The crew in <i>Star Trek</i> were able to escape all kinds of trouble, even financial, by being beamed up to the Enterprise.
The crew in <i>Star Trek</i> were able to escape all kinds of trouble, even financial, by being beamed up to the Enterprise.

Beam me up from all this financial chaos, Scotty



On the starship Enterprise, which readers may be familiar with from the television series Star Trek, crew members used transporters to beam themselves from one spot to another, up to 40,000km away. The individuals in question would seemingly dematerialise on the spot and rematerialise a few seconds later, provided there were no rocks, solar flares or extremely powerful alien telepathy blocking their way.

"Trekkies" could transport only by first applying "Heisenberg compensators" to overcome the uncertainty over just where their personal particles were. The compensators were named after physicist Werner Heisenberg, who in 1927 developed what he called "the uncertainty principle". In a nutshell, Heisenberg postulated that it was impossible to know the true position any particle. It's complicated, but essentially all matter is energy moving in a certain pattern. To establish a definite position would require that the energy be still and therefore cease to exist.

All we can do, therefore, is approximate where things are and observe where they have been. In the process of observing, we throw light on things, figuratively as well as literally, which affects their position. In quantum physics, however, this means that observing an object can influence where it has been. This has led some to conclude that our actions can directly influence the past. History is, after all, written by the victors, and so the outcome of events affects the past as expressed in the present.

Similarly, it has become commonplace to blame the current financial crisis on bankers, regulators and other experts who failed to foresee that the massive build-up of subprime mortgage-backed securities and other credit derivatives posed a grave threat to the global financial system. On the contrary, the experts did foresee the problems we are facing and foretold them often and vociferously. There's no telling who said so first, but the first instance that comes to my mind was early last year, more than six months before anyone had ever heard of a subprime crisis. I was at a conference where the executive vice president of the Bank of China, Zhu Min, wondered out loud about the risks posed by the rapidly expanding universe of credit derivatives, which at that point amounted to a mere US$27 trillion (Dh99 trillion). It wasn't just the derivatives we needed to be watching out for, according to Mr Zhu. "Over-liquidity is killing us," he said.

Focusing on credit derivatives as culprits is ignoring the conditions that fostered their proliferation. The derivatives were a by-product of excessive liquidity, according to economists and central bankers such as Jean-Claude Trichet. The result was a "mis-pricing of risk". Even people with bad credit could get cheap loans - the Philippines, Iraq, ex-convicts with no job. "There could be a re-appreciation of risks," Mr Trichet warned last year. "It could come smoothly or in a disorderly manner."

Just a few months later, in June, Tharman Shanmugaratnam, a former central banker whom Singapore later that year named its minister of finance, raised the dangers of the liquidity bubble. "We can't really tell how this unwinding is going to play out," he said. But trouble was undoubtedly ahead, he added. What seemed frighteningly obvious even then was that while investors seemed to be judging less creditworthy borrowers to be lower risks, they were by implication judging the world's least risky borrower, the US, to be less creditworthy.

There was, after all, no shortage of economists warning that the US was the weakest link in the global economy. The Morgan Stanley economist Stephen Roach warned for years that the twin deficits of the US could not last forever, and the whole world might bear the consequences. "We're going to have to come to grips with the realities of the US economy. We have huge current account deficits and high debt loads," he warned in Jan 2006. "We could be in for a rude awakening."

Even that was old news. In late 2004, the New York University economics professor Nouriel Roubini and Brad Setser, now an economist at the Council on Foreign Relations in New York, wrote a paper entitled "The US as a Net Debtor: The Sustainability of the US External Imbalances". Their diagnosis: the imbalances were not sustainable. What was doomed, they said, was the so-called Bretton Woods Two system, under which Asia and the Gulf lent money at low rates to Americans to buy their products and buy homes - money which was in turn re-lent and invested into emerging markets around the world. But they weren't the first to say so. In 2003, a financial analyst named Richard Duncan published a book called The Dollar Crisis. The series of financial crises up to then - the Asian financial crisis, the Russian default, the LTCM debacle - were all symptoms of America's unsustainable deficits, Mr Duncan argued.

Yet, despite the warnings, here we are. No amount of Heisenberg compensation can fix our position. No amount of finger pointing can locate the blame. It is everywhere and nowhere: our governments, our regulators, our banks, our fund managers, we did nothing to forestall the collapse. Beam me up, Scotty. warnold@thenational.ae

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Our legal columnist

Name: Yousef Al Bahar

Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994

Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers

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Since then the group has grown exponentially around the world and is officially affiliated with the United Nations. The organisation also counts Queen Mathilde of Belgium among its ranks.

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Install an air filter in your home.

Close your windows and turn on the AC.

Shower or bath after being outside.

Wear a face mask.

Stay indoors when conditions are particularly poor.

If driving, turn your engine off when stationary.

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