Any enquiry into the about the Barclays Libor Scam created by the government, either a select committee or a QC lead enquiry, will do nothing to address the real problems. Such an enquiry presupposes that the fault lies either with the conduct of the banks or with the regulatory system.
But the real problem lies with the entire design of the banking and financial system as we have it. That can only be addressed by understanding that the current system is not just faulty but wrongly conceived – insofar as it was ever conceived.
As Positive Money argues, the means by which new money enters the system needs to be completely changed so that the banks are banned from performing this function. Money creation by the banks is as old as banking, but some new practices have appeared with the new world of banking ushered in by the Neo-Liberal orthodoxy that date only from the 1980s or later.
I wrote in a recent PM blog about how securitisation, one of the emblems of this new world of banking, should be illegal as, just for starters, it violates principles of legal contract.
But going on from that, the practice of banks’ “selling risk” through “swaps” is only made possible with securitisation. This idea that you can “sell risk” would seem absurd outside the unreal world of banking. Imagine you run a company and, like any company, you see dangers and risks to your business through changing markets, new competitors, or whatever. The solution? Let a third party carry the risk and you pay them a regular fee for doing this. Then you need have no worries and no sleepless nights
Well, of course, that is never going to happen. And it flies against all common sense, and, I would say, even against nature. You can insure against quantifiable risks like, fire or theft, but we are talking about non-quantifiable risks here. They have to stay as your risks and no one else’s. But banking does not operate according nature law. Its structures rest ultimately on a hideously distorted model of reality – but a model that enables the directing of billions into its malign machine.
Securitisation leads to swaps but then swaps lead to an even more obscene, unnatural, degenerate invention by the “masters of the universe” – “synthetic derivatives”. Don’t you love the terminology? It is designed to be off putting. A synthetic derivative is a means whereby two parties construct a contract around an asset that neither need actually own. One party pays a regular fee to the second and the second then underwrites the risk as if the first owned the asset.
This is not investment it is pure gambling. Since the introduction of synthetics in 1997 the market for them has ballooned the total size of the financial “economy” many times over so that now it dwarfs the real economy where you and I work and live. Tony Blair tried unsuccessfully to set up “supercasinos” but meanwhile Gordon Brown and Ed Balls were participating in the creation of a planet-sized casino, sucking trillions into its coffers.
Will the government enquiry address such issues? Hmmm. Well, I think not. The problem is way outside of their world view. Worse than that, they are wholly implicated in the system as it stands.
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