A horror movie that keeps getting scarier
The average Hollywood horror movie usually starts with some relatively unimportant blonde being bumped off in a mysterious way. The death is shocking but it appears to have been a one-off so the film's other characters carry on pretty much as normal while we, the audience, start betting on who might be next.
Inevitably someone else does get murdered in a graphic and ingeniously depraved manner. Now there is no denying that a murderer is on the loose and the characters in our movie realise that they will have to change their behaviour or become a victim themselves. Of course, they don't. Young women still go down to basements to fetch something unimportant; young men still take short cuts through the dark woods. So, they keep dying. Characters are killed off until there is only one left standing, and I'm beginning to think that the crisis in global banking is following a similar script.
First there was Northern Rock. This small north of England bank got greedy and decided to use other banks' money to become a leading mortgage lender. When the credit crunch began to bite at the end of 2007 those banks decided to hold onto their money and it was all over for Northern Rock as the UK experienced its first bank run in 150 years. In the banking horror story, Northern Rock was the dumb blonde at the opening of the movie who does not realise a killer is stalking her until it is too late. The next victim was Bear Stearns and its death was so shocking to the masters of the universe that they finally realised that a serious problem existed in their community. But there was no collective action to deal with the threat. No posse was formed to hunt down the killer. Instead, the banks added new locks to their doors and refused to come clean about just how bad their balance sheets were.
And that led to Lehman Brothers – the most violent and brutal of Wall Street murders. After Lehmans went bust, panic set in as the world's banks realised that nobody was safe. At this point they all started running to governments for help and huge institutions had to be bailed out by taxpayers. The carnage was horrific and if it had not been for the generous intervention of governments in many countries, the death toll would have been much higher. Huge names would have gone under and the panic would have crippled the world economy.
But like any good horror movie, the killing has not stopped. Rescue packages have been put in place but the killer is still on the loose, spreading his carnage around the world before returning to the scene of his first crimes.
Last week we got a taste of just how endangered US banks still are as Bank of America had to be given a $138 billion bailout (Dh506bn) by the government for debts taken on by Merrill Lynch, which BoA had rescued from death just a few months before. Citigroup, which had escaped the killer's clutches earlier in our movie, once again found itself in trouble last week as it was forced to sell a controlling stake in its brokerage division, Smith Barney, to Morgan Stanley. Then it was given a $235bn bailout by the government – and still the world's largest bank does not seem to be out of danger.
In the UK, the government is preparing another round of bailouts as our banks continue to be stalked by bad debts and unknown liabilities. There are rumours that we may see the Royal Bank of Scotland – at one point the fourth largest bank in the world – fully nationalised.
Psychologists (and Aristotle) believe that horror movies provide us with a form of catharsis: we, the audience, purge ourselves of negative or violent emotions by seeing them played out on the screen. I suppose that the world economy too is purging itself in the current killing spree as the speculation and rampant gambling that created the financial bubble is strangled. But it is a painful process.
Horror movies eventually end when the hero or heroine defeats the killer and is left as the last man standing. I fear that we may be heading into similar territory with the banking sector and the last man standing may be owned by the government and be home to trillions of dollars in bad debts. However, once we reach that point, Hollywood tells us that life returns to normal again. At least until the producers start work on the sequel.
- The writer is a business correspondent with The Times of London
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