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