Let’s say you’re a national leader in what used to be known as “The Rich Man’s Club,” only practically everybody you and your colleagues are leading is broke or none too optimistic about the financial future. You know the issues. Suicides in Greece and Italy, demands for national bailouts, disappearing pensions, actual lay-offs in countries where until recently the labor laws basically prohibited firings, vanishing bank liquidity. Here’s a big question for you:
Where should you and your fellow G-20 leaders be meeting these days?
Why not stay at the refreshing Hotel Las Ventannas al Paraiso in Los Cabos, at the very end of the Baja Peninsula? As the Daily Telegraph points out, Cameron Diaz and her true love were found on the beach by the hotel, and Jennifer Lopez loved her massage there and Oprah and Leo Di Caprio stayed there. Who can be petulant in such a setting? Who can worry about anything as depressing as rising bond interest rates while sunning and meeting? After all, the place has an infinity pool!
I know what you’re thinking. Why pick on Mexican luxury resorts, when there are so many great places for Western leaders to line their ears with tin? Last week, when President Obama, who runs a nation where the average household income fell 7 percent since 2000 and the stock market is screwy, went calling on the actress Sarah Jessica Parker in New York, he found Vogue editor Anna Wintour cleaning up the townhouse in a printed shift dress—and his campaign cleaned up to the tune of $2 million.
I mention all this not because Obama or Cameron, Merkel or Monti deserve slum accommodations or crummy fast food while figuring out how to save the Western world. I mention it only because they don’t seem to know what’s going on in the rest of the world. This week, for example, Cameron’s nominally conservative government “plans to flood UK banks with cheap central-bank loans,” according to the Wall Street Journal, a direct violation of the Basel accords. Those accords were passed precisely to make sure that kind of flooding never happens: banks, in fact, were told to abide by strict liquidity rules.
Then something interesting happened: in the spring, the Basel Committee on Banking Supervision announced that banks around the world would likely have an asset shortfall of 1.76 trillion euros. And that was a low estimate, in all likelihood.
Now let’s say that kind of unfortunate scenario—on a slightly smaller scale—happened to those of us who don’t meet by infinity pools. Do you think pouring out a tale of tragically diminishing assets would compel Sarah Jessica to stoke up your reserves? Or that, in the absence of ready cash or—or a visit from the president—you could snag Anna to vacuum?
Well if you’re a bank, you probably could. The rules, such as they are, simply don’t apply to banks. “In exceptional conditions … the need for banks to hold large liquid asset buffers is much diminished,” Bank of England governor Mervyn King said last week.
Only these days could such a foolhardy idea be a source of international relief. Only of late would the world rejoice that Greek citizens (narrowly, very narrowly) think—still—it’s a fabulous idea to remain in the eurozone, to pay for the goods they can’t afford, in other words, with a currency they can’t regulate, while mouthing promises they will never fulfill.
This is the fabric of the illusory economy: it shimmers like gold, it warms like wool. Try it on for size. Avoid the mirror.