One Big Crime Novel……

As I mentioned when I started these April posts, it is almost impossible for the novelist to out-do the real world events going on since the credit bubble collapsed. What happens in the plot of the potential novel “Follow the Money” that seems to be taking shape from these posts? There are millions of real victims, there are several hundred antagonists, hundreds of thousands of villains, there is an actual twisted plot that those following the story are trying to understand – the only element we lack is a protagonist.

As a novelist, I cannot resist attempting to pick a hero who might come along to save the day. Since the focus of the crisis is in the USA, it could be necessary to look first for this individual there. Most politicians and commentators outside the US are in agreement that the cause of the disaster was in Wall Street. Many knowledgeable people inside the US also accept this verdict – even the President. But don’t overlook the culpability of bankers in other places – particularly London.

So the first candidate for hero is Timothy Geithner, the Secretary of the Treasury. Do I hear sniggers in the back row? No one has been impressed by his leadership so far, and it’s widely speculated that the knives are already out for him. Back in 2007 he had the foresight to warn about the instability caused by runaway credit, but never followed up on it. What did poor Tim do wrong? I’ll quote one of the commentators who I follow to make sense of this story –

“Henry C. K. Liu – Asia Times Online April 22nd 2009 http://www.atimes.com/atimes/China_Business/KD22Cb01.html

Many economists are pointing out that the Obama bailout plan for distressed banks is too small for the scale of the problem, that taxpayer money is being misdirected to save banks without adequate control on the banks as to how to use the money to help the injured public, and that it is a hybrid solution that combines the worst aspects of nationalization and the worst aspect of private enterprise without the benefits of either.

A study, “The Pricing of Investment Grade Credit Risk during the Financial Crisis” by Joshua Coval and Erik Stafford of Harvard University and Jakub Jurik of Princeton University suggests that recent credit market prices are “actually highly consistent with fundamentals”, and that bonds and credit derivatives should have experienced a “significant repricing in 2008 as the economic outlook darkened and volatility increased”.

The analysis also confirmed that the “severe mispricing existed in the structured credit tranches prior to the crisis and that a large part of the dramatic rise in spreads has been the elimination of this mispricing.” The authors conclude that any use of taxpayer money to buy toxic assets “will simply transfer wealth to the current owners of these securities”. This conclusion has been independently reached by a large number of market participants in the past two years.”

More profit for the crooks who caused the disaster? Scratch Tim as our hero. The same goes for Larry Summers and Ben Bernanke – not quite as ludicrous in their tights, prancing across the stage waving plaster swords, but principals in the same disastrous sub-plot that threatens to pile more venality and misdirection of resources on top of the serious downward plunge of the fortunes of the good guys.

The problem with all the measures taken by the US administration – this one and the previous – is that they are all recognized to be hopeless attempts to rescue the crashed bubble economy instead of striking out with real change and a reformulation of the financial structures that caused the problem. No signs of a new model that will safeguard everyone’s future – the US, Britain and Canada fought against that at the G-20. But those failures are not a temporary glitch in the scheme of things – the crash pointed out the existence of fundamental flaws that must be removed before the world financial systems can move forward.

This is the place for a novelist to end a chapter, but I have to give readers a hint of the next direction of our search for the hero we need. I’ll point out that China shows considerable economic strength, suggesting that country could be the first out of the slump. The leaders who insisted at the G-20 that the world financial rules had to be revised before everyone could look for an economic recovery – German, Brazilian, Chinese – are likely to be among our next candidates for hero. Then there are the economists who gave ample warning and were never taken seriously.

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