My financial statement for the fourth quarter 2008 came in the mail today. The awkwardly long envelope contained, at least on the face of it, grave news to the effect that very many dollars I'd been saving up and lending to dough-faced bankers as speculative bets, and which I'd never handled myself or considered moving anywhere but existed only on paper as a kind of sigil of optimistic forward-gazing shrewdness, had been swept out to the choppy waters of gambling oblivion, along with those of other American saps who hadn't seen the storm coming soon enough to get out of the 'market' before it was too late and the winds of volatility had already whipped everyone into a stinging loss position.
Just as talking frankly and in advance of the need about hospice plans, living wills, and headstone inscriptions surprisingly doesn't cool the surprise of molten grief when a loved one dies, no amount of spiky chattering about the stupid, destructive nature of speculative gambling on stocks can compare with the raw, wealing sting of holding in one's hand the hard copy proof of failure and waste. I was taken off my guard by this feeling. As I began to open the envelope, I thought "well, this will really demonstrate that betting on stocks is stupid and will make me realize that I'm pinning my hopes of old-age comfort on the acumen and integrity of the same moral carrion that I despised in college. Too bad; at least I'm ready for it." When my eyes settled on the column that plainly stated the degree of loss, though, I sucked in a sharp acid breath and felt the paralytic tongue of dread slide up my spinal cord. It was real and true. I had taken a bunch of money and handed it over to shiny-chinned tonguechewers who passed it around to their buddies to be toyed with and lost, like an action figure accessory that disappears forever in the tall grass. Except that this wasn't a He-Man sword, but my 'retirement' savings.
Unhappily for me, I didn't come to understand the terrible farce of fractional-reserve banking and the pathetic Reno coke fantasy of the stock market as security blanket until after the sickening downward lurch had wiped out several percent of my paper wealth already. Those who had a better grip on the connection between consumer debt securities and their 401(k)s divested some months ago and bought things that have durable value. For the average chump though, putting your retirement money into a stock fund was simply what one does, and we knew from listening to our so-called financial advisors that, over the long term, price inflation and their market wizardry would beat out volatility and we'd come out way on top, with plenty of cash on hand at age 70 to play pinochle on sandy beaches with gilded colostomy bags under our Ferragamo belts. 'Cashing out' was widely equated in level of wisdom with canoodling chancre-lipped Russian blondes or playing jacks in the middle of the freeway.
It seems obvious now that it'd have been smarter to take one's dollars off the poker table about this time last year and, I dunno, build an igloo out of it or something. Trouble is, cash is problematic as well. Especially fiat currency like the dollar, which backed by nothing but the hope that the US Government will remain solvent. Not only does this money have no real intrinsic value, but when its supply is increased by 'printing money' as is the sudden policy of the Federal reserve bank, its value can drop rapidly and we get our second-fave German export after kugel, hyperinflation. Then there's the whole issue of being addicted to the teat of cash, which is a symptom of slavery.
Nowhere on the planet does the unsettling dependency on hard currency better manifest itself than here in Cake City. We citizens can't do anything at all without forking over some bread. We like to pay for stuff, and it seems impossible to go a day without shelling out serious dough. Especially when it comes to leisure -- nothing delights a Cake Citizen more than handing over enough money to buy 200 rounds of good ammunition or feed a family of four for a week, just for the privilege of playing golf on some huge, stinking lawn. We pay sweaty white teenagers to park our cars and pay Mexicans to trim our poison oleanders. We pay people to make our sandwiches and pay old rummies to fix our guitars. We pay gasoline and car companies to go to the vast grocery store so that we can pay for our arugula and Wheat Thins and especially for our 'microbrewed' beers. The pattern here is that we can't do things for ourselves, so we find someone who can do it and pay them, which creates a need for us to amass more cash so that we can pay the next guy. Since we have plenty of idle time because we're paying other folks to live our lives, we spend it pawing through magazines and padding through the Internet, looking for new fleeting fancies to spend yet-unearned cash on.
The problem with this arrangement, apart from the fact that it quickly erodes our own skills and leads to the heartbreak of laziness, is that it requires a constant and ever-increasing inflow of money. This is what leads to the condition of modern American slavery -- we're indentured to employers or other parties who control us by controlling our cash supply. Since we pay other people for practically everything in our lives, a sudden disruption in the cash flow can have grave effects. The practical disadvantage here is that we can't do as we please, or even as we think best, because we can't 'afford' to interrupt the money stream; for this reason, we forgo opportunities to do many important and productive things in fearful effort of merely maintaining. We hope intensely that by this sacrifice of chances to better ourselves and strengthen our families though new experience, our 'lifestyle' and 'future' will be somehow assured and secured.
When this hope is dashed by market volatility or just regular stupidity, those whose concept of self-worth and future is bound up with their account balance can experience grave effects. The sad and predictable list of international paper-gamblers who ended their own lives in response to that nasty fourth quarter is a powerful illustration of the danger of equating oneself with some figures that only exist on a computer screen or a slip of paper. Hell, at this rate, people are going to start taking hemlock whenever 'Dilbert' isn't funny.
The slave-piper Bernard Madoff is going to the slammer if he doesn't join the ranks of the stupid dead, but he should be awarded a medal for acting as an alarm that put folks on notice that speculative betting on stocks and securities is for suckers. Period. Trust has long been the currency of the weak and aimless; the fact that his 'Ponzi scheme' ran for decades undetected shows that there's no difference at all between a basic con and the idiot's carnival shell-game that is speculation 'investing.' Madoff has done for fund managers and financial advisors what John Wayne Gacy did for clowns and the Serpent did for snakes. Now, people should know better than to ever trust one of the blighters.
Warren Buffett used to like to say that 'cash is trash.' Of course, he meant that everybody should take their dollars and give them all to him so that he could spin his global Roulette wheel, but he has a point : modern fiat currency has no real value, and isn't worth becoming a slave to. It should be converted into something with real value -- such as education and tools, like John Pugsley suggests. Or houses, guitars, or old Impressions records. Something that's not at the mercy of fickle and moronic bettors or value-sapping banks. We need to figure out a way to prepare for old age that doesn't depend blindly on the outcome of poorly-informed bets made by dumb old guys who listen to Sting.
Before we can start planning for the Shuffleboard years, though, we'd better figure out how to live right now. Part of this is learning how to avoid paying people to do stuff you can do yourself. By starting on this, we can begin to wean ourselves off the paycheck-to-paycheck cash hooter and get some control. As we're learning in the Urban Agriculture series , getting a grip on our food supply is a powerful first step. In our next installment, we find that the road to self-reliance is paved with... eggshells. That's right, we're going to explore the strangely sensible world of urban chicken raising.
The alarm that rung was the most shrill, expensive one I've ever heard, and it really made for a tense, crummy morning. I'm glad it got sounded, though -- now that the old norms and myths about how to plan one's life have been exposed as hogwash and we're done selling ourselves to useless carny vampires, we can confront the inadequacy of hope and square up hard and sure with the actual. (66,552)
Sat Jan 10, 2009 10:02 am It's refreshing to see an article like that which doesn't end with the now-common "And that's why Obama's bailout is going to fix everything!" conclusion.
I am actually all for fractional reserve banking. I think many of the problems we have are with banks getting their money from loans from other banks, not due to banks using savings deposits to power credit.
Apparently a lot of these bank-to-bank loans are short--about 3 months. So every 3 months, banks are judged by their viability and their solvency is put on trial by other banks. If they're found "guilty" of insolvency, they truly will be when their loans are not renewed, forcing them into bankruptcy. Maybe this system works out well--banks have to make good decisions or they'll be destroyed. However, the government keeps bailing them out, which subverts the only possible upshot in the whole system: The bad banks go bankrupt, and their creditors are taught a lesson.
What's supposed to happen is the banks who loan banks money are supposed to call attention to bad practices before they have problems. They're supposed to be motivated to do this so as to protect their loan. As Greenspan pointed out though: they have been negligent in their duties to protect their own money.
For that matter: everyone has.
Does that mean there's a problem with the system? No, it means there was a problem, until this happened. Now people will pay more attention. The problem has solved itself. Now we will have competent banks and investors and all will be much more stable until the next correction. Unless of course the bailouts teach people the lesson of: As long as you fuck up at the same time as everyone else, the Uncle Sam will bail you out!
Sat Jan 10, 2009 11:06 am Chea, I didn't want to go through the End Bailouts platform yet again, but the Obama plan is plr0n and is really going to put the last drop of Super Glue on the Juggalo coffin of any acceptable future.
Re: the bailouts, they signify two things : first, a theft from each American in real terms - $21,739.13 from every taxpayer, assuming the carnage stops at about $3 trillion -- and also the sale of future generations into debt slavery, due to the fact that the bailout money is coming not from cash reserves, but from (largely foreign) loans to a government already running a gargantuan deficit.
The precedent set by the bailouts, that the taxpayer will be o the hook for private debt and that foolish business decisions will be rewarded with public money, is so terrifying and grave that people should be freaking out. Instead, they act somehow soothed by the so-called 'economic stimulus' plan, even though the funding for said plan is coming out of the pockets of themselves and their children. We have a word for folks susceptible to cons of this nature : we call them 'suckers.'
Now, regarding fractional-reserve banking : I was all for it too, until I realized that it's a &*^$() scam. See, it's not a simple system of using deposits as a source of credit. If every dollar loaned represented a real dollar on deposit, that'd be just fine. I'd probably be OK if there were only $0.50 on deposit for every dollar. But with the modern fractional-reserve banking system, a deposit triggers a chain of loans that have the effect of creating inflation. Our pal Pugsley puts it pithily here :
"When you deposit $100 into your checking account, the banker credits you with that amount of money. As far as you are concerned, you own the money and make plans accordingly. You may decide to spend it at any time, and can do so by writing a check or making a withdrawal from your savings. The moment you make the deposit the banker loans a major portion of it (about $84 under the current reserve requirements) to someone else by making a credit entry in their checking account. This new borrower then has the power
to write a check on the $84. In other words, you deposit $100 in your checking account, and the banker then deposits another $84 in someone else's checking account. The money supply has been expanded. There was originally only $100 and now there is $184. It goes even further. When that $84 gets deposited in the other
person's checking account, the banker then has the ability to loan $70 of that $84 to a third person, and so on down the line. By continuing to lend and re-lend that same original deposit over and over again, the banking system can expand an original deposit over six times. "
And as for the deficit-inflation machine that is the Federal reserve Bank, well, trust me when I say that it's the main reason why you have to pay almost a dollar for a Mars bar these days. These problems are systemic, and they are not going to be alleviated by some lesson learned from the crisis. Instead, the consolidation of power in the hands of now very few giant institutions (the banks that survived and absorbed the failed banks) is going to amplify the problem many, many times. The walking hyenas that run these banks, loopy with power and with bloody shreds of human flesh hanging from their wet lips, will run amok in the new landscape, devouring every last scrap of dignity and shitting out rank streaks of despair.
Sat Jan 10, 2009 1:42 pm While inflation/deflation due to the fractional reserve system's ups and downs does indeed make me a Sad Panda, the money created is used to create wealth, so theoretically, when the loan is paid back, the ratio of wealth to money (real value of money) is back to normal or even bigger.
There are worse things wrong with our financial system than the inflation/deflation caused by banks. Yeah it's lame to leave our currency in the hands of loop-nostrilled old-spice wearing corporate fat-cats, but their shenanigans are really limited by the real wealth in the country.
I also think it should be illegal for a bank to get more than 20% of its capital from loans, but that's me.
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