A Different World

Coffee with Costa - Pavement Philosopher

A Different World

Thomas Jefferson said: “I believe that banking institutions are more dangerous to our liberties than standing armies.”

In 2002 Warren Buffet called derivatives like the sub-prime type mortgage investments, “financial weapons of mass destruction.”

Who would have said that banks would become casinos and casinos would become banks?

Who could have known that bank lending would outstrip customer deposits?

Who would have said that the “masters of the universe” at US investment banks would borrow 30 and 40 times their capital base?

With the exception of Warren Buffet, who could have foreseen that Lehman Brothers, once the fourth largest investment bank in the US, would become the biggest bankruptcy in the history of the world?

Who would have said that the 3000 lawyers employed by the Securities and Exchange Commission (SEC) as financial watchdogs and regulators would fail in their duty to reign in the excesses of the banks?

Who will ever trust Credit Rating Agencies like Moody’s and Standard and Poor again when they award or rubber stamp AAA securitization ratings on company debt?

How do you “mark to market” or sell securities/loans at “fair value” or market price when there is no market even at fire-sale prices?

Who would have said that General Motors, a company that manufactures real cars is now worth less than Mattel, a company that makes toy cars?

Who would have said that capitalism is about privatizing profits and socializing losses?

Who still believes that markets are free, efficient and self-regulating?

Who would have said that a black man with “Hussein” as his middle name would one day become the President of the USA?

Who would have said that modern America would be built on debt and would become the world’s largest debtor nation, needing $2 billion a day to keep going, with half of that needed to keep the US presence in Iraq going? I’m betting on President Barack Obama raising taxes very soon after he is sworn into office. He has no choice. He’ll call it a national state of emergency.

History teaches us this sobering lesson: When the bankers and traders screw up the financial system on such a monumental scale leading to a recession and then a prolonged economic depression, the military men and the war-mongers follow shortly afterwards.

Maybe it’s time for a philosopher king. In the Republic, Plato defines the philosopher king as an unselfish person with a love for wisdom and a passion for the truth. Only such a person who has achieved the greatest wisdom or knowledge of the good is capable of ruling a just society. The problem is we don’t live in just societies. Politicians cannot do the job properly in Plato’s view because their thinking is clouded by self-serving behaviour which obstructs the pursuit of the ideal truth. The philosopher king in contrast is unselfish and seeks the good of all people.

A few more sanguine commentators in the US see Barack Obama as America’s messiah who will bring meaningful change. Campaign promises are one thing and easy to make. The harsh realities of office and the unexpected curve balls often necessitate a different response. For a start on the domestic front, Obama will inherit Bush’s tainted legacy; a bankrupt country, with clogged arteries on life-support. He will face a country devastated economically by a war in Iraq costing trillions.

In the foreign arena he will have to deal with a resurgent and increasingly belligerent Russia, an enigmatic, resource-hungry China, an untamable Afghanistan, an unstable nuclear-capable Pakistan, an intransigent Iran determined to continue with its nuclear aspirations, an insecure Israel and a bloated, reluctant and scared Europe. He will have to seek more multilateral solutions than his myopic predecessor. How much can he achieve in one or two terms of office? Could he possibly be America’s philosopher king? I seriously doubt it, but time will tell.

Meanwhile back in sunny South Africa summer is upon us again and the regal hued Jacarandas are in full bloom in Pretoria. In a few weeks time the schools and universities will close and the beaches of Kwazulu Natal will be packed with holiday makers and Cape Town will be invaded by German, British, Dutch and Irish retirees in search of cheap beer and pork sausages.

A few London based former investment bankers facing a winter of discontent, are heading for Cape Town this summer where they will undergo extensive training as ice-cream vendors on Clifton’s beaches. They will trade in their pin-striped suits and Church brogues for khaki Bermudas, Ubuntu T-shirts and yellow caps. Shoes are not allowed. Instead a rigorous foot conditioning regime is a compulsory part of the aspiring ice-cream vendor’s curriculum. King Shaka toughened his Zulu impi’s by making them run barefoot on thorns. This regime although inspired by Shaka, is less severe, requiring trainees to walk barefoot on hot beach sand for extended periods of time and then to repeatedly immerse their feet into the icy waters of the Atlantic until they are numb.

The first lesson that will be impressed upon them at the nearby Camps Bay Ice-cream Vendors Academy, is that selling ice-cream is a self-regulating, cut-throat, cash business and the word “meltdown” means you are finished. Anything involving the word “short” means financial suicide, so no short-selling, short-tempers or short-changing. Beware of short skirts and young tanned blondes in bikinis. Like sirens luring you to the rocks, they will beckon you with honeyed voices and unashamedly flirt with you. They will buy ice-lollies for their friends and promise to pay you later. They are bad for your sanity and your cash flow. So don’t be a sucker! Other ice-cream vendors will not lend you cash if you are short. It is also a strange paradoxical business. The hotter it gets the colder your Eskimo Pies have to be.

To succeed there is only one golden rule: Keep your ice-creams cold and your cash hot.

As for banking, follow Tony Soprano’s lead. He buried his loot under his pool filter.

Costas Ayiotis
Reflections and observations from the pavment
9 October 2008
Waterkloof, Pretoria.