PRESENT TENSE:FOR ME, if there is one constant in this global financial crisis it is this: my money, my job, maybe my home, are threatened by something I don't even understand, writes Shane Hegarty
Ok, so I think I understand it on a superficial level. I understand that an entire investment banking system was based on a complex system of lending that was, in turn, invested heavily in Albanian pyramid schemes.
I understand that for 20 years this system had been gradually built higher and higher, and wobblier and wobblier, so that it became a kind of Jenga school of economics.
I understand the principal behind the US government's attempts to bail them all out — the principal being that the banks might be saved by $700 billion of taxpayers' money, but because it's not my taxpayers' money then my ethical objections are shamefully superseded by my panicked hope that they just fix the problem soon.
I understand that the current banking crisis comes in a week when the recession has officially arrived in this country, meaning that I wouldn't want to be an estate agent, that I should have bought gold five years ago and that it might be wise to stock up on canned food.
But what I don't understand is the trading room floor stuff, the arcane contractual clauses, the terminology, the nuts and bolts of the crisis. Because, despite a couple of weeks of wall-to-wall coverage of money markets and RTS schemes and shadow banking systems and short-selling and credit default swaps and so on, the mechanics of it remain utterly baffling.
I know I'm not alone in this. Earlier in the year, a New York Times journalist rang around Wall Street in an attempt to get a clear explanation of the growing problem, but found himself repeatedly stumped by the economists' attempts. The scariest thing? The Wall Street guys admitted that they were a bit stumped too. The piece pointed out tht a Lehman Brothers executive had said: "We're exposing parts of the capital markets that most of us had never heard of." Meanwhile, Citigroup executive Robert Rubin - a former US treasury secretary, no less - had admitted that he hadn't even heard of "liquidity puts" (an obscure financial contract, apparently) until they became a problem for the company.
Which is why, while I'll admit to feeling intimidated by how something so opaque can threaten the global economy, I won't feel guilty about not really understanding how the hell it could do it. Why should I when so many people on the planet, including those facing repossession or job losses, can't hope to understand it either?
More pertinently, why should I feel so bad when it seems clear that the people who made it all go wrong don't really understand it either? Otherwise they wouldn't have believed, as they did, that the modern system reduced risk, when it turned out only to be hiding it.
And the people charged with overseeing that banking system clearly didn't understand it, otherwise they wouldn't have allowed it to become so deregulated as to be unmanageable.
But again, I don't know what I'm talking about. Maybe they did understand it after all, have worked out the kinks in the system, and when they get back to work at whatever's left of their bank, they will be sure to get it right the next time.
Actually, there were a few who anticipated these problems. A few banks, such as Lloyds TSB, continued to be conservative lenders and have proven to have been wise.
Meanwhile, the New York Federal Reserve Bank president, Timothy Geithner, noted the potential for catastrophe two years ago and has since been involved in trying to fix it. And there was the English fund manager, Jeremy Grantham, who warned of the bubble well before it burst.
To be honest, Google helped me find those latter two examples. And even if I had read Grantham's warnings when they were made, they were relatively dense with finance-speak so that the central message was picked up only by the few who speak it (and were receptive to the message), but was always likely to be missed by those who do not.
It's got to be a problem, then, when even the warnings are hard to understand. Surely the fact that most of the public can't fathom the voodoo science of economics, and are oblivious to the Byzantine systems in which these markets operate, allows such crises to develop.
And that so many economists seemed not to have spotted the faults either hardly fills you with confidence for the future. Combine all that ignorance, and we can only look forward to getting out of this crisis and beginning the long path towards the next one.
Because, while money (sorry, "credit") may be rare at the moment, you have to believe that the world of high finance will always have ready supplies of hubris.
Maybe that's all anyone needs to understand.
shegarty@irish-times.ie
