Britannia Radio

newnations.com
Monthly reports on finance, business, trade,
economics, & political analysis


NEWNATIONS BULLETIN 01 OCTOBER 2008

WORLD STUPIDITY RULES OK

The world is still trembling on the brink of the latest financial crisis - a situation in which no one is in charge, but where many - both the good guys, and self-seeking opportunists, are trying to get a handle on the situation. One certain thing above all others is that financial issues of this magnitude are obviously not confined to any nation state, but are truly world wide.

The potential ruin of individuals, corporations and governments - or the frustration of their policies, have been shown to be subject to issues which are uncontrolled, and unregulated, and most world leaders have until now, gone along with this!

An honourable exception were the Germans. Their Finance Minister Peer Steinbrueck in 2007 had worked to persuade G8 members to adopt a joint policy of direct monitoring of hedge funds. The USA and Britain took the lead in opposing this, so when Chancellor Angela Merkel at the G8 of 2007 argued the point to the other leaders, urging them that it was time that the many opaque, skyrocketing hedge funds were regulated, the other G8 leaders, primarily George Bush and Gordon Brown, and their rafts of advisors, had no such fears. Let history record that they said no. Eighteen unnecessary months later, they now have to do a 180 degree turn, at last stand up to the financial moguls they seemed to fear and make the inevitable choices.

So where does financial power reside? Wherever it is now, it is likely to be changing yet again. Sovereign wealth funds are growing, aiming to diversify from monetary to real assets. Already equal in size to all the hedge funds in the world combined, they are going to grow to about five times the size of hedge funds in the next twenty years!

That is the Singapores, Kuwaits, Saudis, Qataris, Brunei and others. Move over Gordon Gekko and Wall St, the new masters of the universe have arrived.

In May of this year we drew attention to the outstanding prophet of these ruinous events who has said such unpopular things for many years. George Soros, looking beyond the sub-prime crisis said then what he is saying now - and it is worth re-reading. Capitalism is in crisis once more, but it is mainly those self-same capitalist freemarketeers who resist regulation and supra-national disciplines, that have leaned on their governments with spurious nationalist and economic and in the case of the USA, ideological arguments, that are now looking to be bailed out.

Confusion reigns!
"The degree of complexity is so great, the products are new and untested and the operations are now global. This is long term investment on steroids," commented one Chief Investment strategist.

Piracy is good!
Selling Short (shorting) is a ruse where quantities of shares in a targeted company are borrowed and sold deliberately below current market value. It's an attack expecting, indeed encouraging, other financial 'artists' to jump in and help to tear down that company, so that the original price collapses, the borrowed shares are given back and the difference in value has been skimmed. This is not a sinister game, but the way that Lehmann Brothers was brought down in September described with some justice by the two Anglican archbishops in the UK as, "bank robbery".

US and UK government and finance industry spokesmen have been at pains to say that 'in normal times' (not now of course), this is perfectly good business practice, but to us at any time it still looks like naked, greedy aggression, financial warfare, or bank robbery if you will.

At the very edge of imagination:
"Insurance on debt, the market for betting on companies defaulting on paying loans "credit default swaps," has ballooned from $200 billion in 2001, to a nearly unimaginable $45.5 trillion now." (IHT).

The proper question in the crisis is how can we improve on this poor performance?

The best we are likely to get is a regulated market capitalism which we certainly do not have now, and unless it's truly international it will fail.

Soros forcefully points out that although communism failed, the easy and triumphant assumption that free market capitalism was the way forward can now be seen to be a chimera. Free market capitalism also doesn't have the answers. It demonstrably cannot work without taxpayers periodically, as in the game of 'snakes and ladders', rushing to the rescue to keep the institutions alive.

Men like Soros, with a brilliant 'been there done that' career in finance and investment as his qualification, think internationally and share their conclusions with the world. Few care to frontally cross swords with him (except in snide, no-brainer tabloid articles), or to argue and explain why he is wrong. It is probably down to human greed. As long as the collapse had not yet happened, vast sums were being accrued personally by the fat cats. The top regulators and government leaders can pretend they didn't know or believe in Soros's well informed predictions, or they thought that Germany's Finance Minister and Chancellor back in 2007 were talking alarmist nonsense, but that merely tells us of their inadequacies.

So what is the solution?

GO TO:

PUBLISHERS OVERVIEW