The financial sector has been the great con of both the Industrial and the Information Ages.
The free movement of capital has allowed humanity to strive forward in its pursuit of ever greater technological, scientific, engineering and societal feats. Unfortunately, for well over 100 years, those in charge of the flow of money have found ever more creative and deceitful ways and means of extracting their pounds of flesh. Generation after generation of financiers has shrugged off crash after crisis, which they’ve been instrumental in creating, managing somehow to preserve their primacy of position. Politicians and policy makers remain enraptured by the supposed intrinsic role this industry plays in the happy function of our society.
When Gordon Brown was busy saving the world (errrr, sorry, the banks!) he typified the stance taken by leaders globally in response to the Financial Crisis. In 2008 the banking sector was on its knees and perhaps the greatest opportunity for serious reform was recklessly thrown away. At a time when the industry would have had to accept whatever new measures were imposed upon it, those in charge of monetary policy took it upon themselves to salvage the corrupt edifice that modern finance had become.
They did this by transferring the cost of wildly irresponsible behaviour onto the rest of us, through the succession of QE programmes we’ve now become accustomed to. If this wasn’t bad enough, the same people who snatched all the staggering bailouts were able immediately to pay themselves record bonuses as a direct result of the creation of the rescue money that was created. However, if you think we’ve paid a heavy price so far for this strategic blunder, there is far worse still to come.
The system is rotten, it has been rotten for decades and the passing of time has done nothing to clean it up.
This week three news items have inspired me to write this piece:
- JP Morgan’s record $13billion fine for the role of its subsidiaries in mis-selling subprime mortgages
- News that the FCA has launched an enquiry into the possible rigging of gold benchmarks
- The accusation that FX dealers in investment banks had been using contacts to trade against client positions
Although criminal investigations are continuing into the JP Morgan affair, so far it is its shareholders who have borne the brunt of this fine. Bonuses will continue to be paid and it is highly unlikely enough of the culprits will ever be prosecuted for justice truly to be served. Sure, a few sacrificial lambs might be offered up to the altar of media righteousness, but this will have little to no serious impact in changing the culture of that company. Since 2008, JP Morgan has been fined a staggering $22billion for its role in various scandals, including the infamous London Whale.
As for the FCA’s investigation into the rigging of gold benchmarks and the accusations aimed at the FX dealers, it would come as no surprise whatsoever if it turns out these cases are representative of endemic practices. And will anyone be held truly accountable for either? I would be amazed if they were.
Writing for a publication like SpreadBet Magazine, you might think I am being hypocritical in my stance. After all, margin trading is one manifestation of the quick gain mentally that now pervades our lives and encourages much of the corrupting behaviour that is so corrosive.
However, I don’t go out of my way to con others. What I do with my money is my choice. In any winner there will be winners and losers. This is just the nature of the game, but it is the systemic determination of the financial industry to go to any extreme to grasp all that it can which is becoming a cost too great to bear.
At some point we have to break free from this.
Moving money around the world should be one of the most boring activities imaginable and the cost for its transfer should be negligible. In this era of global high speed data transfer pressing a few buttons can move billions of pounds around the world in an instant. If we are to live in a more stable and equitable world then we must break the grip that the finance industry has over us. Regrettably history tells us that such radical reform can only happen during times of great stress. We experienced exactly such an opportunity in 2008. Now all we can do is wait until the next inevitable and larger crash.