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Protecting the Markets From Itself- Blind Faith & Liberty

Stock-Markets / Credit Crisis 2008 Jun 07, 2008 - 02:04 AM GMT

By: Adrian_Ash


"The moment we face it frankly we are driven to the conclusion that the community has a right to put a price on the right to live in it..."- George Bernard Shaw, Prefaces (1934)

INVESTMENT BANKERS have a lot to answer in summer 2008. Not least letting idiot ideas about government, markets and your liberty run amok during this, a US election year.

"Instead of an increasingly risk-prone, privatized, profit-driven economic model overseen by a largely unaccountable and speculation-obsessed elite, we need an economy that is run and regulated in the interests of ordinary people," urge two financial hacks here in London .

Larry Elliott and Dan Atkinson, business editors of the left-wing Guardian and the right-wing Mail on Sunday respectively, this week published their third tome together, The Gods That Failed .

Subtitled How Blind Faith in Markets Has Cost Us Our Future , the book presents a common enough thesis for our age. So common, in fact, five "new & used" copies are already up for sale on Amazon UK ...

"The management of the monetary system has been entrusted in blind faith and absolute confidence to bankers and financiers. Their management has ended in more disastrous failure...

"Necessity now compels us to abandon banker management and to resort to national administration of public credit and national regulation and supervision of the monetary system."

Not actually Elliott and Atkinson writing in 2008, but The Conquest of Poverty by Gerald Grattan McGeer – one-time mayor of Vancouver , Canada – written at the depths of the last Great Depression.

"Responsible government must now destroy banker rule," McGeer wrote in 1933, "or banker mismanagement of public credit will destroy responsible government and the civilization that brought it into being."

Put another way – but with no less melodrama – "the market, like a spoilt child, needs protection from itself," says Larry Elliott in his Guardian blog.

The cost of protecting the market (a.k.a. people) from itself (i.e. themselves)? McGeer's proposals got so diluted that the political party he helped launch, Social Credit, actually won power in Alberta in 1935 – and went on to win the next eight elections to 1971 from there! But in its earlier, angrier form, the idea of "social credit" found fans in technocrats like Frederick Soddy, the Nobel-prize winning radio chemist and author of Money Versus Man (London, 1931) as well as Oswald Mosley (the failed British fascist) and Ezra Pound – the American poet jailed for 20 years after making radio broadcasts on behalf of Mussolini during the war.

"You are threatened," Pound boomed to the British – as if they were listening – from Rome in 1943. "Usury has gnawed into England since the days of Elizabeth [the First]. First it was mortgages, mortgages on earls' estates; usury against the feudal nobility. Then there were attacks on the common land, filchings of village common pasture. Then there developed a usury system, an international usury system, from Cromwell's time, ever increasing..."

Long before then, however, the British had rediscovered the advantages of unfettered speculation and credit money. The "Great Conversion" of Britain 's national debt in 1931 had cut the interest on £2 billion (then $12bn) from 5% to 3.5%. Ditching the Gold Standard – and putting the nation's faith in the new floating exchange rate – helped jig things along, too.

"Cheap money, and the effect of the world slump in reducing investment opportunities abroad, led to a housing boom and investment in new industries," reports Glyn Davies in his History of Money , "helping Britain to make a relatively early recovery from the Depression" just in time for the more socially-minded Axis powers to start World War II.

Fast forward to the second Great Crash of the 21st century, and protecting the market from itself is already looking costly in terms of today's money. Defending the derivatives market from Bear Stearns put the Federal Reserve on the hook for $29 billion; protecting Northern Rock's creditors and depositors from their own due diligence hung up the UK taxpayer for a further $118bn.

Good job we've got newspaper columnists, those unacknowledged legislators of the world, to set out the plan and put things right!

"Our principles would give rise to...the tracking of [large investment] funds by national authorities...some form of capital controls...very much tighter controls on lending...the forced demerger of large banking and finance groups...subjecting all exotic financial instruments to official inspection...[and] the same protection for our remaining top-class industrial companies as is routine in France..."

Not that Elliott and Atkinson want to meddle with your personal liberties, of course. Business editors for Britain 's most-educated newspaper readers and the 'voice of Middle England' respectively, they actually want to increase middle-class freedoms, defending them against the "huge damage already done on both sides of the Atlantic " by those wicked capitalists and their PhD henchmen.

Doctors, lawyers, accountants and journalists top their list of the middling sort now in need of help. And their modest scheme simply looks to control the flow and use of money and credit, that's all. Choose only state-approved investments, and you'll have nothing to fear.

"Contracts or deals entered into in offshore jurisdictions, or anywhere else, in defiance of financial controls could be declared void in British law," advise the brains behind The Gods That Failed . "This 'negative enforcement' is highly attractive...It relies simply on courts not doing something, i.e. recognizing and enforcing financial arrangements made without authorization."

Financial contracts, in other words, should be pre-approved by the state. Otherwise they will sit outside the law. Hardly an infringement of the little guy's rights, right? Even if the bleed between high finance and middle-class savings can get a bit messy in practice. But where's the loss of liberty in knowing that a bureaucrat's stamp must appear on your choice of contracts – your financial investments – before you can enjoy protection under the law?

"Now that the US is looking inward once again, and learning that its wealth is not limitless, populism is undergoing a revival," said TIME magazine way back in April 1972. Reporting on that year's Democrat primaries, "Populist describes something real," it went on – "the politics of the little guy against the big guy...the classic struggle of the haves against the have-nots or the have-not-enoughs.

"At the heart of the movement is the man in the middle. He is squeezed by a system he wants to respect but feels he has no control over. He is the pursuer of the American dream, but stalled in mid-passage. To oversimplify, he is self-reliant and reasonably industrious, he holds a steady if not too exciting job, owns and takes pride in a modest home, likes sports, wants his kids to go to college.

"Yet he can never quite make ends meet, especially in the last few years of runaway inflation."

Spooky, no? Because just as inflation turned sharply higher in summer last year – and just as a new financial storm broke over Manhattan – US Democrats were again touting for the votes of the common man (and now woman) in the middle. They began "moving toward a full-throated populist critique of the current economy" as Robin Toner noted for the International Herald Tribune .

Hillary Clinton called the bubble in financial bonuses "trickle-down economics without the trickle"; Sherrod Brown became senator for Ohio thanks to what he called his "economic populist message".

"[ Ohio ] voted minimum wage...student care and prescription drugs over what their traditional conservative social values might suggest," Brown told the IHT in July 2007. Now "the party that deals with globalization and economic security will win," agrees Rahm Emanuel of Illinois .

Of course, defeating globalization and creating economic security for all might take a little, ummm, planning ...? Perhaps even a little community -minded action...? Say, like steering clear of Investment Evils Like Speculation and choosing good, honest, American homes for your money instead.

Because as Benito Mussolini said during the 1930s Depression, "the more complicated the form of civilization, the more restricted the freedom of the individual must become." And high finance is terribly complex today. So complex, in fact, few people understand it – least of all in government!

And that's why we all need to kiss goodbye to our blind faith in money and banking, and put out faith instead in tight controls and official inspection by the authorities.

You can't trust banks, big business or the super-rich to look after you. So trust politicians – or even financial hacks! – instead.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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