Terence Beney
Terence Beney

Can you count to a trillion?

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one. — Charles Mackay in Extraordinary Popular Delusions and the Madness of Crowds

Men go crazy in congregations, they only get better one by one — Sting, All This Time on The Soul Cages

I’m fairly sure you could devise a measure of the gruesomeness of traffic accidents based on how many people stop to stare and for how long. By extension you could probably measure the gravity of any phenomenon by the level of obsession it generates. So applying this hastily developed indicator to the content on Thought Leader I would like to suggest that my fellow bloggers have completely misperceived the gruesomeness of the credit crunch precipitated global economic crisis (I find stringing lots of big words together helps elevate the tone). We all have. And although I am as fascinated as the next pundit by the twisted wreckage and gore of the ruling party pile-up, it really does pale in comparison to the horror crash of the circus of capitalism that, despite all the rescue efforts, no one is seemingly able to clear off the highway.

Thus the epiphany: my life’s mission for at least this and quite probably two more submissions will be to cultivate a hysterical obsession in as large a crowd as possible. May it bloom like a stinking green swathe of algae and mercilessly choke our collective false sense of “it will work itself out in the end”.

To affect this hysteria I propose to answer three questions:
How bad is it?
Whose fault is it?
What should be done about it?

Let’s start with how bad it is. The Bank for International Settlements estimates that the amount outstanding on credit default swaps is about $58 trillion. Note, that’s the value of positions that have yet to be unwound, or so it is thought. But putting a price on credit default swaps is complicated (as you would say on Facebook if your derivatives and you were rudely fornicating but were reluctant to declare any official relationship status mmmm eerily put). Robert Preston tries to show just how deep the rabbit holes go . . .

“Just imagine how difficult it is to put a price on the more complex CDOs, such as those manufactured purely out of other CDOs, which believe it or not are called CDOs squared. There are also CDOs cubed and others to the power of N — just thinking about those makes me feel dizzy.”

So $58 trillion may even be an underestimate of the distance to the surface of the poop overhead. But let’s, for illustration sake, stick with $58 trillion. The overwhelming majority of people have no conception of the vastness of such a number. That’s part of why we don’t get it. If we did get it we would also be getting biblical on our clothes in the streets. Allow me to offer some perspectives.

Cosmological 1: “If you laid one dollar bills end to end, you could make a chain that stretches from earth to the moon and back again 200 times before you ran out of dollar bills!” (I would use $100 bills and get it done in two trips — but you get the picture).
Cosmological 2: “One trillion dollars in one dollar bills would stretch nearly from the earth to the sun.”
Mechanical: “ It would take a military jet flying at the speed of sound, reeling out a roll of dollar bills behind it, 14 years before it reeled out one trillion dollar bills.”
Personal POV: if set out to count to a billion, at three counts per second, it would take you 10 years. A trillion is a thousand billions. In other words, if you tried to count to a trillion, it would take you 10 thousand years. You can’t do it!
Global economics: the CIA Factbook (I know, I know but I’m in a hurry here and getting my material off the net, so sue/humour me) estimates world GDP for 2007 to have been approximately $65 trillion. The outstanding debt on credit default swaps is almost the entire world GDP!
Teamwork: if every man, women and child on earth decided to chip in to get us out of this mess we would each have to pop about $9 000 into the very, very big hat being passed around. Stick that in your current exchange rate and smoke it.

Now here is the kicker: if, hypothetically, all the creditors on the end of these derivative transactions called on the debtors to pay up there would not be enough money in the whole wide world for debtors to meet their obligations. There is only $2-trillion of actual capital in financial institutions guaranteeing $58-trillion of debt. To say credit default swaps are highly leveraged is like saying Bafana Bafana has a below average scoring rate or the SA Olympic team did not fulfill our expectations or Bhutana Khompela may not be the best man for the job.

Will all creditors call on debtors to pay-up? Well if you owed someone a truckload of cash and they suddenly came to you for the money but you didn’t have it but someone owed you a truckload of cash then what would you do?

Emotionally I resonate with all the “to hell with them” sentiments. But the fact is everyone who can read this is irretrievably integrated into the world financial system we clearly love to hate. Almost every day you enter into a transaction that is mediated by a financial institution. If it all goes, the gruesome wreckage will fascinate us for a while. But once we’re done staring, then what?