Friday, 20 March 2009

Socialising the losses

We just can't seem to concentrate on our rereading of Nietzsche's "The Genealogy of Morals", which we'd been planning on doing since Christmas. Partly it is the continuing sense that the world is on a historic brink and we just can't find the kind of Taoist inner calm to give our minds entirely over to a very difficult text from the 19th century. There are too many troubling things like Credit Default Swaps, which we still can't fathom out - things that are a real thorn in the flesh. It seems imperative to understand what Credit Default Swaps are, and what the other derivatives (derivatives of what?) might be, and how it could come to be that the value of all those derivates exceeds the total earnings of everyone on the planet. It seems that over the last decade, while we were tending our hillside vegetable plot and sleepily reading Rousseau's "Confessions" in the evenings, Finance was taking off in a historically unprecedented way and we were completely unaware of it until something hit the proverbial fan.

We've already mentioned the video Money as Debt, which was a real eye-opener and set a convincing agenda for monetary reform, and today, while trying to find out about Quantitative Easing, of which the BBC and Al Jazeera are full at the moment, we came across an oddly heart-warming blog - "oddly" because this is the blog of a trader who seems to have been led by a careful consideration of the numbers (which just don't add up any longer) to the conclusion that the free market needs a radical rethink, beginning with the banks and the money supply. Nathan Martin seems like a very sound chap.

Nathan has some charts. Some of them (because they touch on our evaporated pension funds) are too shocking for us to look at. But there is one that we would like to reprint here. It is a chart of the reserves held by banks. Now a sensible chap would assume that banks would actually have to keep quite a lot of money in the vault, and certainly not lend out more money than they have (although a sensible chap who has had a chat with a few bankers might end up thinking that maybe it's okay for banks to lend out - say - 10 times the amount of money they keep in the vault, as long as they do actually keep that tenth safe and sound). Am I just stupid, or does it not seem right if regular chaps are borrowing money to buy cars and houses and suchlike from insitutions that actually don't have a dime?

Did Marx foresee all of this, or was he so focused on the extraction of surplus value from the sweat of the worker that he paid insufficient attention to the way the whole show ended up being run for the benefit of the banks?

It is all so difficult to understand, though. We find ourselves scratching our heads like idiots and wishing we had studied some economics alongside our philosophy instead of spending so much time pouring over half-understood early 19th century German poetry. For one thing: If banks create 97% of the money out of thin air when they give loans, why does there seem to be so much pain when things go wrong? They never had the wealth in the first place, so they haven't really lost anything, have they? If the deposits of regular savers are such a small part of banking business, why can't the government just guarantee all those deposits and let the banks fail? And with the sub-prime people, why not just cancel the debts and let them keep their houses? There seems to be a choice between cancelling the debt (hitting the banks and other lenders, i.e. the culprits) and the government taking on the debt to relieve the banks (which effectively passes the debts to the tax payer, i.e. the victim). If that is the choice, surely it is better to let the banks take the hit.

Maybe we are just naive, but we want to see Obama set the tone for things by nationalizing savings and pensions, and closing the rest of the financial services sector down. A run on Wall St? Ban share trading and turn all shares into stakes in a state pension system, and offer companies loans of state-printed money in place of the funds raised by the sale of shares. The companies don't want to be hamstrung? Hey, that's not being hamstrung; that's democratic accountability. Pie in the sky?

Nathan reminded us of a nice commentary on the right-wing criticism that current government intervention smacks too much of socialism. What the government is doing, though, is socializing the losses, spreading the debts of the rich across the rest of the populus; during the good times, by contrast, the profits remain private.

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