It’s the end of the ‘financial year’ where I work (they operate a weird Oct-Sept cycle). I work for a bank; soon to be largest in Australasia. The usual celebratory talk around the end of September has been tempered somewhat by events overnight where the US Congress voted against the Wall St bailout. Shit! No one saw this coming, not a single sole.
The ultimate vote was 228 against to 205 for. The Democratic leadership managed to whip two thirds of their members into line, gaining around 140 votes for, and 94 against. The Republicans could only deliver a third, 65 for, 133 against.
Whether it was murder or suicide is beside the point; Wall Street as it has operated for the past 75 years has been obliterated in a matter of weeks, says the Wall St Journal. And witnessing this violent death in broad daylight has traumatized investors everywhere. The Wall Street domino has toppled everything in sight: U.S. stocks large and small, within the financial industry and outside of it; foreign stocks; oil and other commodities; real estate investment trusts; formerly booming emerging markets like India and China. Even gold, although it has inched up lately, has lost 10% from its highs earlier this year. Not even cash seemed entirely safe, as money-market funds barely averted a “run on the bank.”
This is a crisis not just in the United States, but in the western world, according to Alan Kohler of Business Spectator. “Excessive consumption and debt in the west, basically riding the triumphalism that followed the fall of the Soviet Union in 1989 and Operation Desert Storm in 1990, has destroyed the equity of a financial system that knew no restraint in stoking that excess.
“We were all, perhaps, uneasy at the time, as we watched the profits of banks and investment banks explode, along with the salaries of those who ran them, but we were along for the ride ourselves — enjoying the rise in superannuation wealth that came from investing in the banks. And then the boom was super-charged by China’s emergence from the shadows and the deflation it exported to the rest of the world through low labour costs.
“The low inflation, low interest rates and high commodity prices supported by China combined with a burst of consumerism and a housing bubble in the west to create an explosive mixture that has now gone off. The consumers and home borrowers who fuelled the boom have now turned on their partners in excess — the bankers. It seems likely their anger will be formidable, made all the more so by a deep sense of shame.
“The regulation that followed the collapse of Enron, focused mainly on the Sarbanes-Oxley Act, will come to look like a curtain-raiser. Whether there is a Greater Depression or not, there is likely to be another New Deal imposing strict controls on the financial sector that will last a generation.”
As Crikey prefaced in its unusual 30 Sept update, “No one has any idea where this ends. For all the focus on the bailout and its vexed passage through the US Congress, the issue really is — must be — deeper. The issue is in the bowels of the market economy, in its fixation with debt funded by the proceeds of airy speculation. That can’t end well … We are standing in the centre of a moment. The best we can do is watch it unfold, witness to something big, something that has the uncertain, chaotic makings of history.”