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Those who favour economic reform are not, by definition, Communist

October 5th, 2008

The Observer’s business editor Ruth Sunderland today points out that those who dare to suggest that something was rotten with the status quo ante in banking and finance are, in some quarters, being branded as Marxists who are seeking to “bring down capitalism” (read her column or see below).

This is playground bully sort of stuff. I can assure you that in my own (and indeed in Ruth’s) case, nothing could be further from the truth. All we want is to ensure that the capitalism that emerges once the dust settles on the current crisis is more ethical and fairer, and that the financial sectors remember what it’s there for – to help their clients, not themselves.

Most of the attacks that Ruth alludes to are coming from people in Wall Street and the City (and some of their hangers on in leading professional services firms and in politics) who simply cannot bear to see the system that has served them so well for the past couple of decades — often at the expense of their clients, voters, and the transparency of markets — come crashing down.

Obviously, such people have a vested interest in pushing for maximum taxpayer generosity towards collapsed financial institutions. Persuading governments to come to the banks’ aid is their only hope of seeing a return to bad old days, in which investment bankers and hedge fund managers – some of whom did genuinely regard themselves as “masters of the universe”  pre-crisis – were able to behave in fairly atrocious ways, which included rigging entire markets, defrauding their clients with alacrity, and other highly questionable if not criminal activities

Of course that isn’t going to happen, or at least one hopes not. Anyone with half a brain can see that capitalism, as it existed up until the current crisis became apparent in August 2007, had become  damaged beyond repair. And that the special pleading of those who destroyed the previous system should not be listened to.

As the Nobel prize-winning economist Joseph Stiglitz recently argued in an interview with the Huffington Post, it is time capitalism was reclaimed for the people and for non-financial businesses.

The global economic and financial system is now going to have to be reconstructed from the bottom up. As they go about this, the politicians and regulators will have to be wary of Greeks bearing gifts — they must be very careful not to give any credence to the very bankers and delusional economists who led us to the brink of abyss through their venality, stupidity, recklessness and greed.

The notion that the spivs, speculators and charlatans of Wall Street and the City should be given any say in the creation of capitalism 2.0 sends a chill down my spine.

Here is Ruth’s article:

That isn’t isn’t capitalism, it’s just a big con

I’ve been accused of trying to bring down capitalism after my column last week about the moral bankruptcy behind the credit crunch. Calm down guys, I don’t need to – you’re doing a great job yourselves.

This is not about wanting to wipe out capitalism, which, for all its drawbacks, I believe is the best way we have found so far of delivering material prosperity. This is about wanting to reclaim it. Markets are not amoral, ungovernable entities. They depend entirely on integrity: in simple terms, if people don’t keep the bargains they make, the system screws up.

At the heart of the credit crunch is a moral breakdown, the obliteration of savers’ trust in banks, and in banks’ trust of each other. One of the meanings of the word ‘credit’ is the quality of being believable or trustworthy, and that is exactly what this credit crunch is: a crisis of trust and belief.

No less a free marketeer than the former Federal Reserve chairman, Alan Greenspan, pointed out in his book The Age of Turbulence that there is an inevitable tension at the heart of capitalism, because its dynamic of unforgiving competition clashes with the natural human desire for stability and security.

Managing this trade-off is always going to be hard, and different countries will try to strike their own balance, according to their cultural values. Competition can be a positive force for weeding out bad firms, for better customer service and for innovation – so long as it is fair. But what happened in parts of the financial system was not fair competition, it was corner-cutting and unethical practice. Bad loans were dumped in with the good, mortgages were sold in the knowledge the borrower probably couldn’t repay. That’s not capitalism, it’s cheating.

Both Wall Street wizards and ordinary people came to believe in an inverted reality. The apparent profits from synthetic financial instruments were treated as real; the poor American borrowers at the end of the product chain had at best a ghostly existence. The markets’ imperatives – Merge! Cut costs! Boost earnings per share! – seemed concrete, while people who lost their jobs were just numbers on a press release. Individuals thought house-price gains were real, but their credit-card debt merely notional. That’s not capitalism, it’s delusion.

The financial system was hijacked and subverted; it happened because a philosophy of economic liberalism spawned complacent oversight and sheer greed. And that’s not capitalism, it’s madness.

Short URL: http://www.ianfraser.org/?p=652

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