On 12 August 2007, in the midst of the credit crunch, we wrote this article in which we analysed the contagion process surrounding subprime securitisation: mistrust in corporate debt, interbank lending and, finally, equity market volatility. At that time, we did not anticipate that the extremely serious situation unfolding with the credit crunch could be exacerbated by oil prices at $150 per barrel. Had that been the case, the panic that ensued in August 2007 could have severely damaged the foundations of the system, which remain intact today thanks to the gradual release of the bad news we have been absorbing over the course of a whole year. Indeed, the System has had time to absorb one piece of bad news after another, and today’s macroeconomic figures bear no resemblance to those we had in August 2007. And the current figures are likely to be much better than those for next summer 2009. In any case, we are where we are after a year of hard-to-digest realities that have allowed the System to survive. Now it is society’s turn to face these hard-to-digest realities.
Many of us believe that we are only seeing the tip of the iceberg when it comes to the social crisis and macroeconomic figures. But it is very encouraging that we are all now fully aware that we have collided with a massive iceberg and that the bow of our Titanic is taking on water irreversible. No one is dancing gracefully to the orchestra’s music in first class anymore, as most people were still doing last summer. There is nothing worse when facing a crisis than ignoring it.
The longer a disaster drags on and the more it becomes blurred over time, the greater the capacity to respond. If the Titanic sinks very slowly, the evacuation and subsequent rescue operations will be carried out with a greater chance of success, and the damage can be mitigated to a greater extent. It is true that the energy crisis is like a wave that complicates the emergency protocol, whilst at the same time accelerating the sinking. But at last the orchestra has stopped playing and has set to work to assist with the evacuation and rescue. And that benefits the attitude and willingness of the rest of the passengers in the face of the crisis. For the music to keep playing and for the crew (political and economic) to talk to us of a mere slowdown not only solves nothing but makes us far more vulnerable to the shipwreck.
How distant now seems the day we set sail on this luxurious maiden voyage. And how reckless were the words of the captain, Edward John Smith: «»I can't imagine anything sinking modern ships; modern shipbuilding is far more advanced than that.'. Or those of the company’s president, J. Bruce Ismay, who was travelling on board and refused to slow down in order to complete the crossing in record time. They were just as reckless as we have been, taking advantage of an absurdly low price to mortgage our lives and live on credit in a first-class cabin with an orchestra included. An orchestra that has now stopped playing.
We must not view the lifeboats as a traumatic reminder of what we have long since left behind, but rather as a unique opportunity to learn from our mistakes and our arrogance. At the same time, they mark the start of a new voyage towards a world full of opportunities, albeit one that is currently marked by hardship and devoid of music.