In the column I wrote years ago for the San Francisco Examiner, I once conjured up "Monsters from the Id," a reference to the 1950s sci-fi classic Forbidden Planet.  The film, based on Shakespeare's Tempest, delved into the mysterious downfall of Krell civilization on the planet Altair 4.   The Krell had reached the very pinnacle of technology with the creation of a reactor that could materialize their every need. Craving a magnum of 1961 Lynch Bages to wash down that steak au poivre? No problem. Just picture a bottle of the stuff sitting on your dinner table, and – presto – there it was.

We've learned to do a trick like that here on Earth, and it has enabled us to create trillions of credit dollars out of thin air. Need $26 billion to buy an international hotel chain? No problem -- your investment banker can summon it for you electronically with the speed of a genie. Lusting after that luxurious office building on Park Avenue?  Check your bank account – a $500 million stake will be deposited within the hour.  To say that the financial alchemists have mastered this game would be an understatement. In fact, they materialized nearly a trillion-and-a-half dollars for private equity deals and LBOs in the last twelve months alone.

Some big lenders, TIAA-CREF among them, are growing skittish, and even Moody's has begun to sour on the orgy of funny-money buyouts. But given the irresistible incentives to consummate a deal, any deal, it's clear that nothing short of a financial crash is likely to slow the mania down. Think about it. If you could buy the Hilton hotel chain for little more than it would cost to have a dozen lawyers gin up the paperwork, wouldn't you jump on it?   That's what the Blackstone Group has done, using OPM to buy the Hilton chain for $26 billion – a 40% premium over the pre-deal share price. Controlling the company has its perks, too, since Hilton's new directors can now vote themselves a special dividend to cover their out-of-pocket costs for the acquisition. The bankers collect their fees; the lenders get to book, then securitize, gargantuan receivables; Friends of Blackstone get VIP suites and a free massages whenever they stay at a Hilton, and everyone's happy. Right?

And so were the Krell – until, that is, they started getting ripped limp from limb by some unknown force while they slept.   Turns out this race of super-evolved geniuses had failed to consider their own primitive subconscious – the vestigial, monstrous "id" of their dreams – in designing a machine capable of transforming mere thoughts into real things.   In the end, there were no survivors. They were murdered while they slept, never knowing what hit them.

Monsters from the Id.  Is the same fate about to overtake Wall Street's alchemists?

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-- Posted Sunday, 15 July 2007 | Digg This Article