It must be serious. All of a sudden, London’s leading cheerleader for unregulated capitalism has put down its pom-poms and is adopting a markedly different tone. And like a tipsy ingenue, it has said too much!
Financial services are in ruins. Perhaps half of all hedge funds will go out of business. Without government aid, so would many banks. Britain has suffered its first bank-run since Disraeli was prime minister in the 1870s. America has stumbled from one rescue to the next. The Wall Street grandees have been humbled. Hundreds of thousands of people in financial services will lose their jobs; many millions of their clients have lost their savings.
For a quarter of a century finance basked in a golden age. Financial globalisation spread capital more widely, markets evolved, businesses were able to finance new ventures and ordinary people had unprecedented access to borrowing and foreign exchange. Modern finance improved countless lives.
Something went awry. Through insurance and saving, financial services are supposed to offer shelter from life’s reverses. Instead, financiers grew rich even as their industry put everyone’s prosperity in danger. Financial services are supposed to bring together borrowers and savers. But as lending markets have retreated, borrowers have been stranded without credit and savers have seen their pensions and investments melt away. Financial markets are supposed to be a machine for amassing capital and determining who gets to use it and for what. How could they have been so wrong?
Finance is increasingly fragile. Barry Eichengreen of the University of California at Berkeley and Michael Bordo of Rutgers University identify 139 financial crises between 1973 and 1997 (of which 44 took place in high-income countries), compared with a total of only 38 between 1945 and 1971. Crises are twice as common as they were before 1914, the authors conclude.
The paradox is that financial markets can function again only if this lesson is partly forgotten.
Let’s see that again, because I don’t believe I just read it:
The paradox is that financial markets can function again only if [we ignore their tendency to bring serial disaster].
Paradox? No. The above would qualify as a paradox only if it held up two opposing concepts. But it is widely known – and known best by the financial industry itself – that for best returns, financial markets absolutely depend on the public turning the blindest eye to the market’s workings. And the public and its government has been so exquisitely, tragically blind.
Our conflagration follows thirty years of free-market fundamentalist deregulatiory legislation paid for by business interests who bent western government and the public over a barrel while placing sacks over our heads. This is hardly circumstantial evidence. There is no paradox.
Laissez-faire always depended on mass deception. Now, we are told that this isn’t enough – that we must deny even our deja vu, that these serial molestations by the unregulated market are to be buried, denied, and never spoken of again.
That’ll work fine for Catholics, but what about everybody else?