Monday, December 15, 2008

Floating around on my raft...

A good friend back in London recently congratulated me for having 'abandoned the sinking ship' in good time. Every day I follow the news from home and it does now seem that HMS Blighty is going down so fast and so deep that soon not even Robert Ballard will be able to find it.

If I'd settled out here back in the early 90s I wouldn't have had this opportunity to vicariously experience the UK's media - and indeed its cultural and intellectual life - through fibre-optic cables and signals beaming down at me from satellites circling in high orbit. And it's an odd experience this peering into the descending air bubble of Britain from outside...

Last Friday's Newsnight Review featured a panel discussion about the likely artistic consequences arising from this loss of prosperity. I found it rather distasteful in the end - the UK's buzzard-like chattering classes are so sure that none of this mess is their fault - that it's those awful philistine bankers who need to be excoriated - and would apparently rather experience (and comprehend) this crisis indirectly through the products of their own seemingly burgeoning meanings industry, than devote themselves to more hands-on / less narcissistic activities. Say what you like about the Yanks, right now their habit of picking themselves up, dusting themselves off and just getting on with it, is considerably more appealing to me these days.

The UK's economy has frankly only prospered in recent years because it has functioned as one big leveraged bet on itself. And for this the dastardly bankers surely can't take all the blame. Living out here I've come to see ever more clearly how people who risk money they can't afford to lose are often just as noxious to the common good as the most unregulated of capitalist bastards.

For example, V's father was a successful property speculator and accumulator of wealth, from a near standing start. Some of his sons however, have proved to be extremely poor imitators, largely because they seem unable/unwilling to make the present sacrifices (like saving) necessary for reaping benefits later. This means that several seem to have become rather set in the notion that what is generally required is a not insignificant injection of someone else's money in order to place their circumstances firmly on the path to exponential improvement.

Back in Blighty, there's been a consensus trade in the futures of UK PLC which even the Labour government bought into wholeheartedly. Those at the top of the financial food chain made vast profits which kept the whole thing chugging along nicely, but those in the social bell-curve's bump wanted in too, and the only way they could properly participate was by borrowing - which ultimately the government and the financial institutions did little to discourage. (An illusion of wealth always keeps Britain's middle classes from moaning too much.)

Along the way the boundaries between the real and the speculative economy were blurred, with banks in the US in particular wantonly muddling their core and proprietary trading arms in order to first generate, then disperse, new levels of exploitable risk.

It's always the 'greater fools' who bring these houses of cards down - the banks should know this - but they don't seem to have institutionalised ways of avoiding the temptation of sucking gullible low net-worth individuals into the game. Of course it remains deeply unfashionable to pass comment on how the masses somehow always manage to screw things up (though their effect on television is a lesser taboo), but democracy and capitalism do seem to be highly prone to popular cack-handedness.

That the financial sector represents around a fifth of the UK's GDP is bad enough, but there are other major sectors which are equally prone to cyclical unwindings, such as the PR, branding and advertising industries. Sure, new ventures need to spend here in order to get to market and establish themselves, but many existing products are effectively engaged in a marketing arms race, forced to match the monies thrown at agencies by their competitors. Marketing spend this tends to go off the end of a cliff the moment the economy shifts into reverse.

The global downturn hasn't really hit Guatemala properly yet. If anything, the collapse in oil prices has alleviated the sensation of crisis that was peaking around June. Looking around Antigua today - a town geared towards extracting a tithe from visitors - there are simply too many travel agencies, too many cyber cafes, too many boutique hotels etc. Normally this kind of endemic overgrazing would eventually lead to a clear-out, but here these mini-industries get sucked into in a race to the bottom where the bottom never actually materialises, and as a result, even the businesses that started out trying to offer these services to a higher standard begin to degrade. Perhaps a recession will instigate the necessary cull?

Anyway, the LRB's Donald MacKenzie has been a fine commentator on all matters crunchy. In this article he takes a look at the prospects for the hedge fund industry.

While up to a third may come a cropper as a result of the current crisis (thus dissipating up to a quarter of the wealth invested in their funds) - there seems to be something in their very structure which forces them to close positions even when it seems clear they might soon turn a corner - MacKenzie still feels they may ultimately assume an even more important role within the financial services sector:

"As banks retreat from trading risky financial instruments, a potentially very profitable space will open up for those still prepared to do so, and hedge funds will step in to fill it."

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