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These companies choose to advertise on the
socialism-reliant CBC:
(Links lead to mailing addresses)
• AIG (insur)
• Air Canada
• AOL Travel
• Bank of Montreal ("BMO")
• Best Western
• Canada Protection Plan
• Canada Revenue Agency (!)
• Canadian Tire Fin Serv
• Chip Home Income Plan
• CIBC
• Cold FX
• Desjardins (insurance)
• Directbuy, Inc
• Edward Jones
• General Motors
• Grand and Toy
• Grey Power (insurance)
• H&R Block
• Hilton Hotels
• iContact email marketing
• Infinity (cars)
• Koodoo mobile
• Lens Crafters
• Monster.ca
• National Post
• Neutrogena
• Nutrisystem
• Quicktax
• RBC (Royal bank)
• Rogers Cable
• ScotiaBank
• Shaw Cable
• Texas Travel
• The Co-operators (ins)
• Tim Hortons
• Travelodge
• Vonage
• WeightWatchers
• Westjet
• Working.com
• Zip.ca

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David Warren

David Warren

  posted on Wednesday, September 17, 2008
Bio/Email | David Warren Archives | Printer-Friendly Version

Cheap & easy

Are we witnessing the final crisis of capitalism? (One utters the phrase out of nostalgia for the glory days of Marxism.) I doubt it. The meltdown in stock markets all over the world is painful and distressing, but it will pass. For it is not capitalism that is on trial, but rather the idea of cheap and easy credit.

The management of Lehman Brothers have got to be admired, if only in a backhanded way. Anyone who can run up more than $600 billion of debt, before the ghouls come calling, has skills we need not utterly despise. I have memories of a business—a literary magazine—which the ghouls would visit if I owed a few lousy thousands to a printer. Indeed, any reader with some experience of small business must raise his cap to the Wall Street titans.

Let me now tell an anecdote which, I think, bears directly on the market phenomena we are witnessing, and have witnessed so many times before in history.

My magazine was called The Idler, and in its early days, a quarter-century ago, I realized that we would have to buy some basic computer equipment. For this would enable us to perform some functions so much more efficiently, that the equipment would quickly pay for itself. I wasted a lot of time trying to demonstrate this on paper to an unsympathetic bank manager. I was impressed by the amount of time he invested in analyzing and then declining my request.

So I went to another table in the bank and asked for the same amount as a consumer loan. For all they knew, I could be buying a Stradivarius, while Rome burned. I wasn’t even asked, except conversationally, when I answered that I had my eye on one of those flashy new table-top word processors, and some other gear—posing as an extravagant hobbyist. Loan approved in ten minutes; just sign a few forms. Equipment delivered the next day, and the loan was repaid ahead of schedule, to avoid an interest rate I found usurious.

To the ingenious masters of banking, this might all make sense. Small business loans must be carefully weighed against the viability and essential solvency of the business. Ditto, perhaps, for big business loans, but with broader criteria of judgement. Whether on the larger or smaller scale, it helps to know the manager, dress well, and speak his codes.

But consumer loans are generic. There is a formula, but it has finally nothing to do with the virtues of the individual borrower. It is instead a grand calculation from the broad market, which assumes a certain proportion of customers will fail to repay, and rigs up interest charges to account for them. (I am oversimplifying, but only slightly.) The people who form the assumptions, and then do the math, are hailed as mighty geniuses.

And it is a marvelous thing to watch, as we are now watching, when the calculations of these mighty geniuses are, as it were, “overtaken by events.” Those who live by confidence die by confidence, and we are reminded that our whole economy depends on avoiding the natural propensity to panic when we discover that the ladder we’ve been climbing is not, so to say, “secured.”

Lehman Brothers went down over the weekend, A.I.G. is falling as I write. Their assets get dumped, the value of other companies’ similar assets is reduced accordingly, and this in turn erodes the capital base under the entire banking system. The collapse of Lehman has, moreover, just kicked away the argument that some firms are, by nature, too tall to fall. And all because of a few million dicey consumer loans, that no one thought twice about at the time.

The problem must be solved, or so everyone says, by increasing government regulation. Am I perhaps alone in observing that this regulation is already as dense and complex as the industry, and that it might well make more sense to make the regulations not denser and more complex, but rather, simpler, more transparent and effective. For to my mind, we ought to have learned by now that the more complex a system grows, and the farther removed from the hard facts of nature, the more susceptible it becomes to catastrophic failure.

Over several generations we have rebuilt an economy that once rested on goods, services, and tangible assets. It now depends also on kiting, with wonderfully sophisticated credit instruments—like a postmodern building, supported as much from above as below. In the longer view, it is well that gravity asserts itself the sooner, and we reacquire the benefit of a solid foundation.

In the meanwhile, consider Matthew 5:45. The sun rises alike on the evil and the good, and the rain falls on the just and the unjust. To which we might add, that it is usually the unjust who are whining.

Nice line, eh

...

David Warren is a columnist for the Ottawa Citizen.  Visit his web site at davidwarrenonline.com.


Posted on 09/17/08 at 06:33 AM
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