AHistorical Look at the Lending Industry

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So. I haven’t written much about our financial craziness, because honestly I know nothing about finance or economics, and there are lots of people who do know something about finance and economics who are writing about it, and even more people who (like myself) know nothing about finance or economics writing about it. So it’s not like we are in some sort of rumination crunch, where I could supply some sort of demand for, well, whatever this note is turning out to be.

I was thinking, though, the other day, as a person who doesn’t know much about finance, about the recent history of the lending industry. I mean, there were the M&A eighties, where companies borrowed chunks of money the size of moons to buy other companies, and then turn those companies into cash to pay off the loans, and the mergers people made money and the lending industry presumably made a lot of money, and it was good for everybody, or at least for everybody who had a lot of money. And then there were the go-go nineties, when money trading really seemed to take off, and companies borrowed chunks of money the size of moons in order to borrow chunks of money the size of planets, and then turn that money into yen or yuan or something and then pay the money back and everybody made a lot of money. Or something.

It was also in the nineties that it became every patriotic citizen’s sacred and noble duty to send hundreds of dollars every month to a stockbroker, who would, in return, send out every three months some papers with the story of what happened to the money, and how the money was doing, and how it was learning to swim and shoot a bow and arrow, and was eating healthy food and getting lots of fresh air and exercise and growing big and strong, and had lots of money friends, but was still a bit lonely, so if you could just send some more money then there would be enough to make full teams for the big touch football tournament. These stories were rigorously fact-checked by some people who used to work for the Weekly World News; there was some controversy over whether the 2001 Progressive Edge Portfolio fund was eligible for the 2003 Nebula award, because although it wasn’t mailed to investors until 3Q02, it had actually been written in 1997. The good news, though, was that in the 90s we had a Democratic President, who working with the Republicans in the Congress, instituted regulations that compelled stockbroker (upon receipt of form 27B-6) to allow the investor to see a portion of their money, usually its left pinkie finger, which arrived all wrapped up in cotton wool in a little box with a dollar sign crossed with a dagger.

Nobody noticed at the time that there was the potential for, you know, somebody not entirely honest to, sort of, in a sense, bring down the entire global financial structure. I mean, other than that thing where Nick Leeson destroyed Barclays Bank. And that thing in Orange County with Robert Citron. And Toshihide Iguchi at Daiwa Bank. No, the 90s were an innocent age.

Now, in this decade, lending institutions got the brilliant idea of lending money to each other, which meant that rather than dealing with paltry planet-sized chunks of chump change, we were talking about tribillimillisillions of dollars, which were all perfectly safe because they were rated AAA by Nick Leeson, Robert Citron and Toshihide Iguchi. Or something. There was a reason, though, why you could pass money through institutions like vaccine through a pigeon and come up smelling like roses. I’m sure there was. Oh, and profit.

But look, here’s the thing. The lending industry serves a very useful purpose in any system, but particularly in a capitalist system; it was Jack Kemp, after all (or perhaps Stephen Fry) who said that capitalism without capital was just another ism. But one of the things that a lending industry is bound to do, over time, is gather money to itself. And influence. And use that money and influence to (a) gather more money and influence, and (2) ward off the Nosy Parkers at law enforcement agencies who want to do stupid anti-market things like enforce the law. This is a natural and predictable path, right? And it seems to me that there’s just not going to be a lending industry that is stable over more than a few generations, right?

I mean, if you restrict your lending industry to people who are disenfranchised in other ways, like freedmen or Jews, then you presumably are defended somewhat against their power and influence, but you have the instability built in that every couple of decades you’ll just take all their money away and probably kill them, which isn’t inherently stabilizing. There must be a better way.

Tolerabimus quod tolerare debemus,

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