New Internationalist

Markets

Issue 306

Confessions
of a global gambler

Welcome to the world casino!
David Boyle finds it hard to resist.

[image, unknown]
HARTMUT SCHWARZBACH / STILL PICTURES

CROSS the American desert to Colorado, climb along the snaking road up to 8,000 feet above sea level, and you can get a glimpse of the effect unrestricted gambling can have on a community.

The small community of Black Hawk was a quiet inoffensive place with a population of 350, until the state legalized gambling. It changed overnight. When I went there a year or so later, the place was crawling with people. A man in a fluorescent jacket and dark glasses was directing traffic at the tiny cross-roads in the centre and every building from the Silver Hawk Saloon to the end of the town seemed to have been devoted to gambling - Doc Holliday's Casino, Bonanza Casino, Crook's Palace, Bronco Billy's.

There was something horrifying about it, especially as Black Hawk merged into the next town, Central City - 'The Richest Square Mile on Earth', according to a large poster - with earthworks and new buildings and shacks flying up wherever we looked, some of them apparently unattached to the ground. It was a tribute to the astonishing power of money. The gold-rush towns of over a century ago must have looked similar.

Most casinos in the US now sell their own credit cards and provide cash dispensers which give you money while they rake off a 20-per-cent commission. A slightly lower commission, but a hidden one, exists for the slot machines. The result, said Simon Hoggart in his book America: A User's Guide, is that '$100 in quarters will allow you to pull the handle 2,660 times before it's all gone'.

'Old ladies feverishly shovel the cash in, and at first you think they must have lost their minds,' wrote Hoggart. 'But the maths shows that they have to work fast, in order to lose all their money before the bus goes back to New York, Washington or Philadelphia.'

Money can make you shiver sometimes. Especially when you know that if you thought there was a reasonable chance of winning in Doc Holliday's Casino, you would have allowed the man in dark glasses to direct your car and gone right inside.

The truth is, I have to admit, I'm addicted to gambling too. My pension contributions, my building society account, my mortgage are all modest to say the least, but they link me into the explosive global financial system upon which we increasingly rely.

Through all my debts and investments, not to mention my purchases, I am taking part in the biggest casino the world has ever known. There are winners and losers, the markets shoot up and - especially if you happen to be in the Far East - they shoot down. But there are also mega-winners. Like bookies or croupiers, the Masters of the Universe in Wall Street and the City of London win whichever way the markets go, just as long as they move. Which is one reason why the 190 partners of the Wall Street investment bank Goldman Sachs look set to make $100 million each if they go public this year.

[image, unknown]
Down and out in Tokyo.
Even seemingly strong economies are vulnerable
to the vagaries of casino capitalism.
ANDREW TESTA / STILL PICTURES

This global casino is a shadowy world, where rumour and mood can shift billions of dollars in minutes. The daily flows in the currency exchanges are now running at an estimated $1,300 billion, and the World Bank reckons that 95 per cent of this movement is speculative, which means that only 5 per cent is actually related to the real trade which keeps our economies moving along.

The new phenomenon of derivatives - the trade in futures and options which allow corporations to hedge their bets - takes the risks and rewards of the global casino to an even greater extreme. Derivatives trading is so huge now that only a two-per-cent loss in trade would be greater than all the world's reserves of money.

'There's blood in the water,' Morgan Stanley's president John Mack urged managing directors in his bid to sell derivatives. 'Let's go kill someone!' The problem is that the Masters of the Universe are supposed to keep world economics stable, while their vested interests nudge them in the opposite direction. Stability is not profitable: mild instability is, because it is the fluctuations which make profits. But instability is very unpredictable for the rest of us, especially if our home happens to be Russia or Southeast Asia and our life happens to depend on the currencies of these regions.

If we are dependent on export earnings to pay off a hefty debt, as the populations are in many developing countries, a slight shift can blow away our carefully constructed niche in the world market.

We are all dependent on the global casino, directly if we happen to be shareholders. Encouraged by governments which are less and less able to afford the burden of pensions for rapidly-ageing populations, Europeans are joining their American cousins in their fascination for the stock markets.

The net assets of Italian mutual funds shot up from $123 to $206 billion just last year alone. Investments in Spanish equity funds tripled. Stock markets soared last year by 99 per cent in Italy, 85 per cent in Spain, 48 per cent in Germany and 43 per cent in France. In recent months the bull market in the US roared ahead, the Dow Jones edging towards an historic 10,000 points - a fearsome total given that the index is now just over a century old and took 70 years to reach its first thousand.

The trouble is that, once on the bandwagon, it is very hard to get off. Disappointments are dangerous and can lead to market collapse, yet the system has to sustain repeated record growth for it to keep going. Worse, continual growth depends on us all over-consuming - and demands that over-consumption should spread to developing countries as soon as possible.

The Wall Street Journal has already warned against the damage done by downshifters. 'Our enormously productive economy,' wrote the post-war retail analyst Victor Lebow, 'demands that we make consumption our way of life, that we convert the buying and the use of goods into rituals, that we seek our spiritual satisfaction, our ego satisfaction, in consumption... We need things consumed, burned up, worn out, replaced and discarded at an ever increasing rate.'

[image, unknown] We may not want to. We may realize that the things which get worn out and burned up are actually ourselves. We may rebel at having to carry on the ultimately self-defeating dance to keep the economy moving a little bit longer. But it is difficult to opt out when we all depend, apparently, on its froth.

Carolyn Wesson in her book Women Who Shop Too Much claimed that 59 per cent of Americans were addicted to shopping. Another survey showed that only a quarter of people shopping in malls had gone there with any specific product in mind. The global casino depends on them staying hooked.

Of course, it is easy to be puritanical about this dilemma, but we global gamblers are actually caught on the horns of a number of serious dilemmas like this. Here are some more:

  • Derivatives were developed as a way of spreading risk but have turned out to be one of the riskiest transactions - witness the collapse of Barings Bank and the terrifying Japanese experience, where debts of over a billion US dollars are looming large.
  • Debt is a useful way of allowing us to develop the projects we need but can have catastrophic effects - which is why the average American now retires having earned enormous sums by the world's standards, but having amassed an average of only $5,000 from all that tumultuous cash flow. It is, paradoxically, immensely profitable: the junk-bond revolution plunged American business into debt, and led to the recent phenomenon of downsizing, but junk bonds earned up to $1.5 million a day for their greatest enthusiast, Michael Milken.
  • The invention of compound interest has made old age pensions possible. Yet the expectations of interest mean that money demands greater and greater returns, and increasing sums of spare capital hurtle around the world, building dams, demolishing forests and destroying lives.

The problem is that money was never meant to sustain these kinds of returns. When the ancient Egyptians stored their surplus grain, they received marker sticks to record their deposits, which they then used as money.

Grain, like all natural things, tends to decay or be eaten by rats, which meant that this money also lost value as time went on. Our modern interest-bearing money works the other way around: the casino we are all chained to depends on producing returns simply from possessing and investing money.

It turns the parable of the talents on its head: if you leave it lying in a bank account, it works for you. 'It is amazing that this monster, interest, has not devoured the whole of humanity,' said Napoleon Bonaparte, awed by a power greater than his own.

Still, we have to be realistic and see things as they really are: that is probably the advice that Gamblers Anonymous would give us. The money system may collapse disastrously, but will almost certainly continue in one form or another.

So what, in these circumstances, can I do about my addiction? I have four suggestions for myself:

  • Use new kinds of money, which could be anything from LETS currencies or old-fashioned barter to the simple exchange of favours with neighbours. These exchanges are more human, they build what economists call 'social capital' and are not dependent on the global casino.
  • Shop small: where possible, avoid the big chains and the big names, and use your money to support small, local businesses.
  • Invest ethically where possible. Over $2.56 billion in investments is already screened ethically in Britain alone, and the evidence is that ethical investors are beginning to have clout. BP's stock price rose when it dropped out of the Global Climate Coalition - the group of oil companies trying to undermine agreement at the Kyoto conference.
  • Downshift anyway. We don't have to go all the way, but every decision we take which puts our broader health, wealth and happiness above immediate financial returns weakens our dependence on the casino, and weakens its power over the world.

    The more of us taking these simple steps, the more we can unravel our addiction to gambling. If we don't, the horrible transformation of Black Hawk, Colorado, could happen to us all.

    In fact, it is probably happening already: somewhere in my heart, there is already a man in dark glasses parking my car.

David Boyle is author of the forthcoming Funny Money: In Search of Alternative Cash to be published by HarperCollins in January 1999. He is also editor of New Economics magazine.

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