The Moment of Truth — May 26, 2012
Welcome to the Moment of Truth, a refreshing hint of mint.
Standard and Poor’s just downgraded some Spanish banks who owe money to other banks. This reminds me of a parable my friend Jesus used to tell: there was once a king who had three sons. He gave each son a third of his kingdom. Actually, he didn’t, that’s wrong: he loaned each son a whole lot of money at a very low rate. Not all at once, though. Each son had a kind of running line of credit, very cheap credit. And each son in turn loaned money to other people at higher rates. And those people loaned money to others at higher rates, and so on.
Where did the king get the money in the first place? I’m not sure I remember. Either he invented a chicken-boning machine, which created lots of jobs, or God gave him the money, or he sold blood diamonds, which created lots of jobs.
By the way, did you ever see the movie, Blood Diamond? It’s about Africa but, SPOILER ALERT, the white guy redeems himself by helping the black guy. That movie created a lot of jobs.
Speaking of jobs, did you hear about the Pope’s butler? There’s a job for you: Pope’s butler. How do you work your way up to that? What is the entry-level position, altar boy’s butler?
Paolo Gabriele, the Pope’s butler, has been arrested by the Vatican police. Over the past few months, secret Vatican documents have been leaked, airing all kinds of dirty papal laundry, and the Pope’s butler may be one of the sources. The leaked documents show an organization rife with the kind of bribery and cronyism we normally associate with non-popes and their non-papal organizations: places like Chicago and Moscow. But apparently if you want to get a contract with Vatican city to manage the parking meters or polish the domes, it helps if you know the Pope.
The leaked papers also show that an Archbishop, Carlo Vigano, who was investigating the corruption, was transferred to the United States last year, and that he wrote to the pope asking that he not be transferred so he could continue his investigation. The pope decided Vigano could be more useful not investigating anything.
No one should be surprised at any of the scandalous goings on. The Vatican is a small town and so is bound to be full of soap-opera intrigue. I’m sure it will make a great movie.
People should make more movies. Movies create jobs. Remember that king with the sons? The king’s sons loaned a lot of money to people who made movies. They loaned money to billions of people for billions of enterprises. It was a thriving economy.
No one is exactly sure what went wrong. One possible flaw in the system was that the cost of producing things, including money, always had to be lower than the revenue the product brought in. And since part of the overhead of overall production was the wages of the workers, the consumers outside of a select group of preferred citizens were always coming up a little bit short in the overall game, especially the ones lower down the social ladder. These poor slobs always owed a little bit more than they had, and that gradually but inexorably accumulated into a really lopsided debt situation.
Maybe there were also problems with cronyism and corruption, who knows?
Everyone owed the king’s sons money, and the king’s sons owed money to their father. And as the debt got more and more swollen and the difference between debt and income more and more lopsided, people started realizing they would never be able to pay the king’s sons back. Furthermore, because they held all this bad debt, the king’s sons were downgraded by Standard & Poor’s, and the king died of embarrassment.
As always, Jesus would end his stories by saying, “WWID”? What would I do? And the answer, as always, was something complex none of us could understand about currency valuation. We would apologize for not understanding what he was getting at, and he would forgive us. He was always forgiving. He was Mister Forgiveness.
But getting back to the subject of Spanish banks, it’s got me wondering if maybe Standard & Poor’s and Moody’s need to start grading banks on a curve. And countries. They keep downgrading banks and countries. But the banks and countries that aren’t being downgraded are holding the debts of the banks and countries that are, so what’s the point? If the debt-holders can bear the burden of a default, they should just forgive the debt, and if they can’t, they should be downgraded, too, since their debtors’ bad debts are also their own questionable assets.
Why don’t we just downgrade the whole world to “disgusting” and start over from scratch?
This has been the Moment of Truth. Good day.
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