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The current narratives of what exactly happened, of what the prime causes of the crisis were, tend to the motif of cause and effect—and, behind that, the motif of good versus evil. What can be found are some useful truisms to remember: Bankers cannot be trusted, and we shouldn’t give them free reign over the economy; property does, in fact, tend to go down after going up and tends to go down fast when it does; there are serious and dangerous consequences if you run loose monetary policy for decades; you can’t invent a new currency without there being a demos that includes total responsibility for fraternal debt burdens; and private debt becomes public debt when it gets too big.
But these moral tales fail to pinpoint anything special about 2008. Glass–Steagall had been repealed in 1999 (and had been undergoing deconstruction for decades before that), and isn’t being greedy and sneaky a timeless attribute of being a successful banker (unless he’s Jimmy Stewart)? Shouldn’t the very words “shadow banking” cause alarm bells to ring? And when the faceless men told us that the world is running fine under their excellent stewardship (the Goldilocks economy, the Great Moderation, and the miracle of Europa), maybe we should have been a touch more suspicious. When you base your entire global system of accounting on marked-to-market, you’d better have a Plan B if there is no market.
The wider story arc is that economics has been growing up. Economic narratives tend to mirror traditional childhood development stories that have been with us for hundreds of years. After The Three Little Pigs (“Greed is good,” circa the 1980s) came Goldilocks (the Goldilocks economy, where we got something for nothing), and, most recently, Sleeping Beauty (think Harry Potter and the Twilight saga) where the economy endures a long period of painful adolescence featuring evil adults, indolence, stasis, and rebellion (“the new normal”).
But nowhere in thousands of years of fairy tales can you find zombies. The zombie apocalypse is brand new, an invention of modern minds to describe subconscious collective fears that never needed to be expressed before. The crisis of 2008 marks a watershed in human history not because of excessive greed or optimism or leadership failure. The very big deal was that, from July to November 2008, the complex machinery that is modern economics ceased functioning properly and then started to fail. The speed of global change was awful and fearfully intense. In this more compact story, the crisis began on July 3, when the European Central Bank raised rates by 25 basis points. It was the moment when one of the plucky survivors makes a sound and a single stray zombie looks up and notices a potential snack. By November 23—when Citigroup was bailed out—the interconnected network of markets, investors, and relationships that is the global capital pool had turned into a zombie swarm that only a multi-trillion dollar bailout could stop.
Why did this happen, and why then? Because we (the economy) changed our expectations all at once, and then, for the very first time, we (the market) were able to act on our expectational shift instantaneously. Welcome to tightly coupled global media opinion-setting, homogeneous risk definitions, and hyper-efficient global capital pools. The central concerns of those times weren’t which banks would go under or the extent of subprime losses, or how to regulate shadow banking or deal with Euro breakup. It was whether the plumbing of the finance system could cope and how can we assert our property rights if it doesn’t? Will the center hold—and what happens if it doesn’t?
And then the center held.
Lifted whole from an early vampire script, Ben Bernanke, Hank Paulson, and their gang took a stand at the Hellmouth, out-ninja’d the demon spawn and saved an unsuspecting world again (never mind that they were the ones responsible for opening the Hellmouth in the first place).
But vampires are old school of late, and the zombie apocalypse has become the central motif of our collective angst about modernity, now told across our multiplying media. In the zombie apocalypse there is no redemptive last stand, no dragons that can be slayed; just a world changing forever and a focus on how to respond to that change. Change and zombies just keep on coming, and there’s too little time for heroism or moralizing. So let’s hope the new Buffy the Vampire Slayer or Harry Potter of the central banking world keeps up to date with fantasy genre trends. You can’t out-ninja a zombie swarm like you can a vampire. The next crisis will be capital flight, and no amount of austerity or quantitative easing will work against this particular zombie swarm. You either shut a very strong door and hope it holds—or you run and hope you’re fast enough.
Tony Day is CEO of Scarce Capital, an independent company exploring the edges and interactions between finance, media, and technology. He has served as a strategist in the Australian finance community for nearly 20 years, including as the head of strategy for both QIC and the Future Fund.