September 30, 2011 10:14 pm

Why $14,000bn no longer scares us

‘The more zeros I heard, the more desensitised I felt. Big numbers, like sex, have lost the ability to shock’

In 1989, Seymour Durst, a New York real estate developer, hit on the idea of putting an electronic “debt clock” near Times Square, to measure the size of the American debt, and the share held by each family. He hoped that if New Yorkers were forced to watch those numbers moving each day, they would finally understand what that debt “meant” – and be inspired to do something about it.

These days, however, I rather suspect this billboard-sized clock is having the opposite effect. In the middle of last week, when I passed it, the number on the screen was $14,613,324,053,350 – and moving up all the time. But, as I looked at that electronic dial, what struck me most forcefully was how unreal – if not disembodied – those electronic digits seemed.

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Gillian Tett

A generation or two ago, “money” was something that most people visualised, if not experienced, in tangible form: coins in a jar, cheques in the post, notes in a wallet or stamps in a savings book. Money could be handled, measured and imagined, at least part of the time. But these days, thanks to the explosion of electronic finance and fiat currency, we live in what might be dubbed the age of “cyber finance”, “Star Trek money”, or “meta money”. Or, as Satyajit Das, a derivatives trader turned consultant, says in a new book, Extreme Money: “Money is now endless, capable of infinite multiplication and completely unreal.” Indeed, he likens it to an object in a room of mirrors, that keeps refracting into numerous new forms, so dizzying that our brains are simply not equipped to understand.

This has at least two implications. First, the abstraction makes it surprisingly hard even for financiers – let alone anyone else – to keep track of where those zeros are going, or if anything tangible lies behind them. Take a look, for example, at UBS. A couple of weeks ago, the doughty Swiss bank shamefacedly admitted that Kweku Adoboli, a junior trader, had run up more than $2bn losses by conducting phantom deals linked to exchange traded funds (ETFs). That number was startling in itself. More surprising is the reason why Adoboli could do this: as some of my FT colleagues, such as Izabella Kazminksa and Tracy Alloway, have reported in recent weeks, some banks have been astonishingly sloppy in terms of their housekeeping linked to such deals. In particular, traders have been cutting trades with financial instruments over the phone or computer screen in a millisecond, but then failing to sort out the paperwork – or, more accurately, the electronic records – to support them for weeks; in banking jargon, the “settlement” and “collateral” practices have been appalling. This is tantamount to buying and selling vast quantities of goods – but never bothering to sign a credit card slip; it is an open invitation for creating phantom trades.

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But a second consequence of cyber finance is that it is hard to spot how debts are piling up – or know how to cut them when they do. Just as anybody who has ever juggled multiple credit cards in their own lives knows, the sheer ease of using electronic money removes any sense of constraint (or shame). It is little wonder, then, that so few people spotted the leverage that was developing in the system before 2007; after all, the debt was whizzing around that “hall of mirrors”, as Das says, with bewildering speed; and these days it feels equally tough to really grasp the scale – or “meaning” – of the debt overhang today.

Last weekend, for example, I took part in the Annual Meetings of the International Monetary Fund and World Bank Group in Washington, where I listened to leaders toss vast numbers about (€440bn! $14,000bn! Y23,000bn!); but, the more zeros I heard the more desensitised I felt. Big numbers, like sex, have lost the ability to shock.

Is there any answer to this (other than returning to a world of cash)? Not an obvious one. These days, some civic groups are trying new tactics to communicate the debt, such as posting pictures on the internet of a stack of 14 trillion single dollar bills, laid out on a football pitch. Some schools are trying to teach personal finance lessons by forcing students to keep cash in a jar and pay for items out of that – rather than getting addicted to plastic cards. And in the exchange traded fund sector, there is a particularly fascinating cultural twist: some funds that deal with ETFs handling gold have now installed webcams in their vaults, to “prove” that these funds are backed by tangible bullion. Investors, it seems, want to watch those gold bars; they don’t trust the idea of zeros flying about in cyber space.

But – sadly – there are no webcams in the rest of the ETF world, let alone the rest of the financial industry or government accounts. Even if there were, there would be precious little to “see”; except, of course, for something like that ever-moving electronic clock near Times Square. And its $14,613,324,053,350 score.

gillian.tett@ft.com

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