It pains me to admit this, but there is a part of me that feels left out from the global economic crisis. I know that it is really good news that the meltdown has not, at least so far, been directly felt in our banking sector, but at least from the point of view of a financial journalist, we seem to really be missing out.
South African banks might have been relatively protected from the worst of the market fallout, but we will still be hurt from lower commodity prices, lower international growth and the higher cost of borrowing.
But just think if we were fully engaged, as is the case of rugby rival Australia, not to mention much of the rest of the developed and developing world.
Our government would have taken stakes in the Big Four, say to the tune of R120-billion or so. Now this would be a debate to have locally. Many would say that the commies have taken over even though the SACP didn’t manage to get a single seat in President Kgalema Motlanthe’s Cabinet.
There would be a chorus of voices saying that to spend so much money propping up banks is just madness given the country’s unemployment figures and socio-economic challenges. The reply, equally as vigorous, would be that without a stable, secure banking system there can be no lending, no borrowing, no finance and no economy.
A cacophony of voices would be saying that the money is therefore well spent and that the taxpayer will even, in all likelihood, make a profit when the nationalised banking stake is privatised under more normal market conditions.
There would also be new scrutiny of chief executive compensation. In South Africa these numbers last year were as follows according to the annual Mabili remuneration report: Paul Harris (FNB) R34,7-million, Steve Booysen (Absa) R18,7-million, Jacko Maree (Standard) R18,6-million and Tom Boardman (Nedbank) R11,7-million.
Reserve Bank Governor Tito Mboweni would be rushing around pumping liquidity into the system, making direct loans to companies that need cash to keep their operations going but cannot get funds from the frozen banking system. He would also be slashing interest rates on the basis that the biggest challenge in the new environment is not inflation but deflation.
Well, in truth, even a complete meltdown would not encourage Mr Mboweni to relax his famed hawkishness, so this scenario is unlikely.
The Americans have been shown to be poor leaders in financial rescue plans. Henry Paulson and Co at first came up with the idea of buying the toxic debt from the banks, but as the United States dithered, mainly because the bastion of free enterprise could not get its head around part nationalising its banks, leadership swung to Europe, specifically Britain, where Prime Minister Gordon Brown is credited with coming up with the vanilla plan (equity stakes in banks, as well as guaranteeing interbank loans and bank deposits).
The Americans followed the British/European lead. Credit insurance against bank failure fell sharply and interbank lending rates eased, but only slightly.
It is worth wondering if we were in the maelstrom whether our authorities would have opted for the voluntary nationalisation model favoured by the United Kingdom or the forced investment option chosen by the United States, in which the nine leading banks were told by Paulson that the government would be buying stakes whether they liked it or not.
The part-nationalised UK banks have since seen their share prices fall, as they will not be paying dividends while the government has a stake. There are also concerns that the government will push social agendas (loans to homeowners and small business, for example) which might not suit the agendas of the shareholders (profits).
It is hard to put a number on the total amount of money that has been committed across the globe to resuscitating the financial system. There are so many different kinds of funding being made available to buy equity, make loans, facilitate short-term borrowing or act as guarantees that it is not easy to know what the total number is.
In the case of the United States and Europe, though, it is about $3-trillion each. At $6-trillion this is $1 000 for every person on the globe.
In the case of the US the rescue will double the budget deficit to $1-trillion, according to Nouriel Roubini, a New York economist who has done a better job than anyone in predicting and analysing the meltdown.
By way of comparison the US budget deficit stands at a record $455-billion. This is eclipsed by the $700-million the country agreed to spend to combat the credit crisis, the same amount, coincidentally, which the United States has spent fighting the war in Iraq.
Roubini says the $250-billion the government has so far committed to recapitalising banks will not do the job. Bad bank debt in the US totals $3-trillion, he estimates.
He predicts that US house prices, which have so far fallen 20%, will fall by another 20%.
Americans are in the meantime running out of space on their debt clock, which shows the national debt at $10-trillion — $30 000 for every American.
These are scary numbers, but remember that this is a big economy with a gross domestic product (GDP) of $14-trillion. The deficit at present, at 3,2% of GDP, is not significantly above the prudent 3%.
But this is not the end of it. The United States is, or soon will be, in a recession.
Roubini sees the need for New Deal-type spending to get the economy back on a higher and more sustainable growth path. This will put even greater pressure on the fiscal deficit.
Savers in Asia, especially China, have being funding the United States. It remains to be seen how much appetite they will have for the higher levels of funding required to pay the costs of getting out of the mess and putting the economy on a sounder footing.