The Black Hole Bank of Odious Debt
Long ago, before people understood the Three Axioms, the people of Stupi developed an unhealthy interest in money. They noticed that people who had more money seemed to have more fun than people who had less money.
Some of the people that had more money than they actually needed, who we will call banksters, discovered that they could make their money grow into even more money by lending it to people with less money at compound interest. They discovered that people with less money, whom we will call debtors, were glad to have the money and seemed not to mind that they paid back two or three or even four times as much as they borrowed in the first place. This was because the debtors were not very good at counting, and certainly not good at thinking, and also because of a psychological fault called Discounting the Future, which we need not go into here. They felt quite pleased to be given more money than they would otherwise have had access to.
Besides, everyone did it.
Mad not to.
So when some other people, whom we will call the Resistance, asked why nearly all the money in circulation had come into being as a loan, paid at compound interest, and asked why it had to be made in that way and not just made as a service to the people by the agents of the people, wellÖ
"Talk about daft!" said the debtors, "We always get money from the bank.
It is very nice of them to lend us their money. Everyone does it. Mad not to. Truth is, banks like lending you money, because then you go away and earn it and pay it back two or three times over. Thatís how they make their money".
"And how they make all the money" muttered the Resistance, who disagreed with the idea that the only way of making money is through debt for private gain, but nobody wanted to listen to them.
The debtors were exultant. "All the banks in the world made twice as much money this decade as they did last decade, so next decade it will be four times, then 8,16, 32, 64, 128, 256, stop me someone, I just love exponential series. Thatís how it is. Money grows, the economy grows.
Everybody does it. Mad not to. Marvellous".
Except that if you make money exclusively out of debt, it only works so long as the debt gets repaid, and also it only works if banksters accept responsibility for the risks they take in making loans.
Managers do not like risk, so they parcelled up the risk into exotic instruments called derivatives and actually sold it to someone else, due to a strange quirk that meant that an asset could simultaneously be a liability in the bankstersí world. In doing so, the risk increased and increased until the bundle containing all the toxic stuff amounted to a very ridiculous amount indeed. Astronomical amounts. Quadrillions. 1 with 15 noughts, something like that.
This was one of those things that seemed a Good Idea At The Time, and Not Such a Very Good Idea Later On, since this toxic debt threatened to implode the whole bubble of global finance, and bring Planet Earth to a shuddering halt. A buyout by the alien Crop Circle Maker conglomerate (who had been very active in those times) seemed likely, and indeed desirable.
Anyway, to cut a long story short, it was perfectly clear to anyone who understood anything at all that the whole thing was going to blow, with the likely result that the economy of the world would grind to a halt, with bull markets replaced by the four horsemen of the Apocalypse.
This grim picture of gathering global darkness was the background to Community Police Officer Sam Willettís musings as he sauntered along a leafy suburb of Carshalton, England. Despite the lowering clouds of economic doom, he was smiling and humming to himself quietly, because that is the kind of man he was. His hands were clasped loosely behind his back and his toes were slightly turned outwards as he walked, and he scuffed a few sweetly odoriferous leaves as he proceeded along the pavement in an easterly direction.
Next thing, he was aware of a little man in a green coat and a long white beard and unexpectedly bright blue eyes sauntering by his side.
Out of nowhere. The little man remarked, casually, as if they had already been chatting for a while:
"Why do they not put all the toxic assets into a Naughty Bank?"
And the policeman, still slightly put off his stride by the unexpected appearance of his new companion, said
"A Naughty Bank", said the little man all in green. "Put the toxic assets in one place, and shut the lid, and call it Odious Debt. Put a few accountants in there with it to try to make sense of it, just for the sake of it. You could pop the Third World Debt in there too, while youíre at it. It would keep economics PhD students off the streets for decades. Look it up under Odious Debt law. Also look up Jubilee."
Willets heard the word "Ah" come out of his throat.
"Itís like those chain letters with a threat in them", said the little man, with an edge of impatience in his voice, "People are afraid of them, so you need an address to send them to, someone who isnít afraid of the curse. The chain letter stops there. Simple. Still. Itís up to you".
Then the little man vanished with a quiet pop, because he was bored with Stupi already.
Officer Willets, as luck would have it, was not only a very listening policeman, but he also had a keen amateur interest in macro-economics and the financial markets. He had a good friend who was an economist by the name of John Wiseman, and phoned him during his lunch break (wholemeal cheese and pickle sandwich with an apple). They met up that evening in the Rose and Thorn, and talked the idea through for three hours, putting some flesh on the bones of the idea, testing it for Flaws and Unintended Consequences. Part of their discussion centred on whether it would be better to let the markets fall, rather than trying to save them. On balance, given that globalised and totally pointless war was one of the possible outcomes of a crash, they decided to try for the rescue plan. The economist went home and prepared a 10 page business plan, which he networked to his colleagues at 4 a.m. that same night. His colleagues readily adopted the idea, partly because Wiseman was very well respected, and partly because this was the only plan that anyone had heard of with the remotest chance of succeeding.
In the next week, emergency World Bank legislation was passed that extended the doctrine of Odious Debt from post-dictatorship nations to postĖpsychotic financial markets. The Black Hole Bank of Odious Debt (BHBOD) was formed, and started taking in deposits of toxic derivative "assets" immediately. Banksters simply put their infected accounts into the BHBOD accounts. No money changed hands. Some recalcitrant banksters tried to sell them to the BHBOD, but were shown the door with maximum expeditiousness. At the same time, Highly Indebted Poor Countries also shed their burden of White Manís Debt. Their actions were scarcely noticed by the banking community, since they were dwarfed by the magnitude of the toxic assets that the financial markets had created.
Many other wise measures were put in place at the same time. Money markets were regulated. The homes bought with sub-prime mortgages, the problem that had triggered the collapse in the first place, were bought up by the community under a Right to Rent policy, without a single murmur about the cost. One of the few good things to emerge from the whole sorry episode was that having tossed billions into the infinite maw of the money markets, governments could no longer complain that they could not afford to do constructive things in the real world where people lived and worked.
All the toxic debt was purged out of the system, and the banks and the corporations learned from their mistakes, preferring a guided market to the illusion of a free market. Economics was refashioned as a sister discipline to ecology, and the Age of Stupi made the transition ("Transitioned" as the financial marketeers termed it) into the Age of the Happy Planet.
Thursday, 09 October 2008