Blaming the capitalists

Dick Fuld

It’s interesting to see that the knives are out for capitalists once again, just as soon as the economy takes a nose dive. We see the Mirror attempting a psychological stoning of Lehman Brothers boss Dick Fuld (aka the gorilla) for the perceived notion that he and his ilk alone are responsible for the recent economic downturn.

What I find amazing in all this, is how the govt manages to deflect all negative attention away from itself. The media pours scorn on banks that made money over the years, exclaiming a lack of moral virtue in their work life. High-class prostitutes, expensive cars, drunken holidays and cocaine snorting were apparently the order of the day. These are all accusations that may be true of some, but I’m quite sure not all. However, this kind of generalising really does give the govt plenty of leverage when it comes to its own error making. They can also add a rather tasty moral dimension to their otherwise pompous answer to economic meltdown. Bush’s comments regarding Wall Street, ‘they just got drunk’, are symptomatic of media reporting that never asks pertinent questions of its govt, whichever colour they are. There is an overwhelming consensus that the banks are to blame, and that govt must bail them out where it can. No one seems to link theses bail out schemes with the causes of the original crisis. In any normal free market practice these banks would just go under or other banks would just pick them up. But as I will explain, the banking industry has not been playing by free market rules for some time now and these bail out schemes are a tacit acceptance of this.

Now I’m not saying that the banking sector has not made miscalculations, but let’s piece the puzzle a bit further here. The first thing is, WHY have interest rates remained so low for so long now? I mean they have barely budged within a margin of 4% at an all time low of 3.5% and a high of 7.5% since the last economic meltdown 18 years ago, which peaked at 15% in October 1989. With all the bullshit made about the independence of the Bank of England, being able to set interest rates at market level back in 1997. This was seen as Gordon Browns piece de resistance back when he was highly thought of. However it is clear by now that old Gordo has had a good hand in making sure those interest rates have remained low ever since. It’s a joke to consider the interest rates since 1997 have been anything BUT at market levels. Now I’m no skilled economist (although this is quickly changing), but clearly the govt has been slowly but surely increasing the money supply so as to give plenty of cash liquidity to lenders. This was all but admitted to recently, after the govt decided to throw 50 billion pounds into the UK markets as a means to staving off perceived financial horrors regarding mortgages. The terror of 1989 were clearly all to fresh in the minds of senior politicians. The Americans of course are doing the same, it certainly seems to be in the zeitgeist, that and nationalising financial institutions as well. All this from two countries that have thrived and become incredibly wealthy from the free market and supposedly ridiculed communism as an ideal.

Anyway with all this extra cash swimming around the market, banks were basically able to lend more and more money thanks to govt IOU’s that had been artificially created for the market. Accordingly there was an almost limitless supply of the stuff, particularly in the US. So as these institutions got richer and richer, lending more and more cash, they were clearly finding that the normal market for lending was drying up. They now needed to try and lend money to those that in general most financial institutions wouldn’t normally touch with a barge pole. Now as mad as this may seem and banks were indeed stupid to seek this kind of business. But it’s not like a business can just grind to a halt. A business always requires growth, it is unable to stand still within a market that is booming, even if that boom has been artificially created. If one bank stopped these dangerous practices, then the others would just grab the market share. Clearly it was a classic case of catch 22 for them in the know. To downsize their lending to the genuinely trustworthy and limit access with high interest to them that were risky would have meant the heads of most banking CEO’s. What fool would decide to call a halt to this nonsense as a means to jeopardising their own career? The real blame of course rests on the shoulders of the likes of Alan Greenspan and his cronies down at the Federal Reserve; they developed this idea of creating liquidity to the markets by using govt bonds and taxes. Juxtapose this with the latest bail out schemes adopted by many western govt's and we begin to see where the fetid hand of doom is coming from. We also see the bail outs being used on them institutions that behaved most badly, thus rewarding bad behaviour against those that rightly held back.

If you're confused I don't blame you, however I won’t bore you with economic statistics that require a degree in the subject, so I will get back to my original point. Now the Mirrors article about Dick Fuld may well have some validity as it appears he refused varying bids to buy Lehman Brothers only days earlier before they went bust, as a means to increasing its overall sales value. However, it's somewhat disingenuous to blame him entirely for the current crisis, he maybe a major pawn in this debacle, but he's by no means alone in its cause. The fact is these bankers climbed into bed with govt's throughout the world and ignored all the normal free market practices that govern the borrowing and lending of money. But they were enabled in all this by the greediest entity of them all, that being the state of course. This is why you see the current bail out schemes. This is the govt having created the liquidity artificially to boost the market now trying to recover the market by even more artificial means. In all of this it becomes terribly complicated for the laymen to understand fully, so it's easier to blame the bankers of course.

So who loses out in the end? Well the very poor for starters of course. They are left paying higher prices for things such as food and energy via inflation. Mortgage lending rates are kept artificially low as a means to keeping an eye on tumbling house prices, thus allowing them with large mortgages to remain as homeowners, who realistically should have had to throw the towel in by now. This has had the net effect of increasing rents to astronomical levels within London at least, whilst first time buyers move into the rental market and those touch and go mortgaged Landlords manage to hold onto their properties by the skin of their teeth. Yes I know, this is the free market principle at work, but one can hardly see the free market being the cause. Markets don’t just go haywire over night as they can generally foresee future downturns in various markets months if not years ahead. No, it's only when that market has been artificially inflated that we see these spikes in market prices occur. The worst aspect of all this is that the govt has thrown the future taxpayer into the repayment of these bail outs. Yes, youre children no less. It has effectively promised bond owners the taxes of the next generation as a means to recovering markets that should have gone bust all on their own. Yes I can hear some of you exclaiming that it is still the free market that caused all this. All I can say to that, is go and learn some real economics and I'm not talking accountancy or family budgeting either. Businesses only increase prices if the commodities and costs involved in producing their product increases too. They don’t just decide to up the price out of pure greed, as there is always another business out there that will take the market share from them by offering lower prices. No, rest assured that your government has had its mucky paws in assuring your wealth depletion.