August 10, 2011
Anyone who worked in financial markets will know that — at its most base — the “market” is in fact only a coked up, whoring 28-year-old from Basildon on hyper-wages, with a Porsche and a Chelsea season ticket.
This is hardly the type of far-sighted leader that we should be depending on, nor the opinion we should be worried about. Has he become the arbiter of economic policy in the early 21st Century? Is this where we have got to? The young lad in London who is “shorting” the European bond market mightn’t easily find Florence on a map and his geopolitical interests might not go further than the price of a footballer’s transfer fees in the closed season and who won ‘The X Factor’.
When the papers tell us that the “market” is nervous, or jittery or whatever, all this says is that Brett from Basildon is unable to figure out what is happening. Who cares? Yet in response to his actions over the past few days, the ECB is buying Italian and Spanish bonds and in so doing creating a market for him to bet against. This emboldens him.
We are seeing a battle for power between the interests of the banks and the interests of the people. For years, the proponents of free capital movements argued that the markets were disciplining government and that in order to safeguard people’s money the financial markets should be allowed to do what they wanted. As a result, the banks have become so powerful that they know they can push governments around and if they fail, they will be bailed out. So it is a one-way bet with other people’s money.
In banks and big financial outfits, there are obviously many variants of Brett from Basildon — there are those who are well-educated and those who have a few more contacts in high places. However, if they were properly regulated, the world economy would not suffer.
The big lie is that an overly powerful financial market populated by greedy people is an essential ingredient to capitalism or to democracy or to creating a civilised world for people to live in. It was none other than Hitler who coined the phrase “the big lie” as a propaganda technique when he described “a lie so colossal” that no one would believe that someone “could have the impudence to distort the truth so infamously”.
The big lie is that the world needs trading floors in large investment banks and the like. It does not. In fact, if you examine the period when banks were policed properly and regulated from 1945 to the mid-1980s, there were hardly any financial crises. However, since the great deregulation of banks and capital there have been dozens of crises. Deregulated banking and the financial casino makes the world more volatile not less volatile. And yet we are told, by intelligent people, that the free movement of capital makes the world more stable. This is nonsense.
Don’t get me wrong, “normal” banking is necessary; the financial casino is not. The financial casino with money sluicing around the globe at its behest, giving the thumbs up or thumbs down to governments and companies, is making the world more dangerous. It should be policed.
The way forward is to keep the banking part and shut down — or at least reduce dramatically — the power of the casino.
By banking we mean institutions, which are able to keep people’s savings safe and use these savings to provide credit for others who want to spend it or invest it. The banker is entitled to make a small profit on the difference between what he gives out in interest to the saver and what he charges to the borrower. The role of the banker, therefore, should be to assess risk. If he can’t assess risk, he should be fired and the job given to the next guy. If the bank goes under, then so be it.
Think about what banking depends on: unlike other complex industries, like the car industry, banking depends on just one commodity, legal tender. We, the people — in our name — issue this commodity. We control the raw material of banking. And in contrast to other industries like the car industry, banking doesn’t depend on ever more sophisticated technologies or better scientists to create a better product.
Thus, all that banking requires is the human component. It calls for judgment; it is more of an art than a science, which is why the great bankers of the past were the ones with the best personal relations, the ones who could assess risk and not take such big gambles and obviously the ones who protect wealth first, rather than squandered it. Many of the finest bankers were Italian Renaissance men, gifted in arts and culture. Therefore, good banking comes down to good people taking in some people’s money for safe-keeping and using that money to finance investments of others who want to build new companies or seek out new investments. It really isn’t that complex.
To the extent that there are innovations in banking, these innovations, like innovations in any industry, should make money safer. But in many cases innovations in recent finance have made money less safe. Think about normal engineering. In, let’s say, aeronautical engineering, innovation makes planes safer. In financial engineering, the engineering — such as subprime mortgages — makes money more risky, not more safe. The finance industry is the only industry where so-called “engineers” make the basic product less safe, not more safe.
Now think of a world that is in the palm of such people. Will it be a stable place? Hardly. Reading the ‘Financial Times’, we are told that the reason the markets are panicky is that there is no leadership in the world.
The new narrative is that unless democratic politicians want to be kicked around by unelected, self-appointed leaders in the financial markets, they will have to show leadership. But hold on, only a few years ago, the narrative of global finance was that ambitious politicians were the problem and by showing leadership ambitious politicians were in danger of spending citizens’ money carelessly.
How can the financial markets now complain there is not enough “leadership” when the entire raison d’ÃƒÂªtre of global financial markets was to temper politicians’ ambitions and thus undermine that democratic political leadership in the first place?
At the end of this crisis, the captains of the universe in the major banks have to be brought down to earth, just as Roosevelt did to the bankers in the 1930s. Economies will recover and the banking hegemony will be regarded as an anachronistic episode of history. Otherwise the chaos will continue.