Bankers’ Hours column: Financial world getting T-boned in Siberia
In my last column, I included a disclaimer that the opinions weren’t a prediction of doom and recession.
This also is not a prediction. It’s an observation: We’re currently in the midst of a collapse of the planet’s economic infrastructure. It will be repaired, but absolutely no one know when, how, or how much it will cost in time, treasure or torment.
We’re emerging from Aunt Em’s farmhouse to realize we’re not in Kansas anymore.
Envision driving across Siberia, enjoying the scenery, when suddenly you’re T-boned at the only intersection in 500 square miles. You’re conscious, you know the injuries are serious. But, blessedly, you don’t yet have an inkling of the hospital stay, the surgeries and rehab to come. However, it’s beginning to dawn on you that there’s surely nobody in that part of Siberia who knows how to put you back together. Welcome to the world economy, post pandemic.
Every business, industry, service, association, organization and nonprofit will be affected, and they’ll all need a lot of help and capital from their national governments. Around the world the line to apply for subsidies, loans and concessions will be longer than at the Mile High ticket office before a Broncos home playoff game.
When I was a kid, I was a fan of science fiction. We’re living in a sci-fi movie right now, and it’ll be a great story for Hollywood, whenever it re-opens after the plague. Right now, anybody can make up a storyline and have a chance of being right, so, here are some thoughts.
The recovery will likely involve a 1930s New Deal on steroids. No matter what happens in the next 30, 60, 120 days, never, in recorded history, has so much of the world’s population been out of work. Banking, whose business is the movement of money, and whose business model is making money on that movement, will be smack in the middle of this process. And banking itself will need governmental help to function.
The timing belt’s broken, the engine’s seized up: Billions are unable to make payments on what they’ve borrowed, from Fortune 500 companies down to the 19-year-old college kid with his first credit card, courtesy Mom and Dad. If all that money doesn’t start moving, nobody’s going to start getting paid again, ever.
And you don’t jump start a recovery like this. A few government bailout loans won’t make the engine whir on all cylinders. It’ll take time, maybe a lot of it. You can’t jump out of bed and walk on the leg with a compound fracture sustained in your Siberian Subaru crash.
The complexities abound: There are businesses and industries that were on shaky ground before the virus jumped from bats to bystanders in an open air market. For example, corporate debt has skyrocketed over the last few years to 19 trillion, much of it risky. In fact, about 1.2 trillion is actually outstanding to sub-prime business borrowers whose loans have been packaged into junk bonds; a very large portion of this debt is very likely not to get repaid at all.
And then there are the sub-prime mortgage lenders who have resurrected themselves, just like a slasher flick serial killer at just the wrong time. Homeowners are taking on big debt at the very moment that the canoe goes over the waterfall.
National governments were slow to act when the virus hit. Virtually all started off in the first two stops in the five stages of grief: denial and anger. The fifth stage, acceptance, will be the starting point for competent leadership to take over, whether it comes from pre-pandemic leaders, or those who come off the bench.
In closing, one irresistible comment:
A few years ago, I wrote a column about the stability of banking in the U.S. I cited people who bury cash, in the event that, if banks fail, or are closed, and money isn’t available, they’ll have emergency currency. I pointed out that, if the banks are closed, that means our government has fallen, so it would have been better to bury toilet paper, because it would be more effective than greenbacks would be for the only thing that they could be used for.
Well, banks are still handing out money, and our government is certainly operating, but it’s a good bet that a lot of those folks who dug a hole for money wish they’d buried the new currency: toilet paper.
Enjoy the movie, folks. After all, you’re starring in it.
Pat Dalrymple is a western Colorado native and has spent more than 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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