future debts (like when he lands on my set-of-four railroads; I love getting all the railroads). He is learning, however. Learning not to do this. Learning that to be over-leveraged is to be bankrupt. Which is to say, he loses the game. And every child understands the significance of this. Losing = BAD.
To further my dismay, disbelief and outrage at the real world (where Parker Brothers has, sadly, little sway), I have only to look at the classic object lesson of Enron. The Smartest Guys in the Room. And what were they trading on? Data. Bits of information. They bought and sold their own bits of information to the point where they didn’t actually generate income, only more bits of information. And when someone finally noticed, the company imploded, and took the California power grid down with them.
Once again, are these Captains of Industry really the best of the best, the elites that our finest institutions of higher learning turn out? These bozos are the new Smartest Guys in the Room?
How in hell can you get to a point where you owe twelve times more than your entire home country is worth????
Good grief.
So my question is this: Which EU nation is next to discover that their banks and financial houses actually owe more than their nation is worth? I somehow doubt Iceland is alone in this, and now that the EU governments are effectively guaranteeing ALL banking deposits, what’s to stop entire countries, and possibly the entire EU, from sliding into bankruptcy like some lumbering avalanche.
Ice crashing into Glacier Bay, that’s what this is.
I note the U.S. is reluctant to match the EU policy of guaranteeing all bank loans. Is this because they’d crunched the numbers, done the math, and concluded they actually cannot guarantee any such thing?
All this has prompted David Brooks, NY Times columnist and self-professed hawk, to declare that the era of conservative, free market capitalism is over.
That’s right. Over as in for good. Forever.
Other pundits are laughing at him, but I wonder. We just nationalized the banks, although no one will call it that, because they all say that when times are better, the bailout will end. This is like nuclear power. We can generate the power, sure––or engineer a bailout strategy––but how do we deal with the spent fuel rods and the hot-as-hell reactor core? How do we end the new paradigm of pseudo-not-quite socialism?
And the lunacy marches on. In the good ol’ U.S. of A., the federal government is now in charge of several large corporations, and while they claim they will not actually direct the companies, they will now, by popular (and populist) demand, be in charge of executive compensation. That’s right: It is now up to the Bailout Czar and his congressional cadre to decide how much the top-flight CEO’s ought to be paid.
How do we do this? If we’ve bought large shares in large banks, then it’s really the taxpayers who are paying these people their exorbitant salaries. Does that mean they should get more realistic salaries than they used to, if only because the rest of us are outraged?
I sure hope so. I don’t want my tax dollars going to make some banker rich, even if he did owe thousands and thousands from his student loans. (Oh, to be fair, I suppose this person could be a “she,” but Forbes tells me that there are still only a handful of female CEO’s, so in the interest of keeping this diatribe in the realm of realism––as if any of this would have been believable one month ago––I’ll just pretend there aren’t any women stupid enough to take such a career path in the first place. That’ll be easier.)
Now, this isn’t to say financial CEO’s should be getting minimum wage. You have to pay top dollar to get qualified people; that’s why school boards have to fork out large sums to get top management gurus to head school corporations. But I foresee a day not so far off when congress is forced to investigate itself because Joe Q. Public and Josephine Y. Citizen finally discover what “our” CEO’s are being paid.
Maybe I’d better find that out right now. Time to end this broadside and write my congressman…
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Tuesday, October 14, 2008
