June 16th, 2012
Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk, believes that trust has been one of the main casualties of the global financial crisis. In a speech titled ‘The End of Trust’, given at the Sydney Writers’ Festival last month, Das posed the question “Can democracy and our social system survive the end of trust?”
He does not seem too optimistic, saying that the value of money is gradually being destroyed, savings are being expropriated to pay for the excesses of the boom years, as banks and borrowers, including governments, are being subsidised at savers’ expense. Even the political system is being undermined as democratically elected governments are being replaced with unelected technocratic governments.
He describes various forms of ‘financial repression’ and expropriation of savers’ assets by governments and central banks, and is particularly scathing about the stance of Charlie Bean, deputy governor of the Bank of England. He also describes how banks and financial institutions including Goldman Sachs have sought to rip off their less sophisticated clients.
He also mocks the antics of Goldman Sachs executives including Dan Sparks and Fabrice Tourre who after having been caught defrauding their clients, believes the best solution was to “clean up their language rather than their sales practices”.
“The loss of trust in the financial system is very damaging. A switch to these alternative currencies, precious metals, and non-financial investments undermines growth and economic activity because savings are locked in unproductive investments and are unavailable to circulate freely. …
“Trust between nations is being destroyed. Developed nations have chosen policies that devalue their currencies through a combination of low interest rates and increasing the supply of money through the printing presses. These actions erode the value of government bonds. China, Japan and Germany have invested their national savings, the savings of their people in these now devaluing securities. This too undermines global trust.
“Nations are manipulating the value of currencies to allow them to capture a greater share of global trade, boosting growth, their own growth. But one nation’s gain is another nation’s loss; a calculated policy to secure unfair trading advantages threatens tit for tat currency wars reminiscent of the 1930s. Beggar-thy-neighbour policies exacerbate international tensions…
Satyajit Das works in the area of financial derivatives and risk management. He is the author of several key reference works on derivatives and risk management include Swaps/Financial Derivatives Library – Third Edition (2005, John Wiley & Sons) and Credit Derivatives, CDOs and Structured Credit Products –Third Edition (2005, John Wiley & Sons).