Wilberne Persaud, Financial Gleaner Columnist

I am asked why Noah's Ark is not working; why world stock markets are not bubbling at news Uncle Sam firmly backstops the financial system in crisis. Complex problem, simple answer: Evaporated confidence and fear, and another issue we will mention a bit later.

Times like these force acknowledgment of some self evident truths about economics and economic actors, even if we do not acknowledge them all publicly for fear of spooking the market itself.

Consider an AIDS patient who releases his doctor from confidentiality because he wants to help.

He sees his affliction as a chance to make his erstwhile self-centred life meaningful to others.

Public awareness

He wants to help create public awareness and understanding of the disease.

He and his doctor appear at the arena and discuss the nature, transmission mechanisms and prognosis of the illness.

Open discussion will not, cannot, affect the outcome of the disease as it progresses in the patient. Not so for financial crisis because economic actors, unlike AIDS virus, have an unfixed mind of their own.

Their opinions, decisions and behaviour can be influenced by other people's opinions, gossip, fear, and a whole lot of other things.

This is why one eminent economist described investors' decision making choices as driven by 'animal spirits'. Geeks' mathematical models so far cannot capture this.

In a democracy, volition on the part of individuals, the huge freedom of choice that must be allowed, holds sway.

So you bet some public commentary differs from discussion behind closed doors.

Mind you, what you get is not whole cloth and absolute falsehood, but delivery errs on the side of gentleness.

So to answer why Noah's Ark is not working: first we need to consider the difference between the real economy and monetary or financial economy. We are facing crisis in both.

Will take time

The bailout - and that's what it is regardless of the exigencies of the political season describing it differently - cannot impact the real economy directly. Second, the bail out itself will take time to implement. The idea is to buy bad debt just as we did in Jamaica in 1997/98.

But who is to value that debt? This is itself part of the problem facing investors. They don't know the value of troubled derivatives Wall Street created. If the crisis management team opts for book value, filling the holes in finance houses' balance sheets with no shareholding or equity stake, bailout is the operative word.

Taxpayers underwrite full cost and private companies, through shareholders and executives, reap full benefits. Socialised loss, privatised profit makes the impact quicker. Credit markets could begin lifting the embargo faster.

This is not happening. Why? Why have Ireland, Germany, Greece, and now Iceland and by the time you read perhaps yet others, come out with statements guaranteeing private deposits in their banking systems?

The hurriedly assembled meeting in Nicolas Sarkozy's Paris, notwithstanding, Angela Merkel declared Germany would back those deposits.

If the public is spooked markets would collapse. But this has impact across Europe. Gordon Brown must respond in Britain and others shall follow. CARICOM is not that bad after all?

Asian markets stutter and Japanese banks begin tentatively to use their cold cash to buy cheap assets but in Hong Kong and Singapore markets express underlying fear.

Predictable

The scenario is predictable and has proven little different from any other meltdown of the well researched and known past. Unrestricted and unregulated capitalism will, as Adam Smith's invisible hand and unfettered greed play out, trample upon itself. Smith himself forewarned of this. Chinese Prime Minister Wen Jiabao reminded us last week in an interview that Smith was not only associated with the invisible hand, but also with morality.

Smith's Theory of Moral Sentiments pre-dated the Wealth of Nations, from which the ubiquitous 'invisible hand' metaphor comes.

Wen Jiabao suggested we reflect on the words of Marcus Aurelius taking the longer, more sober, nuanced view.

He could have said simply: Hey, let's be intelligent about this, forget ideology and other foolishness. But he did not.

One-sentence approach

His remarks, given China's considerable exposure, should offer comfort to spooked and fearful investors. Panic is the natural reaction, but it should be attenuated, dampened. These declarations by European leaders are basically a one-sentence approach to achieving this.

So back to answering the question why is Noah's Ark not working? The flood has not fully come down from the mountains and though the hull is caulked, though Warren Buffet has committed billions, it is not yet enough to get everyone aboard. Confidence has not yet dislodged panic.

The other issue is the real economy.

Shortly, in the United States, Thanksgiving Day sales will be on. The prognosis is bad. 750,000 jobs lost in the US this year with last month's number 159,000. Credit to triple A clients is still expensive when available. The real economy is in recession.

wilbe65@yahoo.com