I am going to try not to steal too much from other peoples blogs but this little lesson from The Slog is too good not to pass on. In an effort to keep it simple, he gives us this depressing picture.
1. All governments overspend. This is because it isn’t their money.
2. All bankers invent ways to make paper seem valuable. This is because they don’t understand wealth creation.
3. All interesting people are bored by finance. This is because it is interminably boring.
4. Tediously sociopathic crooks take advantage of the boring dimension of finance to cheat people.
5. When governments overspend, bankers come to their rescue. When bankers screw up, governments bail them out. It is a mutually beneficial relationship that leaves the taxpayer out completely…until it comes to paying the bill.
6. Once upon a time, insurance and pension providers did not invest in the stock markets: they put our money only into things like government bonds, which were rock solid.
7. Once upon a time, governments didn’t piss away taxpayer monies, and so their bonds were rock solid. Then they got grandiose ideas about spending on stuff that could never pay back. And then insurance and pension providers began to invest in stock markets. And beyond then, insurance and pension providers spread their risk by investing in both bonds and stocks. This was a little like hedging between the Titanic and the Lusitania.
8. Pretty soon, sovereigns, institutions, companies and banks began saying they had to do profoundly bad stuff – because they had to consider the shareholders….aka the insurance and pension providers.
9. Into this melée came the hedge funds and light-speed traders, to overlay profusion upon confusion. And at a height somewhat above them, people slicing up promissory notes called derivatives were busy making two acres of a Kansan maize crop worth $3m to a small building society in Scotland.
10. And so we arrive at today, where everyone buys and sells everything. Or, to be more precise, everyone bets on the value of everything – knowing only too well that at least half the time it’s worth three-fifths of nothing. This applies mainly to the stock market, but also to the bond markets. Betting on the bond markets is theoretically good, because if the issuers default, there’s always the insurance to bail you out. Those are, however, the same insurance companies up to their necks in 8 and 9 above. And if the defaulter is Greece, the ECB won’t admit it’s defaulted, and thus tells you to go screw yourself. So everyone is angry almost all the time, and pretty darned discouraged when the ‘essentials’ that are supposed to guide the prices and yields turn out to be not just awful, but also completely unrelated to the prices and yields.
The trouble with elegant simplicity in 2013 is that it gives the game away every time. Only complicated, multifaceted, hypothecated, quantitative, and derivative can keep the troupe on the road just one step ahead of the creditors. Big and complex is bad. Small and simple is good.
The Slog’s general pessimism makes me seem like a Pollyanna, but I think he has nailed it here. When I get round to producing a list of blog sites I recommend…this one will be one of them. If I do get shafted by the financial system even more than I have been already, it will not be because the Slog has failed to warn me about what it may yet have in store. He has quite categorically told us that we are mad if we are keeping any large sums of money in a bank. I have no large sums of money so this is a warning of no real use to me, and I am not going to take any kind of responsibility for passing on such a message in recommendation. However, he is always a good , if somewhat dispiriting read.
I am not going to join in generic banker bashing on this blog, much as many of them undoubtedly deserve it. If you have had a “regulatory” system in place that allows people to steal money while undertaking no personal financial or other risk you are going to get what we got. I do reserve the right to single out individuals for a “two minute hate”.
P.S. The Slog also has a 32 ounce bee in his bonnet about paedophilia and corrupt sex practices amongst the power elite (slightly more restrained than David Icke but there is not much in it) and if even a tenth of what he suggests is true it is ugly, very ugly. So ugly I cannot really believe it…but that does not make it untrue.
Next…kittens!