Editorial note: If you have not yet read our mission statement above, please do so in order that you can put our blogs in context. 

2 November 2014

A FINANCIAL INCENDIARY BOMB

How long till the next financial crash?

A report in the London Guardian on 30 October 2014 cites a warning from Andy Haldane, chief economist at the Bank of England, to the effect that the global monetary system has become so deeply interconnected that it poses an “incendiary threat to stability” unless a radical new international approach is taken.

Good to know.

But didn’t we know this already?

Has anybody out there heard of Lehman Brothers, the legendary US financial services firm with asset holdings of more than $600 billion which went belly-up on 15 September 2008 when it filed for bankruptcy, shaking to its foundations the world’s entire financial infrastructure and worsening dramatically the incipient global economic depression?

When the crisis occurred, many were the pledges from governments and public regulatory agencies promising root-and-branch reform of the world’s financial system so that never again could rogue banks and hedge funds run up dodgy unsustainable debts that would imperil the smooth functioning of global capitalism.

So how come, in his recent speech at Britain’s Birmingham University, Haldane saw fit to warn that the world is not equipped to deal with the “darkest consequences” of its current international monetary system, saying that a new set of multilateral rules will be needed to lessen the risks?

According to Haldane, “The international monetary and financial system has undergone a mini-revolution in the space of a generation as a result of financial globalisation…This has altered fundamentally the risk-return opportunity set facing international policy-makers: larger than ever opportunities, but also greater than ever threats.”

Antigone1984:

So what happened to the financial reform and regulation promised at the peak of the 2007-2009 financial and economic crisis?

As Haldane implicitly admits, they just never happened.

Oh yes, there were wringing of hands and gnashing of teeth while the crisis lasted, but when the green shoots of recovery began to show around the beginning of 2010 the promises of tough regulation of the global financial sector were quietly forgotten.

For the capitalist economy, led by the banking sector, is inherently adverse to regulation of any kind. That’s what the free market means – freedom to do whatever it wants without let or hindrance, least of all from governments that are, in any case, in office to do its bidding.

So let’s not get thinking that governments are going to agree any day now to introduce a tough international regulatory regime that will curb wildcat speculative risk-taking by global banksters.

It’s been the same throughout the five hundred or so years of capitalist development – bust invariably follows boom – and so it will continue to be. It wouldn’t be capitalism otherwise.

Moreover, this cycle is not limited to the financial sector.

In his speech in Birmingham, Haldane pointed out that cross-border stocks of capital are now almost certainly larger than at any time in human history, adding that “the same is probably true of cross-border flows of goods and services and is most certainly true of cross-border flows of information”.

What the world needs, in our view, is deglobalisation and the passage to a golden age of national protectionism where countries focus on achieving national security through economic and financial self-sufficiency, trading only where and when they need goods or services that cannot be supplied at home.

——–

 You might perhaps care to view some of our earlier posts.  For instance:

1. Why? or How? That is the question (3 Jan 2012)
2. Partitocracy v. Democracy (20 July 2012)
3. The shoddiest possible goods at the highest possible prices (2 Feb 2012)
4. Capitalism in practice (4 July 2012) 
5. Ladder  (21 June 2012)
6. A tale of two cities (1) (6 June 2012)
7. A tale of two cities (2) (7 June 2012)
8. Where’s the beef? Ontology and tinned meat (31 Jan 2012)

Every so often we shall change this sample of previously published posts.

——-