DO WHAT YOU CAN, WHAT YOU WANT, WHAT YOU MUST

There are many aspects of human life which depend on trust. If you hire a private investigator to find out if your wife is cheating on you, your marriage is pretty much over no matter what he tells you.

Similarly, many systems are designed to work under normal circumstances, but fail under stress. As long as everyone trusts that the phone system is working, it will continue to work. But if everyone picks up their phone at the same time to check for a dial tone, the system will overload and there won't be a dial tone.

Recently in Nashville, there was a rumour that the city was going to run out of gas. At the time it was untrue, but people rushed out to buy gas before it was gone, and sure enough the city ran out of gas. The people waiting in the mile-long lines were actually causing the crisis they were trying to cope with. If everyone had just stayed home, there would be no crisis.

But the system most reliant on trust, and the one everyone is losing faith in now, is the financial system. Banks never have enough money on hand to pay all their depositors. Their business model is entirely based on customers trusting that their money would be there if they wanted it even though everyone knows that's not true.

So long as everyone trusts, the system works. When the trust breaks down, the system breaks down. People stop believing their money will be there, so they go to get it and it's not there. Banks don't believe their loans will be repaid so they charge higher interest rates which the borrower can't afford and the loan isn't repaid.

Investment banks didn't have any deposits at all, they just borrowed money to buy debt from other companies. Which probably seemed like a good idea at the time but, as with so many things, it was actually just as dumb as it sounds.

Now the US Treasury is becoming the biggest investment bank ever, borrowing trillions of dollars to buy debt it knows is worth less than that. In fact, in some cases it will be borrowing from the same foreign banks that it is buying the shitty debt from. It shouldn't surprise anyone that the Treasury is being run like an investment bank since it's run by the former CEO of the (former) largest investment bank, Goldman Sachs.

The Treasury is ostensibly doing this to restore trust to the financial system, but mostly it's because it's the only thing Hank Paulson knows how to do. Unfortunately, stupidity is notoriously bad at solving the problems it creates. When the problem is too much debt you can be pretty sure the solution isn't more debt, just like raping more children won't cure pedophiles.

Despite all the money being thrown around by central banks, trust in the financial system (as measured by LIBOR) is at a 10-year low. The fear of a global recession is causing a global recession. Warren Buffett sees this as a crisitunity and thinks it's time to start buying, which is good news for people with sacks of cash lying around that they won't need during the recession. For the rest of us, we just have to trust that black jesus has a plan. Because lord knows Rupret the Monkeyboy has no fucking clue.