November 20, 2018

The End of the Paper Economy

“WITH AMERICA’S POLITICAL ORDER settling into a seemingly permanent state of crisis-on-autopilot, it is just a matter of time before the paper economy follows suit. Last week’s dramatic Wall Street selloffs saw the Dow Jones roster shed around 4 percent of its collective value. Tech stocks, always at the frothiest tip of investment bubbles, took an especially pronounced beating. Jeff Bezos, the Amazon impresario, lost (as of last Wednesday) a cool $9.1 billion in net worth, more than triple Mark Zuckerberg’s bracing $2.5 billion market bath.

But just as reliably as investors clamor to a stampede of wealth destruction, market savants and the shills of the business press adjourn to their Bloomberg terminals and CNBC podiums to issue reassuring directives about the soundness of the market’s overall direction, bumpy selloffs and localized panics notwithstanding. When a similar downturn wracked Wall Street in February, Bloomberg editor Robert Burgess insisted that all was well, so far as underlying fundamentals and such were concerned: corporate profits were outperforming expectations, the WTO had revised its global growth forecasts upward, and traditional shelters against panic such as Treasury bonds were not seeing appreciable gains.

All of which proved true enough—until it didn’t. The October market swoon has, in fact, already seen boosts in Treasuries and gold prices, suggesting that this bout of jitters might have some basis in broader economic conditions. More worrying still is the massive overleveraging of the corporate economy, which according to a recent report by Burgess’s employer, has seen more than $1 trillion in investment money careening toward junk-bond status. Indeed, the main reason all this merger-driven debt hasn’t received a forthright junk rating is due to the reliably corrupt practices of the industry-captive debt-rating racket. In their survey of the fifty largest mergers-and-acquisition deals of the past year, Bloomberg’s Molly Smith and Christopher Cannon noted that “by one key measure, more than half of the acquiring companies pushed their leverage to levels typical of junk-rated peers. But those companies . . . have been allowed to maintain investment-grade ratings by Moody’s Investors Service and S&P Global Ratings.””

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