CASINO CAP­I­TAL­ISM MAKES A COME­BACK: And you can’t win against the house

Finweek English Edition - - Column -

SCEP­TICS LIKE ME, who didn’t be­lieve in a V-shape re­cov­ery for the global econ­omy, must now eat hum­ble pie. The JSE’s All-Share is firmly above 25 000 and the Dow Jones in­dus­trial in­dex is manag­ing to stay above 10 000. Those are nice round num­bers and psy­cho­log­i­cally im­por­tant. How can mar­ket watch­ers not be psyched up? If mar­kets are driven purely by sen­ti­ment (see be­low) then you can’t help shar­ing in it.

Those bankers who sur­vived the fall­out can look for­ward to record bonuses. And those bonuses haven’t been too shabby in the past... Gold­man Sachs, the big­gest ben­e­fi­ciary of the cri­sis and there­fore the tar­get of all sorts of con­spir­acy the­o­ries (summed up by the term “Gov­ern­ment Sachs” be­ing bandied about in some US cir­cles – and not just on the far left), shows the way.

The bank has set aside US$16,7bn for com­pen­sa­tion and ben­e­fits in the first nine months of 2009, up 46% from a year ear­lier and enough to pay each worker $527 192 for the pe­riod. That’s af­ter pay­ing back bailout money of $10bn, plus in­ter­est to the US gov­ern­ment. With those sorts of num­bers, call­ing them the mas­ters of the uni­verse doesn’t seem out of place; never mind that the term was coined more than two decades ago about the in­vest­ment bankers of the Eight­ies. Are they the smartest guys in the room? Well, that’s what was said about the ar­chi­tects of En­ron...

You have to agree with the con­spir­acy the­o­rists that fi­nan­cial power is con­cen­trated in very few hands post crises and that the process so far has hardly been trans­par­ent. Or in the words of Bri­tain’s cen­tral banker: “Never has so much money been owed by so few to so many.” Chan­nelling Win­ston Churchill in a cri­sis al­ways helps, but for au­thor­i­ties in Bri­tain to break up or ef­fec­tively rein in the banks – even those they own – seems harder than winning the Bat­tle of Bri­tain. In the United States, where tax­pay­ers are on the hook for tril­lions, they’ve hardly tried. De­spite Barack Obama lam­bast­ing the “reck­less spec­u­la­tion and de­cep­tive prac­tices and short­sight­ed­ness and self-in­ter­est­ed­ness from a few” the Pres­i­dent has done zero to hum­ble the old bank­ing guard. In fact, those re­spon­si­ble for the mess have sim­ply swapped the pri­vate for the pub­lic sec­tor.

It’s not only the few re­main­ing banks not in gov­ern­ment hands that are back to their winning ways. In­vestors with steely nerves who jumped in close to the bot­tom have been able to cash in big time. The Qatari sov­er­eign wealth fund made a tidy £615m from sell­ing Bar­clays op­tions last week. Not bad for a year’s work. At the same time, oil and gas have con­tin­ued their climb on the back of the con­vic­tion by spec­u­la­tors that good times are here again. So both ways the Qatari’s and their petrodol­lar soaked neigh­bours win.

Speak­ing of oil, not only haven’t gov­ern­ments been able to reg­u­late their fi­nan­cial sec­tors and their de­riv­a­tives mar­kets, spec­u­la­tion in oil fu­tures can’t be curbed ei­ther. The US’s Com­mod­ity Fu­tures Trad­ing Com­mis­sion’s plans to crack down on the prac­tices that led to oil at $140/bar­rel not that long ago are un­rav­el­ling. The com­mis­sion wanted to set lim­its on the po­si­tions that could be held by banks such as Gold­man Sachs (sur­prise, sur­prise) and JPMor­gan. But the pro­posed reg­u­la­tions will sim­ply drive the play­ers to more be­nign reg­u­la­tory regimes else­where.

Are we back to the sit­u­a­tion where the global econ­omy is held hostage by a ru­n­away fi­nan­cial and en­ergy sec­tor or are we en­ter­ing a new phase of global growth and pros­per­ity? The front page of The Wall Street Jour­nal of 30 March 1999 – when the Dow closed above 10 000 for the first time – con­tained this choice quote: “Maybe we have en­tered a new era of pros­per­ity and prof­its that rep­re­sents such an ex­traor­di­nary break with the past that his­tor­i­cal com­par­isons are mean­ing­less.” A decade later his­tory is re­peat­ing it­self – but only for a lucky few.

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