Wednesday, February 4, 2009

the failings of (financial) markets

As the world recession continues to unfold, and every day brings more bad news, in terms of job losses, home foreclosures, and large and small companies going under, the high priests of global finance capital are beginning to doubt the strength of their convictions. Last week I was shocked to read that Jean-Claude Trichet, who, as president of the European Central Bank is the second most important central banker in the world after Ben Bernanke of the United States Federal Reserve, appears to be losing his faith in the self-correcting features of financial markets. Trichet said, in the context of European banks and financial markets hoarding capital rather than lending, and in so doing deepening the recesion, that 'what the markets are suggesting is not appropriate'.

Similarly, Alan Greenspan, who was Bernanke's long-serving predecessor at the Fed, has, since last autumn, recanted some of the core beliefs that drove his decision making years: that free markets would handle the risks involved as the financial system created what Warren Buffet called 'financial weapons of mass destruction'; that because free markets would self-correct too much regulation was wrong, because it would damage Wall Street, and hence the US economy; and that banks would always put the protection of their shareholders first, rather than the protection of their executives, as witnessed in the US$4 billion in bonuses paid by Merrill Lynch just as it was being taken over, with government money, by Bank of America (US bilateral aid to Sub-Saharan Africa last year was about US$5 billion).

Perhaps global finance capital needs to read Marx to understand what is going on. Old grey beard, as he used to be called by the Chinese, warned that financial crises were inevitable 'where the ever-lengthening chain of payments, and an artificial system of settling them, has been fully developed'. Where's my copy of Capital?