Wednesday 23 May 2012

Who is to blame for the economic crisis?

The reckless gamblers at Bradford and Bingley  
were responsible for their own downfall.
I decided to write this article after I came across an absurd comment trying to absolve the financial sector from any responsibility for the neoliberal economic meltdown, the guy said;

"We are being told to blame the bankers but the banks were the victims of the fraud."
 My immediate response was:

Nope, they were victims of their own stupidity.
In order to portray the financial sector as the unfairly criticised innocent victims of the economic crisis, it would take willful ignorance of what actually happened, which was this:

The parasitic "shadow banking sector" lobbied and demanded to be freed from the burden of regulation, which the "orthodox neoliberal" politicians were more than happy to oblige with.

Both sides of the so called political spectrum in the US and UK repealed legislation which was designed to prevent banks from destabilising the economy. Margaret Thatcher's Tories began the deregulation process in the UK in the absurd attempt to create a post-industrial London based financial services economy. The Labour Chancellor Gordon Brown further deregulated the financial sector in the 1990s ceding all democratic control of the Bank of England to the private sector in compliance with neoliberal pseudo-economic theory. In the United States, Bill Clinton's Democrats set about dismantling the legislative firewalls that were put in place in order to prevent another Wall Street crash and George Bush's Republicans intensified the process in the 2000s. The European Union and other countries such as Argentina also set about enacting absurd neoliberalisation reforms and financial sector deregulations.

Once the financial sector were freed from the legislation which was originally put in place to prevent their reckless gambling tendencies from creating economic instability, most of them quickly set about over-leveraging themselves to the max (using mortgage payments, savings and pension schemes as their reserves) in order to make all kinds of insane bets on crap like Spanish and Irish property assets, Greek government bonds and complex derivatives (like Collateralised Debt Obligations) that they clearly didn't even understand. 

As long as it was stamped with a decent rating from the (either corrupt or utterly clueless) Credit Ratings oligopoly, they racked up vast debts to throw money at it without bothering to assess the risk for themselves. Trying to absolve the financial sector of responsibility for their own reckless speculation on inaccurately rated and often fraudulent "investments" is as absurd as trying to absolve the customer from blame had they borrowed beyond their means in order to buy a wreck of a second hand car without negotiating any warranty coverage or even bothering to take a cursory glance at the vehicle first.

The run on Northern Rock was caused by their own
gross mismanagement of risk.
After years of reckless speculative gambling, the inevitable neoliberal meltdown happened. I the wake of it, instead of letting the reckless gamblers die (as neoliberal theory actually specifies) the western governments and central banks shat themselves, decided that many of the institutions were "too big to fail" and started pouring countless trillions into the debt riddled institutions, in order to pay out on what should have been losing bets. In order to try and cover the cost of these financial sector interventions Western governments set about inflicting harsh self-defeating austerity measures on the "real economy" (jobs, wages, pensions, welfare provision, infrastructure etc) using the Great Neoliberal Lie as their justification narrative.

It is transparently clear that "austerity" is just the same old neoliberal claptrap rebranded as something urgent and necessary, rather than the defunct ideologically driven gibberish that actually caused the economic crisis in the first place.

Massively reducing government spending on infrastructure and causing a dramatic reduction in household disposable income led to the transparently obvious consequence of reduced aggregate demand and economic stagnation, which in turn led to increases rather than decreases in budget deficits and national debts as the pace of cuts failed to match the falls in tax revenues. The harder they cut the "real economy", the bigger the debt burden they ended up creating.

It is clear that for decades the global economy has been run by economic illiterates; by people that don't give a damn about economic history (the most stable and productive period was the mixed economy era, which their craze for greed-is-a-virtue, privatise everything, more riches for the rich and screw the workers, neoliberal pseudo-economics has ruined). They don't bother with vital regulations to prevent anti-competitive practices (monopolies, oligopolies, cartels, information asymmetry, subsidisation of failure...) from developing because the simplistic neoliberal mantra says that "all regulations are evil" and they don't even seem to understand really fundamental economic concepts such as aggregate demand, value multipliers and false economies.

The only people more culpable for the economic crisis 
than the bankers themselves, are the politicians that
  meekly abdicated their responsibilities to protect
 the economy from their reckless gambling urges.
Many of the biggest culprits in the neoliberal financial sector meltdown are directly involved in Barack Obama's government and nobody in the US has even been prosecuted for the economic chaos they have created. In the UK the Tory party came to power on the back of public discontent at Labour's handling of the crisis, yet the financial sector have an effective controlling interest in the Tory party, providing more than 50% of their political donations. It is absolutely no surprise that proposed reforms to prevent the banks from recklessly gambling with our mortgage payments, savings and pension funds has been booted into the long grass (2019 at the earliest) by the banker funded Tory party.

The financial sector are to blame for the economic crisis. They caused it by inflating a giant bubble of "easy credit" and using it to fund their reckless speculative gambling instead of making carefully hedged long-term investments. The politicians that meekly enabled their risky gambling habits by deregulating them, then bailed them out, and are now working to make the "real economy" pay the costs of the financial sector gambling debts through "self-defeating austerity" and even now refuse to prosecute or even re-regulate the banks.

The lessons of history are pretty clear, the free market fundamentalists / neoliberals / anarcho-capitalists (call them what you want) have tended to create the economic crises through enabling risky short-term profiteering and it has been government's job to clean up their messes and prevent them from doing it again, two things that the impossibly compromised "orthodox neoliberal" politicians of the West are abjectly failing to do at present.

So in conclusion, the people that are to blame are the reckless bankers that mismanaged the risk that they are supposedly paid their obscene salaries in order to manage, and the politicians that enabled this reckless gambling spree by deregulating the financial markets.

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