Feeding The Monster

By Ian R Thorpe
The bank is something more than men, I tell you. It's a monster. Men made it, they breathe
profits, they eat the interest on money, but they can't control it. But the monster can't stay the
same size, it has to grow, if the monster does not grow it dies and if the monster is to grow it
must be fed.
John teinbeck, The grapes !f "rath
The bloke on television was billed as an "independent trader" on the little
information strip at the bottom of the screen. He was talking about the latest eurozone
rescue plan the one where ta!payers in a dwindling number of solvent countries
stump up ever increasing amounts of their hard earned to keep the spendthrift nations
afloat for "ust a little longer.
#hat does an Independent Trader do$ you might well ask. Hard to say with any
certainty but something like this sort of stuff%
&ost investors or in the case of us ordinary punters the mangers of pension and
investment trusts that hold our savings obtain shares or bonds or other securities in the hope
that their value will rise. In the past decade however the markets have been unduly
influenced by traders given the rather harmless sounding label short ' sellers. The name
suggests vertically challenged people who turn purchases around (uickly for profit when
prices rise rather than holding long term for interest and dividends. )on*t be deceived.
Though the term arbitrage sounds a lot more worrying than nice cuddly short selling if
arbitrge is )r. +vil short selling is in fact arbitrage*s even more evil kid brother. ,n
arbitrageur simultaneously buys and sells stock or bonds in two markets in order to e!ploit a
price difference between the two -though no longer illegal in itself arbitrage relies on
insider dealing which is illegal.. /hort selling involves borrowing shares from their owner
maybe as collateral on a loan having agreed to return those shares to the owner*s account on
a fi!ed date. The short seller then sells the items onto an unsuspecting third party effectively
betting that the share value will go down and they will be able to buy more cheaply enough
shares to return on the due date pocketing the difference.
/hort sellers hope their price will fall. They might borrow for instance 01111 shares
and sell them for 20 a piece. Then they pray that the value collapses. If they*re in luck and
the share price halves they can buy the same number as they sold for 31p each. They return
the shares to the broker who lent them and pocket 23111 -minus fees..
The Independent trader*s description of the markets was not as scathing as mine
perhaps but even so was not going down well as he e!plained the cavalier approach
financial traders take when gambling with our money if he had been playing a
comedy club he would have been booed off as it was his small audience were
television presenters and a handful of pundits and chatterati and they "ust sat in grim
faced silence as he told them things about the plan they did not want to hear.
"It*s not going to work" he said "because this problem can*t be solved. The +uro
he said was *going to crash*. But when the interviewer asked what he thought might
work to save the currency he blinked like the myopic mole in The #ind In The
#illows confused by the (uestion...
")on*t ask me I*m a trader" he said. "#e don*t care whether they fi! the
economy. 4ur "ob is to make money from it." ,nd then he offered us all some free
investment advice% "The 0561s depression wasn*t "ust about a market crash" he said.
"There were some people who were prepared to make money from that crash. I think
anyone can do that. It is" he said "an opportunity7". His advice was simple% "be
prepared". This was "not a time" to think that governments would sort things out.
"8overnments" he said "don*t rule the world. 8oldman /achs rules the world."
#ell he might have meant The Bond &arkets rather than 8oldman /achs it is
difficult to see how one bank can rule the world a cartel of bankers maybe but not
"ust one. Ironic though that he should mention the 0561s it was then that 9ohn
/teinbeck wrote the words% ":The monster has to be fed all the time. It can*t wait. If it
isn*t fed it can*t grow. #hen the monster stops growing it dies. It can*t stay one size.;
-paraphrased slightly for conte!t from The 8rapes of #rath..
/teinbeck was talking about the banks that caused the great depression by
inflating investment bubbles but he could "ust as easily have been talking about the
global economy based on perpetual and accelerating growth in 8ross )omestic
<roduct that took hold in the 05=1s and eventually led us to the bursting of the debt
bubble and the economic crash of >11?
,s the +uro crisis unfolds on our television screens and in our newspapers it is
beginning to look as though governments do not rule the world nor would they have a
clue about how sort out the mess they have blundered into by blindly following the
advice of academics @obel prize winning economists who have never left the
university campus long enough to hold down a "ob in the real world. The impression
one gets is that they*re all hoping for a miracle. #e have 4bama telling +uropean
leaders that the + A needs "more effective strategy" for dealing with the crisis
although his promises to solve ,merica*s debt problem with one wave of his magic
penis have as yet not been realised. Here*s )avid Bameron calling for "leadership".
Here are pretty much all the world leaders in fact calling for other people to lead. ,s
models of leadership go it*s less "be prepared" and more "DON'T PANIC7".
@obody in government academia or the media seem to understand what is going
on. ,nd yet is it painfully easy. Cifty years of politically correct thinking the soft
socialism of the bourgeois left and the tyranny of the weak have undermined
traditional values replaced stoicism with sentimentality rewarded failure and
punished success and broken the social and cultural bonds that bind communities.
/ocial engineering pro"ects have destroyed social mobility rather than increasing it
the replacement of skilled and semi skilled "obs in manufacturing by technology and
the creation of a new managerial elite has destroyed the balance of society.
Thus alienated from their cultural roots people have taken refuge in materialism
and lived on easily available credit as they based their lifestyle on the instant
gratification of impulses.
4ne economic pundit <aul &ason has e!plained how a group of "movers and
shakers" -but not world leaders. had taken part in a "war game" looking at possible
solutions to the euro crisis. The "war game" was organised by a think tank called
Bruegel. The "movers and shakers" went to a chateau in Bhantilly -at the e!pense of
ta!payers.. #hat they came up with D in a document that has apparently been doing
the rounds in #ashington D was a E6'3 trillion fund should be created to be used to
rescue +uropean countries and banks hit by debt problems.EA/ 6'3 trillion donated
largely by +uropean ta!payers.
Blearly such proposals are insane but the politicians and academics at the top of
the new elite*s oligarchy are so out of touch with reality they do not understand the
madness.
Back in the television studio while some of us were still thinking about the
chateau and wondering what e!actly paintball game had to do with saving the +uro
or worrying about how we were going to pay the dentist the 2F11 he was charging for
a tiny bit of work or get the car fi!ed the lead presenter asked various people
whether they thought the plan would work. ,n ,merican economist called ,ustan
8oolsbee said we*d had two years to raise capital and it was all a bit late. ,
Bonservative &< called /a"id 9avid who used to be an investment banker said it
couldn*t work because the euro was "a bankruptcy machine and a swindle". ,nd 9im
4*@eill who*s the Bhairman of 8oldman /achs ,sset &anagement said that "to
work all this stuff out" was "not easy". #e were he said "talking big numbers".
#hen one of the top people at the company which some people think "rules the
world" thinks that you as a +uropean ta!payer could be paying for something for the
rest of your life that might well not work it does not inspire confidence for the future.
It makes you think of the way that the people this guy works for helped to create the
global economic crisis by selling sub'prime mortgage debt and how that company
made even more money by betting on a collapse in the sub'prime market that would
ensure the very people they sold their debt holdings to would be ruined and of how it
made money by underwriting bonds and later advised other clients to short those
bonds who could be blamed for stuffing their savings in a mattress or blowing it on
fast cars and sow horses.
It makes me think of 8reek debt which is a very big part of the euro crisis and
of how some people said that 8oldman /achs for years helped the 8reek government
hide the true scale of hat they had borrowed to fund an unsustainable welfare system
which made it possible for 8reeks to live well without having to trouble themselves
with work.. ,nd it makes you think of all the 8oldman /achs people who have
become very senior advisers to governments or even very senior members of them
or even /ecretary of the Treasury of the most powerful country in the world.
#hat it also makes us think is that being lectured by these economic illiterates is
(uite insulting and being told that we can*t ask them to pay even >3 per cent ta! on
annual incomes that are often paid in millions and that you can*t do things because
"the markets" won*t like it even though the only things that markets like is things that
make them rich. It is also insulting when they tell us we don*t understand economics
and so are not in a position to comment on the latest round of (uantitative easing or
the maintenance of central banks interest rates at insanely low levels or the way true
inflation figures are disguised as government try unsuccessfully to inflate away their
debts by destroying the savings and pensions of the thrifty.
+conomics is easy anyone can understand it. In his novel )avid Bopperfield
Bharles )ickens e!plains the whole dismal science in a couple of sentences when &r.
#ilkins &icawber advises )avid BopperfieldG ",nnual income twenty thousand
annual e!penditure nineteen thousand nine hundred and ninety nine result happiness.
,nnual income twenty thousand annual e!penditure twenty thousand and one result
misery." ,nd that*s all you need to know. -)ickens fans will note that I updated the
amounts. That*s inflation for you..
,fter the >101 AH 8eneral election when the coalition government inherited a
mess from the defeated Iabour administration a former Iabour finance minister
grudgingly admitted that his party "didn*t regulate the banks toughly enough". That
doesn*t come anywhere near to admitting that under Iabour between 055= and >101
a monster was created and unleashed on the British economy. @ow we must live
with this monster which gobbles up "obs and hopes and dreams. It is the 8)<
monster and has already destroyed manufacturing retailing and the service industries.
They only way it can grow now is if the government keeps increasing its spending
and pumping more of their revenue and borrowings back into the monster*s feeding
trough.
#e live in "fast buck economy" a "fast buck economy" that seems to be
destroying the #estern world. #e didn*t need to. #e didn*t need to make financial
services the biggest industry we did not need to crate a housing bubble by lending
money secured on worthless assets to unreliable people. #e didn*t need a new <B
every two years or to throw out a perfectly good domestic appliance because the
replacement uses slightly less energy. #e didn*t need to live in a bubble made out of
debt. But we did what we did because our governments and the banks did businesses
did and our neighbours did and here we are.
That "independent trader" was right the +uro cannot be fi!ed with all +urope*s
weakest economies tied to the 8erman economic powerhouse things can only get
worse. 8reece <ortugal and Ireland have already failed ne!t it will be /pain then
Italy. +ven Crance is in danger. ,nother recession looks inevitable in fact the last
recession and the one before that never really ended all that happened was
governments and banks created funny money to give an illusion of recovery. #e
borrowed from the future to pay for the past. I hope that the developed nations that
have all made the same mistakes get the chance to build an economy that*s made less
of hot air and more of things you can see and touch. It was Brueghel by the way D
the painter not the think tank D who painted Iandscape with the Call of Icarus. There
was a lad knew all about flying too close to the sun.
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,bout Ian R Thorpe