[GJM] [From: Robert Searle] The gods of greed
robert searle
dharao4 at yahoo.co.uk
Thu Jun 26 12:32:31 MDT 2008
--- On Thu, 26/6/08, Guardian <noreply at guardian.co.uk> wrote:
> From: Guardian <noreply at guardian.co.uk>
> Subject: [From: Robert Searle] The gods of greed
> To: dharao4 at yahoo.co.uk
> Date: Thursday, 26 June, 2008, 11:08 AM
> Robert Searle spotted this on the guardian.co.uk site and
> thought you should see it.
>
> -------
> Note from Robert Searle:
>
> May be of interest. I recall meeting Larry Elliot in the
> Committee rooms of the Houses of Paarliament.
>
> R.S.
> -------
>
> To see this story with its related links on the
> guardian.co.uk site, go to
> http://www.guardian.co.uk/business/2008/jun/02/globaleconomy.globalrecession
>
> The gods of greed
> They promised economic stability, order and prosperity. But
> instead the world's bankers have delivered chaos, debt
> and uncertainty - and then blamed the feeble governments
> that surrendered control of the global economy to them. In
> the first of three extracts from their new book, Larry
> Elliott and Dan Atkinson explain how the reckless
> speculation of a super-rich elite has left us all the
> poorer
> Larry Elliott and Dan Atkinson
> Monday June 2 2008
> The Guardian
>
>
> March 2008 was no time to be a welfare scrounger in Gordon
> Brown's Britain. That month saw a much-trumpeted move,
> the latest of many since Labour came to power in 1997, to
> end the so-called "sick-note culture".
>
> On March 17, Dame Carol Black, the government's
> national director for health and work, declared that
> absence and worklessness related to sickness were costing
> the country £100bn a year, and it was announced
> that ministers were to look at replacing the doctor's
> sick note with a "fit note", detailing what
> people can do rather than what they cannot when they are on
> leave for health reasons. This was of a piece with the
> "tough love" approach of Brown and his
> predecessor to those on welfare benefits. It was all about
> reminding those who wanted to get their hands on public
> money that rights came with responsibilities.
>
> Four days later, the chief executives of Britain's five
> largest banking institutions - Barclays, HBOS, HSBC, Lloyds
> TSB and Royal Bank of Scotland - met the Bank of England.
> In the jargon of the City, they wanted governor Mervyn King
> to widen the types of collateral against which the Bank
> would lend to the clearing banks. In plain English, they
> wanted him to lend taxpayers' money against much
> flakier assets than would normally be considered
> acceptable.
>
> Why did they need this handout? Because banks themselves
> had stopped lending each other money. The collapse of the
> US housing market, and the complex financial instruments
> that had been spun off from it, had caused chaos in the
> money markets. The victims of last year's
> "subprime crisis" included two of the world's
> most respected banks, America's Bear Sterns and
> France's BNP, while the "credit crunch" that
> followed claimed Britain's Northern Rock. Those banks
> that escaped unharmed were sure of only one thing: with so
> many of their peers exposed to incalculable risks, there
> was more bad news to come.
>
> That fear seems amply justified. Speculation has left the
> global economy more vulnerable to a financial collapse than
> at any time since 1929. According to the supposedly
> sophisticated models used by market practitioners, a
> stock-market crash such as the one in 1929 was likely once
> in 10,000 years. They said the same, however, about the
> stock market crash of 1987, the collapse of the hedge fund
> Long Term Capital Management in 1998 and the subprime
> crisis. The obvious conclusion is that these models are
> flawed. The International Monetary Fund (IMF) recently
> described the crisis that erupted last August as "the
> largest financial shock since the Great Depression".
> George Soros, the billionaire speculator who knows a thing
> or two about financial upsets, says the world is facing the
> "most serious crisis of our lifetime".
>
> Fortunately for the banks, in Brown's Britain they are
> seen as a cut above the average benefits scrounger. A month
> after they visited King, the governor announced a
> £50bn "special liquidity scheme" to
> provide emergency loans to struggling institutions. It was
> a similar story across the Atlantic. Over the weekend of
> March 15 and 16, America's central bank, the Federal
> Reserve Board, launched a rescue for Bear Stearns, the
> country's fifth-largest investment bank. To smooth a
> takeover by JP Morgan Chase, the Fed assumed up to $30bn
> (£15bn) of Bear's more doubtful assets. Were
> this act of corporate welfare not sufficient, the Fed also
> announced that it was to provide emergency liquidity to the
> market. For good measure, it cut interest rates.
>
> What was most extraordinary about all of this was not the
> bailing-out of City and Wall Street types who had spent
> decades, like surly teenagers, insisting that they wanted
> only to be free from the stuffy, paternal state
> institutions to which they now turned for help. Rather it
> was the failure of those same institutions to insist on any
> quid pro quo. In the real world, when a wild-child son or
> daughter comes home, tail between their legs, their
> "boring" parents usually require them to clean up
> their act in return for financial support and use of their
> old bedroom. Not so in the world of banking and finance. In
> remarks to the press in March, the British treasury actually
> ruled out tougher controls.
>
> But then there is plenty of evidence that, in Britain as
> elsewhere, those in government could see little wrong with
> the system as it is. Democratically elected governments
> have, over the past three decades, willingly ceded control
> of the world economy to a new elite of freebooting
> super-rich free-market operatives and their colleagues in
> national and international institutions like the IMF, the
> World Bank and the World Trade Organisation. These New
> Olympians, who earn that title by their remoteness from
> everyday life and their lack of accountability, have gained
> this control on a prospectus every bit as false as much of
> the promotional material for the "exotic
> securities" of which they are so fond. The charge
> sheet is as follows:
>
> · They promised economic stability - and have
> delivered chaos and volatility.
>
> · They promised an economic order based on
> enterprise, thrift and personal effort - and have delivered
> one based on chronic indebtedness and wild speculation.
>
> · They promised a "transparent" future
> in which all costs and prices would be clearly laid out -
> and have delivered a world of bizarre, occult financial
> knowledge.
>
> · They promised a greatly expanded middle class
> of property- and share-owning individuals - and have
> unleashed havoc on professional and white-collar career
> structures.
>
> But then none of this ought to be surprising. The New
> Olympians are unconcerned with - in fact, hostile to - job
> security (other than their own), social tranquillity and
> the traditional aspiration for both the good life and the
> quiet life. They roll their eyes when they hear that the
> Detroit car worker, the Argentinian shopkeeper or the
> Cornish fisherman is complaining that their way of life is
> under threat. Like it or lump it, the New Olympians say.
> That's just the way it has to be. Meanwhile, elected
> politicians bend over backwards to make life as pleasant as
> possible for them.
>
> That was vividly illustrated in February when the British
> government backtracked on its extremely modest proposals to
> increase taxes on some of the heroes of business and
> finance. These were the wealthy "non-domiciled
> residents" who, while living in the UK, claimed their
> residence to be elsewhere and paid tax only on income shown
> to have been earned in Britain. In his pre-Budget report in
> October 2007, the chancellor, Alistair Darling, had proposed
> a tougher regime for those 20,000-odd non-doms who had been
> in Britain for seven years or more, a regime that included
> the payment of an annual £30,000 flat tax to the
> exchequer. The backlash from the assembled bankers,
> ship-owners and other tycoons was predictable, as their
> political and media apologists lauded their contribution to
> economic growth and employment and warned of disaster should
> these philanthropists take themselves elsewhere.
>
> Vince Cable, the Liberal Democrats' treasury spokesman,
> noted the bizarre nature of the campaign being waged:
> "We hear stories that a high proportion of non-doms
> will flee ... It is also claimed that public discussion of
> non-dom taxation is dangerous because it might frighten
> these fragile creatures away. This is effective propaganda.
> We are in the absurd position that some taxpayers on modest
> incomes have started to feel sorry for the wealthy
> tax-avoiders."
>
> To be fair, at least 100 Labour MPs failed to accept that
> global competition means that all workers except CEOs and
> top directors must accept lower real wages and pensions and
> poorer working conditions. Nor did they find it convincing
> that globalisation makes all types of labour more abundant,
> except chief executives. Brown and Darling, however, seemed
> to have swallowed the argument. The charge would stay, it
> was announced, but into the waste-bin went earlier, hated
> suggestions of making non-doms report on the source of
> their earnings abroad. Furthermore, there was a categorical
> statement that the tax changes would not be retrospective.
>
> Growth under the Blair and Brown governments has relied
> excessively on speculation in two forms: that in the City
> and that by home-owners. Economically, the legacy is a
> debt-sodden, lopsided and unequal country in which the pay
> of those at the top rises at 10 times the rate of those at
> the bottom. Instead of taking on the City, however, the
> government has turned its attentions to the workforce -
> both blue-collar and white-collar - which has to be made
> ready for the global challenge from China and India by
> being re-skilled and re-educated and by learning how to be
> "entrepreneurial". Furthermore, the majority is
> routinely subjected to ever more illiberal, intrusive and
> obnoxious interference from state agencies, whether in
> terms of visual surveillance and the proposed identity card
> scheme, or in terms of being instructed to change their
> "attitudes" on a range of subjects.
>
> In the period before the New Olympian takeover, market
> capitalism proved remarkably good at providing both peace
> of mind and material advancement. Living standards rose
> rapidly, financial crises were rare, banking crises rarer
> still. The New Olympian regime, by contrast, has offered
> neither faster growth in living standards (for at least 99%
> of the population) nor peace of mind. The modern era has
> been characterised by slower growth in average real
> incomes, higher levels of debt to maintain living
> standards, greater job insecurity and financial crises that
> have become more frequent and more far-reaching. The only
> class that has benefited unambiguously from the new world
> order has been that of the New Olympians, just as the only
> creed that has been accepted has been their creed.
>
> The ancient Greeks believed their 12 most important gods
> and goddesses lived on Mount Olympus. They all had a
> special significance. Zeus, the lord of the gods, ruled the
> sky; he was responsible for thunder and lightning. Poseidon,
> his brother, was the king of the sea; he could ensure that a
> traveller returned safely home to port. Aphrodite was the
> goddess of love, Ares the god of war, Apollo the god of the
> sun and music. Today, there are another dozen governing
> spirits that hover above and direct our daily lives.
>
> First among these modern gods is globalisation. The ancient
> Greeks worshipped Zeus; today's cosmopolitan elite pays
> homage to a world without borders. From the acceptance that
> economic power had shifted from the nation state to the
> global market, everything else stems. Governments that seek
> to meddle with the global market do so at their peril.
> Rather than tame globalisation, they are supposed to ready
> their citizens to compete in a world of cut-throat
> competition. Rather than putting tariffs on foreign steel
> or banning a foreign company from buying their ports (as
> the US has done) or seeking to prevent cheap food from
> undercutting their farmers (as the French have done), they
> should invest in education, skills and science in the
> belief that this will "brain-up" their population
> and create a knowledge economy that will find an upmarket
> niche in a world awash with cut-price goods. This, of
> course, is Brown's approach. Whether or not it works is
> another matter. As the twin engines of the economy struggle,
> there is little evidence of the knowledge economy riding to
> the rescue. Indeed, the managerial incompetence that marked
> the opening of Heathrow Terminal 5 suggests a national
> shortage of grey matter.
>
> The twin brother of globalisation is communication. The
> development of powerful digital technology has transformed
> the way the world works. Had a French bank run into
> difficulties as a result of financing Napoleon's wars
> in 1807, for example, it would have taken days for the news
> to arrive in London, and weeks for it to get to New York.
> Yet when BNP announced that it was having problems, every
> dealer in Wall Street and Canary Wharf knew within seconds.
>
>
> Nation states, despite the impact of globalisation and
> communication, retain considerable power. They control the
> flow of imports into their markets; they have controls on
> the movement of capital; they run industries that are
> considered to be strategic; they believe that some sectors
> of the economy - health and education - should be shielded
> from the full blast of competition. These are, however,
> impediments to the smoother running of the global market
> and thus need to be removed. The World Trade Organisation -
> a supranational body with punitive powers for governments
> that transgress its rules - started a new round of talks in
> November 2001 designed to open up markets in agriculture,
> manufacturing and services. The IMF and the World Bank
> insist that poor countries receiving financial assistance
> should abandon state control of their mines, banks and
> energy companies. In Brussels, the European Commission is
> dedicated to the removal of the restrictive practices and
> state subsidies that throw sand into the machinery of the
> single market. The next three gods are, therefore,
> liberalisation, privatisation and competition
>
> The sector of the economy to benefit most from these
> developments was finance. International banks had always
> tended to have global reach, they could benefit more than
> any other sector from more rapid communication, it was in
> their interests to have barriers on capital removed, they
> picked up hefty fees for organising privatisations, and
> competition allowed them to wipe out weaker competition.
> What was not really apparent until last year was how
> powerful this sixth god - financialisation - had become. In
> countries like Britain, the expansion of the City of London
> had been the engine of the economy's growth - the
> fastest-growing parts of the finance sector expanded at
> around 7% a year between 1996 and 2006. Meanwhile,
> manufacturing output stagnated. Financialisation, it was
> argued by its proponents, was good for a country like
> Britain. It allowed the country to specialise in what it
> was good at, made London the hub of global finance,
> encouraged innovation and - by allowing the market to
> decide where capital should go - made the economy more
> stable. Whether this proves to be true in the long term
> remains to be seen. In the short term, economic growth did
> not accelerate, productivity did not surge, there was no
> miracle cure to the balance of payments and only rare
> glimpses of trickle-down.
>
> Until last year, it was easy to argue that these first six
> gods were beneficial to the global economy, and at worst,
> neutral. Privatisation in developing countries, for
> example, was heralded as a way of preventing corrupt ruling
> cliques from siphoning off profits into Swiss bank accounts.
> Globalisation was specialisation on a grand scale: the
> logical conclusion to the sort of division of labour that
> Adam Smith and David Ricardo had envisaged 200 years ago.
> The modern world not only means that we can keep in touch
> by email with our cousins in Cape Town and buy an agreeable
> Malbec from an Argentinian vineyard in the foothills of the
> Andes, but also allows our pension fund to buy shares in an
> Indian software company. On paper, this life of greater
> choice, freedom and opportunity sounds splendid. It is
> certainly preferable that modern communication technology
> allows Mozart's clarinet concerto to be heard on a CD
> player in any living room rather than being the exclusive
> preserve of the court of the Austro-Hungarian emperor in
> Vienna. In reality, however, the world doesn't work
> this way - and that's because the remaining six gods
> have such potentially dangerous properties. These are
> speculation, recklessness, greed, arrogance, oligarchy and
> excess
>
> Speculation is not always harmful. Britain's 15 years
> of uninterrupted economic growth from 1992 onwards was the
> direct consequence of sterling being forced to leave the
> European exchange rate mechanism following an attack on the
> pound orchestrated by Soros. Freed from the need to use
> excessively high interest rates to defend sterling, growth
> picked up and unemployment came down. Yet the activities of
> the big banks and the hedge funds in the first half of 2007
> had no noble purpose: far from rectifying a glaring public
> policy error, they exploited a problem in the private
> sector - the granting of mortgages in the US to those who
> couldn't really pay them. Financialisation had created
> an inverted pyramid. Instead of having a broadly based
> productive economy supporting a financial sector that had
> speculation as one of its lucrative but less important
> activities, a diminished productive sector supported an
> ever-bigger financial sector that saw speculation as the
> very reason for its existence.
>
> It would be naive to believe that greed could ever be
> expunged from financial markets: the pursuit of riches is,
> and always has been, a factor motivating those who buy and
> sell shares, bonds, currencies and commodities. Nor is it
> uncommon to find that the brokers and dealers do rather
> better out of asset-price bubbles than their customers; as
> long ago as 1940 the Wall Street veteran Fred Schwed wrote
> a book called Where Are the Customers' Yachts? Every so
> often, however, the money lust becomes so pronounced that it
> crosses the dividing line between cupidity and criminality.
> Since 2002, a wave of mis-selling has been evident in the
> US real estate market, with tales of pensioners with only a
> tiny amount outstanding on their loans tricked into
> remortgaging their homes at ruinous rates of interest by
> unscrupulous mortgage brokers.
>
> In January, panellists at the World Economic Forum in Davos
> were asked how the big banks of North America and Europe had
> failed to spot the potential losses from subprime lending.
> The one-word answer from a group that included the chairman
> of Lloyd's of London and the chief risk officer of the
> insurance company Swiss Re was "greed". As one
> participant put it: "Those running the big banks
> didn't have the first idea what their dealers were up
> to, but didn't care because the profits were so
> high."
>
> It goes without saying that those responsible for the
> speculative bubble of early 2007 could not conceive that
> one day it would burst. That was where the arrogance kicked
> in. The super-heroes of the New Olympian order were the
> brightest and the best of their generation. Their
> activities were making massive profits, a good chunk of
> which were being paid out in seven-figure bonuses that kept
> property markets humming in the Cotswolds and the Hamptons.
> Could they really be guilty of crass stupidity? Even when
> cracks did start to appear, the New Olympian class managed
> to blame everyone but themselves.
>
> Bob Diamond, the American chief executive of Barclays
> Capital in London, earned £22m in 2006 and was
> the sort of person who saw no reason why his money-making
> activities should be curtailed by red tape. But in August
> and September 2007, once the going had got tough, Diamond
> conducted a vigorous campaign against the Bank of
> England's Mervyn King for failing to provide the same
> sort of help to banks in the UK as was being provided by
> the Fed or the European Central Bank, which had stepped in
> after BNP's problems. As one commentator noted, this
> state of affairs was tantamount to the police being forced
> to provide a getaway car to bank robbers for fear that even
> greater damage would be caused by not doing so.
>
> The response to the market meltdown helps illustrate the
> final two principles that govern the modern world. One is
> that, despite the lip-service paid to democracy, western
> societies are in effect run by moneyed oligarchies, who
> have as little time for their wage slaves as did the ruling
> elite of ancient Athens. In February 2008, two weeks after
> Darling's U-turn on the taxation of non-doms, Brown and
> his ministers opposed a private member's bill designed
> to give greater rights in the workplace to agency workers -
> part-timers who face some of the lowest wages and toughest
> working conditions of any group.
>
> It is tempting to say that the final god of modern finance
> is weakness, because it was certainly apparent in late 2007
> and early 2008 that the apparent strength of the financial
> markets was illusory. The happy-go-lucky mood evaporated
> instantly, with the write-down of losses accompanied by
> some token sackings of executives and followed by more
> stringent lending for the real victims of the credit crunch
> - individuals and businesses forced to pay more when they
> borrowed. Weakness, though, cannot really be included as a
> principle of the New Olympians, since nobody willingly
> seeks to be weak. Rather, our 12th and last principle is
> excess. It is an axiom of the global order that there is
> never too much of anything: never too much growth, never
> too much speculation, never too high a salary, never too
> many flights, never too many cars, never too much trade. It
> was for that reason, perhaps, that the financial crisis was
> accompanied by rising inflation - as demand for oil and
> food pushed up prices globally - and by almost daily
> evidence of the impact of global warming. Losses in the
> financial markets; hardship for pensioners facing dearer
> heating and food; climate change. There were no prizes for
> guessing which the New Olympians considered the most
> pressing issue for policy makers.
>
> The gods promised us paradise if only we would obey and
> pamper their hero-servants and allow their strange titans
> and monsters to flourish. We did as they asked, and have
> placidly swallowed the prescriptions of the lavishly
> rewarded bankers, central bankers, hedge fund managers and
> private equity tycoons, while turning a blind eye to the
> rampaging of the exotic derivatives, the offshore trusts
> and the toxic financial instruments. Had they delivered,
> there would, at least, be a debate to be held as to whether
> the price was too high, in terms of the loss of democratic
> control and widening social inequality. But they have not.
> Chronic financial instability and the prospect of, at best,
> years of sluggish economic activity are the fruits of their
> guidance.
>
> These gods have failed. It is time to live without them.
>
> © Larry Elliot and Dan Atkinson 2008
>
> · Extracted from The Gods That Failed: How Blind
> Faith in Markets Has Cost Us Our Future by Larry Elliott and
> Dan Atkinson, to be published by The Bodley Head on
> Thursday, priced £12.99. For more information see
> the authors' blog at thegodsthatfailed.co.uk. To order a
> copy for £11.99 with free UK p&p go to
> guardian.co.uk/bookshop or call 0870 836 0875.
>
> Copyright Guardian Newspapers Limited 2008
>
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