Raymond Fisman, Florian Schulz and Vikrant Vig have a fascinating new working paper: Private returns to public office, which gives us new insights into Indian politics.
We know that elections in India are typically rather close. There is something almost capricious about who wins and who doesn’t. The random outcome of an election can, then, be interpreted as randomised allocation into control and treatment. One candidate gets elected, another candidate is very much like him but doesn’t get elected.
We can then ask the question: what happened to the wealth of the bloke who got elected? The authors say that the rate of growth of the assets of the person who won grows by 300 to 600 bps per year when compared with the person who lost.
The strongest effects are observed for a person who makes it to being a minister: his asset returns are 1300 to 2900 bps higher than the person who did not win the election.
The paper reminds us of the conditions under which the most fruitful economic research happens today. It’s got to be a live and interesting question. A high quality dataset has to be the engine; without good quality data, research is just garbage-in-garbage-out. It’s got to persuade us that that the claimed answer is correct. Too often, we in the research profession are failing on these three tests.
Folks, I have bad news for you. The Barack Obama Health Care Reform (shepherded through by Nancy Pelosi) will be, as written, an utter and unmitigated disaster. It attempts to do two things which are, in combination, impossible. First, it makes health insurance much more widely available through the mind-boggling deal it made with the insurance companies. To wit: the health insurance companies agree to insure everyone, and the federal government forces everyone to buy health insurance. While that’s a huge give-away to health insurance companies of your personal tax dollars, that’s not impossible.
No, the impossibility comes when you combine that with: Second, Barack is going to pay for this new plan by reducing costs. There’s two problems with this idea. A) if costs could be reduced, insurance companies would have already done it, and pocketed the money. B) when you pay less for something, you get less of it. This is one of the iron laws of economics, which is just as inviolable as the laws of thermodynamics, or the laws of mutual attraction (things fall at 32ft/sec/sec absent wind resistance).
So Obamacare will attempt to 1) increase the amount of medical care needed because you have all these newly insured people, AND 2) decrease the amount of medical care available by paying less for it.
This is our PRESIDENT, and he deserves the same respect due to any other politician who is ignorant of economics yet tries to regulate markets: zero.
There can be only two results: either we’ll have less medical care (think you’re having a hard time finding a doctor now??), or we’ll pay a lot more for it (think your doctor’s visits are expensive now??).
But there is a different way: free market health care. Reduce every possible barrier to health care. First, stop protecting the doctor’s union. Let anybody practice medicine, but give the doctor’s union a super-trademark on the term “physician”, just like the 4-H shamrock and Olympic rings are protected. If you want a graduate of a medical school, you can have one; just go looking for a physician. Second, stop treating us like children, and let anybody buy any medicine they want. Abolish the FDA. Pharmacies will compete to provide the safest and most effective medicines. Abolish the patent system. Drugs are only expensive to develop because of the FDA and don’t need patent protection. Testing can be provided by pharmacies. Stop expecting doctors to be medical deities. Greatly reduce the available torts to only those things that doctors have control over, like leaving sponges inside patients after surgery. I’m sure there is more government hampering that I’m just not thinking of right now. Oh, yes, stop the war on (some) drugs. Abolish the ONDCP.
The vampire squids of Wall Street and Washington DC are parasitic organisms and you are locked in mortal combat with them. They desire to suck all the value they can from you and then toss your carcass aside. As with most parasites they prefer subtle tactics that do not attract attention.
But now the spotlight is being directed towards them and individual humans are becoming increasingly aware of their status as human livestock to be feasted upon and slaughtered by these parasitic vampire squids. Increasing numbers are declaring their independence from these nefarious parasites. There are a few simple things you can do to defend yourselves from these repulsive psychopathic parasitic vampire squids and assert your sovereignty.
IMPROVE YOUR INFORMATION DIET
If an individual sustains life by eating low quality junk food then they are more susceptible to disease, cancer, obesity, diabetes, heart disease, inflammation and a host of other health problems. A few small changes in one’s physical diet can have a tremendous effect on one’s health and general feeling wellbeing.
So likewise your time and attention is extremely valuable. Most Americans watch 5-10 hours of television per week. A significant problem with television and corporate media is the degree of misinformation and subliminal programming.
A subliminal message is a signal or message embedded in another medium, designed to pass below the normal limits of the human mind’s perception. These messages are unrecognizable by the conscious mind, but in certain situations can affect the subconscious mind and can negatively or positively influence subsequent later thoughts, behaviors, actions, attitudes, belief systems and value systems.
Because of the consensual nature of watching television you let your intellectual guard down and are more susceptible to the lies, misinformation and subtle tactics of programming that are engaged in by the archaic media. In most cases, their corporate profits are in a direct conflict of interest to your happiness. A blatant example would be the tobacco industry.
By removing TV and corporate media from your daily information diet you can reallocate a large amount of your time to more productive uses, start a new hobby, develop additional skills or a host of other things. By purifying your information diet and purging the toxic and harmful influences the probability for having a happier and more fulfilled life increases. As many people have been doing this the newspapers have been evaporating at rapid speeds.
CEASE RELATIONSHIPS WITH CORRUPT PEOPLE AND INSTITUTIONS
Banks, brokerages, insurance companies, cable operators, credit card issuers, etc. are almost completely corrupt. You cannot afford to have contact or business relationships with this infestation of parasitic vampire squids. You cannot afford to allow these liars, thieves and murders to handle your money and data.
Whenever you do business or transact with a corporation who has access to your data then your privacy is greatly diminished or removed through the use of transactional databases. Because of the highly invasive nature of these tools I think it is extremely important that you think seriously about who you reveal data to and who you will allow to access your data.
Although there are some laws in place regarding privacy we see how well the traitorous vampire squids of Washington DC behave when executing their oath to ‘preserve, protect and defend the Constitution’. So assume there is no privacy and work actively to protect it and learn how to vanish.
IMPECCABLE COMPLIANCE WITH COSTUMED CRIMINAL GANGS
The traitorous vampire squids strut around in their costumes extorting your hard earned wealth while they regularly flaunt the law and like Tim ‘tax cheat’ Geithner they willingly evade the taxes levied on themselves. Of course, there is a massive industry that derives revenue from involuntary incarceration. Your freedom is in conflict with their profits. This is a reason why America has the highest documented incarceration rate in the world with over 7.2 million adults on probation, parole or in either jail or prison.
While Americans like to sing that they are the ‘land of the free’ it is really the home of the incarcerated. To avoid being engulfed by this massive police state you should be properly trained on how to interact with the psychologically damaged and intellectually retarded criminal gangs that masquerade in costumes as peace officers.
For example, in 1999 in Jordan v. City of New London Robert Jordan of Waterford, CT, a corrections officer, received worldwide attention when his application to the New London, CT Police Department was rejected on the grounds that candidates scoring too high on intelligence tests become bored with police work and often quit. Jordan scored a 33 on the Wonderlic intelligence test, a feat equivalent to having an Intelligence Quotient (IQ) of 125. New London’s policy is limited to interviewing candidates with scores between 20 and 27.
Consequently, it is extremely wise when one is unjustifiably subject to these presidents, kings, rulers or magistrates to be impeccably compliant with their extortions and threats. This compliance is recommended not because of some faux moral duty like Hitler’s perverted interpretation of Romans 13 but instead because if a robber sticks a loaded gun to your head and says ‘Your wallet or your life.’ then it is usually a better outcome to lose only your wallet.
But make no mistake; the robber’s demand is immoral and therefore you are under no moral duty to obey and under most state’s self-defense statutes you would be justified in using lethal force against the aggressor. America is the largest police state in the history of the world with highly complex rules and very little privacy protection. Therefore it is wise to never violate the various gang rules.
We live in economic warfare and as with any game there is a goal: equity and control.
Most people underinvest in their health and knowledge with poor physical and information diets. With malnourished human intellectual capital it is very difficult to be successful. To reposition your assets you will need your health, knowledge, intelligence and the ability to think and act.
We currently live in an illusory economy but because The Great Credit Contraction has begun we are transitioning to a real economy where individuals want hard assets. The Chinese are on hunting trips for real assets. They are exchanging their illusory Federal Reserve Note for farmland, oil, gas, water, etc. So it is wise to shift out of financial assets and into tangible assets or securities that have solid economics behind them.
LONG TERM TRENDS
The trend is your friend. The vampire squids of Wall Street, with shills like Jim Cramer, attempt to goad you into playing follow the vampire squid. This results in a lot of people being so busy trading they are unable to fundamentally analyze what they own. The more fractionalized your mind is from rabid trading the easier it is for the vampire squids to harvest you.
Precious metals are in a long-term secular bull market and fiat currencies are in a long-term secular bear market. Certificates of confiscation will evaporate your wealth. High quality farmland, food and clean water are becoming increasingly scarce and important. Jim Rogers analyzes and discusses the reasons in Hot Commodities. The old saying is, ‘The trend is your friend’.
Sure, you can buy gold hoping to make a profit or even protect your purchasing power. There are plenty of objective reasons for doing so. For example, those who followed the advice on RunToGold would have significantly more purchasing power given platinum has risen from $1,118 to $1,375. So likewise the analysis has been provided with silver’s slight backwardation and the fundatmentals for buying platinum.
But there are more important reasons for buying the precious metals. When you own the monetary metals you own sovereign wealth. In effect, you have declared independence and are fighting all the central banks and vampire squids in the world.
There are two ways to fight a revolution and assert your sovereignty against immoral criminal gangs costumed in government regalia: guns and currency. The use of fiat currency allows for confiscation through inflation which is a form of taxation without representation and without due process of law.
Are you upset about Congress passing the health car bill? Does the cash for clunkers program of destroying working vehicles annoy you? What about privatizing the gains and socializing the losses to the tune of trillions of dollars that is used to bailout the vampire squids of Wall Street? Does the closed-source software and the murky voting process cause you to doubt the veracity of the political system?
One method of peaceful protest is buying gold or some other commodity currency such as silver or platinum. Doing so is a vote of no confidence in the current system.
As a peacemaker I hate to observe the other method which involves violence and will only result in undesirable consequences and darker days. There is a big difference between starving parasitic vampire squids and terminating them. We all know the golden rule : He who has the gold makes the rules. One of the reasons the vampire squids are able to harvest the American people so efficiently is because the American people have no gold.
Parasitic vampire squids are swarming around trying to harvest both the wealth you produce and you. To protect yourself take control of your information diet, cease relationships with corrupt people and institutions, maintain impeccable compliance with the arbitrary rules and regulations of the costumed criminal gangs, understand the long-term trends, reposition your assets, implement provident living principles in your ordinary daily activities, and establish your independence from these parasitic vampire squids. Declare your independence!
On 12 August 2009 I interviewed (mp3) John Rubino of DollarCollapse.com for the 48th episode of the RunToGold Podcast about economics versus political dogma, the two paths for the FRN$ currency crisis, the Fear Index and potential solutions individuals can take to protect and preserve their wealth during the transition and increase of political risk.
Trace: Your book was originally published back in 2004 and the title was “The Coming Collapse of the Dollar” and can you tell me a little bit about why the title was changed in 2008?
John: Well, that was the publisher’s idea actually. Their sense was that the collapse of the dollar was not coming anymore but it had arrived. And the so they dropped the “coming”, and just called the book, The Collapse of the Dollar. And that turned out to be a bit premature cause the dollar’s holding on still, but not grossly premature. I think the amount of currency being created is going to cause the imminent currency crisis that is going to put the dollar on the front page of a lot of newspapers. We’re going to see headlines that include dollar and collapse in the same sentence. So, the time is coming.
POLITICAL DOGMA V. ECONOMICS
Trace: Many people are squawking especially the politicians and bureaucrats in Washington are squawking about how nobody saw this coming, that “we couldn’t have saw this coming”, And yet, we’ve got a book here where the title of the book is a coming currency collapse, and then in 2008 we actually had to update it. How has this study of economics versus the political dogma that comes out of Washington and the bureaucrats affected the average person and how can people be able to profit from it if they understand the real laws of economics that are at work?
John: One of the really strange things about big turning points in history is that the people in charge are generally clueless at the turning point and this is a prime example of it. All the basic indicators of a coming crisis were there, you know, we had a massive series of financial bubbles that built up to the housing bubble which is the biggest of all. And the amount of paper currency that was being created around the world was through the roof and debt levels were soaring. And anybody who was able to step back and not be involved in the day to day operations, such as by making of money from derivatives and things like that, should have been able to see that we were heading off a cliff. Everybody in charge in, maybe, 2006, if you had ask them the consensus would have been that every thing’s fine. You would watch CNBC and you’d never see anything that would raise an alarm or listen to C-Span all the people in government were talking about – “How to expand spending?” and get more tax revenues and they weren’t worried. It’s a very hard thing to explain. But to James Turk and I when we were writing this book back in 2004, it was pretty obvious that we were in deepening financial trouble and that there wasn’t really a solution since we borrowed more that we can ever hope to repay, so that turned out to be true, and its becoming more true everyday. And so, the people that who are talking about recovery and we’re back on track and green shoots are again missing the big picture which is that we’re continuing to accumulate more debt at an accelerating rate, and we’re creating the conditions for an even bigger crash further down the road, this time it will be a currency crisis probably in which the dollar tanks, and interest rates spike and the financial sector once again collapses, but all due to basically the same process, which is excessive debt creation.
Trace: It is like they think that the cure for a hangover is more alcohol and throw in a little morphine.
John: Exactly. We are giving the heroin addict more heroin to fix the withdrawal symptoms but the eventual effect is that we need even more heroin down the road and it will kill the patient.
John: We’ve reached a point where a currency crisis is unavoidable. There are basically two horrible scenarios:
One is the 1930’s style, deflationary crash and the other is Weimar Germany style hyperinflation and there is really no middle road because we’ve taken on so much debt that we only had the choice of collapsing under the weight of it or inflating it away (EDITOR’SNOTE: I attempt to merge, academically, these two potential paths into one in The Great Credit Contraction). There’s no other solution so, we have a very, very difficult ten years ahead of us, or an interesting ten years depending on your point of view. I guess it depends on how much gold you own?
THE FEAR INDEX
Trace: Well, there would definitely be a lot of change in which change comes the opportunity to profit from it. Though, one thing that I have noticed is that a lot of people are scared of change and the dollar collapse you mentioned something called the fear index, can you please give a brief overview about what this fear index is, and how it’s changed from 2004 till the present?
John: Sure. The fear index was an indicator that was created by James Turk, twenty five or so years ago. It basically measures the relationship between outstanding paper currency in the U.S. and gold reserves at Fort Knox. And when the amount of paper is increasing in relation to gold, that means that we’re basically increasingly afraid of what is going to happen in the future. And it flashed a screaming buy signal earlier in this decade. The markets are becoming more and more worried about what is going to happen in the future and capital is beginning to flow into precious metals, and the indicator has only gotten more positive over time as we’re printing more and more paper dollars out there so, the buy signal was flashing, I think it was 2000, but it might have been 2002, and it’s still saying buy gold, and short the dollar to this day, and its even more extreme. It has flashed buy signals about five times since James Turk created it. And each time, gold has spiked after the buy signal, and this time was no exception. Gold was, I think, in a 300 range when it flashed the buy signal in this decade, and since then it’s tripled and the indicators are still saying buy gold because we are headed for a currency crisis because the dollar is still be debased. Because it has been such as reliable indicator its one more reason to load up on precious metals and look for ways to avoid exposure to dollar or actively short the dollar.
THE SIMPLE SOLUTION
Trace: Yeah and I know a lot of people think, “Oh, gold isn’t money, because we don’t really use it anymore in this day and age. But actually last week, I was engaged in a transaction, a six figure transaction where I settled and extinguished it using physical gold bullion through GoldMoney. And so, now, when we’re moving into this new transitionary age, what role do you see these digital gold currencies playing in competition to the fiat paper franchises?
John.: Well, yeah gold has been societies’ money of choice for maybe three thousand years, and only in the last 30 or 40 years have we gotten away from that, and gone to a completely paper money system. That is putting the politician’s in charge of money creation and is an inherently flawed idea for a lot of obvious reasons and we’re paying the price for that now. So, when paper money fails, which it is on the verge of doing, then the market is going to start looking around again for something to replace paper. Society needs something to function as money as a crucial tool to modern society. We are starting to look again at gold and silver which are older forms of money which can’t be created in infinite quantities by government on a printing press. Their rarity and slow increasing supply of over time means that they hold their value. We will come back to gold in some form and start treating it once again as money in terms of exchange as well as storage of value which we always used before. The attractiveness of a GoldMoney account will rise in relation to a standard checking account and more and more people will choose to keep their spare cash in that form, instead of FRN$ cash as the dollar continues collapsing. And its possible that we just see a gradual migration to digital gold currencies which turns into deluge, as everybody figures out that this is the better way to go and society, via the free market, returns to gold because it is more efficient. That would be a nice peaceful way for this process to progress. And a more disruptive way might be that we have a massive currency crisis that leads to a financial collapse. Then there would be discussion about what money is and how best to structure the monetary system of the world. The digital gold currencies which have survived and prospered throughout the process may become the focus of the discussion and could be adopted by government decree. We will see. One way or another we’re gonna have to go back to some form of sound money and gold is the most logical choice.
Trace: Right. And now with these digital gold currencies as you say, they can be adopted first as alternative and eventually become a substitute to the current monetary system. While the situation is serious the prescient can take preemptive action to order their affairs in a way to minimize disruption. For example, there is a bank holiday but you could still exchange your values through the GoldMoney system because GoldMoney is built from the ground up to be solid, in the sense that there is no fractional reserve and it is not based on a fiat currency.
John: Yeah. I mean that system has been thought through like you said from the ground-up to be the opposite of a fractional reserve fiat currency system. Probably GoldMoney and the other electronic gold payment systems will keep o0perating even if there’s a disruption in the fractional reserve banking system. If that happens the publicity will be really favorable for digital gold because you will see a lot of media articles about how Bob Smith in De Moines is not having any trouble even though all the banks in his town are closed because he still has his GoldMoney. He is still be able to transact and buy food.
Trace: Right, and engage in ordinary daily transactions.
John: Yeah. And once that happens, the system could, via the market, switch over almost overnight where everybody just flows into these currencies that clearly work better than the systems that the governments and fractional reserve banking industry are running.
Trace: Right. And with the speed that it can happen. For example, people start “Twitting” about it, they go through Facebook, and the next thing you know we could be seeing quite a revolution. People can fight a revolution either with the power of the purse or with the power of the gun. I am not that favorable of the option of trying to fight a revolution with a gun. But as far as using sound money to protect against these despotic inroads by government the use of sound plays a critical role and I see gold playing a key role. These digital gold currencies are rising because of the negative economic environment and help us protect ourselves. After all, this currency collapse is the largest in history.
THE GOLD CLAUSE
Trace: So while a currency collapse is happening there are solutions. Another option is for people to build gold clauses into various contracts. For example instead of a CPI adjustments for rent they can add gold clauses into their rent or debt issuances. If they rent they could have a gold clause in there to protect against this currency debasement. [NOTE: If a gold clause is written into the contract then you may want to include a residual effect clause for illegality. For example, if gold contracts are made illegal then the amounts will revert to silver and if silver is also made illegal then platinum, etc. Of course this is only general advice and not meant to be neither investment advice nor legal counsel. Consult your attorney for individual application.] There are many alternatives for people to take to protect and preserve their capital. They could also buy silver.
John: There is a wild card though. Just because we are painting a picture of a peaceful market driven transition the governments are not going to like this transition because it threatens their control over the money supply which is the main source of power that has been accumulated over the years.
John: All kinds of crazy things could become possible when goverments really start to panic. They could make much of these solutions illegal. They could go after GoldMoney even though it is domiciled in a very safe place. They could make gold clauses in contracts illegal like they have done in the past.
Trace: Yeah. You know, they both made the gold clause contracts illegal and attempted to confiscate the gold. Fortunately under current federal law gold clauses in contracts are enforceable and we can legally possess gold. It will definitely be interesting to see what exactly the governments attempt to do because their tendencies are to do the exact worse thing possible for their creators the constituents.
John. Yes. We are at the beginning of one of the all time greatest government panics [NOTE: You may be interested in Survivalism In The Suburbs]. When they find out that this monetary system is not working anymore then we are going to see some stuff that will shock even you and I who are looking for this kind of stuff.
Trace: Right. If we think these criminal gangs costumed in government regalia that are owned by the banking industry are a rogue elephant on the world stage now we need only wait until they truly panic.
OTHER SOLUTIONS AND POLITICAL RISK
John: And the solution becomes diversification because there is no one way of attempting to get your money away from the government to where it is going to be completely safe. Like we were talking about before this call started foreign real estate is an option[NOTE: We were also discussing my other website How To Vanish]. Buy some property offshore and that may put some of your capital beyond the reach of your home government. Store gold or silver bullion in another country, open a digital gold account and foreign stock accounts. There are many things someone can do to insulate their capital. Then the likelihood that your capital survives the government tactics increase.
Trace: I agree. Having diversification among political jurisdictions and an alternative to the current monetary system, such as GoldMoney, is a wise move. I remember last time at the Cambridge House Conference event where we had a special get together with about 50 of us and the main topic for 45 of the 50 minutes was political risk. I agree that minimizing that political risk is extremely important in this day and age. I also recommend the listeners read your book The Collapse of The Dollar.
Sure, most of the folks that came out that day might be registered as Republicans, but the line as to what determines a Republican and a Democrat to me at this point no longer exists. Practically all politicians in these parties are the same, differing only by degree of pathetic-ness (not a word according to Google, but it should be).
Thus, I have been thinking about how to describe the split between the two sides of the debate in America right now. The words that I think best summarize the political divergence are individualism versus statism or collectivism. Jonathan Hoenig lays it out pretty well here:
If you find yourself identifying with the values of the former word or phrase below, then you fall into the camp of the individualist, while if you find yourself identifying with the ladder, then you probably identify as a statist. The dichotomies that I see are as follows:
To be sure, in this society, labeling anyone is touchy. At this point I don’t know if I would consider myself a Lockean, a Constitutionalist, a Goldwater conservative, a fiscal and social libertarian but strong on defense dude, or just a lover of my nation. Nevertheless, the split that I see that encompasses the most fundamental of beliefs is individualism versus collectivism. You be the judge as to which ideology is superior.
I just spent an hour today going through American International Group’s last twenty years of Annual Reports, finding out how much tax AIG has paid over the last 20 years, working out estimates of how much tax its employees have paid on their incomes and how much has been remitted to the Treasury on dividends paid by AIG to shareholders on previously-taxed income.
The numbers I come up with are $35 billion of income taxes paid until the company tumbled into loss for its 2008 fiscal year. Taxes on salaries and dividends through 2008 I estimate at another $20 billion, for a total tax rake-off of around $55 billion.
What I cannot work out as easily is how much tax has been paid by service providers, lessors and so many others who prospered when AIG prospered. It would also take study to quantify the other economic benefits conferred on the cities and towns in which AIG operates, and the contributions AIG made to all the good causes it has supported so generously down the years.
As black as the company is now painted by career-making politicians, including some who now advise AIG personnel to commit suicide out of shame, one must try to remember that there were many benefits of AIG’s rise and rise and rise. Far from being a criminal enterprise or a ship of fools, AIG was one of the greatest American companies, right up until it was wrecked by the incompetents brought in after that great man of the people, Eliot Spitzer, made it his special project to destroy Hank Greenberg and the company he built.
As the global economy stalls, the media is working hard to identify those responsible for the economic chaos, but is there really a distinct group of people to blame? The issues and events driving the current economic slowdown are complex, and it is therefore impossible to identify a single cause – but oil speculators are currently taking much of the flack.
Certainly, oil companies and investors have reaped spectacular returns during the crisis, but can their influence really have global reach?
Speculators have become the bogeymen of the current crisis, but they are less monstrous than the media would have us believe. In essence, a speculator is just a short-term investor that takes a high-risk position against a fast moving stock in either direction – a speculator can make money by correctly predicting if a stock will increase or decrease in value. Like any other type of investor, they are simply taking a risk by speculating about the future of a stock.
Oil speculators have become high profile targets for two reasons. Firstly, the outstanding market performance of oil has attracted large numbers of speculators to the commodity, and secondly, the price of oil has famously only moved in one direction, making it an easy commodity to predict and keeping most speculative investors in the game. Certainly, their positions will have some market influence, but they cannot be held responsible for taking oil from $26 to $140 per barrel. After all, they are following market trends, not dictating them.
A Culture of Speculation
Speculators exist simply because our current economic system allows them to operate. It is not speculative investors themselves that are causing damage to the global economy but rather the whole concept of speculation, which has found a home in the free market.
Speculation has become more than an investment approach; it’s become a sensibility that runs deep into the roots of our financial and economic system and is particularly prevalent in the global banking system.
So, can we blame central bankers for the crisis? Certainly, they must share a proportion of blame because they knew what they were doing. Unless the global banking institutions were grossly negligent, they must have been fully aware of the extent of their subprime exposure and the associated risks.
However, hindsight has demonstrated that the imprudent risk management procedures in the global banking industry as a whole have been short-sighted. The financial services have worked to maximize profits during the boom years at the cost of massive losses in today’s downturn.
The irresponsibility of these institutions was highlighted in April when the Institute of International Finance (representing more than 375 of the world’s largest financial companies) accepted blame for the crisis, acknowledging “major points of weaknesses in business practices.”
In their book, The Gods That Failed, Larry Elliott and Dan Atkinson argue that our current financial and economic model is headed by a new “Olympian” class of politicians and central bankers. These elites have instilled greed, excess and speculation into the very heart of our current system to facilitate their own financial gain.
In their defense, global financial institutions remind their critics that they have delivered an unprecedented period of economic growth. “If you look back historically, this period of growth is not unprecedented,” explained Larry Elliott in an interview for the Guardian. “We’ve had longer periods of higher growth in previous decades when the spoils of that growth were spread far more evenly than they have been over the recent few years.
“And in fact, the cost of the growth we’ve seen has been building up in the background. Essentially, these economies have only been able to keep going through the creation of bubbles; when one bubble bursts, policy makers have engineered another. So I don’t think that the way in which the economy’s been run over the last 15 years has been sustainable.”
In our enthusiasm for prosperity, it seems that we have forgotten a basic law of economics: that bust will always follow boom. Certainly, there is little that politicians, central bankers or investors could have done to avert the business cycle altogether, but if the financial services were in better shape and more tightly regulated, then we could have experienced a softer landing.
Somewhere along the way we have lost contact with the realities of our global economy. A culture of speculation has opened a chasm between the financial markets and the underlying economy – and we are now witnessing the resulting fallout.