Tuesday, August 25, 2009

Good neighbours

Imagine your neighbour lends you some money, say $50,000. He does this for various reasons. He's known you for a long time, he's done some business with you in the past and hopes to again in the future, he likes you (to a degree). Mostly he doesn't want your house to look so decrepit, as it's bringing down property values. Or even worse, you might sell up and who knows who might move in next door to him. You are the devil he knows, and that's just fine with him.

Your gutters are blocked, your roof has a couple of leaks, and there's a broken window that you've boarded over with wood. The house could do with a paint job, and some gardening would help as well. On top of that, you've had some health problems which have set you back professionally, and have cost as bit as well (since you live in a country without a 'socialized' medical system).

So your neighbour lends you $50,000. He expects you to use it to pay some medical bills and get some repairs done to your house. Maybe you'll even be able to do some cosmetic things to the property, like getting a guy in to do the lawns.

Your neighbour tells you to pay the loan back whenever you can. No interest. No conditions. You even get the feeling that he might not expect you to pay it back at all, if the worse came to the worst. He may even be able to lend you more, if you really need that triple-bypass surgery.

So what do you do with the money?

Well, naturally you take the $50,000 and go to Vegas, where you put the money on black (always bet on black) at the roulette wheel. One spin ...

It doesn't matter whether you win or lose. If you lose, you just tell your neighbour the medical bills are still piling up. "You don't have a little bit more I could borrow, do you (cough, cough)."

If you win you double your money, and can pay back your neighbour. "Here you go, pal. You're the greatest."

Let's say you won. After all, there's a 47% chance of that playing a colour on roulette. You do the right thing and invite your neighbour and his wife around for dinner.

As they walk up the path to your house they can't help but notice the new car in the driveway. SUV. Fully loaded. You haven't had the grass cut, but at least your old car, now parked on the front lawn, is keep a patch of it down directly underneath it's rusting frame.

They knock on the door, and you welcome them in. "Mind the buckets in the hallway ... the roof still leaks a bit." You never got that window fixed either. It's still boarded up.

Dinner is BBQ ... you cook them up some juicy steaks, ribs, and hamburgers. There's even a salad, because you're trying to be heart-smart, since you never got around to that expensive surgery. After you show off your new home theatre system. Surround sound, and a deep bass that will rattle the windows in the neighbourhood (but you promise to keep the volume down).

As they leave you overhead your neighbours wife say something rather derogatory about you. The cheek of some people. After all your generous hospitality.

If all this sounds a little far-fetched ... well it shouldn't do. You, the annoying neighbour from hell, are actually the large US banks that were bailed out by your government (neighbour). While the bailout money (a bit more than fifty grand) was intended to be used in 'constructive' ways, such as canceling out the huge debts of the mortgage crisis and fixing the broken banking system, and while the public (the wife) assumed the banks would learn to be less risky in their behaviour (such as cutting out those fatty BBQ steaks) ... well, that's not what happened.

The huge profits and executive bonuses that various bailed out banks have made and paid recently were because they went to Vegas ... or rather the stock market ... with the bailout money.

I'm sure the banks would argue that the risks they took were better that the 47% you get for betting black on roulette. Perhaps it was more like playing blackjack with a really good counting system while the pit bosses (government officials) were on a break. The banks basically bet that the stock market would fall. It was a fairly safe bet, since the banks had triggered the whole downturn in the global economy in the first place, and by being bailed out were only reinforcing the belief that the sky (and stocks) were falling.

The wife in my little tale represents the general public. Technically, she has all the power ... she could after all divorce the husband (at least once every four years). But even if she does, she'll discover that all men are basically the same.

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