We Need To Talk About China

Ah, China. And Chinese economics... I have been obsessed with China, and in particular its uniquely lunatic economy, for the past few years. Why? Because Chinese economic policy has been the biggest elephant in the global economic livingroom since 1989, lumbering around breaking things while the West says "Elephant? I don't see any elephant. Owch, my foot."

A charming and self-explanatory graph, courtesy of The Daily Reckoning, Australia

I’ve come up with, and abandoned, half a dozen plots for satirical stories about the Chinese economy, I’ve written draft after draft of a satirical BBC radio play about the Chinese economy, I’ve read and researched obsessively on the subject. And, every year or so, for the past five years, I have opened up a new file in Scrivener, and started, with furious energy, to write an over-long and over-complicated blog post about China, and how its mysteriously placid economic surface masks a series of catastrophic Communist Party decisions, over the past thirty years, which will lead at some point to China’s implosion, economically and socially… Each time, the post becomes book-length, and I abandon it… Well, here we go again.

Here’s my take on China, boiled down.

In 1989, the Berlin Wall fell; democratic protests swept China; and the Party panicked. They murdered unarmed protesters across the country (including the students in Tiananmen Square), arrested four million people across the country in the following weeks, and then tried to pretend nothing had happened.

Party leaders were determined that China would not collapse like Soviet Russia. So they abandoned Soviet-style economics, and built a gigantic new national financial system, modelled loosely on the Western financial system; but with the state performing every function. As Carl E. Walter and Fraser J. T. Howie put it (in their excellent book Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise), “The state is involved at every stage of the market as the regulator, the policymaker, the investor, the parent company, the listed company, the broker, the bank and the banker.”

And the state decided that 8% economic growth was the target; and the entire economy was configured to hit this target… Well, if you only look at the GDP figures, the Party succeeded. Western free-market economies go up and down like yo-yos, but China has not had a recession since 1976. Even more ridiculous, it's not had so much as a single year of low growth since 1990.

But those reassuring figures mask the roaring balls-up the Communist Party has made of the real economy, particularly in the past decade. Pre-2005, although growth was horribly lop-sided and manipulated, much of it was at least real: the cities that needed connecting were being connected by road and rail; ports and airports were being built in places that needed them; financial reforms were being pushed through; etc, etc.

In 2005, the financial reform program ended, when the leading reformers were ousted (like Zhu Rongji) or died (Vice Premier Huang Ju)– China’s GDP growth figures have been, increasingly, bullshit, driven by terrible lending by the state banks to state industries, massive malinvestment in ever-more-useless infrastructure, and a huge property bubble that has built entire cities and airports in the wrong places.

China’s banks have gone bust once every decade since the seventies, but each time the government managed to recapitalise them, or roll over the bad loans, without writing down the debts. It can’t write them down, because it owes itself the money; to cut the value of the non-performing loans is to say the state can’t pay its debts. It’s trapped. Every bank collapse is a sovereign debt default: and so there can be no bank collapses. But at this point, in my opinion, they’ve finally run out of road. Total debt in China has exploded to unprecedented levels in the past five years.

China, now, is essentially a multi-trillion dollar Lehman Brothers, circa 2007, but with a billion employees. It looks OK, but it is totally hollow; it’s massively leveraged, it’s out of capital, a shit-ton of the assets on its books are in fact worth nothing, and people are starting to believe it’s not good for its promises.

And so China isn’t going to collapse like Soviet Russia; it’s going to collapse like Lehman Brothers.

A giant, weird, slow-motion Lehmans, because it owes the money to itself. So, it will take some time for the collapse to take place. It can print money, roll over debt, do all the things it’s been doing for decades. But, in propping up the fake economy of 8% growth forever, they’ve broken the real economy.

When China finally gets its recession, it's going to be so godawful that it will almost certainly destroy the legitimacy of the Communist Party, which, after 70 years in power, is essentially an incompetent, wildly corrupt, third-generation mafia. Sure, there are some good people in there, but the system itself is totally corrupt, and corrupting, with no mechanism to reform it; and all the alternatives to the Communist Party have been annihilated. Plus, the concentration of power, wealth and influence at the top of the Party has made the leadership of China essentially hereditary, with all the incompetence that entails. (For western examples, think King George III and IV of England, or Presidents George W. Bush I and II, of the former colonies.)

OK, a prediction isn’t a prediction if it isn’t specific. A vague “bad things will happen… somewhere… sometime…” doesn’t count. So here goes.

• The recession will come within the next three years, and will be extremely deep: the Chinese economy will shrink, for the first time in nearly 40 years (and that’ll feel horrendous, from 8% growth to negative growth).
• Many State Owned Enterprises will go bust; the Chinese banking system will collapse; the enormous shadow banking system will collapse; the Chinese stock market will collapse (well, that’s been happening while I wrote and edited this, over the past week or two, so no credit for that prediction).
• How this collapse of the financial system plays out is hard to predict, as it’s all the Chinese state owing itself money, and printing money to pay itself. But that pressure should break the renminbi, which is a joke currency anyway. And pretending to fix the banks won’t work, if nobody believes in them as a safe place to store assets any more.
• In the real world there will be massive unemployment across China (over 15% officially but far more in reality).
• Social unrest will get out of control, with huge street protests and riots in the cities and in the countryside; uncontrolled population movement (something the Party has always feared and tried to control through the hukou residency permit system, which will break down); and anger expressed through violence against anything associated with the Party. (You’ll see a lot of police stations on fire.)
• I believe the Party will lose legitimacy; will lose control of the country; and that, within the next decade, China will break up: Neither Tibet nor the Muslim, Turkic-speaking Uighur territories in Western China can be held without a functioning Party and Army to enforce their occupation.

That’ll do for now.

So why didn't I finish writing and editing all my previous China blog posts, and put them up? Well, the story was so big, and I kept trying to say everything in a single post. But you can't. (And there was always fresh information, new knowledge.) And it was always so much easier to just post a link, or make a sarcastic remark, on Twitter. Sigh. Twitter has ruined my ability to blog. And, five years ago, I felt that if I said "China will collapse", it was probably too soon. I figured China's leadership would be able put it off for another few years.

But now I don't think they can put it off much longer. They will try; but this time I think it's over. I suspect the shadow banking system has already begun to collapse (along with the housing market and the stock market), and with it the Party leadership's control over events.

Anyway, my greatest regret, as a (former) blogger, is in not posting my thoughts about China. (Every few weeks, for about three or four years now, I’ve woken in the night groaning, why didn’t I blog about China six months ago?) So, over the next few months, I'm going to try and put down a few years' worth of thoughts. It's too late for me to get credit for the prediction, but it's not too late to be part of the conversation. And we're going to be talking a lot about China over the next 5 years.

Ireland After The Bailout - A Few Thoughts

My mum voting in the recent referenda, in our local national school, in Nenagh, Co.Tipperary

Ireland is about to emerge from the bailout process that she was forced to enter when her banking system and economy collapsed in 2008. Will Ireland emerge like a butterfly from a chrysalis, or poop from a butt? We shall see...

Anyway, that fine and thoughtful journalist Conor Pope of the Irish Times asked me a few questions last week for a long piece he was writing on the subject.

I haven't read the article yet (I'll link to it here when and if it goes online), but I'm familiar with the way that quotes in an article can become unmoored from what you actually said (no matter how good the journalist, or the paper). That's just the nature of a daily newspaper's high-pressure, high-speed editorial process. Qualifiers get left out; the first half of a balanced argument makes the cut because you said it in a sexy way, the second half doesn't 'cause you didn't; a subeditor in a hurry can accidentally trim the punchline from a joke, or, in tightening up a saggy sentence, accidentally flip its meaning on its head. (Yes, all these things have happened to me. No, I'm not looking at you, New York Times, or Prospect, or Financial Times, or GREY Magazine, or The Times, or The Believer, or any of the little literary magazines. YES, I'M LOOKING AT YOU, GUARDIAN.)

Also, I miss the good old days, pre-Twitter, when I frequently blogged about economics from a novelist's perspective; I thought posting this might jolt me back into that habit. Plus, I gave myself a headache thinking about all this, and I know that, at best, only a couple of lines will make the finished article. (Conor has talked to a lot of people.) So, if anyone is interested, here's what he asked me, and here are my answers in full...

How would you explain the madness that gripped Ireland during the boom and why did so few people see the calamity coming down the tracks in 2006? 

I wouldn't give us a hard time over this. We were part of something much bigger than Ireland; the structural problems with the Euro blew up all the peripheral economies. Greece, Ireland, Portugal, Spain; the way the Euro was set up almost forced them into classic, credit-driven bubbles, in their national flavour. The bubble just came down the easiest credit channel. In Greece, it expressed itself through state patronage; in Ireland, it expressed itself through property & mortgages, etc. If the founders of the Euro refused to see the coming problem, even thought they were warned by several grumpy economists at the time, then we can hardly be blamed for not spotting it.

Also, we were drunk at the time. And high. Not all of us, but a startling number. I’m going to guess that our consumption of alcohol, cocaine and credit all mapped onto each other fairly exactly in the bubble years. Again, I don’t blame us. We were coming out of centuries of relentless, grinding national poverty. And when you’re poor, you don't need to cultivate a habit of restraint. You spend till you run out of money; you drink till you run out of drink. Poverty stops you killing yourself drinking, and lack of credit stops you killing yourself with debt. But give a poor society unlimited drink, or unlimited credit, and it's likely to end badly. I stopped going out in those years, because my friends were putting three or four €70 bottles of champagne on their credit cards and saying, sure we’ll split the bill at the end of the night. And I’d be nursing a single glass of fizzy water for five hours. Socialising became impossible; being frugal was seen as being disapproving, or difficult. We were drunk on credit, and everything looked more and more beautiful the drunker we got. Until we ran out of drink, and had to deal with the hangover. Countries that have been wealthy for a long time have to develop internal habits of control. You won't see the Swiss drinking their wages, because that would kill them.

What impact did the scale of the banking crisis have on Irish people? 

What about the bailout? What impact did that have? 

 ((Yeah, I'm in Ireland a lot, but I live in Berlin now. I didn't feel qualified to answer these two questions, so I skipped them.))

Repeated studies have shown that in spite of the horror show, Irish people have remained happier than in previous recessions - why do you think that is? 

The recession removed the unpleasant, highly competitive status anxiety that was the least attractive aspect of the bubble years. We are much more respectful of our friends’ feelings now, of their situation. Much more sensitive to the fact that they might not be able to afford to keep up. I was so pleased when I started to see party invitations that say, no presents. Strip away the material things from a relationship, and, if the relationship survives, it strengthens the relationship, it doesn’t weaken it. We see each other to see each other, now, not to show off. Also, this is a recession, not a famine. It's only a recession relative to the boom. It's a very painful adjustment, but we still have colour TV and the internet. And the suffering has been spread relatively evenly, across the classes, which gives a sense of solidarity. We’re in the shit, but we’re in the shit together.

We seem to have accepted all the austerity - imposed first by our own masters and subsequently by the Troika without so much as a murmur. What, do you think, does that say about us as a nation. 

I know there’s a lot of bemoaning this, but I think it reflects well on us as a nation. It’s only money; it’s only stuff. Fuckit, we still have each other, and nobody died. That’s a good attitude. If we took to the streets and had a revolution because our investments went badly… No, that’s not us. What’s tragic is that some people have been destroyed psychologically by their losses. But what is marvellous is that most people have not been. Their identity was not tied up with their property, their self esteem did not collapse along with their bank balance.

What impact - both psychologically and practically - do you think the bailout exit will have?

Not a lot. It’s a shaky exit. The Eurozone still has enormous problems, we haven’t really fixed a lot of what went wrong. The European financial system is still under horrendous strain. I don’t think the story of the Eurozone crisis is over yet, and through no fault of our own we may yet be dragged back into it.

And do you think we have learned from our mistakes? Property prices are rising in Dublin - and to a lesser degree in other urban centres - could we possibly allow another bubble to inflate or have we learned our lesson?

Well, if you don’t fix the fundamental problems; and the ECB and Germany and France have not fixed those problems, just stuck some enormous band-aids over them; then yes, another bubble could well inflate. But that’s not because WE haven’t learned from our mistakes. That’s because Germany, the country on the other side of all these imbalances, and the cause so much of Europe’s structural internal imbalance, still doesn’t believe it has made any mistakes. We've acknowledged our errors. Germany has not. Let’s not give ourselves such a hard time… I think Ireland's behaved well, and with remarkable restraint, under very difficult circumstances.  We've held together as a nation, unlike Greece say, which has been massively divided and embittered by their crisis; and at an individual level I think we've, by and large, looked after each other.

Help save civilization by reading a funny book

It's not every day you get a chance to help an award-winning impoverished author (er, that's me) solve a major dilemma, while simultaneously helping to humanise Capitalism, revolutionise Publishing, and save Civilization. But today is that day.

Jude in London - soon to be a major bookHere's the background (the dilemma will follow): my new novel, Jude in London, has just been longlisted for the Guardian's Not The Booker Prize. Now, The Not The Booker Prize is the most entertaining prize in the literary calendar; an annual online flame-war-slash-literary-debate that can be very helpful in drawing attention to unusual books. (The prize itself is a mug, worth about £1.50. But the glory is incalculable!)

BUT: For a long-listed novel to make the shortlist, readers have to nominate the book, and post a very short review on the Guardian website (to prove they've read it). The process is explained in detail here.

Here's the dilemma: Jude in London is officially published on September 6th. But the shortlist votes (and reviews) have to be in by this coming Wednesday. As my novel isn't in the shops for another fortnight, I don't have any readers yet to nominate it.

So, if any of you would like to read Jude in London, for free, I can send you a pdf of the entire finished book, nicely laid out and readable, today. And if you like it a lot, I'd be extremely pleased if you would post a 150 word review, and nominate it for the shortlist by Wednesday. You're under no pressure to review it or vote for it: only do that if you genuinely like it a lot and think it's worthy of going through to the next round.

There you go. Anyone who wants a free pdf of Jude in London, just ask in the comments below, or on Twitter (I'm @juliangough), or email me at juliangoughssecretemailaddress@gmail.com...

Now, here's the bit where we revolutionise Capitalism. My beloved publisher Ben, who runs Old Street, has conniptions at the thought of a professional-quality pdf of the entire book escaping into the wild before publication. Understandably so - he's sunk a lot of time and money into making a beautiful book out of Jude in London. But I think the future for peculiar writers like me has to be a kind of love-based mutant version of capitalism where you trust your readers, and in return your readers help to keep you alive. Because the free market isn't going to. Bear in mind, I've gone bust and been evicted while writing this book. I've wandered Europe homeless, relying on the kindness of friends (and the occasional stranger) to get it finished. So I, too, would like to see it, somehow, earn me enough to keep going and finish the next one.

So here's the deal: I give you the book for free. You don't have to review it or nominate it. But if you really like the book, if you read all the way to the end and have a good time... I'd love you to buy a copy for a friend. Does that seem fair?

And if you do like it, and buy a copy for a friend, tell me, and I'll tell my publisher, and maybe this trust-based model (where a book is always a present, and yet small publishers stay in business and weird writers get to eat) could take off.

American Stars 'n' Bars

If you've read Jude: Level 1, you'll know I'm highly entertained by the glorious free-market energy of the US prison system. (The total number of people in prison, on parole, and on probation, in the US at the end of 2007 was 7.2 million - damn near twice the population of Ireland - so that's a lot of entertainment.)

But a magnificent new twist has emerged, which even I hadn't thought of. Over in Pennsylvania, people eventually started to wonder why the local judge was sentencing teenagers to serious time for crimes like putting up a spoof Myspace page about their assistant headmaster (a page marked "this is a joke"). As the New York Times reports..

"The answers became a bit clearer on Thursday as the judge, Mark A. Ciavarella Jr., and a colleague, Michael T. Conahan, appeared in federal court in Scranton, Pa., to plead guilty to wire fraud and income tax fraud for taking more than $2.6 million in kickbacks to send teenagers to two privately run youth detention centers run by PA Child Care and a sister company, Western PA Child Care.

While prosecutors say that Judge Conahan, 56, secured contracts for the two centers to house juvenile offenders, Judge Ciavarella, 58, was the one who carried out the sentencing to keep the centers filled."

Brilliant... Sigh. I am simply too innocent to be a real satirist. It never occurred to me to formally employ the judges.... Anyway - and skip this if you've read it before - while I'm at it I thought I might as well paste in a big chunk of Jude: Level 1 at this point, for the amusement of new readers. (I'm hardly going to sue myself for copyright infringement.)

In this bit, Jude has lost his voice, got a crick in his neck, is stuck in a wheelchair, and has been mistaken for Professor Steven Hawking. Barney O'Reilly FitzPatrick McGee, the Irish-American CEO of the great American communications company, Westcom,  is showing him around a huge, secret, underground unit in their Galway plant...

From Jude: Level 1...

    “You’ve noticed they’re mostly Black, huh?” said Barney.

    I looked closer, and saw that most of the faces around me were indeed unusually deeply tanned for an underground Irish workforce in mid-winter.

Barney nodded. “Might be the last generation of authentic, home-grown Blacks to work for Westcom, and I’ll tell you why…” He looked about the great space, and a drop of moisture swelled in the corner of each eye.

    I settled back in my chair. I liked a story.

    He blew his nose, and cleared his throat. “Back when old man Fitzpatrick grew tobacco, the procuring of labour was an arduous, expensive, time-consuming business. Black men had to be sourced and purchased from unscrupulous Arab middlemen and imported by ship from West Africa. Spoilage rates were as high as 50%. Oh, times were tough for old man Fitzpatrick. Sure, eventually we had sufficient spare capacity to provide a breeding stock, and we were self-sufficient in labour. But then the cost of raising our African workers fell entirely on our family, a manifestly unfair situation. Often we’d get a good crop of sturdy young Blacks raised up to five or six years of age, near enough ready to do productive work and repay our investment: and they would all sicken and die in the sheds, and we had all the weary work to do all over again. The situation was intolerable, it was against natural justice: and so we campaigned for the abolition of slavery.”

I nodded my approval of this virtuous campaign.

“Came the glorious day, and we could kick them all out and they could rear their own brats on their own time, and their own dime. We rehired them, as needed, when they had matured. This improved profitability enormously. Productivity shot up too, for now the workers no longer had a cushy berth for life. The excess money saved, we invested in mining and smelting the iron ore in the hills too steep for cultivation. But, for that, a steady supply of strong male labour was required. We couldn’t be willy-nilly hiring by ones and twos. And so we contracted with the local prisons to supply our needs. They sourced the male labour as required. A vagrancy sweep, or a crackdown on gambling would supply peak labour demand at the mine. By now we were Western American Steel... But pretty soon we were paying so much out to the prisons for convict labour that we had a change of heart. Old grandpappy Fitzpatrick built our first prison. And so we could get the State, then later as we expanded into Federal Prisons, the Federal Government to pay to feed and house our workers, and we could pay ourselves for their services. So we were getting paid for them to work for us. It was soon our most profitable unit… You may have heard of our correctional subsidiary, American Stars ‘n’ Bars? Our Patriot Prison? With its uniquely flexible modular system?"

“Hmm?” I had been watching the green-eyed woman, who was very carefully taking something out of a safe and transferring it to a silver container that bounced light across her cheekbones, her noble nose… I shook my head, though as my head was on its side this involved rotating my face vertically rather than horizontally relative to the surface of the earth. Barney tilted his head in sympathy with mine.

"That's a... yes. Ha ha. Are you nodding or, ha ha... Anyway, as WAS became Westcom, and our jobs moved up the value chain, our prisoners, chiefly Negroes of little educational attainment, simply weren’t cutting it. Oh, they were bright and willing, but training them up costs time and money, and these guys simply weren’t inside long enough to make the investment worthwhile. They were missing out on training opportunities, the chance of betterment… Why, it was a crime. It was worse than a crime: it was a tragedy. So we lobbied Congress long and hard to give us time to really make a difference to these young men’s lives. And so we got their sentences doubled.”

I nodded, sideways, and stared at the face of the dark haired, green eyed woman. Head bowed over the silver container, staring into its depths.

“…But as Westcom became a favoured contractor on Federal Government Defence contracts, and we came to understand the Federal Government better, we came to… if I may use the word… love the Federal Government. And we began to feel concern for its welfare. You’ve got to see the bigger picture, and take the longer view. As the Federal Government pays us up to $500 for a screwdriver on our Defence contracts, it makes sense to maximise the State’s revenues so that they can pay us… Thus, if we can lower the burden on the Government, we can increase our income and profitability. And our prisoners are fine, fine, people. But they cost the Government a fortune in benefits, in healthcare and education, in providing streetlighting to their ghettos and so forth, before they are old enough to graduate to prison. It is the old problem my ancestor faced, of covering the overhead on their unproductive years. So the future lies in outsourcing labour to foreign slave-states. Let the Chinese and Hindus and so forth raise the whining infants to maturity. Not on America’s tab… We will build our prisons abroad, and ship the goods home. Indeed, we have used this opportunity to rethink the entire prison paradigm. In our next-generation foreign prisons, the prisoners will be kicked out after their shift and will have to feed and house themselves at their own expense. It is quite, quite brilliant, and will enhance profitability threefold… And so these are the last, I fear, of the great Black American workforce which my family has served so proudly and so humbly for so long. Here, meet some, before they vanish, like the Buffalo…”

He waved, and two young men in dark suits walked over to us. Barney whispered in my upturned ear, “Lately many of them have discovered Religion. I have encouraged it, for it makes them more Punctual, but Christ Almighty, they tend to go on about it… Gentlemen! I’d like you to meet Professor Stephen Hawking.”

“Sir.”

“Sir.”

I asked them about their religion. Barney groaned.

“Well sir, we are brothers in the Brotherhood of Brothers of Muhammad in the Hood.”

“Followers of the teachings of Muhammad…”

“It is a little known fact that Muhammad was a Black man, of Africa…”

“It is a little known fact that the first man to whom the Prophet gave the honour of giving the Call to Prayer was a freed Black slave, Bilal…”

“And so we follow that great Religion…”

“A Religion blind to the colour of a man’s skin.”

”A Religion of compassion.”

    “Religion of Love.”

    “Religion of tolerance.”

    "... for the Prophet taught us to hate no-one.”

    "And thus we hate no one."

    "Except the fucking Mexicans."

    "Yeah the Mexicans. And the fucking Koreans."

    "…’king Koreans. And whitey."

    "Yeah, whitey."

    "Fuck the Man."

    "And the cops."

    "Fuck the cops."

    "Nothing worse than a black man in a cop jacket."

    "Fuck those negroes."

    "Yes, fuck them."

    “Thank you, gentlemen,” said Barney.

    “Sir.”

    “Sir.”

    They bowed and left.

    “Oh well, it is better than Marxism,” said Barney.

(From Jude: Level 1, published in the UK by Old Street Publishing. And published in Greek by Topos Books, very handy if you're Greek...)

(Oh, and the terrific image is borrowed from Prison Penpals, check 'em out.)

How To Patronise Writers Properly

Homer's brain. Which is slightly bigger than mine. (This picture's pirated so thoroughly that I couldn't track down a credit. Anyone know who did it? One of Groening's peeps, I assume. Kudos to you, unknown worker ant, labouring anonymously for our pleasure in a cruel and hostile digiverse.)

I think a lot about the future of the book. So imagine! my! delight! when I stumbled on The Institute for the Future of the Book, a think tank who do nothing but think about the future of the book.  While lying in the bath, eating chocolate, and sipping a latte macchiato through a straw. I hope.

Their blog,  if:book, ponders a bunch of good stuff.

OK, I didn't really stumble on it. I got a Google Alert saying they'd mentioned my New York Times piece, and I clicked through. But once there, I stayed for ages, wandering around the site. I hugely enjoyed a tremendously thought-provoking interview with Helen De Witt (author of The Last Samurai, and Your Name Here). It couldn't have provoked my thoughts more if it'd poked them with a stick.

Best thing is to just quote a big chunk of it. Here she is on the idiotic and inefficient way the publishing industry, as currently set up, makes money for authors. (Do I agree with her? If I agreed with her any more, I'd be her):

"Well, the way it works is, you try to sell a very large number of physical objects, collecting a dollar or two off each one for the author – from people you never contact again.

I once knew a senior partner in a Wall Street firm who loved Susan Sontag's The Volcano Lover. He talked at length about the wonderfulness of this book, the character of the Collector, the general brilliance. He was making $1 million or so a year. Of which Andrew Wylie, Sontag's agent, had cleverly managed to garner a couple of bucks for Sontag. There was no structure in place to encourage this ardent fan to, say, sponsor Sontag's travel expenses, offer Sontag six months' writing time at his vacation home in Maine, buy Sontag a new car, who knows.

This is deeply baffling. One of the problems for a fundraiser is that it's hard to raise undedicated funds. Good fundraising copy often focuses on an individual; you excite the donor's sympathy for Precious, who walks 10km twice a day to go to school, and then the donors all want to buy books, school uniform and a bicycle for Precious. If you're not careful with the wording you could find yourself under a legal obligation to send half the take from the appeal to Precious. And you hauled in all this money and goodwill for someone donors had never heard of before, with a single page of copy. It takes five minutes to read, and you're sweating blood to draft something that will get people to spend the five minutes. Whereas.

When people read a book they typically spend a minimum of a couple of hours on it. Sometimes they read it at a single sitting; sometimes they live with it for weeks. Sometimes they forget it – but sometimes it stays in the mind for years, sometimes it saves the reader from suicide, sometimes it changes the reader's life. So it has the power to make a much stronger connection with the reader than a little read-and-toss mailshot – but the strength of this connection does not translate into extra time for the writer to write.

Writers spend a lot of time getting in each other's way. There are a few places that offer residencies – normally, disruptively, places that have a lot of other writers and artists also in residence. But there are plenty of readers like my Wall Street lawyer, people with second and third homes they never have time to visit – and even the most highpowered agents never think of encouraging those readers to give the freedom of silence to writers they admire. Agents go after big advances – which means a writer does a roadshow to buy silence somewhere down the line. It's done this way because this is the way it's done. It doesn't have to be done this way; if it were done a different way, writers would write better books in less time.

So, to revert to the role of the Internet in all this: the Internet has the power to reduce the amount of time writers have to trade for legitimacy. It has the power to change readers' relationship to writers. If a book (or a blog, or a web comic) changed your life, why not buy its author a bicycle? Or a goat? Or a bottle of wine? Why not offer its author six off-season months in your summer cottage on the Cape?

Those look to me to be likelier ways forward than for writers to pay the rent by selling PDFs online."

That's Helen De Witt. Much more of that interview here. Send her a bicycle, a red rose, and champagne this instant.

Oh wait. There's no mechanism in place to do that. Bummer.

I've been saying this for years. We need a global patron/artist connecting tool, and the internet can do that. Look what rich people waste money on, in its absence. Hedge funds they don't understand. Overpriced condos in the hurricane corridor. Or they give it to Bernie Madoff, and he spends half on gold taps for his dog's bathroom, and gives the rest to the rich sucker he met last month, pretending it's December's "investment profits".

Far better that some of the rich give some of their spare cash to the writers they really believe in, to write. And if the writer does come up with something that's remembered long after they're both dead, what greater glory than being remembered as the patron of a great piece of art? Harriet Shaw Weaver will be remembered long after her rich contemporaries are forgotten.

So, if anyone wants to pay my rent while I finish Jude: Level 2, mail me.

Happy New Year

Back home in Berlin, and sick as a dog. My gang came down with a selection-box of diseases over the Christmas in Ireland. Returning half-conscious to Berlin - coughing and hawking our way through airports, train stations, cafés and public toilets - we spread our plagues in a mighty swathe across Europe. So if civilisation is consequently snuffed out, sorry about that.

(The Plain People of the Internet: Ah! Is that a rare reference there to the five wives and forty children he is rumoured to  have stashed away in Berlin? Make a note...)

So on a human level, I and all I love start 2009 utterly banjaxed. But as a writer (far more important, natch), my year has got off to a nice start. The New York Times has just printed a piece by me. The piece is probably funnier if you have read all of US Treasury Secretary Hank Paulson's official bailout statements over the past six months. (But, you know, don't. It's too high a price to pay to get a gag.)

I'll put it up on the site here, once the New York Times has had a fair run at it. But meanwhile here's their version. They even commissioned a cartoon from R. O. Blechman, which is a heck of an honour. (Blechman is seventy-eight now, and won an Emmy for his animated film of Stravinsky and Ramuz's theatre thingy, The Soldier's Tale.)

Oh, and a happy, happy, HAPPY, HAPPY New Year to you all.

(The eloquent photo above is borrowed from PawsAroundChicago.com. They give pets lifts. Oh you laugh and call it decadence, but it is only through such - not entirely necessary, yet welcome - innovations that civilization advances. I don't know the name of the photographer. A haunting picture, suffused with empathy and a deep understanding of suffering, it is possible it is a self portrait.)

Can Anyone Top Seán FitzPatrick's Record?

"Can anyone top Seán FitzPatrick's record?"

We'll get to Seán in a minute. First, for my many non-Irish readers, who trust me as their number-one source of highly biased information on the state of Irish banking...  as I predicted a while back, the Irish Government is finally going to recapitalise the Irish banks. Orwell would wet himself laughing at the language the government are using to describe this flip-flop. The Irish Government plan to pour 10,000,000,000 euro (that's not a misprint - and yes, there's only four million people in Ireland) into the black hole of Irish banking, and the Minister calls it "a demonstration of confidence in the banks."

Er, no. It's a demonstration that the government thinks the Irish banks are insolvent. Bust. Bank-rupt.

How will a government with an exploding deficit fund this? Apparently they're going to throw the national Pension Scheme down the hole. And as to terms, well, we just have to trust them. Here's the official description, from the Irish Times this Monday, if you can stomach it:

Minister for Finance Brian Lenihan is expected to meet the chiefs of AIB, Bank of Ireland, Irish Life Permanent and Anglo Irish Bank over the coming days to discuss specific proposals for an injection of new capital into the system via a new fund in which the Government will participate.

"What I'm mainly concerned about is that the banks are in a position to extend credit," the Minister for Finance said on RTÉ radio.

"That's why we want to make this gesture, a demonstration of confidence in the banks, by upping their capital to show that their buffers are so strong, they are indestructible."

The Minister said there would be "tough discussions" with banks on the details of any State injection of funds. "We'll spell out the realities as we see them to the relevant institutions."

Mr Lenihan added there was "no question" of fresh public expenditure being incurred in the recapitalisation as there were was a substantial amount of money amassed in the National Pension Reserve Fund.

He refused to be drawn on whether there would be changes in the management of the banks as part of the Government plan.

Well, changes in management are happening already. Anglo Irish Bank, whose shares have lost 95% of their value this year, lost their chairman Seán FitzPatrick today. It turns out he'd been hiding 87,000,000 euro in personal loans with his own bank. Every September for the past eight years, as Anglo Irish Bank's year-end accounts were about to be done up, he'd lob 87,000,000 over the back wall and hide it in another bank (probably Irish Nationwide Building Society, whose books aren't done up till December, but noone is saying officially). Then, once Anglo-Irish had their figures all officially audited ("Vast loans? To the Chairman? Heavens no!"), he'd lob his loans back over the wall again. So they didn't turn up on the books of either bank.

What was his quote on this matter?

"...it is clear to me, on reflection, that it was inappropriate and unacceptable from a transparency point of view."

On reflection? ON REFLECTION? He thought it was absolutely spiffing from a transparency point of view, while  for eight years he played hurling over the back fence with 87,000,000 euro, but earlier this week he finally had a spare moment to reflect (busy man), and was shocked, SHOCKED! to discover he wasn't totally transparent?

I love the way the traditional Irish cover-it-up language is being stretched to its limit by the size of the stuff it is now being asked to cover.

If this was one of my novels I'd give you an exquisitely crafted gag to finish up, that played with transparency and reflection, invisible men and vanishing money, but this is a blog and I'm knackered so that's all you get.

No, actually I'd like to end with Business Plus magazine, from November 2004. It has Seán FitzPatrick on the front cover, under the admiring headline, "Can Anybody Top Seán's Record?"

Well, Seán was the CEO of Anglo-Irish Bank from 1986-2005, then Chairman till today. He ran it right through the boom years. It's lost 95% of its value this year, and his secret loans from the bank now add up to a full third of its entire market cap.

Yes, we'll see can anyone top that in the coming year.

(Ah, he's probably a lovely man, and only wanted the 87,000,000 euro to help sick children, and hedgehogs who'd been hit by combine harvesters. And his modesty made him hide the loans. Still, though, if anyone out there can find a bigger image than this 7k gif, send it on to me and I'll put it up here...)

Finance Ministers' Top 20

I've been enjoying the annual Financial Times’ guide to how Europe’s finance ministers are doing. After a great deal of number-crunching, chin-stroking, horse-trading and coin-tossing, they have come up with the unbearably exciting, grey-pinstriped, financial equivalent of a Top of the Pops / Smash Hits / Billboard Top 20. (Well, OK, top 19.) And here they are! (If you're not trembling too much with excitement to click on the link.)

As the FT says:

"Now in its third year, the FT survey benchmarks performance, to reveal who is the best performing and most respected – as well as potential future stars. The challenges this year were greater than ever...."

No kidding.

I was delighted to see that Ireland's Minister for Finance, Brian Lenihan, didn't come last. Far from it! He came in a very respectable second last.

Election Day USA 2008

At last, it's election day in the USA. Who will win? Well, I think Obama won the election six weeks ago, on Monday 15th of September 2008 when Lehman Brothers , the hundred-and-fifty-year-old American investment bank, collapsed and filed for bankruptcy protection. (And, somewhat addicted to the high-wire of public prediction by now, I'm typing this before the votes have been counted. I haven't even looked at an exit poll, if any are out yet. There's hours of voting left to go in parts of the US.) That was the event that made the collapse of not just banks but the whole deregulated financial system unstoppable.

Check out the graphs in the second half of this excellent video from John Authers of the Financial Times. (You can skip the stuff on the dollar at the start.) In the crucial states Obama needs, Obama trailed McCain until the day of the Lehman's collapse, and then bam, his line shoots up and McCain's plummets, and McCain has trailed Obama in all of them ever since.

Almost everything written about this election has been fluff. The economy will always drive politics in a democracy. Only when things are going fairly well will people bother to vote on any other issue. When the economy implodes, so do the hopes of the incumbent party. McCain actually ran a very good campaign under incredibly difficult circumstances: he stayed in the race until the entire American banking system collapsed. His problem was that he had to run as two mutually conflicting things. To get the Republican party to vote for him, campaign for him, and finance him, he needed to run as a Republican. But that's only 40% of the voters. Not enough. And President Bush was so unpopular (this week he recorded a 20% approval rating, the lowest in history, lower than Nixon in the last days of Watergate), that to win the votes of anyone else at all, McCain had to run as a crazy maverick who wasn't anything like Bush and, sure, was hardly a Republican at all, at all. And you can't be both King of the Republicans, and the Scourge of the Republicans. (Look what happened to the last guy who tried to walk that tricky line.)

It has been very refreshing to have two presidential candidates that I really like and respect running for the big gig. (I wasn't impressed by the character of either candidate the last time.) It has been sad to see McCain ripped in two by the situation he put himself in. Much of the anger he expressed in that last month was probably at himself. I think he will be very glad indeed when this is over.

Obama had the easier task but, even allowing for that, he has run a stunningly good campaign. I think he'll walk this election. On water if necessary. He's not trying to win the popular vote (fat lot of good winning that did Al Gore), he's aiming to sweep the Electoral College. I think he will.

OK, that's who will win (oh, and one last prediction... Obama will do well among white voters, getting a bigger share of them than Bill Clinton got, and all that talk about the Bradley effect will turn out to have been fluff too). But who should win? I don't think novelists should have opinions, especially political opinions. It damages their work, by ruling out certain readings, and closing down ambiguities that should not be closed down. I do have private opinions and preferences, but they are private. And my books do not necessarily share my opinions. So I shall outsource my opinion to someone much older and wiser than me, the very wonderful Alan Abelson, of Barron's (Wall Street's favourite newspaper): "This election pits one candidate who should have been elected eight years ago against one who should be elected eight years hence."

There you go. Fair and balanced.

May the best man win.

Though personally, as a satirist, I would like to get in early, and officially endorse Sarah Palin's 2012 bid for the presidency. She has given so much to us, we have a duty to give something back.

I know, I know, you've already watched it fifteen times, but indulge yourself one last time...

And, above all, on this day of all days, it is your political duty, if you haven't done so already, to click on this link, and then click on everything you see when you get there, with the sound on.

Update on 2008-11-05 04:14 by Julian Gough

The super-duper New York Times interactive map is addictive and delightful. I've been enjoying making my own calls on the states, ahead of the networks and newspapers, by zooming in and trying to work out, county by county, how the tide is flowing. I'll make a call here, for the fun of it: I think Obama will just pip McCain in Indiana. As I type, McCain is only .2% ahead, and there's still a lot of votes to come from Lake County, which contains the city of Gary, which is breaking 2 to 1 for Obama. McCain is winning in the rural counties, but they have largely been counted by now.

And now I'm off to bed, it's nearly 5am in Berlin.

Update on 2008-11-05 04:36 by Julian Gough

Nah, I couldn't go to bed, it's too exciting... Florida looks like a big win for Obama. He's 2% ahead of McCain as I type, but McCain's counties are counted, the big blocks of votes still to come in are all Miami-Dade, Palm Beach and Broward counties, (so, urban - Miami, Fort Lauderdale - and Democrat), and they are going to swing it strongly to Obama.

I really should go to bed, this election is over. Ah, it's a great shame McCain was robbed of the Republican nomination by the Rove/Bush machine in 2000. That really bent American democracy out of shape. And what consequences...

But in 2008, Obama deserves his victory. Here's the bravest and most important speech of the campaign, from either candidate. Character is destiny, and Obama has character.

Update on 2008-11-05 04:54 by Julian Gough

Yes, it's officially over. The networks have called it, and after the Kerry/Bush debacle, they ain't going to be leaping to wild conclusions. Wow. President Obama.

I'm incredibly happy. What a great day for America. What a relief for the world. (What was the global opinion poll result again? 75% of those with an opinion were for Obama?) The number of wounds that this helps to heal... holy cow.

So, what happens next?

Well, like I said, blogging about seeing value in some areas of the equity markets last Friday "would have made me look fierce cute for a few hours." Markets go up a record breaking amount Monday - and back down nearly the same amount Wednesday. And the US markets give investors whiplash Thursday (way down, then way, way up in the last hour.)

I'm not going to bother talking about these immense shifts, because they are largely noise, not signal. They're the meaningless volatility you get around around major economic transition points. A huge one-day leap does not mean everything is going to be OK, and a huge drop does not necessarily mean it's the end of the world.

The Plain People of the Internet: What transition?

Well, the crisis is finally transferring from the financial economy to the real economy.

The Plain People of the Internet: What will that mean?

Some class of a recession. Less credit means less borrowing, less investing, less money, less jobs. We will save more, and spend less, because we will have to. Which will be good for us in the long term, but bloody painful in the short term. No chocolate on our biscuits for a while. And for a lot of people, no biscuits at all.

The Plain People of the Internet: Will the real economy collapse as much as the ghostly financial economy has?

Jesus, I hope not. The shadow banking system (which grew up outside the regulated banking system over the past decade), has been completely destroyed. The real economy will not be completely destroyed.

Within the financial sector, entire business models, an entire worldview, and an associated set of incredibly stupid but almost universally believed economic theories, have been annihilated. Basically, the financial sector has lost its money, its job, its house and its religion. The real economy will do much better than that. It might get quite a nasty kicking, but I am strangely optimistic about the real economy in the medium term, say the next few years. (Short term, sure, it's going to be horrible.)

The Plain People of the Internet: Will the markets fall further?

Yes. At least 20% and almost certainly much more.

The Plain People of the Internet: Will house prices fall much further?

Yes. US house prices will fall at least another 15%, and almost certainly much more, unless there is a massive government intervention in the mortgage market (on top of its recent interventions in the financial markets). The next US president will be inheriting a foreclosure catastrophe. Millions are set to lose their homes, so some major further initiatives are likely. This is a very dynamic situation, and it's hard to predict how it will turn out. The nature of the way in which mortgages were sliced, diced, packaged and sold on makes the problem very difficult to solve.

Oh, and Irish house prices will have their arse kicked much harder than that. There will be parts of the country where you'll be picking up houses for a few grand in another couple of years. I've seen ghost estates, built on spec in ridiculous places all over Ireland, that noone will ever live in.

The Plain People of the Internet: Is it the end of the world?

No. It's just going to be the big, bad recession the West should have had after the dot-com crash, but put off for years - and made much worse - with low, low interest rates and loose, loose money. (OK, if I wanted to be fair and balanced I'd mention a bunch of fascinating technical stuff about how the Chinese government stopped the country's dollar income reaching the workers, and diverted it straight back to the US instead... but that stuff gives people a headache, and needs a post of its own.)

Bear in mind, a country cannot get rich through its people selling houses to each other at ever higher prices. The ongoing collapse in house prices makes people with huge mortgages worse off. But it makes a heck of a lot of people without houses better off. Rents will go down, first-time buyers won't have to sell a kidney and bankrupt their parents to buy a dodgy flat, etc.

In fact, people, on average, are happier in a recession (as long as they don't lose their job or their house). There's a lot less status anxiety, and people appreciate what they have, rather than wishing for what they have not. And pop music always improves in recessions. So it's going to be great!

How To Invest In A Great Bear

Well, this is the post that I wrote on Friday, but didn't publish, because I hadn't time to finish it before my flight to Ireland...

"If I had invested all my money from my first novel, Juno & Juliet, in the main Irish stock index, the ISEQ General Index, back in late 2000/ early 2001 when I sold the book to the UK and US, I would now, after eight years fully invested, be down anywhere between 30% and 50%, depending on which months I'd put the money in. If I'd invested all the installments of my advances as soon as I'd got them (on signature, delivery and publication), it'd probably average out at a 40% loss, after eight years. So I'm glad I didn't listen to my Allied Irish Bank adviser. He also wanted me to plunge into tech stocks. I was a naive innocent in financial matters back then, compared to now, but I wasn't retarded. "Er, why would I invest in what is clearly a bubble at what is probably the peak?" I asked him. (I think the bubble popped about a month later). He made some noises with his mouth, ("Ah, well, er... you...um"),  but he didn't actually answer. Putting my money into the Nasdaq would have lost me up to 55%. Again, averaged out, probably a loss to date of roughly 40 to 45 %.

What did I do with my advance? I spent it on food and books and chocolate. And bought a couple of nice paintings, which I still have and which make me very happy. And lived in London for six months, and the US for a few months, and had many romantic dinners with my beloved.

However, if I had any money now, I think some value is at last, for the first time in my investing life, beginning to surface"

...Well, that's where the post ended, no full stop because I hadn't finished it. Really REALLY wish I'd posted it anyway, given that on the fecking Monday we had the biggest ever one-day points rise in the US stock indices, and quite a few others world wide.

Not that a one-day rise means anything (or a one-day fall, for that matter), but it would have made me look fierce cute for a few hours.

No, I'm not calling the bottom of the market, this market is now too nutty to call. I'm just pointing out that some stocks (and some municipal bonds, some corporate bonds, and a few other things) are now at good prices for a brave longterm investor. But the wild ride in the markets will continue for quite a while yet.

I'm typing this in Tipperary on a very slow machine, so I can't be arsed putting in all the links and a photo. I'm not even going to spellcheck it. Normal highly erratic service will be resumed from Berlin shortly...

The War Against Icelandic Bank Terror

I am extremely pleased to see that the sweeping powers of Britain's Anti-Terrorism, Crime and Security Act - passed in 2001 to keep Britain safe from global terror - are being used to defend Britain's shores from the lethal threat of Icelandic bank accounts.

Although lawyers, the Financial Times, and other lily-livered defeatists who would capitulate in the face of Icelandic Bank Terror are less pleased:

"Lawyers said the Treasury’s unprecedented use of anti-terror powers to freeze Landsbanki’s estimated £4bn UK financial assets could create knock-on problems for other institutions with which the failed lender was doing business.

The freezing order was issued under the 2001 Anti-Terrorism, Crime and Security Act that was passed after the September 11 attacks the same year."

More news from the latest front in the global war on terror here...

We must remain vigilant. This is just the start. Iceland's sinister banking sector may have sleeper units all over the UK. We cannot show weakness. We cannot show mercy. I hereby call on Gordon Brown to authorise an SAS raid on Björk's Post Office Savings Account.

Look at her. Quite clearly planning to destroy our free markets by unleashing weapons of mass destruction. Quick, stop her! She's reaching for her piggy bank! We haven't a moment to lose.

And cancel the Oyster Cards of Sigur Rós while you're at it. You wouldn't know where they'd be going...

My Thoughts On The New, Steam-Powered, Horseless, Electronic Book!

If you’re interested in my thoughts on the future of the electronic book, I’m quoted in today’s Irish Times, towards the end of this piece by the mighty Conor Pope. (And how quaint “electronic book” will seem in a few years! It’ll read like “horseless carriage” does now…)

Sample quote from me:

"I can't see how you can control the distribution of words. Good writers could end up with huge readership but they will probably have to find new ways of earning a living from it, which is fine. Good writers were never likely to make much money. Yeats never made more than £200 a year from his writing until he won the Nobel Prize."

The Great European Competition Hurdles - and they're off!

Ah, now, look, that's cheating. The Irish Government have robbed me of victory in the The Great Irish Bank Collapse Sweepstakes. And I'd put my last eleven euro on the favourite!

Here's the Irish Times, talking about the Irish Government's meeting in the early hours of Tuesday morning:

"The option of allowing one particular bank to fail and then moving to nationalise it was seriously considered, but it was decided that legislation to protect the entire banking system would have a better prospect of achieving long-term stability."

I'm pretty damn sure the bank was... well, I'm saying nothing. No point making things worse for them. (But, in one of those crazy coincidences no doubt, I got a huge number of hits over the past 48 hours from people who'd googled: anglo irish bank collapse.)

Incidentally, Anglo Irish shares soared 67% immediately after the announcement of the Irish Government scheme.

I'm still not entirely sure how a government as small as ours can "guarantee" the debts of a banking system as big as ours. As a number of helpful commentators have pointed out, the Taoiseach, Brian Cowen, and finance minister, Brian Lenihan, have just promised to back liabilities that are ten times greater than our national debt. And, though the two Brians have postponed the Great Irish Bank Collapse Sweepstakes, they still have the EU Competition Hurdles ahead of them. (The job of running Ireland is a veritable pentathlon lately.) The British (and others) are furious at this move, as it gives Irish banks a huge competitive advantage, and could suck money out of fragile English banks. (AIB have a big presence in the English business sector, Anglo Irish do a lot of UK property loans etc.)

And the English, Dutch, Belgians and Danes all own banks in Ireland (Ulster Bank, ACC Bank, IIB Bank, and the amusingly named National Irish Bank- it's Danish), which will not be covered by this scheme, so they're afraid they'll lose all their depositors to Allied Irish Bank, Bank of Ireland, and - God help us - Anglo Irish Bank. There's now a strange, competitive, nationalist element to bank bailouts in Europe, as each government bailout or promise destabilises the banks of its neighbours. We need a unified EU response. And in a pig's hole will we get one, not till a few really big banks go under. Try getting twenty-two finance ministers to fly to Brussels this week, when they're all up till 5am every night, fire-fighting the collapse of their own national banks.

Of course, national banks have grown to become European banks, all over Europe. Many countries now face the problem of trying to save banks that are bigger than the country that, technically, controls and regulates them. The Financial Times has a beautiful overview of this. You'll see from it that both AIB and Bank of Ireland have liabilities that are almost exactly the same size as Ireland's entire GDP...

Well, on a lighter and more entertaining note, Momus has written a wonderful piece on the pleasures of having nothing. He did me the great honour of including some video of me in this intriguing meditation on Brecht, Wilde, and the end of the world as seen from Berlin.

We've been through all this before. It's not so bad. Nicht so schlimm...

"There is no money in this town! The whole economy has broken down! Oh, where is the telephone, is here no telephone, oh sir, goddamit, no!" - Brecht

Update on 2008-10-01 13:39 by Julian Gough

...And here's the latest on the Great European Competition Hurdles, from the Irish Times twenty minutes ago. Will Brian Lenihan even make it over the first hurdle?

Choice quotes:

The European Commission (EC) today confirmed that Competition Commissioner Neelie Kroes is in contact with the Government and will examine under state aid laws the move to guarantee all deposits in Irish banks.

“It [the Commission] will look at any state aid involved as a a matter of urgency. It expects notification from the national authorities and will take decision under the state aid rules soon afterwards.”

And yes the British are very annoyed:

British banks compete with Irish banks both in Britain and in Ireland and have voiced fears they could lose out competitively to Irish banks that enjoy the full guarantee.

The Irish pledge on Tuesday to underwrite the country's banking system triggered a flood of cash from British businesses to Irish banks, a senior Irish stockbroker said.

"We just want the Irish government to look quite closely at the arrangements they are putting in place to make sure they comply with EU competition law," the British government spokesman said. He added Britain was in contact with Irish authorities at a high level over the issue.

The Great Irish Bank Collapse Sweepstakes - and they're off!

Well, it's not the end of the world, but it's going to feel like it for quite a while. The US government bail-out plan was voted down by Congress a few hours ago. If the plan had been passed, it would have given the illusion that things were going to be OK. (Things would not have been OK.)

Now, we won't even have the comforting illusion.

An an Irishman with my fortune (eleven euro) in an Irish bank account, I have a keen interest in the future of the Irish banking system. The main question seems to me to be, in what order will they fail? I reckon it's going to be a photo-finish for first place between Anglo Irish Bank and Irish Life and Permanent. (Though will dark horse Irish Nationwide Building Society make a late surge for the line?) After that, who knows. But they're all banjaxed.

Every Irish bank is massively over-exposed to Irish and UK residential and commercial property, and to Irish developers who can no longer service their vast loans. The Irish banks have been keeping their developers afloat artificially for the past year, in the hope things would miraculously turn around. Things haven't, they won't for years, and soon all the bad debts will have to appear on the books, dragging both banks and developers under. If the Germans and Swiss find the books of the Irish banks too revolting, and can't bring themselves to purchase the wreckage, then the Irish government (with some very irritated help from the European Central Bank) will have to recapitalise the entire banking sector. All this will have to be done during a global financial crisis. It's going to be comically awful, like having to change your tyre in the middle of a demolition derby.

I lived through the Irish property boom of the past decade with ever-mounting incredulity. It really was the most extraordinary case of mass delusion since everybody drank Kool-Aid in Jonestown. And if you want cast-iron evidence that I'm not pretending to be wise after the fact, here I am on Irish television, in May of 2007, saying exactly that, to the stony silence of the studio audience, all of whom had just bought an investment property the day before, and would be buying another one the day after.

(Oh yeah. banks and hedge funds and other financial institutions will also be imploding across America and around the world after this, but I'm so bored with the USA, I thought I'd talk about Ireland for a change... Ah heck, one more US prediction: good, old-fashioned, retro, Depression-era bank runs in America, starting tomorrow.)

Waving a magic wand at a car crash

So there's a bailout plan. Whoop-de-do.

It addresses a symptom - the liquidity crisis.

It doesn't solve the problem. The banks are insolvent.

Eat my naked shorts

I know some of you drop in here sometimes for guidance on the future of the world economy. (Hiya Ben, hiya Henry... Hey! Alan! Good to see ya.) You'll notice I have been keeping quiet lately, as the whole thing blows up. This is because I don't want to spook the markets. One incautiously chosen word from me right now, and we could all be learning to skin rabbits.

However, I laughed my ass off last week at the US Fed/Treasury announcement that they had a trillion dollar plan that would save the world, and I laughed even harder when global stock markets leaped 10% in response. What we have here is a huge omelette trodden into the carpet. The fact that a man has burst into the room and announced that he is going to turn the omelette back into twelve fresh eggs does not mean he is, in fact, going to do it.

The mainstream media coverage of the financial crisis continues to be wretched. Most newspapers failed to note that half of the 10% rally last week wasn't driven by suddenly happy investors buying stocks they wanted, it was driven by desperate hedge funds forced to buy the very stocks they specifically didn't want, or risk going to jail. (Because, to get technical, they had to cover their short positions, the day after naked shorts were banned overnight. Does anyone really want an explanation of that? Doesn't it sound much more fun if you don't know?)

No wonder those shorted stocks (banks, financials) all fell on Monday by as much as they rose on Friday, as the hedge funds, having done their legal duty and dodged jailtime, dumped them all again. This market is a joke.

Sheesh, if I start talking about this I'll talk all night. (And I've a novel to finish writing, so... back to my book.)

(Oh, and the very nice photo of eggshells was taken by Linda Alstead, whose website mixes cooking and photography - together at last! She used a Canon PowerShot G3 1/2s f/8.0 at 23.0mm, photo-fans... this means you, Phil, I know you love it when I talk dirty...)

Let's Nationalise All the Mortgages in America Overnight, And See What Happens

More financial fun. From today's Financial Times:

"The US government on Sunday seized control of the troubled Fannie Mae and Freddie Mac mortgage groups in what could become the world’s biggest financial bail-out."

I've just one comment on this, for now. The US government doesn't really know what it is doing, its public statements are confused, contradictory, and not nearly as reassuring as it thinks, and this action will have huge unintended consequences, some pretty disastrous, for the American financial and housing markets. (With whiplash effects as far away as China.)

The rules are being torn up, but they're not being replaced with anything coherent.

More banks and other financial institutions will fail in the aftermath of this (and not just the ones left holding huge, worthless chunks of Fannie Mae and Freddie Mac).

So, um... Bloomberg for McCain's VP slot?

Well, Obama didn't listen to me. Maybe McCain will.

By November the US election will be about the economy. Several more huge financial institutions will have gone under, been sold for monkey-nuts, or bailed out by the Fed. The housing market will not have recovered. The credit crunch will not have ended. No domestic US business will be expanding, investing, or hiring. (Bar bankruptcy specialists. And Wal-Mart, as the middle classes go downmarket). No one will care about the foreign policy credentials of Obama's running mate.

McCain has admitted he knows nothing about economics. So pick Bloomberg, he won New York as a Republican for God's sake...

Of course, he won't.

Writers shouldn't have opinions about anything, least of all politics, so I won't express a preference in this race. I like both McCain and Obama a great deal, as human beings. They are both remarkable, in their very different ways. But, from a satirist's point of view, I think a McCain presidency has more going for it. I would dearly love to see an economics novice, in his seventies, who can't even remember how many houses he owns, dealing with the worst economic crisis, and housing market meltdown, in US history. McCain said it best, in the Wall Street Journal in November 2005: “I’m going to be honest: I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated.”

And if he gets to be President in November 2008, boy will he be educated.

As the Wall Street Journal said of him (at the end of that same in-depth interview on his economic policies):

"I come away believing that if I'm ever in a knife fight or in a foxhole, there is no one I'd rather have next to me than John McCain. Whether he's someone who should be steering the rudders of the American economy is a different issue altogether."

My new essay (on economics as religion), in Prospect magazine

I've roughly fifty subjects I'd like to blog on. Football! Monolines! Street parties! The Irish housing bubble! Popstar poetry! The mysterious Blau Blau Blau movement! How to write for the new attention span! My new life with Will Self's pig! Too many possibilities. Can't decide.

Tell me if any of the above interest you, and it might help me focus on one of the blighters, and get it done.

Meanwhile I have an article, on economics as a religion, in the new issue of Prospect (the wonderful London-based magazine of ideas). The issue also features a round-table discussion of the current global financial crisis. Several of my favourite thinkers on economic matters take part, including the philosophical hedge fund manager George Soros, and the very wise and grave chief economics commentator of the Financial Times, Martin Wolf. After they have thoroughly depressed and demoralised the readership with the awfulness of it all, I provide the light entertainment, in a two-page afterword, "The Sacred Mystery of Capital".

A sample paragraph or three:

"... But religions evolve, and recent events show that capitalism has begun to evolve less in the manner of the Galapagos finches (whose beaks adjusted over millennia to suit the berries of their individual island), and more in the manner of the Incredible Hulk. Incredible Hulk capitalism can expand the muscle of its credit so swiftly that its clothing of real world assets cannot stretch fast enough to contain it. Expansion, explosion, collapse—Incredible Hulk capitalism sprawls, stunned and shrunken again, in the rags of its assets.

Or, returning to our religious analogy, if capitalism was a religion, it would now be a delightfully demented pseudo-scientific cult. Incredible Hulk capitalism is to the capitalism of Adam Smith what Scientology is to the Christianity of Christ. Both modern high finance and Scientology use the language and tools of science to ends that are religious, not scientific. Both meet a need, a yearning which the old forms of religion and capitalism no longer meet. The need for a mysterious power greater than us, in which we can believe. It must be powerful—but it must also be mysterious. And mystery has been vanishing from the world ever faster, ever since Galileo.

We know what the stars are made of, and can compute their course through the heavens for the next 10,000 years. We can explain the storms and floods that were once evidence of the wrath of God. But as the advance of science has removed the divine mystery from much of life, the advance of free market capitalism has put it back. Only modern economics can now provide forces that we don’t understand. And we need that in our lives."

The whole thing is here, if you're interested.