In his article in the FT, "It is time to face reality over Greece's debt", Nouriel Roubini makes a right diagnosis but it is simply too narrow and has been blatantly obvious since "the largest heist in history” came to light at the end of 2008. The global financial system has a massive liquidity black hole: hundreds of trillions or even quadrillions of dollars that resulted from a classic pyramid scheme, that the financial system was turned to, and organised by the financiers and regulators with a blessing of some politicians.
Roubini diagnosis that Greece cannot escape a default applies equally to the UK, US and the entire eurozone. It is only a matter of timing: first Greece then the US. The UK is bust already: yet no one is prepared to admit it: it is an open secret. So as the eurozone.
Roubini recommendations have a deep sinister aspect. If implemented they will mean that having saved the banks, the taxpayers will keep on paying to these banks practically forever. And as before the money will be taken out of them by private "investors" who will pay the bankers handsomely for running such a scam. This "investors'" and bankers’ dream is taxpayers (and their children and grandchildren and grandgrandchildren and …) nightmare. It is a classic relationship of a loan shark and his victim.
Nevertheless there is a solution. World best option is an orderly default. It should take a form of global orderly write downs akin to the US Chapter 11 approach in the private business. This was elaborated in "Prime Minister, sort out this mess, please". It applies equally to the UK as the rest of the financial world that suffers from the liquidity hole. And a new ways of recouping taxpayers money should be considered (and eventually introduced). For example, taxing all money transfers, say 80% - 90%, to and from offshore financial centres (and of course to and from any country that does not sign up to such an arrangement). Such a deal would have to apportion the proceeds from such tax (so no country can be privileged as an offshore banking gateway) and could be used to plug the global liquidity hole.
The world is in the midst of an unprecedented crisis which is moving from country to country. The sheer scale of it, just numbers, makes it completely unsolvable using standard approach: i.e. let’s make taxpayers pick up the bill. It is simply too big for that. This is beyond any moral issues of massive wealth transfer (i.e. theft) from the middle classes to the very rich. Communism for the rich has triumphed. But let's hope that it will be defeated like its more sophisticated Soviet predecessor.
Roubini diagnosis that Greece cannot escape a default applies equally to the UK, US and the entire eurozone. It is only a matter of timing: first Greece then the US. The UK is bust already: yet no one is prepared to admit it: it is an open secret. So as the eurozone.
Roubini recommendations have a deep sinister aspect. If implemented they will mean that having saved the banks, the taxpayers will keep on paying to these banks practically forever. And as before the money will be taken out of them by private "investors" who will pay the bankers handsomely for running such a scam. This "investors'" and bankers’ dream is taxpayers (and their children and grandchildren and grandgrandchildren and …) nightmare. It is a classic relationship of a loan shark and his victim.
Nevertheless there is a solution. World best option is an orderly default. It should take a form of global orderly write downs akin to the US Chapter 11 approach in the private business. This was elaborated in "Prime Minister, sort out this mess, please". It applies equally to the UK as the rest of the financial world that suffers from the liquidity hole. And a new ways of recouping taxpayers money should be considered (and eventually introduced). For example, taxing all money transfers, say 80% - 90%, to and from offshore financial centres (and of course to and from any country that does not sign up to such an arrangement). Such a deal would have to apportion the proceeds from such tax (so no country can be privileged as an offshore banking gateway) and could be used to plug the global liquidity hole.
The world is in the midst of an unprecedented crisis which is moving from country to country. The sheer scale of it, just numbers, makes it completely unsolvable using standard approach: i.e. let’s make taxpayers pick up the bill. It is simply too big for that. This is beyond any moral issues of massive wealth transfer (i.e. theft) from the middle classes to the very rich. Communism for the rich has triumphed. But let's hope that it will be defeated like its more sophisticated Soviet predecessor.
Re: Inflation and its part in the banking crisis
ReplyDeleteMy understanding of history may be incomplete in this area, but from what I do understand, banking was at one time a slow, steady business of gradual realization of profits. Then, there came about many new ways to increase and expedite profits so that the industry increased their earnings to unprecedented levels. You describe some of the ways this was achieved.
I’m sure greed has its part in the story, but it doesn’t explain entirely why an industry felt it needed to grow profits at such stratospheric rates.
One of my favorite columnists, John Tamny, likes to harp on inflation, specifically to stipulate that it is a reduction in the value of currencies, rather than rising prices.
So I’m inclined to think that the drive for massive profits in the banking & finance industries is indicative of substantial inflation that the governments simply do not want to acknowledge. It would seem that in addition to greed and bubble dynamics, the financial events of the past decade would also signal that the finance world views the various currencies as worth far less that the official values would indicate.
Any thoughts?
Greg,
ReplyDeleteGiven Vince Cable's complicity in the con-dem neoliberal, finance-friendly, budget, will you now remove his endorsement from your blog page?
Nick