Since computer bits replaced paper which replaced precious metals which replaced labor, our monetary system has been imaginary. Value has always been faith-based. Wealth is the large scale accumulation of imagined value. While the commodity markets trade on imaginary quantities of real things, the stock market makes real trades of real things that have imaginary value. Hedge funds make leveraged deals in imaginary risks of imaginary things. It all worked really great for those who trade on greed and fear until some kid in the crowd yelled out that emperor is naked.
In reality, there were quite a few in the parade who were only dressed in our imagination. The Bush weak imaginary dollar allowed consumers to buy inexpensive Chinese goods at Walmart, pay for them with credit (aka: imaginary dollars) that was secured by imaginary home values and faith that income and home values would continue to increase. The credit was offered by banks who used tiny amounts of imaginary capital, as allowed by imaginary regulators, by selling the loans to Freddie and Fannie and others who pretended they were backed by the good faith of our government. These secondary sources used tiny amounts of their capital by packaging giant chunks of loans and selling them to hedge funds who got AIG to guarantee everyone was wearing clothes ($32 trillion in guarantees makes Palin’s wardrobe seem a bargain).
The fashion issue became really important when the Chinese and Saudi’s (who bought large chunks of imaginary value in exchange for cheap goods that weren’t really cheap when one includes unimaginable costs of our government’s imagined guarantee) pointed out that the Wall Street pin-stripe no longer was hiding all their flaccid privates. So the Bushies had to step in to save AIG and others so the parade could go on. Damn that little kid in the crowd.
The 32 trillion dollar question: Can we fix an epic-scale imaginary problem with real solutions funded by more imaginary dollars?
All the king’s men are working on it. The fairy god mother is flailing her wand. The genie’s rubbing like crazy. We’ve thrown a few trillion imaginary dollars to stabilize an economy that has lost 10 or 20 times that. But loans are still not being made on the imagined scale. Real people by the million have lost their jobs, their incomes, their homes, their health insurance, their credit cards and their ability to buy real things they need, or anything of imagined need.
This week, our maligned Treasury Secretary will announce his imagined solution to this real crisis – a program, I kid you not, to guarantee the risk of new hedge funds so they will buy troubled assets (a moniker for the loans on homes whose values are not now imagined to be much) from our banks who have been imagined to be too big fail. I really didn’t make this up. We are going to the very source of most of the expensive missing clothes and are planning to offer them a huge chunk (at least another trillion) of imaginary dollars to be paid back with our imaginary future so that they can start buying and trading in last year’s fashions and we can all live happily ever after.
I have now lost track of how crazy this has become. Layer upon layer of utter insanity. Somebody needs to be embarrassed that they are butt-naked and go get dressed. Hedge funds and the lack of government oversight caused this and bribing hedge funds to hedge our way out of this is worse than asking Jim Jones for something to drink. Hedge funds should be heavily regulated or outlawed except in casinos. At best, they’ll cause it again in a few years and, at worst, is beyond our imagination.
We have a program for fixing this already: bankruptcy (let a Federal judge decide who or if AIG should give bonuses or get them back). For those too big to fail, for god’s sake, make them smaller. We do not need to clean up the banks to make credit flow (it is not flowing because there are too few good loans to make), we need to nationalize them. Fix the regulations and help consumers get to where their real needs are met and they have jobs. Then comes confidence. Then faith. Then consumption. Then values will rise. Until then, there is no imagination, just a lot of ugly naked people.
By the way, this ain’t over. Watch your head. Pretty soon, and to continue the clothing metaphor, more (sic: other) shoes will drop.