Headline Rant
For a variety of reasons I haven’t had time to write about the news for a day or so. Suffice to say that there was nothing of importance to comment on – except, maybe, for retail sales which remain on a growth path. Instead allow me to rant about a couple of stories out there in the financial media.
The first is the story in the Financial Times about proposed derivative regulation here in the US. The sub-title for the story reads: “Banks claim provision in US regulation would rock markets”. Presumably this is supposed to be a bad thing. After all the markets being rocked is always related to us as a negative.
But maybe, just maybe, we shouldn’t give a damn. Maybe those markets need to be rocked. Maybe those markets serve no purpose. Maybe society can get along very well without those derivatives.
The point is that most derivative activity nowadays serves no purpose other than to pad bank trading incomes. Yes, basic derivatives are worthy. They help businesses and farmers hedge against product price movements. That is the time honored value for derivatives. But banks indulge in derivative activity far beyond that basic level. They ‘innovate’ and create derivatives that have no underlying value at all. They gamble. And when the house of cards collapses they present us with the bill as if their importance is self evident.
Well it isn’t.
At least as they are currently constructed.
For a bank to be worthy of social protection it has to serve socially acceptable purposes. Managing the payments system is one. Channelling credit into productive assets is another. Gambling for their own account is clearly not such a socially productive purpose.
Lifting the protection of derivative gambling activities may disrupt the market, but that disruption is a sensible and worthwhile cost if we then rid ourselves of the downside costs of supporting and subsidizing the gamblers who infest banking.
So: who cares what the big banks say? Their interests and ours are diametrically opposed.
A second headline that irked me this weekend was this absurdity in MarketWatch.com: “The War on Capitalism”.
This gem was a story about how European reaction to market movements was an attack on capitalism.
Ummm.
Maybe the market movement was an attack on Europe?
Somehow financial writers fall into the intellectual trap of assuming that any action to limit or mitigate market activity is an attack on capitalism. As if capitalism was a natural phenomenon and anything to restrict it was artificial.
Sorry.
No.
Capitalism is no more natural than any other human arrangement. It exists as a device of our creation. It is not an artifact of nature.
Moreover the violence that capitalism can wreak on the calm of everyday life is enormous. Witness the massive human cost of our latest crisis, the causes of which sit firmly in the unrestricted economic domain known as capitalism. We never read of the ‘attack on society by capitalism’, but such a headline would have as much legitimacy as the absurdity in MarketWatch.
Capitalism is a device we use to create wealth. Untended it has extremely bad social consequences: monopolies, vast concentrations of wealth, and a destabilizing effect on democracy. None of these are beneficial. All impose vast costs of society. So society fights back to impose a balance. We restrict excessive wealth o eliminate legislative distortions; we limit the free abuse of our environment; we prohibit anti-social activities; and we spread the wealth in order to enforce social calm. This balance was the essence of Eisenhower style Republicanism in the immediate post war era. It was replaced by Reaganism, which meant that unfettered capitalism could launch attacks with abandon on our social fabric.
One such attack was the self-serving profit seeking of the banking sector over the past two decades. The banks syphoned off wealth for themselves and added no value in return. Yet they expected a bail out. The capitalists at the helm of those banks are still safely ensconced in their lavish lifestyles, while over 8.5 million Americans are out of work. If that is not an attack, I don’t know what is.
That a headline writer can point to an effort to rein in the rampant damage being done by unfettered capitalism as ‘an attack’, and mean that as a negative statement, is testimony to the warped mindset prevalent in the media.
We are the agents of capitalism. We are also the agents of government. We, the people, reside in our own domain. We legislate, we control, we own, and we act on capitalism and government equally. Neither is a naturally occurring phenomenon. It is not possible to ‘attack’ capitalism because it is artificial. It can be limited. It can be managed. It can be restricted within borders of our setting. It is ours to play with. We are not the puppets of capitalism. Rather it is ours to organize and manage.
So placing a limit on capitalism is not an attack, but is simply a changing of the acceptable boundaries. It is an attempt to re-establish the balance between the benefits of capitalism and the costs it imposes. Only an unbalanced zealot would se such a move as an ‘attack’.
Then again I wouldn’t expect a headline writer paid by Rupert Murdoch to have a clue about the economy.
One last thing:
Is it just me or is it really annoying that the idiots who sank the economy and plunged us all into a sea of red ink, and now the very folks who are warning us all of the consequences of that red ink?
I would feel a whole lot better about taking the credit markets seriously if they were now inhabited by new crew of people. Not the self aggrandizing fools who built the foundations of their banks on the sands of trading desk, deal dominated, gambling. These self-serving and self-declared ‘experts are now the people lecturing governments everywhere about the folly of debt. They warn in grave tones of the impending ‘downgrades’ of debt ratings and the need for austerity.
Austerity, that is for us.
None of them seem to suffer bouts of ‘needed’ austerity. Not judging by those bonus payouts at least.
If every banker involved in creating the crisis had been fired and forced into personal bankruptcy, I would take the advice of those left much more seriously. Since the bankers seem all to have survived in ruddy health I think we are entitled to look at them with a certain skepticism.
Who are they kidding?
Not me, that’s for sure.
