Friday, July 30, 2010

Markets Rule

From NC.

Update 3:30 AM: Philip Stevens’ comment is germane:

Political resolve has given way to fear. No one waxed more eloquently than Mr Sarkozy about the iniquities of liberal markets. This was the moment, the French president told us, when capitalism would be remade in the image of the European social market. All this, though, was before the Greek sovereign debt crisis saw the eurozone under siege. Now Mr Sarkozy lies awake each night worrying that France might lose its triple A credit rating.

He is not alone. As they struggle to reduce huge budget deficits, western politicians almost everywhere are in thrall to global capital markets. David Cameron has made no bones about it – Britain’s prime minister says he is slashing spending on the welfare state and paring back the nation’s global role because the Bank of England has told him that the rating agencies would be satisfied with nothing less.

The rating agencies – remember them? Some may recall that these very same organisations were deeply complicit in the chicanery that saw worthless debt instruments repackaged as top-notch financial securities. I am sure I heard the politicians say they would be cut down to size. It never happened. The rating agencies never repented; and now they are masters again….

Financial institutions are still extracting large profits from trading activities described by Lord Turner, the head of Britain’s Financial Services Authority, as inherently useless. Lord Turner, however, has been almost a lone voice in suggesting a fundamental rethink.

The crisis in the eurozone shows how the herd instincts of capital markets can destabilise an entire continent. The consequence has been to push European governments into a premature, and risky, race to slash fiscal deficits before economic recovery is assured.

With a little help from the regulators, the big banks can now declare themselves duly stress-tested, but the systemic instabilities remain. International markets have moved far ahead of the capacity of political leaders to understand, let alone properly oversee them. This failure of political governance to keep pace with global economic integration is as apparent now as it was in 2007.

Even if politicians better recognise the risks of interdependence and the vulnerabilities of particular institutions and financial instruments, they are far from any consensus on how to share responsibility for global oversight. So, three years on, things are much as they were – except that most of us are poorer. The markets rule. OK?

Yves again. It’s worse than that. Not only are the non-banksters poorer, but the perps now have mechanisms in place to assure that the next round of looting will go more smoothly.

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