This is what Einstein would have called “A Thought Experiment.” In figuring out relativity, Einstein would imagine a premise, usually involving trains moving close to the speed of light, and then he would explore the mathematical implications of this premise. He was able to unlock the secrets of the universe. We won’t be quite so ambitious.
The premise of my Thought Experiment should be relatively familiar to anyone who goes to the movies occasionally as it is based on the plot of the most popular movie released so far this year. An alien warlord known as Thanos the Mad Titan has decided that he can save the Universe and make life better for everyone by making one half of all beings in the universe, selected at random, disappear. He reasons that half the consumers competing for the finite amount of resources available will result in a universe of plenty rather than scarcity and poverty.
Many people have already written and debated the idea that with certain rates of population growth, this halving of the consumer base would serve only to put off the inevitable scarcity by a few generations, but that is not the aspect of the problem that I want to examine. As a person whose professional career has been in loan accounting software, it occurs to me that Thanos knows nothing about consumer lending or capital and has no understanding of the fact that the consumer himself is a vital resource in our complex economic system. The rapid growth of the economy in western Europe in the century after the Black Death would tend to support Thanos’ thesis, but at that point in our history, we did not have the complex capital and lending-based economy that we have today.
So, let’s take our Thought Experiment forward and see what the effects are of having half the people in the world suddenly disappear. I will leave the effects that occur on other planets with different economic systems to extra-terrestrial bloggers.
Thanos snaps and half of the people are gone. Aside from Spiderman, Black Panther, Doctor Strange and many others, half of all the normal guys are gone too. In my house (rolling dice) I’m gone, my wife is gone, my three-year-old is gone, and my ten-year-old and eight-year-old are left to fend for themselves. Way to go Thanos, you have certainly made life better for everyone concerned.
Random chance selected badly for my family and some may not be so extreme, but this scenario will occur in many cases. Also, consider that the immediate effect will kill many more than half the people in the world as half the cars on the freeways go out of control at the same time. One quarter of all airliners, which have two pilots, will suddenly find that they have no pilots, while half of the planes will lose one of their pilots and the last quarter will still have both pilots, though half of their passengers will be missing. In any case, a whole lot of jets will be falling from the sky at the same time.
Now that we have this for context, let’s look at the effect on lending companies and lending markets. As is often the case when we are looking at the collectability of loans, there are potential differences that depend on if the loan is secured or unsecured. So, in our example, let us assume that a house was owned and that a mortgage existed on that house. Let us also assume that there was a credit card with a balance of several tens of thousands of dollars, as that is common for many Americans today. We will also look at this from the point of view of both the borrower and the lender.
From the lender’s point of view, for both the secured and unsecured loan, we can imagine that the lender is a conventional bank. The owners of the bank are individual shareholders, and half of them have gone, evaporated in the snap. Stock shares are a willable asset, so someone still owns the shares. In effect, the disappearance of half of the bank’s stock investors has no immediate effect on the loan. The money is still owed to the bank, and the bank is still owned by shareholders. But the situation for the loans is slightly different.
For secured loans, held by individuals, half of those individuals are now gone, and the loans will be in default. The banks will be able to take possession of the collateral. For those loans held by couples, in 25% of cases, there is no change. In 25% of cases both parties to the loan are gone, and the bank will take possession of the collateral. In 50% of the cases, one of the parties to the loan is gone and the other, depending upon the relative income generating capacity of the members of this couple, may or may not be able to be able to pay the debt.
This would probably be a good time to note that no one will be benefiting from life insurance payments. When half of the people in the world die instantly, the first thing any survivors who work at any insurance company will do is yank all of the phone chords out of the wall. No one who works for any of those companies will bother coming into work again. Don’t expect the insurance companies to file bankruptcy. They know they do not have the assets to begin to pay any claims, so anyone with the power to do so will be immediately take any liquid assets of those companies and get out of Dodge.
So, if we assume that in the cases of the couples where one member disappeared, about half of those will be able to keep paying and half will not. If we further assume that half of the secured loans have been made to couples, then we are basically left with half of all secure loans immediately defaulting upon their next payment. Repossession by the bank is ultimately not a viable option because it would mean that roughly 40% of all real-estate (assuming 80% of all real estate is mortgaged and 20% is paid off; the stats are that 21% to 35% is paid off depending on the age group of the owners) is now bank owned. So, with so many properties bank owned, we have the crash of 2008 multiplied by a factor of 15 (the foreclosure rate in 2008 was 2.8% of all homes). So basically, bank owned properties are worth nothing, and consequently, if anyone who is still alive wants to sell their property, those aren’t worth anything either. Incidentally, no one is going to be paying any property taxes if their property has no monetary value, so in a time of crisis, when government resources are stretched to the limit, the tax base will fall out from under them.
And now the credit cards. One half of all unsecured loans just defaulted, and there is really no one responsible for paying them. Banks have always found it to be difficult at best to collect on unsecured debt when the sole borrower has shuffled off the mortal coil, and with everybody left in a time of crisis and panic, there is not much point in even trying. With credit card debt at a 50% default rate, and real estate being worthless, and we have not even gone into the effect of having the same number of houses and half the people to live in them, the snap is clearly going to be followed in short order by the complete collapse of all banking and financial systems. As the dominoes fall, economic markets topple, currencies lose value, commerce grinds to a halt, and governments collapse.
Thanos thought he was giving us a utopia of plenty by leaving all of the resources and taking away half the consumers, but we have evolved into an economy where less then one percent of the population is responsible for growing all of our food. We are dependent on trade, commerce, and distribution to get food to the other 99% of the people, and with those wheels grinding to a halt, we are going to have to regress our economy backwards by 400 years quickly in order to avoid starvation. The farmers are dependent upon technology to produce so much with so few people, and that technology is dependent upon a complex economic infrastructure that has completely fallen apart. The survivors will be those who adapt, going back to farming, as only those people will survive when the stored up canned goods run out in the cities, and 90% of those who survived the snap starve over the following decade.
Instead of Thanos’ utopia of plenty, we are left with a new dark age. We would be lucky if the people controlling the world’s weapons of war and nuclear arsenals did not use them in a panicked attempt to gather all of the remaining fuel and food resources under their control. By the year 2100, the survivors scrape out a meager existence in a post-apocalyptic wasteland. By 2200 the situation has stabilized. The population and economy of the world looks much like it did in the year 600 AD, shortly after the fall of the Roman Empire.
Way to go Thanos! You really thought this whole thing through. Our only hope is that the remaining Avengers can find a way to undo what you have done. Personally, I think Dr. Strange did something to the Time Stone before he gave it to Thanos, and that he somehow controlled the random chance associated with the snap. We saw five of the six original Avengers all survived the snap, and the sixth was not in the film, so he may or may not be alive. The odds of five out of five of those original Avengers all surviving is only 1 in 32 (just 3%), so I believe that Steven Strange is really pulling the strings. He could have faked his own disintegration. In just under a year, we will see how they save us from this “Grand Utopia” that Thanos has brought.
AVENGERS ASSEMBLE!
