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Op-Ed: Mindless finance — How the rich send themselves and everyone else broke

Back away from this mindless way of doing business, and things will settle down.

Image: — © Digital Journal.
Image: — © Digital Journal.

There’s a hideous if unbearable justice in the adorable cost-of-living catastrophe.  These merry years of guessing when the next asteroid strike on your money happens are providing some grim entertainment.

The hideous justice is that big money often makes mistakes that are too big for big money to manage. Billions vanish in baffled bewilderment. The problem is that everyone on Earth is paying for it.

Big money is an actual culture in its own right. It’s about self-image. It’s about who you want to be. You can do a full-dress recital of every damn cliché you’ve ever heard about being rich and important.

You can be as blasé as you like about any financial numbers. The finance sector is largely built around a macro self-image of big money.

Of course, you can also borrow gigantic amounts of money over a long lunch.  That lobster was delicious, the wine superb, the company pleasant, …And you’ve just dug a much bigger and probably entirely unnecessary grave for yourself based on your social self-image.  

The main problem is that it’s a two-dimensional image run by a one-dimensional mentality. The numbers dictate. The sole goal is better numbers than you had before. Nothing else is under consideration.

A lot of effort, expertise, and technology run these numbers. You decide how much you want to make. It’s that easy. What could go wrong with a bit of number crunching? Everything. It’s cosmetics vs reality.

Private equity is basically a money management thing. Remember – These are the competent guys. They’re a mix of capital management and investment. Things happen fast. Everything has to make money. Therefore, prices rise fast. Assets are sold. People are laid off for the sake of better-looking numbers.  

I’m not going to single out private equity as the sole culprit for the wave of global finance mistakes that are blindsiding everyone. That’s not the case. Private equity is just a simpler example.

Globally, big money is essentially unbalanced. It’s overweight for the global economy. The numbers don’t stack up anymore. The debts are too big, and the economy can’t support them.

This is like getting put into two blenders at the same time. Available cash is getting soaked up at what you could call hysterical speeds. Debt is maxed out cubed, in real terms. Revenue is stalling and going backwards entirely due to added costs. Meanwhile, the other blender, net liabilities, is accelerating.

If you check out private equity bankruptcies, you’ll see instantly where the wheels fell off. The numbers didn’t work. Lots of money, in some cases billions of dollars, have effectively vanished.

This all rebounds on the creditors and their other borrowers. They’ve lost big money, and they need to reconfigure to manage their own numbers. You guessed it – Someone else will be paying for the train wrecks.

Corporate bankruptcies, which in 2023 were at plague levels, are similar. Again, it’s billions of dollars wistfully saying goodbye to whoever had them. If money is liquidity, you can say that the pipes are leaking badly.

Private and corporate debt defaults aren’t a popular subject in finance, with good reason. If debt is where the wheels probably fall off, defaults are when the engine drops out as well.

“What about us real people?”, you ask astutely, from the serenity of your monastery? You’re lucky in one way, and one way only. You weren’t in the number crunching. You’re a bottomless gold mine, according to the people who think money just happens. So now you know.

People tend to forget that money eventually has to come from somewhere else and someone else. Even now, in the relentless glaring light of unsustainable costs, the financial machinery hasn’t quite realized that if everyone goes broke, so does it.

Now a bit of black humor for those who need it. There’s a true moral to this immoral tale.

Consider this wince-worthy witticism for what it is:

The borrowing was perfectly normal, if rather careless. People have borrowed money for thousands of years.

The financial management was done correctly in the form of gouging the world for the money to pay the debts. That’s standard practice.

The capital management ideas looked right for building more capital. It was all planned out by conventional capital management theory.

…And it didn’t work. All this perfectly normal correct business behavior added up to the sewer overflow we now see.

 It’s a bit like pointing a 50-caliber machine gun at your own face. Much time and care are spent making sure you’ve got enough ammo, in this case enough money. You check that the sights (investment modeling) work, and that the bolt and belt feed (lines of credit) are working properly. Then you open fire on yourself on full auto.

Another rather dour perspective is also apt. Some of these current bankruptcies would have been headlines even 10 years ago. Now, they’re getting lost in the crowds. You need to owe at least a billion to even get an acknowledgment.

Back away from this mindless way of doing business, and things will settle down.

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Disclaimer
The opinions expressed in this Op-Ed are those of the author. They do not purport to reflect the opinions or views of the Digital Journal or its members.

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Editor-at-Large based in Sydney, Australia.

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