2007: A Watershed Year

by Martin Lowy
January 2008

© Martin Lowy

Click here for a PDF version of this poem.

Prologue
In 2007 the markets shook
When no bank trusted another’s book
The downdraft whirlpool then ensnared
Parties that were unprepared

How all this happened, though long foretold,
Ve get too late shmart and too soon old,
Will be my lesson, set in verse,
Of what were the causes of this curse.


Round Up the Usual Suspects
Is this what comes of laisse faire?
Markets rise without a care
Then descend, when more is less,
And leave us with an awful mess?

If that is what free markets do
I say fee and fie and foe on you
Paulsons bake you in a pie
And lock the doors of the AEI!

Unleash the wrath of Barney Frank
He will make ‘em walk the plank
For foisting loans on folks in need
Though mostly those that were late to greed

Regulate ‘em, that’ll teach ‘em
Thought the law would never reach ‘em
Send ‘em subpoenas in the post
Let ‘em compete for who squirms most.

The Voice of Reason
But soft, what light do I see behind those giants?
I think it’s a prof of the dismal science
Who advocates that markets where all firms compete
Are fair although their prices oft retreat.

The problems were bred by macro imbalance
That augment bankers’ persuasive talents
Letting them sell the oil of snakes
Magical potions that turn out fakes.

Like asset-backed so-called CP
That’s built on sand called an SIV
The fancy banker’s nomenclature
Hides the facts of their true nature.

The SIV’s in fact the bank
As all found out when they went in the tank
And banks bulked up their balance sheets
Beating hasty accounting retreats.

The ‘30s wordplay Prudent Stince
Foresaw Citi’s Imprudent Prince
Who said he’d dance while the music played
Why was this banker not afraid?

In each generation, Galbraith explained,
Leverage that is not contained
Is greeted with pride as innovation
Its inventors get paid above their station.

Later the house of cards implodes
And the princes all turn back into toads
They keep their bonuses, ‘course paid in cash,
Though they and their desks are gone in a flash.

Who Done It?
Alan Greenspan, bubble blower,
Drove down rates ‘til they couldn’t go lower
Deflation’d be worse, he seemed to muse,
While the flood of money lit the fuse.

Take back the punchbowl? Bah what a notion.
I’ll mix ‘em up a stronger potion.
The dotcom bust and Enron’s deeds
I’ll cure with dollars, wherever that leads.

President Bush, no piker he,
Ignored what had happened in ’73.
He first cut taxes, then started a war
Isn’t that what power is for?

Guns and butter we could afford
Was LBJ’s line ‘til his ox got gored.
W thought in loaves and fishes
But both alike were thinking wishes.

With deficits and easy money
All lever up while the world looks sunny
And bubbles form where the rules are weak
‘Til pinprick breaks the winning streak.

The flood of money allowed us to pay
For oil at whatever price they might say
And buy all the goods that China could master
Sending them dollars the mint can print faster.

A fish, they say, stinks from its head
And there stops the buck, or so someone said,
But this buck’s unclaimed, a 4-pointer for sure,
That pushed the poor dollar into a sewer.

A World of Denial
Why’d the accountants allow all the shams?
Did the banks pay for their seats at the ‘Slams?
And why did the Fed go along?
Couldn’t they see the accounting’s wrong?

Supervisors can’t manage risk
Their job’s to guard the public fisc
Jawboning banks, even in rhyme,
Is regulatory pantomime.

If excess money floats around
Mischievous conduct will abound
And there will be too many clues
Like Agatha Christie was the boom’s muse.

Push a little here, squeeze a little there
‘Til a circle becomes a square.
The word goes out across the land
Bring in loans to meet the demand.

Who’d have thought that Landesbanken
‘d prime the pump and set it cranken
With billions stashed in SIVs
Modern finance, such a breeze!

Mortgage bankers all get tarred
If they were lawyers they’d be disbarred
For faking good folks’ vital statistics
They made up the numbers, they weren’t mystics.

The agencies that rated the bonds
Collected their fees and waved their wands
Now downgrades galore, they’ve no respect,
It’s other folks’ fault the economy’s wrecked.

The data was bad, the bankers dissembled
A perfect storm, the heavens trembled
The fees we charge don’t faze us at all
Like the ump Bill Klem, we just make the call.

And so it goes, the rating kabuki
Why do we trust a process so kooky
A stylized dance that the world applauds,
How to replace these fakers and frauds?

Some of those who experts be
Plead for more transparency
If everyone knew what everyone knows,
It’d make more safe all those capital flows.

Disclosure is great as a market tool
To prohibit tales told out of school
But when it’s applied to a thought process
2 + 2 ain’t 4 but less

Consequences
Housing prices must go down
How much will vary from town to town
The value lost only briefly existed
Like bosons or quarks or stock that’s not listed.

Sovereign funds that dollars created
Buy up banks that once were gold-plated.
We gorged ourselves on their oil and gas
Now they are here imitating Sam Bass.

Collateral damage, pun intended,
Spread round the world when the music ended
Cities, homes, women dressed to the nines,
It even threatened the monolines.

So what will happen, now the dance is done?
How long will it be ‘til bankers have fun?
Oh fear ye not, the Fed’s on the case
Throwing money all over the place.

The massive loss’ll be monetized
And the mighty dollar’ll be less prized
Spreads’ll grow fat, interest income go up
Funding losses not seen since Hector’s a pup
The banks’ll pull through with credit that’s dear
Restoring net worth, you need have no fear.

Banks will intermediate
On narrowing margins 'til it’s too late
And when the Fed begins to tighten,
Stockholders’ wallets again will lighten

We’ll see the return of securitization,
A partial response to renewed inflation.
Before too long, spreads will narrow
And debt will be pierced by love’s arrow.

Though it can cure a credit crunch
Easy money’s no free lunch
We’ll borrow from the future once more.
Isn’t that what our kids are for?

The world’ll prosper, mark my pen,
Though owned not by dollars nor by yen
With remnimbi ascendant and Euros supreme
Bretton Woods money looks like a dream.

Imbalances that defied all the rules
Caused by misuse of economists’ tools
Have leveled the global playing field.
Such a natural case cannot be appealed.


Coda
Is this America’s fall and decline
Not with a bang but a cultural whine?
Or is it instead the start of our prime
Our primus inter pares time?


As hegemon we’ve had things our way
But be not nostalgic, greet the new day.
To the spirit of markets that animates growth
Most of the world has now pledged its troth.
Freedom’ll follow, all in good time,
Making the world more sublime.
Peace then will come, of that I am sure,
But the market’s imperfect, for that there’s no cure.