Americans are so good at coining really excellent phrases and here’s a cracker, perfectly capturing Brown’s strategy for dealing with the financial crisis ...
Extend and Pretend
... meaning, to push a problem out into the future, close your eyes to the inevitable, and kid yourself everything will be all right.
This being a financial blog, and writing as an old deal-structurer, there’s extra resonance to this: one of the most venerable tools of the trade is known as Blend & Extend. This is where the client has a short-term problem with a deal. As a short-term fix, you sell them a swap or something that extends further forward in time than the original deal, and which is in-the-money in the near term (enabling them to ‘blend’, or dilute their immediate difficulties) but at the cost of being out-of-the-money in a later period. Difference being, that with proper mark-to-market accounting there’s not much chance of pretence about what’s going on.
Hat-tip for this to Bryan Marsal of the restructuring firm Alvarez & Marsal, currently unwinding Lehman’s (good luck mate!). He was being interviewed on CNBC here – why don’t we have TV like that, BTW ? The neologism arises in the context of bankers doing short-termist stuff like Gordon: and of course mark-to-market accounting has conveniently been suspended just now … so pretend away gentlemen !
For a government with an AAA rating, almost any problem can be postponed. But, like Nixon's deal for quitting IndoChina leaving South Vietnam apparently intact, Brown's QE is merely delaying the day of reckoning.
Extend and Pretend. Love it.