Filing away details of life
Istill have nothing useful to say about the coronavirus, but leaders around the world should be grateful to Trump. He has shown them precisely how not to respond to the epidemic. By dismissing it as a hoax, by diminishing it and politicising it and lying about it, by thinking only of his own popularity and thus failing to act in time, Trump has condemned thousands of his compatriots, and possibly millions, to death.
Here in New Zealand with our moat of saltwater we still have a chance to be the envy of the world. Nevertheless our castle is under siege from an invisible assailant and will be for months yet. The Government’s manned the ramparts. It should now assemble every possible defensive weapon for whenever there’s a breach of those ramparts.
Meanwhile as we ride out the siege we need to find things to do. I just spent an instructive morning clearing out a filing cabinet.
I was once both the best man and the entire congregation at a wedding. The ceremony took place in a small registry office and I found myself standing beside a metal filing cabinet that was as tall as I was. It had been decorated for the occasion with a plastic pot plant.
It would be unfair to blame the filing cabinet for the marriage lasting only eight months, but it is tempting. Filing cabinets are just so dispiriting.
Always grey or dark green, they were made of metal for a reason. If a fire swept through the head office of the bank that held your mortgage you might dare for a moment to hope … but no.
When the fireman stomped through the sodden blackened rubble there stood the filing cabinet, charred but undamaged.
A teller brought the key, opened a drawer and lifted your file to reveal your private parts still safely clamped in the bank’s vice.
All dictatorial regimes love filing cabinets. Every secret police force has vaults of them. For what the filing cabinet represents is order. Citizens are messy, unruly, disobedient. Once slotted into files, however, they became simplified, classified and controllable.
But we all crave order in our messy little lives and 30 years ago I saved up my money and bought a filing cabinet, a single-decker in misery-grey.
I clipped clear plastic tags onto the files and wrote the names of the files on coloured cardboard strips – insurance, dogs, mortgage, contracts – and fitted the strips into the plastic tags and dropped papers into where they belonged and closed the drawer, and there within its metal walls was my life, defined and compartmentalised.
And it was this cabinet, long since fallen into disuse, that I cleaned out this morning. How much paper just one life generates. And how little of it I ever looked at twice. It just went into the file and stayed there, gradually fading from relevance, awaiting doomsday or the bin bag.
It got the bin bag. I threw everything out – contracts with defunct media companies, vets’ bills, cheque books, tax statements, everything. What had seemed durable proved ephemeral. What had seemed to matter proved not to matter. Life had defied the bid to manage it. Order had only ever been an illusion. Time and change had won as they always do.
Only one file had any heft. It was right at the back and it had no name.
In it I found two sticky half-bleached photographs of a former lover. I stared at them long and long. Time has a way of winnowing out what matters.
The banks are well capitalised, and at the moment the Government is leaning on them to provide credit and liquidity to businesses struggling to stay open.
In the ancient city of Gordian, in modern-day Turkey, the Persians kept an old ox-cart tied to a post by several knots so tight it was impossible to see how they were tied, let alone unfasten them. An oracle prophesied that the person who untangled the knot would one day rule Asia.
Never one to refuse a challenge, Alexander the Great decided to give it a go, but found the task impossible. Trying to untangle them just made the knots tighter. So he decided to cheat, and pulled out his sword.
I’ve always found this parable confusing – are we meant to think there are some problems that are so difficult the only way to solve them is by cheating, or is it a vindication of lateral thinking; why didn’t anyone else slice through the knots?
The global economy is in the midst of a Gordian problem that looks like it will cost New Zealand billions of dollars, thousands of jobs, and wipe trillions of dollars off the value of the global economy. Until now, the economic response has been on the Gordian problem of how to stimulate an economy you’re also trying to shut down – it’s pretty hard to keep shops open while at the same time telling people to stay home.
The silver lining has been that the banking and financial sectors have learned their lesson from the financial crisis of a decade ago. The banks are well capitalised, and at the moment the Government is leaning on them to provide credit and liquidity to businesses struggling to stay open.
But that could all change – the strands of the knot run deeper. There are growing concerns overseas that a mountain of bad corporate debt could be on the verge of going south, bringing the rest of the financial system with it.
The roots of this problem go back to the global financial crisis of 2008. Central banks around the world slashed interest rates, stimulating the economy. The tactic worked and growth resumed, but never to the extent that central banks have been able to raise rates back to normal levels.
This meant interest rates stayed low. The unfortunate side-effect was that returns on safe investments stayed low too. Investors wanting better returns had to look elsewhere, including in the junk bond market, so-called because credit rating agencies don’t deem the bonds safe or investmentgrade. Corporations around the world were happy to have those investors – bond rates were so low firms could borrow no matter the level of risk.
And borrow they did. Since 2008, corporations worldwide have issued about US$1.8 trillion (NZ$2.9 trillion) each year in new bonds, according to the Organisation for Economic Co-operation and Development (OECD). That’s about double the pace of the previous seven years. And a lot of that debt is rated as less secure by rating agencies.
Again according to the OECD, about 20 per cent of new corporate bond issuances have been below investment grade, growing to one-quarter last year.
That’s a lot of risky debt – and the International Monetary Fund agrees.
Last year it investigated corporate debt in eight countries, including major economies like the United States, Japan, China and some European countries and warned that a financial shock only half as bad as the GFC would put nearly 40 per cent of total corporate debt ‘‘at risk’’. The current crisis looks like it might be far worse.
And even safe investments are looking risky. Last year, according to the OECD, 51 per cent of all investment-grade bonds were rated BBB, the lowest level to qualify for investment-grade status.
This is troubling. If those firms get into strife, as many undoubtedly will, their ratings may be downgraded. This means their stocks will have to be offloaded by the funds that have a provision against holding non-investment-grade bonds.
Some industries such as shale oil exploration are deeply reliant on this cheap debt.
Shale oil is extremely expensive to prospect, but firms buoyed by cheap debt and reasonably high oil prices piled into the sector over the last 10 years.
With oil prices plummeting, owing to a lack of demand and Saudi Arabia’s refusal to constrain supply, those firms will be worried about refinancing when their debt matures.
Thankfully, very little of this debt is maturing any time soon. CNBC reports that of the $86b of debt exploration and production companies have to refinance or repay by 2024, only $5.3b is due this year, and only $1.7b of that is junk.
But if this crisis drags on, prepare for firms to sound the alarm over those refinancing costs.
In the worst-case scenario, this could ripple through to the wider global economy, constraining lending in a similar vein to the early days of the GFC. That’s a scenario no-one wants to see.