What turns a credit crunch into a financial crisis? One reliable sign
is when people who have always advocated privatization, free markets
and deregulation start demanding - without apology - government
intervention, hand-outs, even 'nationalization'. People like
themselves, they say, are not to be trusted with money, so they won't
lend it to each other. Government must do it instead. Besides, it's so
fiendishly complex that there's a good chance no-one else will have a
clue what's going on.
This is not so. In essence, the 'crisis' is pretty straightforward. Financial institutions will, given half a chance (a 'free market'), simply make - or 'leverage' - their own money, then try to find someone else to pay for it. If this works they become immensely rich and so integral to the system itself that it can't afford to let them fail. Because this means that there's no real risk to themselves, they can do pretty much as they like. So, for example, when other sources of profit begin to dry up, you might well turn to millions of 'sub-prime' people whose only asset is – naturally enough – their own gullibility, and get them to buy your money for a home or a pension. When that dries up too, just at the point when you're making more money than ever before, there are always the most gullible ones of all – idiots who actually pay taxes – to fall back on. By playing your 'fiendishly complex' card you can get them to shoulder your debts, then revert to your core beliefs and start all over again, basking in the belief that the system shares your own assessment of yourself as some kind of a genius.
I say this not out of prejudice alone, but from painful experience too. My first proper job was as a 'management trainee' in a bank in Uruguay. At the time I still had a student loan roughly equivalent to a full year's wage, which somehow – mostly related to foreign exchange, I think – I paid off within a year. Believe me, banking pays. Just as well, because otherwise I might not have survived the experience of boredom as the most excruciating physical agony. Ever since, I've known in my own mind that the urge to make money for its own sake is a futile and therefore relentless attempt to mitigate the utter, meaningless tedium of actually making it.
The 'crisis' that bounced me out of it was a little unusual – a strike by the Uruguayan bank clerks. I feel sure that at least one motive for the strike – apart from lousy wages, for sure – must have been to escape, even if only for a while, the oppressive boredom of the job. But, because the country was known at the time as the 'Switzerland of Latin America' (in some respects, much like Britain today), the importance of the banks had to be asserted forcefully. The clerks were 'militarized', liable to punishment as deserters if they didn't return to work. Within a few years of this ingenious experiment, the entire country was militarized.
Whenever there's a 'financial crisis' now I tend to think that I've been taken to the same place far too often before. However, among all the more familiar precedents for the current unprecedented events – Savings and Loans or Long Term Management in the US, Black Almost-Any-Day-of-the-Week in Britain, even (in extremis) the Wall Street Crash – I recall the ones that are routinely overlooked. In particular, I'm reminded of the 'Third World Debt Crisis': yet another means of making money out of sub-prime people, only this time at a safer distance and, in terms of sheer numbers of people, on a very much grander scale. Despite appearances to the contrary, the debt crisis was (and to some extent still is) also about kleptocrats off-loading their debts onto the general public.
It now falls to me to prepare for the September edition of New Internationalist magazine, which will (among many other things) take a look at 'Tax Justice'. In November there is due to be a UN conference on 'Finance for Development', more particularly on financing the Millennium Development Goals, which must be reached by 2015. I can hear it already. What finance? What development?
Who, then, are the real sub-prime people?
Feel free to come up with your own answers.