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Modern economics

21st March 2014

By: Terry Mackenzie-hoy

  

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The other day, I was told that an international company with a local subsidiary had had a bit of a downturn and had lost about $14-billion in asset writedown, with a revenue loss of $3-billion.

It reminded me of companies like Northern Rock Bank (which lost £10-billion) and Enron (which lost $23-billion). It is such a wonderful way of putting numbers, using a billion – it desensitises the mind. A billion is equal to 1 000-million.

I once repeated the notion (that I had read elsewhere, not my idea) that the unit of beauty is a ‘Helen’, based on the fact that, if Helen of Troy was so beautiful that her face launched 1 000 ships, then a milli-Helen is one thousandth of a Helen, or the amount of beauty that would launch a single ship and, since no woman is as beautiful as Helen of Troy, the beauty of any woman would be expressed in milli-Helens.

I thus thought how one would quantify financial loss without referring to billions – to make the loss concept a bit more real. After all, a loss of $15-billion, compared with a loss of $16-billion seems pretty much the same but is, in fact, a $1 000-million difference, or enough to buy a significant number of corrupt South African politicians or 50 trips to outer space.

One must, I think, when coming up with a unit relating to loss, take into account the time span over which that loss has occurred. Losing a few billion over 20 years is not the same as losing it in a year. So, here is my proposal for a realistic measure of large financial loss: $1-million can just fit into a medium-sized microwave oven. One-billion dollars is thus the same sort of accommodation as 1 000 microwave ovens. Allowing for a loose packing density, 1 000 microwave ovens would fit into a rugby pitch between the touch line and the 20 m line. Thus, we can express the concept of $1-billion in rugby fields, the smallest unit being one-quarter of a rugby field.

Thus, Enron, which lost $23-billion, would have lost five-and-three-quarter rugby football field equivalents, or RUFFES, which we will shorten to ‘Ruffs’. It can be seen that the concept of a field of money vanishing overnight is thus more compelling than mere figures. How about the timescale? Here, surely, the fastest way to dispense with money is to burn it. I do not know how fast a dollar note will burn but I think you could probably incinerate on the braai a microwave-sized bundle of cash in about one hour. Remember, dollar notes do not burn so easily.

Thus, it will take about 1 000 hours to get rid of $1-bil- lion. We could think of a faster way of burning the bundles in a furnace (say in the furnaces of the Medupi power station. Well, not really, since we have to wait quite a while for that).

However, we are trying to be consistent here, so the braai fire will do. Thus, $1-billion will go up in smoke in 1 000 hours. Since the average braai lasts about five hours, we can say that the braai equivalent is 200 braais for $1-billion. Thus, in losing $23-billion, the equivalent is 5.75 Ruffs, which would take a minimum of 1 150 braais to dispose of. Hope you get that.

The thing that interests me, units aside, is: How in the world does a firm lose so much money? You and I, if you are not politically connected, bat along as best we can, playing real-life survivor without any hope of getting an immunity idol. The tribal councils, being banks, money lenders and mortgage vendors, do their best to get us into debt and then vote us off when we have difficulty in repaying. If the banks can take a knock from Enron, Northern Rock (and you can bet the money lost was borrowed) and just keep going, why can’t they give us a break? There must be a quarter of a Ruff reasons . . .

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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