Within the last few months, I read and thoroughly enjoyed the now 16-year-old Voltaire's Bastards by John Ralston Saul. I had begun to see hints of one of Saul's central assertions echoed in the rescue of Bear Stearns by JP Morgan Chase with the help of the American Federal Reserve. I don't have my copy to hand right now but let me reiterate the thoughts:
In 1992, Saul wrote that we had then been in a near-20 year depression that was being hidden and shuffled out of view by pushing it around through manipulations of currency exchanges and interest rates. He went on to support that statement with a lot of facts which, all taken together, made a startling picture. I found that picture to correspond closely enough with reality that it has made sense to keep watching events in order to see if the evidence continues to pile up in its favour, or in contradiction. For myself, it also seemed to be a compelling interpretation of the on-going movie: rollicking cascades of currency crisis here; market "correction" there; and any number of other dashes of the Electronic Herd of stampeding gnu. Thomas Friedman called them just a commonplace of globalization in The Lexus and the Olive Tree. But if you look at the forces that keep the gnus running it soon becomes apparent that few of their movements fail to be started, turned or stopped by the acts of various governments and regulatory bodies. Who wants the malaise to set in where you are? Keep it moving with interest rate changes, tax cuts, import concessions, anything! The facts have continued to fit Saul's picture better and better all the time.
Now it struck me that the way in which Bear Stearns had been prevented from collapsing looked like another case of the hiding the depression and that force of déjà vú just came crashing down with this story. In it, Bernanke is reported to admit that preventing the US from slipping into a depression is exactly what he had in mind when he made the deal to rescue Bear Stearns. That rescue was made possible only by very deep manipulations of the Bear's value and by moving the remaining sub-prime risk on its books around in a most creative fashion. Suddenly this story has moved from being a hint that Saul was right to a full-blown case in point. What is now a nearly 35 year malaise has just been shoveled around for another swing about the pole.
I'm just not sure anymore whether to hope that the problem is like a tetherball, capable of endless swinging about the pole, or a maypole that will eventually wrap itself around the pole with nowhere left to swing. Can we stop the ball in ways that are non-destructive and re-invent things, or will things really have to get to a destructive "no-rope-left" state before this situation can be put on some other footing? And will we find out before or after I've retired? before or after my kids are up to their eyeballs in mortgage, marriage and parenting? Time goes fast, learning goes slow...