Outrageous Fortune

I have become simply addicted of late to a little Canadian TV series dating from 2003 named "Slings and Arrows." As the title suggests, it revolves around a struggling Shakespearean theater company in the imaginary little Canadian town of New Burbage Recall that Richard Burbage was the star of the Lord Chamberlain's Men -- later the King's Men -- the Bard's company. It is simply delightful. The series appeared on American cable -- Bravo I think -- a few years ago, and several of my classically minded friends caught it at that time.

While hilariously funny, it also contains more than a few splendid insights into the art of the stage and acting and directing technique. I commend it to all who enjoy Shakespeare, or brainy comedy.

A taste from the lyrics of one of its ditties:

Cheer up, Hamlet; chin up, Hamlet;
Buck up, you melancholy Dane!
So your uncle is a cad who murdered Dad and married Mum.
That's really no excuse to be as glum as you've become!
So wise up, Hamlet; rise up, Hamlet; perk up and sing a new refrain.
Your incessant monologizing fills the castle with ennui.
Your antic disposition is embarrassing to see.
And by the way, you sulky brat, the answer is to be!
You're driving poor Ophelia insane.
So shut up, you rogue and peasant;
Grow up, it's most unpleasant;
Cheer up, you melancholy Dane!

McCainomics II

My friend George M responded to my thoughts as follows:

Primo. Deutschebank is two words, Deutsche Bank. [Fixed! Quelle idiot!]

Secundo. McCain is a total economic illiterate. He simply does not know what he is talking about. What he said has nothing to do with the current crisis and is beneath inanity.

Terzio. Banks can operate with the illusion of capital, as you well know from your own experiences. Citibank has been technically bust at least two times in my lifetime. Trump went bust but was kept alive by the banks and eventually got out of it.

What a bank needs, or an institution that funds itself in the money market, is credit. Remember, it comes from credere, to believe. If the market doesn’t believe you are trustworthy, you aren’t.

As I was saying....

Frankly, the only reason I wrote this at all was because I have been attempting all week to decipher McCain's remarks, not a total waste of time on the off-chance that he could be our next President (Aieee!). Despite my best efforts, and a certain element of charity, they remain hermetically sealed.

McCain's Solution to the Credit Crisis

I have spent the last several days puzzling over what John McCain meant when he babbled:

"Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital."

It doesn't take much of a genius to realize that most of the financial industry would operate with zero capital if they could legally get away with it. I am of course ignoring the modest discipline imposed on the world's banks by the market. Deutsche Bank and JP Morgan can't operate without any capital; nevertheless, it has been apparent since the early 90's, witjh the emergence and expolosive growth of the deriviatives markets, that the capital a bank shows on its balance sheet may bear little relationship to the actual risks embedded in the institution's assets, including quasi-assets such as swap and other derivative contracts.

Thus in the 1990's the West's central bankers, meeting though the Bank for International Settlements, began formulating risk capital rules that had the admirable, if unattainable, objective of reflecting all the risks that impinged on the institution. These rules were, and continue to be, the focus of struggle and controversy in the industry not because bankers wish to be exposed to risk for its own sake, but because capital costs money, the more capitalized the less profitable, all other things being equal.

Now I suppose McCain may be suggesting a number of things here:

1. He could be promoting a roll-back of seventy-five years of securities regulation. I don't think so.
2. He could be promoting a reduction or elimination of capital gains taxes and taxes on dividends. A possibility, but this goes way beyond our immediate crisis -- a lock-up of the credit markets as a result of a crisis of confidence over the adequacy of firms' ability to withstand losses, i.e., capital.
3. The most likely -- what he means by "accounting impediments" is a return to the bad old days when so-called "off-balance sheet" risk was just that: not a consideration in setting the levels of regulatory capital, and not spelled out in excruciating detail in a firm's financial statements.

I have to say I find any of these suggestions naive and extremely dangerous. We are in the midst of a credit crisis, meaning that market participants don't believe that their counter-parties can honor their obligations. McCain's suggested approaches are at best wide of the mark and ineffectual, and at worst will exacerbate the present crisis.

For the time being, it looks as if the best approach will be old-fashioned New Deal pump-priming. The system, will recover; it always has. The best thing we can do is not make any jerky moves that would put the cart in the ditch.