The morning news brought the following ‘Gulp!’ item: ‘Wachovia Reports $23.9 Billion Loss for Q3!’ Not good news for the folks who now own that mess. How do you even go about losing $23.9 Billion in three months’ time? First, you would need the empty warehouse to stack all that money – it takes time to rent a warehouse. Second, you would then have to somehow ‘disappear’ all that money. If you burned it, the Fire Department would not be happy; if you dumped it in the ocean, the fish and environmentalists would not be happy either. I’m stumped as to exactly how they went about that.
Our economic problems, which have been on my mind a lot of late, are based on some real Wizard of Oz stuff going on right now. Nobody knows what the Man Behind the Curtain is really holding. If all the financial institutions of all the industrialized nations all showed their full balance sheets in all their combined glory right now, aside from increasing dramatically the number of heart attacks and strokes, we would actually know just how bad this situation is – but, they won’t do that. If I tell you that there are $60-65 Trillion just in Credit Default Swaps out there, buried on or off those balance sheets, most people probably can neither comprehend the enormity of the number nor really understand what those damn things are anyway.
The exotic financial instruments which plague all those balance sheets of the players who are really in trouble, are beyond usual human comprehension. They are the Frankenstein product of algorithms produced by massive, previously undreamed of, computing power and are a very good example of what science fiction writers have warned us about for decades now — the takeover of humanity by the Machines Who Became Smarter Than Humans! Except, nobody correctly predicted that it would happen quite this way, because there is not enough shooting and blowing stuff up.
Today, we sit at computers that most of us really do not understand, talk on cell phones and Blackberries of which very few of us could coherently describe exactly how they go about what they do, rely in our cars, homes, offices and businesses on circuit boards, powered by tiny silicone chips with millions of microscopic connections that flash on and off “1” and “0” faster and with more volume than we can imagine. Guess what? We are there, living in that science fiction world, right now.
As several columnists have noted, it is now, urgently, the time for the industrial nations all to sit down together and re-design the world financial circuitry for the 21st Century – a Breton Woods-style gathering to produce treaties and international agreements and, yes, some regulation, to deal with the proliferation of financial instruments, technological advances, investments and national economies which are now globally tied together, in a rational and orderly way. Iceland is broke, for God’s sake! Iceland, where the fishermen became bankers, and then totally wiped out their economy and the savings of many in other countries who relied on their promise of high interest rates.
It is not unlike nuclear power. The countries which had mastered that Genie in a Bottle had the foresight to structure some international systems which have worked reasonably well since World War II—I say ‘reasonably well,’ because we have not looked out our windows since then and seen any mushroom clouds rising over our cities—at least not yet!
It is now time to gather the world’s economic Brain Trust and plan out how the global economics of the technology-driven 21st Century are really going to work, in order to get out of the mess we are now in. Sorry, but this is not something that the United States can manage on its own because our economy is so interdependent with all other globalized economies that it is like catching smoke in a bottle.
As Ben Franklin famously said, paraphrased, when things were really heating up over some new ideas here back in the 70’s—the 1770’s, that is: ‘We must all hang together, or, surely, we will each hang separately!’