Wednesday, November 30, 2011

We shouldn't listen to the markets who caused the crisis - time the markets were forced to listen to the majority

Chancellor George Osborne says his economic policy is aimed at maintaining market confidence – and even his political opponents debate on his terms of “what the markets want”. If “the markets” – an impersonal sounding euphemism for stock market traders, hedge funds and bank executives - could be trusted to make the right decisions, we wouldn’t be in this crisis.

They caused it by demanding deregulation, getting it from governments ideologically driven to “listen to the markets”; and using it to create fraudulent “assets” like collateral debt obligations (a name designed to hide the fact that they were many bad debts packaged together and dressed up as good ones), then selling them to others or buying them and treating them as assets.

Most of them were euphorically confident that this was unprecedented genius that couldn't go wrong and would lead to everlasting and ever accelerating economic growth - right up until the crash - and this wasn't the first time - most of "the markets" believe this every time, never learning from experience. The minority who questioned these practices were laughed at or accused of maliciously trying to destroy others' incomes

No government has made any serious attempt to re-regulate the banks or financial sector since. They’re still out of control and still driven by short term greed, irrational swings between euphoria and panic; and now a selfish determination that everyone else should pay for the hole in their accounts created when everyone realised that marvellous new “financial products” or “financial instruments” like CDOs were worthless frauds.

“The markets” have no idea what policies will benefit the majority in the long term and no interest in the effects on the majority, they only care about how much profit or loss they might make right now. Getting a vote of confidence from a market 'rally' is like getting praise from a drug addict for securing them another hit. It means nothing in terms of the long term, the real problems or the real economy.

That’s why they tell us that we’re supposedly all equally to blame, that “we’re all in it together” and that “market confidence must be maintained”. Bank chief executives continue to award themselves annual incomes of millions a year topped off with millions in bonuses while accusing nurses, teachers and doctors of a “sense of entitlement” for wanting to keep their jobs and pensions.

The solution is to stop listening to “the markets”, start repudiating the debts we supposedly owe them; and demand interest payments on the bail-outs, plus repayment of capital. Governments can loan directly to businesses rather than subsidising banks to do it through quantitative easing.

Keeping on giving in to the people who caused the problem is dangerous and brings no benefits.

The Spanish government agreed to the markets’ demand for austerity measures including sacking public sector employees to avoid having their credit rating cut, then private credit rating agencies cut Spain’s credit rating anyway, citing unemployment as one of the reasons. The private credit rating agencies have a conflict of interest too – as many of them receive payments from the creditors for reports on creditworthiness.

Allowing uncontrolled and unlimited greed is not good, it does not benefit everyone. It brought us the Great Depression and the current crisis, just as it brought the South Sea Island Bubble and Tulipomania in the 18th century long before there was any real government regulation or intervention in the economy , any significant number of people employed in the public sector (other than police, soldiers and tax collectors).

The only period of economic stability (at least for the developed world) was between the end of World War Two when the markets were put under stricter government regulation and the 1970s – when it ended due to fuel price rises caused by the 1973 Arab-Israeli war and the subsequent OPEC oil price rises on the one hand – and deregulation like British Prime Minister Edward Heath’s scrapping of controls on capital transfers to and from the UK.

The only way to stop one crisis keeeping on turning into another - from financial crisis to recession to euro zone crisis and on and on - is to stop listening to "the markets" and start telling them what government and society will tolerate them doing and what they'll be jailed for

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