This site uses cookies to improve your experience and to provide services and advertising. By continuing to browse, you agree to the use of cookies described in our Cookies Policy. You may change your settings at any time but this may impact on the functionality of the site. To learn more see our Cookies Policy.
OK
Dublin: 7 °C Tuesday 19 November, 2019
Advertisement

Column: If we want to get out of this crisis, we must remember who put us here

The financial markets plunged us into economic meltdown, writes Hugh Torpey – so why are we still listening to them?

Hugh Torpey Irish Management Institute

IT’S A BAD weekend when you think it’d be better to wake up on Monday and for it to be 1983 and find that your Converse runners have been replaced by a pair of steel-toed Doc Martens. Hell, even the music was better; now we have Justin Bieber as the soundtrack to our impending doom. To crave hearing Bananarama on the radio is a terrible thing.

After a few years of epic news, it seems it’s now about to get apocalyptic. A year that began with an ineffective debt deal in America has ended with European markets plummeting, Greece collapsing, the English feeling smugger by the minute and the Italians increasingly looking like they’ve all just walked out of a bunga-bunga party and have to explain to their better halves what the hell just happened.

Happily though, at least those poor Wall Street traders are still looking on the bright side.

So how did it come to this? Was it the population of the world suddenly becoming extra greedy, trying to ride the boom-era gravy train? Was it the governments heaping sovereign debt upon sovereign debt so they could buy their next election? Was it the banks, the financial traders, or the ratings agencies? Was it the lizard people?

No, no, partially, and… well, possibly. It was the political classes’ deregulation of the financial markets what done it.

Since deregulation (taking away the rules governing the financial markets) began in earnest during the 1980s a combination of banks, financial traders and rating agencies has managed to screw up the world, to the point where the Sun will surely be printing a ‘Can the last person to leave Europe please turn the lights off?’ headline any day now.

‘Survival of the fittest with stocks and shares’

The financial world, for so long quite a boring place, became after deregulation a place where money could be made, fast. The phrase ‘greed is good’ became the calling card of a generation. Of course, where there is money and growth governments and politicians will always want a piece of the pie – and then try and claim credit for baking it in the first place. When the rules began to be relaxed and growth began, it reinforced the view that this was only the beginning.

This deregulation was all due to the propagation of the ‘invisible hand’ theory, which basically says that the markets would naturally regulate themselves – a variety of survival of the fittest with stocks and shares rather than teeth and claws. But in reality it was more like the governments saying ‘Jesus, this money business is really complicated, isn’t it? Anyone here know economics? No? Ah well, let them do it themselves then’.

So they deregulated the financial markets.

But that’s okay, because someone was watching what was going on, right? We all know the answer to that one. Government watchdogs became next to useless. In Ireland they were left under-manned, underpaid and under-qualified. If anyone of them showed promise and started questioning the financial markets, the banks simply hired them. Those that stayed were told, day after day, that the market would look after itself; the ‘invisible hand’ was watching it all. So they missed the bit where the invisible hand started reaching into our back pockets and riffling through our wallets.

‘No-one knew what they were buying anymore’

And let’s not even mention the ratings agencies; they became so entwined with the banking system that they changed from independent watchdogs to the financial markets’ lapdogs.

The upshot was that deregulation changed how the world valued things, or rather how we assigned value, and no-one in the know pointed out that this was wrong. Where once we valued goods on how desired by the world they were, we now valued them based on how well the traders on the financial markets could sell them to the world. We let them bundle up solid gold and sub-prime loans into one package and sell them on as if they were more or less the same. No-one knew what they were buying anymore and nothing was based on what value it brought.

And this is the crux of the thing; the world had changed from rewarding productivity to rewarding the printing of money. This printing of money wasn’t done in mints around the world, it was done by taking a dollars worth of debt, repackaging it and selling it on saying it was worth ten dollars. Suddenly the world had nine dollars circulating around that didn’t actually exist. This happened millions of times, to the point where the world was awash with fake money. The financial collapse was when people woke up and realised.

People blame the banks and irresponsible lenders, and rightly so. These people knew exactly what they were doing. There are examples of traders describing the packages they were selling as ‘complete shit’ while the rating agencies gave them the highest ratings possible, safe in the knowledge that the ratings they gave were only opinion and not subject to law.

The simple fact though is that we let them do it. Even after watching Gordon Gecko in Wall Street.

‘Put ten traders in a house made of money, and they’ll tear down the walls’

If the governments had paid a little more attention to human nature and, y’know, the entire history of mankind, they’d know that greed will always trump rational thought in the short term. Put ten traders into a house made of money and they’ll tear down the walls and collapse the roof above their heads until the driving rain outside comes in and destroys everything, including the money they’ve stuffed in their pockets.

The financial markets don’t, and never have, produced anything of value. They assign value; that’s their role. With deregulation, they were suddenly able to create ‘financial packages’ that added value that didn’t exist. It was like someone selling you ten bars of gold, promising they’ll store them in a bank account for you but when you actually go to open it up, you find there’s only one there.

And now governments are terrified of the overbearing influence of the stock markets – an influence they themselves helped create. Whenever a debt deal is announced, the media doesn’t ask the politicians what they think first, they check to see what the financial markets are saying. Governments are falling across Europe because the stock markets now have the power to collapse them.

We need to take back that power. And fast. We, quite frankly, have to show them who’s boss. They serve us, not the other way around.

If we don’t wake up to that fact than Justin Bieber’s whiny voice will be the least of our problems.

Hugh Torpey writes at Mocking Dickens.

  • Share on Facebook
  • Email this article
  •  

About the author:

Hugh Torpey  / Irish Management Institute

Read next:

COMMENTS (70)