An economy of buccaneers and fantasists

Weapons of mass financial destruction

by Gabriel Kolko
Le Monde diplomatique

(From October 2006)

".......Reality is out of control. The entire global financial structure is becoming uncontrollable in crucial ways that its nominal leaders never expected, and instability is its hallmark. The scope and operation of international financial markets, their “architecture”, as establishment experts describe it, has evolved haphazardly and its regulation is inefficient — indeed, almost nonexistent (21).

Financial deregulation has produced a monster, and resolving the many problems that have emerged is scarcely possible for those who deplore controls on making money. The Bank for International Settlement’s (BIS) annual report, released in June, discusses these problems and the triumph of predatory economic behaviour and trends “difficult to rationalise”. The sharks have outflanked more conservative bankers. “Given the complexity of the situation and the limits of our knowledge, it is extremely difficult to predict how all this might unfold” (22). The BIS does not want its fears to cause panic, and circumstances compel it to remain on the side of those who are not alarmist. But it now concedes that a big crash in the markets is a possibility, and sees “several market-specific reasons for a concern about a degree of disorder”.

We are “currently not in a situation” where a meltdown is likely to occur, but “expecting the best but planning for the worst” is still prudent. The BIS admits that, for a decade, global economic trends and financial imbalances have created worsening dangers, and “understanding how we got to where we are is crucial in choosing policies to reduce current risks” (23). The BIS is very worried.

Given such profound and widespread pessimism, vultures from investment houses and banks have begun to position themselves to profit from imminent business distress, a crisis they see as a matter of timing rather than principle. There is now a growing consensus among financial analysts that defaults will increase substantially in the near future. Because there is money to be made in the field, there is now great demand on Wall Street for experts in distressed debt and in restructuring companies in or near bankruptcy."