Crash and Burn, Wall Street, Burn


Why is the sight of a distressed floor trader somehow more upsetting than a farmer being forced to sell up or the redundancy of employees who worked for a company for 20 plus years?

I happened to be in Sydney’s CBD last Friday night and walked past the forecourt of Australia Square. Being at the rear end of the Sydney Stock Exchange, Friday night drinks on 19 September were especially crowded and boisterous. I looked enviously at the suits, grinning like defence lawyers after a mistrial. They owed their good humour to being let off the hook by more largesse from the Bush Administration and the ASX rethink on short-term trading.

The fact is that the stock market is an integral part of our daily lives and I’ve been an amateur neutral observer for quite some time. I’ve been known to masturbate to Elizabeth Knight’s columns and think of Chanticleer as the father I never had. But the events of the past few weeks have left me wondering: how prescient are the people to whom we entrust our life savings? Our fortunes seem to change according to their mood swings, sensitivity and greed.

If the market had maintained its southbound run to the end of the week, Friday night drinks may have been more like a wake, but government generosity has (for now) saved the bacon of our "free and deregulated market".

Is this kind of welfare for the wealthiest really a good idea? A market bubble can only get so big, just as brokers can only keep pushing stocks to a point, before reality and a realignment kicks in.

Lately I’ve felt like the masters of the universe are fakes. The truth is, those hot stocks were really based on a hunch or worse. If Alan Kohler can’t explain $35 billion wiped from the Australian market, what can be explained? All I’m left with is Paul Sheehan’s despair at his net loss this year and vain effort to construct sentences such as, "In some ways we are worse off than even the US, although, overall, we are better off."

Even when the market was making everyone happy, trading seemed to be conducted in a parallel universe. Remember when Commonwealth Bank shares would fall because David Murray’s kid lost his rugby match on the weekend? Things can’t continue this way. It’s bad enough that Bill and Marg from Sh*tville Australia are reading about their superannuation plan dissolving because some traders are not feeling confident.

Worse still is the prospect that we will miss this opportunity to overhaul our global financial system once and for all.

I’m imagining a world where the US Government (or Democrat majority Congress) decide the US$700 billion rescue plan to buy bad mortgage-related assets is too expensive. Let’s imagine they let the market dictate and we see a massive crash. What happens? There are mass job losses, companies fold and retirement plans disappear. On the plus side: there’s less demand for plastic crap, plastic surgeons and Ikea furniture, less consumption and less waste, less advertising, and less excess. Imagine Mosman or Toorak minus Porsche Cayennes, boating shoes and bankers.

The past few decades have seen a massive migration of capital from real, productive industries to the "speculative sector". I’ve been as aroused by this as the next person but now discover there is a bitter aftertaste. For all of their pretence at reliable prudence, the banking sector never managed to overcome the temptations of hedge funds and derivatives, the promised riches traded with borrowed cash. What if a crash in 2008 saw greater investment in real industries, like renewable energy, education and community projects in the developing world?

We could be on the verge of a cathartic recession (dare I say depression), or an economic "Grotian moment". What the current crisis may be doing is fast tracking the shift from American world dominance to one where Asia becomes the financial and political epicentre of the globe.

The debt-riddled US economy is entirely dependent on the Chinese and Japanese to service this debt. Already, Japanese banks are picking up US banks at bargain prices. Soon the Saudis and the Chinese Government will follow and the steady re-alignment away from the West will quicken.

This shift cannot be avoided by a $700 billion anaesthetic or a political and financial system unwilling to make radical changes. The more astute may want to channel their Warren Buffet within (but without the portfolio) and catch the Fed in a charitable mood. The rest of us can try our luck with a bailout from our own misguided spending.

You may not have heard but this week UN Secretary General Ban Ki-moon urged the world’s rich nations to spend $72 billion a year to help Africa achieve UN goals to fight poverty, improve health and ensure universal primary education. Ban Ki-moon acknowledges the cost is daunting but affordable, pointing to the estimated US$267 billion that the world’s richest nations spent last year just on agricultural subsidies.

Once upon a time, subsidising corporations would have been unthinkable. Now that the US have nationalised their financial system, it’s probably appropriate that on 23 September, Viktor Yushchenko opened trading at the New York Stock Exchange.

Let’s hope the President of Ukraine takes a moment among the chaos to give the NYSE a bit of a primer on that whole Communism thing.

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