From the London Review of Books, comes this brilliant slice of analysis:
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"My friend Tony, however, is sanguine. ‘Sorting out who’s in the shit is going to be a nightmare, but when it all shakes out, all it’ll mean is that credit is a little bit more expensive. That’s a good thing. It had got crazy. It was cheaper for companies to borrow money from other companies than it was for governments. That’s nuts. These things are cyclical, it had all just gone too far and we needed a correction.’
‘So we’ll have to stop running around spending money like drunken sailors,’ I said.‘Well, drunk sailors tend to be spending their own money,’ Tony said. ‘By contemporary standards they’re quite prudent.’
– John Lanchester, writing about the sub-prime mortgage crisis in the London Review of Books.
I guess I owe an apology to drunken sailors, a metaphor I have used repeatedly.
This take on that phrase may very well become the classic line that sums up the era from 2003 – 2008: Drunken sailors: By contemporary standards, they’re quite prudent.
Classic.
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via New Economist
Next to sociopathic a$$holes on Wall Street…many classically evil characters look like kittens.
New phrase should be “like drunken legislators”
How dry we are…
That is the perfect post. Barry, you can retire now.
BR: Thanks for the great job as always!
You know this whole thing the market has been going thru since last August has had me thinking. (All other things being equal, that is probably a bad thing).
From the perspective of a layperson so-to-speak, there are several things that indicate that sometime in the near future, interest rates should start moving back up (not on a cyclical, but a secular basis):
1) Greater supply of debt; which demands a higher rate of return (interest rate) for each additional dollar of incremental debt,
2) Relative depreciation of the dollar to other available global investments denominated in other currencies,
3) Tremendous release of dollar stimulation into the US economy by the Fed from the current credit crisis putting a downward bias on the value of the dollar.
I am sure there are several other reasons that will also tend to place an upward bias on future interest rates.
The problem I have is that the US has such a tremendous debt (~9T$) now, that if interest rates increase very much, we are dead! (5% of $9T is $450B isn’t it?) I remember not too many years ago that the entire federal budget was ~ $850B. That means interest expense alone would consume over 50% of the federal budget before we even look at ANYTHING else.
If interest rates moved back to a more normal rate (from the 70s & 80’s) of 8.5% to 10%. The annual interest expense alone will completely consume the entire federal budget! That scares the shit out of me.
It looks to me like taxes or interest rates or both are going to be very high in the future. In otherwords, the dollars is going to be weak for a generation or more. And that’s the good scenario!
Tell me things aren’t really that bad and that we can get out of this mess.
“risking company and shareholder dollars like a drunken CEO with a guaranteed golden parachute and a million free deep in the money stock options…”
Actually, I recall from somewhere that a sailor was only paid for his services after his period of service was over. It could have been a year or so before a sailor was legally able to receive his pay. So when a sailor was in port he was going ashore with borrowed funds. He was given a loan and told to be back aboard ship at a certain time. And sailors were often drugged and kidnapped and basically ransomed back to their ships for a fee which was taken out of the sailor’s wages at the end of his term. I think there may have also been fines sailors had to pay if they were late or otherwise incapacitated from drink or were missing because of being arrested or kidnapped, etc.
So in this way sailors could go into debt for more than the value of the services they had already performed. Indeed, some sailors would have to pay for a long time for a drunken night on the town.
Since this ‘London’ place appears not be on any map of the US I’ve found, and since the article features lots of references to ‘the City’ and other non-American places can we now say that ‘Wall Street’ and ‘the Fed’ and others in America have less to do with the current mess than many think?
Sailors are who they are. They’re mostly kids having a great time.
Wall street crooks and thieves are opportunists who will steal anything that isn’t nailed down, and call anyone who won’t a wimp. If there’s no law against it, then it’s time to party. Responsibility with someone else’s money is not required, and a sign of stupid. The only penalty for failure is paid by the stockholders.
The only people dumber than stockholders are those like Greenspan who hail liar loans as financial innovation. And economists who firmly believe that asset bubbles are impossible to see until they have burst. This is retard city. Duh.
Just make 32X leverage a little more difficult to achieve and you might see a little default honesty.
Or lower the cost of commodities by making options a more expensive for gamblers and idiots with no brains and lots of money. At least the speculative premium might be reduced so that actual supply and demand are reflected.
I’m getting pretty damn sick of subsidizing crooks and gamblers via federal bailouts and potential losses in my personal savings. Especially when trillions of fucking dollars are involved.
Who’s in charge here and what to you fucking plan to do about it?
Well said. It reminds me of the sign that Congressman Ron Paul has in his office: “Don’t steal, the government doesn’t like competition.”
BG,
You mentioned interest rates moving up. The average american hasn’t seen them go down much for personal loans. Even car loans were “faked” low interest because the sticker price was much higher than a cash price. And credit cards are always set up so any low rate is a teaser only. My bank tried often to get me out of a credit card I’ve had for 12 years now because of the terms. I wasn’t interested. I had an ARM on a property when Greenspan dropped the rates and I rushed to pay it off before they went up. What about money market rates? They are an insult to savers. No, if you aren’t a millionaire, you haven’t benefited from “low rates” in the past 5 years.
The great problem with society now is the constant drumbeat of “trust the expert” advice for just about everything. The “experts” have turned out to be con artists. Trust yourself. You want insurance? Label a savings account “XYZ insurance”. You want health? Apply all the knowledge you have to yourself. Finally, when somebody says, “Don’t worry about it.” Look out.
Cinefoz,
I agree with you on the God Damned speculative premium that options pricing and deposits puts on stocks and commodities. There is a way to fight this. If say, about 1000 investors with about $100,000 each started taking delivery on “whatever”, the whole equation would change. I would love to see deposits on futures go to 90% of the underlying security value so it would be harder to jack around with the prices but for now I’ll stick to pricing things at the 200 day moving averaqge with a narrow bollinger on either side.
I was in the Navy in the 1980’s and early ’90’s. And my buddies and I did drink quite a bit when the circumstances allowed it. But that saying has always kind of bugged me.
Now I feel completely vindicated! Thanks Barry.
As an ex-sailor, I can assure you that no one was allowed to spend more than the pay that had accumulated while the ship was under way.
So in essence Tony is correct. Sailors were spending (forced) past savings. Consumers and America have spent the future.
Cinefoz,
I’m going to call a bottom when I see a few more posts like that from you. Once all hope is lost, even by the optimists, then it will be time to buy.
Bear markets slide down a slippery slope of dashed dreams and fading hope.
“New phrase should be “like drunken legislators””
New? Hmmm! Let’s see…
“No man’s assets are safe while Congress is in session.”
–Mark Twain
Oh great, a new McCain joke.
The individual who wrote that sailors often drank themselves into debt is correct. Of course, the phrase applies to history, not contemporary practices, but one would have thought a living sailor would have heard stories.
I just heard the margin requirements were raised significantly on corn and soybeans, effective immediately.
Thanks, much.
Now for the oil fuckers to do something right.
I am not sure that the original assertion is true. Drunken sailors, in my experience, will spend anybody’s money. And if they do spend less of other people’s money than investment bankers it is not through prudence–it is that they are less adept at getting other people’s money (and conversely other people are more adept at getting theirs). Perhaps it is the clients of Wall Street for whom the “drunken sailor” analogy would be more appropriate.
Drunken sailors, by contemporary standards they’re quite prudent
Ive used a trite old phrase repeatedly when talking about government spending … like a drunken
Not sure about these drunken sailors and their money, but drunken footballers here in the UK are pretty good at spending money too. Here’s a quote from a famous ex-footballer named George Best: “I spent 90% of my money on women, drink and fast cars. The rest I wasted”.
The new phrase should be “like drunken bankers”.