Looking for a Plot…….

Like every other novel, our proposed fictional account of the present economic crisis “Follow the Money” should have a logical and concise structure. Since we haven’t yet identified our hero of the novel, last week I suggested looking at the structure of the unfolding plot to hopefully define who that person should be. Yes, I know, it’s backwards from the way I and every other novelist works.

Let’s start by looking at the simple W novel plot structure. Imagine each corner of the letter, where the lines change direction, represents a turning point in our story. The letter also has a starting and an ending point. The relative height of the turning points define whether they are ‘up’ points (high points) or ‘down’ points (disasters) – three ups and two downs.

For a comedy – using the ancient Greek definition of literature –  we need the upright W so it ends at a high point (happy ending). Following this diagram, we need to begin our comedy with the situation as good as it gets, only to be struck by some disaster – the inciting incident. Things go downhill and later it gets better … and so on. For a tragedy we must turn the W upside down so that it ends at a disastrous low point. An M is the nearest I can get to showing an inverted W with this typeset. A tragedy has to start where the situation is dire, but some manna from heaven arrives to carry the situation upwards to another turn for the worse.

Let’s look at our comedy that starts at the high point on the W – the stock markets are booming, no one’s mortgage has been foreclosed – everything is coming up roses. Ben Bernanke as protagonist surveys his world on March 17th 2007 as he prepares to make a speech at the Federal Reserve Bank of Chicago’s 43rd Annual Conference. What does he say?

“… given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.”

(Thanks to Henry C K Liu in Asia Times Online for the quote.) Wow! How could anyone be so wrong? The proverbial sh*t hits the fan three months later. That is our inciting incident – in spades.

The first turning point for the comedy comes after a steady decline into disaster, when the hero seizes control of the situation and, bit between his teeth, and drags it forward to a high point. Ben and his buddy Henry Paulson begin their disaster control control by making borrowing even cheaper, having treasury bonds pay little or no interest, and throwing the taxpayers’ money at the bankrupt banks, rescuing some of their buddies and letting others crash. This is continued after Henry sails off into the sunset with George W Bush and is replaced by Tim Geithner. Tim needs help to throw even more money down the well, because the water of hope hasn’t made an appearance yet, so Ben begins buying Treasury notes with money that doesn’t exist and pretending they both know what they’re doing. Eventually a glimmer of light appears as the water in the well swallows up all the free money. The rate of mortgage foreclosures decreases – wow, that must be good news. Not everyone in the States has lost their job – more good news. People begin buying stocks again and the Dow begins to fly. Whoopee! The crisis is going away – that’s where we sit today.

This is where, when all seems fine and the problem is solved, disaster strikes again and shoots the whole shebang into the basement. The housing bubble hands over to the credit card bubble and the banks are in trouble again because no one can pay their monthly minimums – then the bear market in stocks (which is what my experts all say it is – a false rally) collapses. Now the stock market really hits the skids as Mr Market crushes all the surviving investors and speculators under his heel. You thought your 401(k) looked bad before. You ain’t seen nothin’ yet.

This is where Hero has to make a new decision and find new courage and strength to claw back to the final high point where we find …  Triumph! What’s he going to do to reach this Nirvana? Your guess is as good as mine. What if Ben cannot pull any more strings? They’ve all been pulled. Pay magic money to people so they buy Treasury bills with phantom dollars? Uncover a huge gold mine in Nevada that can pay off all the overseas creditors who expect to have their Treasuries redeemed on schedule? Apply to the World Bank for a loan … oh, sorry, the World Bank operates on real money and it hasn’t been paid either.

I don’t think I’m going to follow Ben Bernanke as hero beyond this point. This novel may have trouble reaching the planned happy ending. Next time we will explore the tragedy, to see if it turns out any better.

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One Response to “Looking for a Plot…….”

  1. joylene Says:

    Excellent post, Chris. Very clear and helpful. Looking forward to more.

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