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There will be greed: reflections on the financial crisis

gekko1-thumb1The famous Gordon Gekko character from the film Wall Street represented the 80s financial system. But more recent events prove the ‘Greed Is Good’ mentality never went away. James Gill explains

This month the world commemorates recent disasters which shifted the international landscape.

One atrocity was committed by a group of terrorists, which resulted in an unprecedented loss of life on American soil, consequently leading to a world divided in its approach to terrorism and two bloodthirsty, controversial wars. The other was the result of pecuniary stupidity and sheer ego, cloaked in the name of the rational market free choice; this resulted in the largest bankruptcy in history as well as the deepest recession in eighty years. I’ve chosen to focus on this latter event.

It was so sudden that the aura of financial euphoria and a persistent lauding of a seemingly foolproof financial system (a former chancellor’s hail to “the end of boom and bust”) came crashing down in the largest credit bust which apparently no-one saw coming.

James Gill

James Gill

The mutual failure to take into account the dissenting voices of more compassionate economists, John Kenneth Galbraith and Will Hutton, as well as the reluctance of financial bodies to regulate the economy more appropriately, have resulted in a mess far muddier than a boys’ swamp adventure course.

In 1996, the height of the “roaring nineties”, the then Federal Reserve Chairman, Alan Greenspan, a close associate of the late Ayn Rand and a self-confessed ‘Libertarian Republican’, emphasised that for the deregulated economy to operate smoothly, financiers and investors need not be fooled into acting out of “irrational exuberance” when the market seemed to be in such a healthy state.

It is now safe to say that the actions of Lehman Bros last year exemplified this irrational exuberance.

At the heart of this whole approach is the persistently flawed, insecure laissez-faire unregulated form of economics that has proved too often susceptible to corruption and abuse to be the benign, utopian, ever self-correcting way of life it purports itself to be.

The historical antecedents for this euphoria were Rand, Adam Smith, Friedrich Hayek and Milton Friedman. All were instrumental in bringing the idea of so-called ‘pure’ economics to life, believing in the inevitable hand of the market to self-correct itself.

The state (government) should solely be left to policing and defence of their countries against the ‘enemies’ of their supposed economic freedom – any form of government intervention and restructuring of the economy (interference in their eyes) would damage the rational instincts of the market’s sellers and consumers, causing irrationality and subsequent market collapse.

They way it was

The way it was

These ideas were instinctively taken up by the UK Thatcher and US Reagan governments of the 1980s – both eying an opportunity to spring this doctrine in its most uncompromising way on their subjects, capitalising on an economic system that was restructuring itself after the previous few years of stagnation.

Reagan wanted to get government “off the backs of hard working people” while Thatcher intended to set people free from the ills of state dependency. Reagan’s result was running up a huge deficit from the countries increasingly deregulated system and increased defence spending; Thatcher, after a painful first term of sado-monetarism (raising taxes and cutting spending) causing small businesses to fall and unemployment to rise to three million, actively encouraged people to earn as much money as possible to be part of her moral hyper-capitalist democracy.

To achieve this in reality, however, a low to middle income earner had to borrow 300% of their own income on credit to purchase a house whereas Thatcher, in the words of former Labour chancellor, Denis Healey, saw it as a cardinal sin to borrow 3% of her own budget to assist in financing public services.

The policies of deregulation pursued on both sides of the Atlantic, ensuing a Gordon Gekko, greed-is-good, hyper consumerist, materialist free for all in the financial markets, resulting in a more contemporary precursor to the credit crunch, Black Monday of October 1987, the result of accumulated wealth based on quick-fixing credit debt.

The Gekko character from the 1987 movie Wall Street represents the financier as a sleazy corporate raider antagonist espousing greed being good for feeding the naturally aggressive spirit of market – the purity of survival of the fittest that can do only good.

Even with the fresh New Labour government in office since 1997, with its pragmatic emphasis on reshaping the state to combine social justice and mobility with flexible enterprise, the economic gurus Gordon Brown and Ed Balls could not resist bragging about their booming economy and its light-touch regulation, alongside praising City bankers for their supposed courage in handling the markets and providing amongst other things, ‘stability and investment.’

This repetition of behaviour has led the bankers, who, although doing important and fundamental jobs, developed a huge hubris syndrome, leading themselves to often be described as the ‘masters of the universe’.

Alan Greenspan earned the nickname the Oracle, in spite of ‘presiding over a fast moving, debt fuelled economic boom which eventually went off the tracks’ – the words of economist, Jeffrey Sachs.

The unscrupulous behaviour of bankers in the past year, still claiming bonuses for themselves even after rollicking in the muddy waters of frantic borrowing and profiteering, demonstrates the entrenchment of this harmful mentality.

When Lord Turner, chairman of the Financial Services Authority (FSA), came up with bold proposals to tax the bonuses to redistribute some of that wealth into the community, he was soon rebuked by a government that, unfortunately still fears the wrath of the bankers which they sowed so well.

It’s time we bring ourselves and the financial system down to earth, away from the cluttered skies of loose money and insecure trade deals.

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2 Responses

  1. Great article James, and I agree with the sentiments about how the governments (in my opinion on both sides of the Atlantic) that are tough on rhetoric but weak on action.

    The only addition to your analysis I would provide is how as a populace (and in particular poorer people, or if you like the working class) people started to move away from saving to afford material goods to relying on credit. Often to simply ‘keep up with trends’ not purchase vaulable necessities.

    I may have my rose-tinted specs on a bit but I don’t remember people where I grew up being so obsessed with luxury / material goods that they would indebt theselves for years if not decades to come.

    If you can’t afford a brand new Car / TV / Console / insert luxury here, should you really buy one? Excuse me, I mean get Mr Visa, Mrs Mastercard, or Ms Payment-Plan to buy it for you?

    I think that is recent ‘cultural norm’ we could do without.

  2. I don’t understand why the public harbour essentialist views on bankers. Not all of them were involved in the collapse of the financial system! I have to agree as well about the consumerist western culture which perpetuated the situation. Simply put, people in the West borrowed more than they could afford to pay back. This wasn’t the case in “developing” economies like China, where they seem to save their money as opposed to spending frivolously – hence the reason they weren’t so exposed to the credit crunch.

    The paradox is that Western countries and the IMF have been preaching to the developing countries about how to manage their economy – when it turns out that they can’t even manage their own.

    My only worry is that no lesson has been learned by this whole situation and people will return back to their bad habits.

    Kudos to OBV for using their blog to discuss issues other than race, it’s very refreshing.

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