Thoughts on the Global Credit Crisis

Recently, I put on my DVD of Monty Python and the Holy Grail. This was primarily at the urging of my son who likes (in no particular order) the wacky opening credits, the monks whacking themselves in the forehead with the boards, and the extra features that include the “Knights of the Round Table” scene performed entirely in Lego.

I thought about the scene in the movie where King Arthur does battle with the Black Knight. In succession, he cuts off an arm, then the other, then a leg, and then the other…You get it. Remarkably enough, each time the Black Knight loses a limb, he continues to goad the King for more battle. “It’s only a scratch,” he proclaims. In the end, the King walks away, with the Black Knight, only left with his head and torso intact, yelling “I’ll bite ya!”

Before you get the idea that I don’t have a point, here goes. I see the equivalent of the Black Knight every time I visit a financial website, or tune into CNBC, BNN (in Canada), or any other financial news network.

The pattern is the same. Some ‘expert’ proclaims that the worst is over with the credit crisis, and that the banks are on a solid footing, then, within a couple of days, some large institution declares a multi-billion dollar writedown. A while back, I had made a friendly bet with someone that within three days of the next “the coast is clear” declaration, somebody would declare a loss. I was wrong. It took four days for the BBC to report that UBS left a steaming pile of bad debt on the front step of investors, and that the bank’s boss, Marcel Ospel, was taking a long vacation. Ospel, of course, had said back in the early part of this year that nothing was wrong. That Black Knight didn’t lose a limb, just his job, but the severance package, I’m certain, would have aided in the healing process.

The other clarion call of the Black Knights is that there is no recession. Okay, the price of food and gas in virtually every jurisdiction on earth has doubled in the past 18 months, house prices in Europe and the US have dropped by about a quarter, foreclosures and repossessions are reaching levels unseen since the dirty ‘30’s, over 70 hedge funds have been rolled up in this time, and banks are holding back credit…but, hey, there’s not going to be a recession.

Look, I studied some economics in university, but I am not an economist. All I know is that if you sustain repeated blows to the head, at some point, you will lose consciousness. If the US and other economies continue to get the crap kicked out of them, at some point, something’s gotta give.

It’s great to be optimistic. Unfortunately, optimism can get detached from reality. Heck, they remind me of ‘Comical Ali’, that guy who did Saddam Hussein’s press conferences, declaring in sight of dropping bombs and advancing US forces that they had the ‘Great Satan’ on the run.

Hey, I’m not a hard man to please. All I need are two things to believe the worst is over. First, I want to go six weeks without some bank announcing a writedown of bad debt. Then I want the LIBOR (London Interbank…never mind, it’s the interest rate that banks charge each other) be roughly the same as the prime rate, and not double it. And that’s another thing…get to know LIBOR. Right now, the amount you pay for a mortgage is closer to LIBOR than prime. Prime is around 3%, LIBOR is closer to 6%, and your mortgage is around 5.75%...See?

I’m not asking for the moon. Just give me these two things and I’ll stop thinking you’re talking points were not scripted by a troupe of British comedians…