The Real Losses During the Present Financial Crisis

Strange isn't it that when everyone is looking at stopping the bonuses at AIG as a moral issue, the people at AIG and administering the rescue package see it as a competitive issue. We have to pay out the bonuses in order not to lose the brains behind financial market turmoil. These precioiusly smart individuals have to be kept within the fold of American industry. This sounds a bit like the retention in the United States of German military and bomb scientists after the war. We can't let destructive genius escape into the void. What the administrators of the rescue packages appear actually to be saying is that the destructive scientists will or could come back and beat us at our own destructive games! The real loss to America is, however, that the destructive games will not be stopped because the country worships them. They represent its new and resident gods, the 'now' gods of financial warfare.

America - You can't handle the ........ competition

The present financial difficulties of America and Great Britain are far more serious than most can imagine. I use the verb 'can' purposefully. Our difficulty is that we have now got used to the conventional explanations for the weaknesses of these economies. The usual story is that the housing markets got over blown and because it was insured by AIG this meant that AIG was vulnerable when the home loans started to go sour with a slow down in the growth of home loans, house purchases, construction of new homes and what fills homes.

Money was poured into AIG and the businesses that were insured by AIG. Those financing the stock market, however, realize that the 'real' problems go much deeper. There are many many people who know, not just suspect, that getting the financing right for home loans does not solve the extraordinarily deep problems that America and Britain face. President Obama last night on the Jay Leno show intimated that the collapse of AIG would bring down the financial markets and that this would lead to a main street collapse, as well. Few doubt that he was wrong, but many know that the solutions presently in place are definitely not getting to the heart of the problem especially if what we are seeing is inherently structural in nature and not tactical.

My thinking goes to the heart of the problem which is that the strategic games being played by banks changed fundamentally during the 2006-2008 period into one of 'anti-competition' and defensive realignment. At some point during the recent period, some banks assessed that it was in their interest to create a bit of creative destruction by innovating in the 'scale of operation' game, the Walmart game, but within the financial sector.

This new development, which has been brewing for decades took a very serious leap forward when the deposits needed to play the game gave it an ominous character. Defending 'your' bank against acquisition by another required raising the stakes and borrowing more into riskier and riskier ventures of acquisition. Inherent in this game was cheating and lying, falsifying a bank's true worth, hiding operations from competitors view, creating deliberate confusion and confuscation in order to survive as an independent entity.

An explanation for banks being unwilling to lend to each other could be that they do not trust the credit worthiness of other banks. My view is that the problem may be far deeper in that banks do not want to lose in the restructuring of the banking system, its consolidation into fewer and fewer banks.

That this problem exists in both the United States and Great Britain cannot be escaped. It obviously exists across the world financial sectors. By putting more liquidity into the system, the authorities may be accelerating and enhancing the odds for those most active in this destructive game. My dears, the money that is going into the banking rescue is not for the rescue at all, but for the freeforall of debt creation as banks gobble each other up.