Factors in Our Colossal Mess by Gabriel Kolko (CounterPunch) offers a nigh-panicked critique of the out-of-control hyper-captitalism found in the rarified air of the international financial instruments markets. With a name like that, it’s already clear that the intent is to hoodwink and the system does not disappoint. With the introduction of ever faster computing, ever more memory and ever tighter integration of information and communication, traders, who used to be limited in their schemes to invent money out of thin air, are hatching bolder ideas every day.
“Ingenious and precarious schemes in the world economy today have great legitimacy and flourish in the sense that the postulates of classical economics postulated are fast becoming irrelevant. It is the era of the fast talker and buccaneer-snake-oil salesmen in suits. Nothing old-fashioned has credibility.”
With the ability to home precisely in on a perceived profit or price difference in commodity, option, currency, derivative or future—and combined with techniques like swapping, making forward rate agreements, taking naked positions or hedging by selling short and taking long—traders can make incredible amounts of money in an incredibly small amount of time. All these fancy names for gambling involve incredible risk, whose consequences are absorbed by the market—or the enormous groups of investors increasingly partaking of hedge funds, which bet against global-size risks like a bookie bets on horses. Companies are incorporated, merged and discarded in a fraction of the time that a classical economy allowed. Suffice it to say, with this kind of speed and with this kind of money on the line—tens of billions in hours—the game doesn’t stay honest for very long.
“The problem is that capitalism has become more aberrant, improvisatory, and self-destructive than ever. We are in the age of the predator and gamblers, people who want to get very rich very quickly and are wholly oblivious to the larger consequences.”
These larger consequences are manifold, but mostly stem from the basis of the neoclassical capitalist economic system itself. The constant need to grow in a world of limited resources is a real-world problem not addressed in the ivory towers of economics. On paper, it works like a charm and enough have believed in the translation from paper to the real world to sustain the system so far—though the unwitting masses provide the raw input of capital (via taxes) and labor. As more institutions realize that the system is eminently exploitable and starting to wobble, the more they pile on, grabbing for the last scraps before everything collapses. These kind of larger consequences are starting to concern the old guard, who heretofore were happy to milk the money-making machine they’d built on the backs of the poor. They are now alarmed to see investors with just as little regard for the old guard’s well-being.
“‘Reconstructing economic theory virtually from scratch’ and purging economics of ‘neoclassical idiocies,’ or that its ‘demonstrably false conceptual core is sustained by inertia alone,’ is now the subject of very acute articles in none other than the Financial Times”
The way things work at the top, the amount of cash available and the amount of risk, well, risked, is simply breathtaking: “In the case of Amaranth Advisors, this outfit lost about $6.5 billion at the end of September on an erroneous weather prediction and went under.” They probably bet on a worse hurricane season this year and lost. The moral question of whether anyone should be able to profit from the misery and disaster caused by a hurricane is not addressed. Not only do tens of thousands of people remain homeless in New Orleans, but slick, young sharks in suits made enough money to buy a gold-plated lear jet in a single day—by betting that George Bush would drop the ball. An interesting side-effect of an amoral economy, to say the least. That’s not to say that some of these sharks don’t sink:
“At least 2,600 hedge funds were founded from the beginning of 2005 to October 2006, but 1,100 went out of business. The new financial instruments – derivatives, hedge funds, incomprehensible financial inventions of every sort-are growing at a phenomenal rate…[the] head of the European Central Bank … wrote that he could not comprehend them; that there is scant oversight over them; that many are pure hype; that nothing prevents them from creating immense domino effects on the entire financial system were they to collapse, thereby also dragging the well-regulated parts of the system down.”
The obvious solution, as suggested by both Kolko and the Financial Times, is to inject some oversight into this system. As these markets are international, global and fleeting—with trillions flitting across networks from London to Tokyo to New York and back in the span of days—this necessitates international oversight. That’s where the phrase “out of control” comes back to haunt: oversight is impossible. There is no way to implement oversight on a system that evolves so quickly, evading every attempt to squash the fantastical profits concealed within it. As a scant few regulators talk of stopping the Piñata from swaying around so wildly, everyone else crowds around, wildly swinging what they hope is the lucky bat that will explode the candy from inside it.
“The chances of developing a common trans-national approach or rules are close to zero, if only because nations of the world are rivals in the bid to attract financial companies and regulation, or lack of it, is a major factor on where to headquarter. When the next financial crisis occurs, and the likelihood of that happening has grown by leaps and bounds, it is more likely than ever to drag the entire global economy with it.”
This doomsaying comes from those who are the most knowledgable about the global economy. As international politics dominates policy debate, it drowns out the creaking of the international monetary system as it sags under the strain. Throw energy market volatity into the mix, as well as the long, slow demise of the dollar and at least two more years of the Bush doctrine, and it’s a true recipe for disaster. The fuse is lit—and we don’t know how long it is or how fast it burns, but we do know that there is a whole helluva lot of explosives on the other end.