There will be more blood
Never in my thirty years as a business writer have I seen so many scary stories following one upon the other. JP Morgan’s offer to buy Bear Stearns may lance that particular boil but there remains a toxic waste of acronym debt that until recently few knew about but far too many held.
Some of those deadly instruments were peddled by the very investment banks that are now threatening to bring down other houses. The investments, which today seem ludicrous, were touted by the wounded right until the moment they reared up and snakebit their creators. I asked the wisest man I know on Bay Street why firms would sell such stuff they knew to be beyond risky. “After all,” he said, “they are vultures.”
With the savings and loans scandal of 1989, fraud was involved, and Charles Keating went to jail. When Confederation Life was seized in 1994, it was a one-off, there were no industry repercussions and investors were made whole. Rogue traders such as Nick Leeson might bankrupt Barings but the damage was usually contained.
This time around, the very interconnections that made the instruments possible are causing unpredictable outcomes. Central bankers are acting in bold new ways that may not work but certainly underscore the severity of the situation. Interesting that the Federal Reserve gave JP Morgan 28 days, as if they operated on a lunar calendar, to fix this particular lunacy.
Everyone from billionaires such as Joseph Lewis to ordinary folks have been felled. A BBC report on the weekend showed people who lost their homes in California now living in tents, a scene right out of the Dirty Thirties.
In Canada we sit smugly, hoping record oil and commodity prices will somehow guard us from the growing onslaught. But save us they will not. No one knows how long this maelstrom will last or from whence the next bogeyman will come. As Bette Davis said in All About Eve, “Fasten your seatbelts, it’s going to be a bumpy night!” And a long one.