The Staged Game

It is a beautiful thing, hindsight.
When I wrote a blog entry called “Economical With The Truth” (a year ago, but only a pitiful three entries ago) I had little idea of the spectacular disaster that those then embryonic rumblings in the economy would turn into. That blog, as with most of mine, had a fair dose of idiocy, perhaps very partially counter-balanced by a mouse’s paintbrush worth of actual concrete knowledge. Even so, I have been able to glean that my outlook, even if it identified the existence of some of the balloons that subsequently burst, had the wrong focus.

There I was, trying to drum up heroic assumptions about inflation, about some infinite snowball of unutterable speed gathering, rendering all our basic foodstuffs and commodities beyond our grasp as their prices soared, and at the same time dismissing the stormtroopers of the sub-prime mortgage market as a distant and unfocussed army, the masts of their ships barely visible against the horizon. Holed up in my flat, I was unable to see the ticking numbers and jagged lines that tell of sub-prime chaos, of widening TED spreads, of indexes that betray all manner of knowledge and guidance to those in the know and those on the make. Even if I was able to, I would not (and still do not) know what the vast majority of the signals meant. Are these warning lights or fairy lights? Does that number signal prosperity or madness? Does this line on the hospital monitor signal health or a heart attack? Easier therefore to lament about the then daily reports of rises in the price of bread, or rice, or petrol. This is something graspable – that the fiver in my pocket will not stretch as it used to, even though the pain associated with earning said fiver remains the same.

But the thing that brought the dam down was a far slipper thing, some kind of cosmic eel with no head and no tail that lay draped and occasionally writhing until the whole structure gave way. I profess it was through a lack of overall understanding and an inability to see the economy for what it really is - a playground seesaw with seventy obese children scrambling all over it. About ten weeks after writing that entry, and utterly unforseen by me, Lehman Brothers collapsed and dragged the world, bloodied fingernails tearing at the edge, screaming after it.

And so here we are, deflation for the first time in some 49 years (though only in a narrow definition of the word), and all of our preconceptions, even about those gathering storm clouds last summer, turned entirely, whimsically on their heads. That a single rotten grain of rice can infect an entire barrel is not in doubt. And that folk carried away in a circus of spinning pound signs are not to be trusted to make the most rudimentary of decisions, especially when the economy of the world is at stake, is undeniable. A drunken gambler is seldom allowed to write the business plan of a casino, after all. This then is the problem – an interesting one of human nature, herd behaviour, and of the volatile spread of blind panic that underlies all things financial. But let’s save that for another time.

Like depression, or grief, there appear to be stages to the formation of such catastrophes, their aftermaths and the state of normality and its slow transformation that then occurs.

Stage One would appear to be Denial. There was a heady mix of statements of denial wafting around like the involuntary flatulence of a stood-on dog. Mostly it took the form of various commentators denying that a problem existed. In the main, the public (myself included) did not heed either the warnings nor the reassurance because we didn’t understand, and in any case the problem was so abstract as to be invisible, while the possible consequences seemed as important as the outcome of a Su Doku puzzle and there was little we on the street could do about it. Feel like handing your house back to the bank and demanding they charge you a larger down-payment on it anyone? Demand they give you a lower return on that hard-earned cash you deposit with the branch? Thought not.

Gordon Brown made hilarious (again, in hindsight) statements rebutting and patronising the venerable Vince Cable on the floor for the Commons for the latter’s seemingly relentless pessissimism. Of course, there is truth in John Kenneth Galbraith’s assertion that everyone remembers those that talked up the market before the crash, while those who banged on for years about an impending crash are never remembered as these crashes fail to happen, but Mr Cable knows of what he speaks. (A statement that I promise will not be without qualification – see book recommendation later).

Stage Two seems to be the actual Panic. At this point, computer monitors on stock exchanges show terrible images (once the porn window has been minimised), and people drop forks to the floor, stubbing into their feet which have been so numbed with terror as to have lost the ability to feel pain. From their mouths dribble the remnants of lattes and sushi or salt-loaded sandwiches as news tickers give minute-by-minute accounts of drops or rises in numbers that few of us ever understand but that all in that room realise to be Very Very Important. For the rest of us, commentators come onto news channels, some wearing their agendas down their fronts like intellectual vomit, extolling wisdom on what might happen next, while others, more honest, profess to having no idea what is going on, but isn’t it all rather dramatic, and that they hope you have been sharpening your claws so that you can fight off adversaries as you scrabble for a meal from that skip.

The newsreels are peppered with references to phrases with a Daliesque quality about them – with analogies that John Steinbeck would have been proud of, all shoehorned together in a mass conveyor belt of financial bile that portrays a scene of utter chaos and irrevocable damage without leaving any humanly image that can be wrapped up and taken home and broadcast on the inside of the eyelids when you lie in your bed. Things like “a complete evaporation of liquidity”, some kind of chemical reaction no doubt, and “Credit Crunch”, a nut-infused chocolate bar, are blurted out by people taken over by their autocues. Again, Mr Galbraith points out that it is possible to enjoy the entire spectre of human folly in this time, for “while it is a time of great tragedy, all that is being lost is money.” This crisis afforded a great amount of time on which to sit on the balcony watching the explosions, for it lurched from side-to-side on an hourly basis for the best part of six weeks like a crazed couple imbibing improbable volumes of narcotics while having continuous tantric sex on a violently yawing ship. Not only that, but there was a historical Presidential race happening in the midst of this swirling maelstrom - we were positively spoiled. But then, the chaos hadn’t personally touched most of us yet. I’ll return to the panic another time, but for now, onwards.

Stage Three appeared to be Reaction. As Vince Cable wrote, there was a realisation that “every lever had to be pulled”. The sheer scale of catastrophe, the complexity of the problems, the confluence of so many horrific forces, could only be met by a determined show of vigour, a raking of machine gun fire against an alien evil. Even as lines fell limply off charts and different combinations of those obese children fell off and climbed onto different parts of the economic seesaw, various heroes emerged in different guises – perhaps most improbably our own dour Mr Brown – and swung into action. The reactions were almost as incomprehensible to the likes of me as the panic itself. Injections of liquidity, a driving down of the LIBOR overnight rate, a slamming down of interest rates almost out of existence, and part-nationalisation of banks like RBS that once stood proud with edifices of ashlar stone and commanded unearthly positions in our psyches. Robert Peston continued portraying our outlook and the meaning and likely success of these various interventions using his Mouth of God and forecasting manias and slumps to such a specific degree that you had to wonder that he wasn’t controlling every news ticker, stock monitor and index graph from behind a curtain with levers and a loudspeaker like the Wizard of Oz.

Stage Four, which I believe us now to be in, is Holding Tight. The panic is slightly in the past, and the markets are enjoying a rally. Structural problems remain – the economy is like a building that has been hit by an earthquake. Its total collapse was just about prevented, but at the moment we are shoring up what we can with scaffolding, and dragging out survivors. The tumultuous events of last Autumn still appear fresh – there is uncertainty, but almost every week we are bombarded with the richochet of the odd errant cannonball – a bankruptcy here, an unemployment statistic there, an drop in RPI, a drop in GDP, and once in a while a true disappointment, or betrayal, such as the Budget. Our situation now is one of the long slog. We may have viewed the excitement of the explosions from the balcony before, but the ensuing fire is approaching, licking at our feet, and many already have succumbed. In a more personal way, the horror is that of the grim sceptre of being thrown out of work, and of that fiver not stretching because of far darker forces than the more relatively benign ones of inflation. And no one knows which view is over-reaction, and which is under-reaction. The ‘green shoots’ of which the papers speak may be genuine indications of a bright new turn in the road ahead, or they may be quickly yellowing weeds prising open the cracks in the concrete of a freshly-destroyed city. Nothing can be done but to hold tight, sniffing our way out of this mess but being wary of false aromas.

Stage Five is Recovery and Reflection, or R&R if you will. Shattered windows are fixed, and the circus reassembles, slowly, with less gumption than before and with new checks and balances. The folk with their hands at the lever, their knuckles now utterly white with the tension of their grip, now start to relax them a little, tentatively. The sweat still streaming through their eyes, they make bellicose speeches with the last of their breath, about how their reforms will ensure that there will never be a repeat. They stagger shakily to the edge of the stage and bow for the deliverance that they have loudly effected following the catastrophe that they silently caused. And Reflection of course courts its venomous counterpart, Blame. Do we mete out punishment to the bankers who caused this? And as is famously known and quoted from the MP's motion following the South Sea Bubble collapse, do we tie the bankers up into sacks full of poisonous snakes and hurl them into the Thames? Though in honesty I think this terribly unfair on the snakes…

And then Stage Six, many decades away, is Erosion. The slow eroding of the innovation-stifling and pesky reforms of the late 2000’s to form a much looser, spirited and wonderful era of financial wizardry, young suits with six-figure hover-boards meandering along Threadneedle Street, Bishopsgate, Canary Wharf and the newly revitalised district, now a global financial heartland, of Willesden Junction, to perform their heavenly tasks and reap rewards in both money and status. And somewhere out there, speculation in a special kind of vodka starts to go awry, and Stage One beckons. But you needn’t worry about that for now, for in the long run – as John Maynard Keynes once said - we are all dead.

There then, a personal take on what human nature might drive us to as we attempt to build a system to share out our planet’s scarce resources – for that, according to some, is the primary definition of Economics. Stages Five and Six are the “normal” states of things, but I believe that Stages One to Four will periodically occur. I’m probably wrong, and if I were to extol such a simple theory of economic convulsion beyond the single-digit readership of your this humble blog it would surely be shot down in flames like a wayward Messerschmitt over a farmhouse gun turret. Our capacity to pass on information from generation to generation appears to be weak, though, and for that reason we must be doomed to continue this cyclic pattern of disorder, be it over tulips, companies in the ‘South Seas’, land in Florida, blind speculation that afflicted a generation, the devaluation of the Thai baht, worthless mortgages, or simply the mistimed sneeze of an influential stock trader. Every generation seems, like a crawling toddler, doomed to have to repeat and learn from its own mistakes. The trick to the avoidance of catastrophe cannot be learned vicariously. And on that sage, and possibly slightly patronising note (sorry), I bid you adieu.

Though not without one small aside – to actually attempt to understand this whole situation, for you’ll get scant little sense out of me, I recommend “The Storm” by Vince Cable, written in the aftermath of the panic and yet with a measured and confident take on it all.

This week, Kiran came to terms with the fact that he is a spreadsheet jockey, and that any pretense he held to having a say in what is right and sensible, or of ever having any influence over anything work-related was truly illusory. Accordingly, he has withdrawn entirely from the “decision-making process” and will devote his time to become so indispensable in the use of transport software as to be completely unsackable. It goes without saying (though not without writing) that he is extremely grateful to have this, or any, job. He also went to Devon, bought his first hoodie, froze weirdly in the sunshine and ate his first 80 mph cream tea on the M4 while maintaining marginal control of the vehicle.
Last week he went to his first “Redundancy Drinks”, which seemed a strangely euphoric and hyperbolic affair for those concerned.