I have heard about the end of civilisation/capitalism/etcetc every 5 years for last 20. Has not come true yet and doubt it will be the end this time.
Keep making enough predictions and eventually one will come true.
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"If the City won't put its house in order, politicians must"
It was a turning point in my life. The ex-grammar school boy trying to make his fortune in the City had just lost a chunk of his life savings because he had put himself on the wrong side of what is now called a 'trash and cash' operation or what in the 1970s we called a bear raid. I remember travelling home amazed at my lack of judgment, but reading in the evening paper that, whatever my haplessness, the company's employees were now losing their jobs. It was an incredible way to run a financial system or a company, a conviction that has never left me.
I'd only had a walk-on part in the demise of Birmingham Small Arms (maker of BSA motorcycles). All morning, the shares had been beset by rumours of the company's imminent collapse and I had been buying them for the 'bounce' - the 20 or 30 minutes when they temporarily recovered before falling again. But dashing out of the office for a sandwich, I had been ambushed - the shares were suspended while I was in the queue before I could sell them again. I was an unwilling holder of now valueless pieces of paper.
I knew virtually nothing about BSA, nor did anyone else buying or selling them that day. It was a casino chip, not a title of ownership that bestowed any responsibility to the company nor commitment to its prospects. Over the following weeks, I watched the Labour government and unions try to put BSA back together again. They never had a chance. The company, like so much of British industry, had been devastated by years of neglect, its transient owners interested only in the next dividend or chance to capitalise on short-term movements in the share price.
It has always been an uphill struggle convincing anybody that a growing part of the City is now a British problem rather than an asset. In many ways, it is akin to the unions in the 1970s - over-powerful, economically dysfunctional, but so rich it has become an important paymaster for all the political parties, so insulating it from political attack. To criticise is to risk the double whammy of being cast as 'anti-business' and cutting off vital campaign cash, a calculation made by Tony Blair and now by Gordon Brown.
But the events of the last six months are too awesome to be ignored. On Wednesday morning came yet more evidence of the City's dysfunctionality. HBOS, the country's largest mortgage lender, was shaken to its core by manufactured rumours that it was in dire trouble; over 30 minutes, the shares fell 17 per cent. Those trashing the company in a collusive syndicate will have pre-sold the shares (sometimes not the shares, but so-called contracts for difference, which are openly casino chips), aiming to cash in lower down when the rumours had panicked the markets. Hence 'trash and cash'.
In our interconnected world, what happens in the stock market rapidly hits the interbank markets, in which financial institutions trade money. The danger was that HBOS might not be able raise routine cash in the interbank market, so that the rumours would become self-fulfilling and bring HBOS down, with implications for the entire financial system. Small wonder the Bank of England and Financial Services Authority went into overdrive, along with HBOS, to deny the story. In the meantime, someone somewhere had made millions from the sting.
There has been a lot of tut-tutting, an investigation was announced that on past experience will achieve nothing, and excuses made about a few bad apples. It is phooey. What is happening is systemic, the predictable consequence of allowing the markets to become even more hyper and short term than they were 30 years ago. The City's much- vaunted 'innovation' boils down to little more than creating a market in a new class of financial asset for the lads to buy and sell. ([AtW's comment: that's what I was saying pretty much all the time)
One of the consequences is that banks deluded themselves into thinking they could lend more safely than before because now they could sell their loans to somebody else. For more than a decade, the system has pumped out credit, the banks growing their loans much faster than the rate of economic growth, so generating the credit and property price bubble. Dozens of great British companies have been taken over for no good reason, their short-term shareholders taking no more interest in their long-term prospects than I once did of BSA or anybody did of HBOS. And a few have made vast fortunes.
Now we all have a problem. In effect, we have witnessed a private-sector-led reflation based on huge levels of new credit. At best, that credit will stall; at worst, it will dry up. The best case implies an economic slowdown, the worst case a property and financial system meltdown. The financial system needs to be reconstituted from first foundations.
At present, change is being negotiated solely on the City's terms. The banks are beseeching the Bank of England to transform the rules about how they get cash when the Bank acts as lender of last resort. At present, they have to present gold-plated government bonds as collateral; they want to add risky private mortgages. In the circumstances of an imploding mortgage market, the Bank has no option but to be sympathetic, but if the taxpayer is going to run more risk, then there must be some quid pro quos.
The markets must be run less as casinos with financial assets the chips and the buyers and sellers able to hide their identity so easily. The practice of giving vast annual bonuses embeds greed and recklessness; it should be reined in. (AtW's comment: the bonuses per se are not the problem, the problem is not even that the people who got them did not earn them, but the problem is that these people turned stock market into a casino and gambled with money that don't belong to them) And if the property market is to be bailed out, we must rescue ordinary citizens as much as banks. Repossession should be much less brutal. The American government has created specialist banks which offer mortgage guarantees; we should establish similar institutions.
This agenda is off-limits for Mr Brown's Labour party, as wedded to City priorities as Ramsay MacDonald once was, or to Mr Cameron's Conservative party, largely financed by hedge funds. Even the Lib Dems, who have a great opportunity for conforming to their instincts if they have the chutzpah to seize it, are not independent of hedge fund paymasters. Today's lack of political criticism cannot last much longer - there is too much popular and even business demand for change. For the party capable of breaking the deadlock, the payback will be huge.
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I don't think most people understood the underlieing reasons for this developing crisis yet - when it happens (after big crash), then pressure for new laws will be inescapeable.Leave a comment:
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Doomed
http://www.independent.co.uk/news/bu...it-799494.html
The Western world is in an economic crisis similar in scale to the oil shock of 1973. What we are seeing is nothing less than the unravelling of neo-liberalism – the dominant economic and ideological model of the last 30 years.
The disintegration of Anglo-Saxon-inspired markets has come about largely because of the confluence of two tendencies of the "free market": speculation and monopoly capitalism. Contrary to received opinion, free markets – unless subject to civil regulation, asset distribution and persistent intervention – always tend to monopoly.
Real wage increases in the top 13 countries of the Organisation for Economic Cooperation and Development (OECD) have been below the rate of inflation since about 1970 – a situation compounded in Britain as the measure of inflation massively underestimates the real cost of living.
Thus wage earners – rather than asset owners – have faced a 35-year downward pressure on their standard of living. Indeed, the golden age for the salaried worker, as a share of GDP, was between 1945 and 1973 – and not this vaunted age of liberalisation.
Time to head for the economic bunkers. Happy Easter.
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