Humpty Dumpty Monday

The Collapsing Inverted Credit Pyramid and The Leverage of One

London, UK - 7th October 2008, 08:51 GMT

Dear ATCA Open & Philanthropia Friends

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

"Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again!"

6th October 2008 was a Humpty Dumpty Monday. In its first printed form in 1810, the famous English rhyme was posed as a riddle as were its equivalents: "Boule Boule" in French and "Lille Trille" in Swedish. The implications of "Humpty Dumpty" are that the great and good of the land have no other priority than to repair Humpty and reinstate him on the wall. There is a longing to go back to the status quo, at least where that perceived order means cushioning a generation with unparalleled spending power and access to liquidity. This is the reason for the frenetic actions of central bankers and treasury officials worldwide as they strive diligently, albeit disjointedly, to restore that which the people, banks and businesses have come to assume as their birth right in nation after nation!

Humpty Dumpty is an excessively large inverted credit pyramid made of fragile egg-shell, hitherto sustained on leverage and this house of cards is in the process of crumbling. This process has often been referred to as the "Great Unwind" by ATCA. Businesses are sliding down a slippery slope every day as confidence weakens, and sales of goods and services slow. The fact that the financial markets are also under pressure can at times be a bit too much to handle. The question asked repeatedly by distinguished ATCA members equates to the following: "Is there any end in sight to this wretched credit crisis and what are the ways to avoid it?"

There are few means, if any, of avoiding the final collapse of a boom brought about by excessive credit -- read debt -- and leverage expansion. The time taken by the "Great Unwind" is likely to be the time it takes to bring leverage down to one at the corporate, banking and individual levels. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later in the form of a final and total capitulation of the current highly indebted financial system with the perception of wall's of paper money and paper assets built on leverage that on the most part, did not and do not exist. Humpty's diligent rescuers are definitely in the "or later" camp. The desperation of the USD 700 government bailout falls squarely into the "do something; anything please!" category, and the global markets have realised on Humpty Dumpty Monday that this may prove to be just as effective as were the efforts of the King's men. If it was supposed to be a cure, it wound up being perceived almost as bad as the disease.

The last seven decades have been about how much money one can make. The next decade may be about how much money one cannot lose!