The Financial Times: The Capitalist Markets and Bankers Have Won. They Still Rule

[Better Believe It]

Three years on, the markets are masters again
By Philip Stephens
July 29, 2010

It has been three years since the roof started to fall in. And only a year and a bit since the more faint-hearted stocked their cellars with bottled water and canned food lest the financial crash presage a descent into anarchy. So what has happened since? Simple: not much. The markets (and the bankers) still rule.

Look back at the grand declarations made by political leaders as the global financial system teetered on the edge of self-destruction. The promises and pledges came from left, right and centre – from Gordon Brown and Barack Obama, from Angela Merkel and Nicolas Sarkozy, from central banks and the International Monetary Fund.

There has also, of course, been one really big change: hundreds of billions of dollars in toxic assets that once sat on the books of the banks have been piled on top of the deficits caused by the crash-induced recession. Families are paying the bankers’ bills through rising taxes, shabbier public services and higher unemployment.

The rating agencies – remember them? Some may recall that these very same organisations were deeply complicit in the chicanery that saw worthless debt instruments repackaged as top-notch financial securities. I am sure I heard the politicians say they would be cut down to size. It never happened. The rating agencies never repented; and now they are masters again.

Now the policymakers will tell you they have acted to remedy these mistakes. Some governments have imposed windfall taxes on the big banks; the US has legislated for a tougher regulatory regime. The most egregious excessive bonus payouts now include a tenuous link to performance. The Basel committee of regulators is to impose tougher capital requirements – though not, we must understand, until 2018.

Worthwhile as they probably are, such measures look like tinkering when set against the capacity of capital markets to wreak economic havoc. Financial institutions are still extracting large profits from trading activities described by Lord Turner, the head of Britain’s Financial Services Authority, as inherently useless. Lord Turner, however, has been almost a lone voice in suggesting a fundamental rethink.

The crisis in the eurozone shows how the herd instincts of capital markets can destabilise an entire continent. The consequence has been to push European governments into a premature, and risky, race to slash fiscal deficits before economic recovery is assured.

Even if politicians better recognise the risks of interdependence and the vulnerabilities of particular institutions and financial instruments, they are far from any consensus on how to share responsibility for global oversight. So, three years on, things are much as they were – except that most of us are poorer. The markets rule. OK?



Read the full article at:

http://www.ft.com/cms/s/0/c0074548-9b47-11df-baaf-00144feab49a.html

[villager]

1. Interesting how the Financial Times can be vastly more honest than the "liberal" media

...here in America...

[Ruby the Liberal]

2. I take exception to the comment about the ratings agencies

We have already seen fallout from FinReg in that regard. Now that they can be sued for rubber stamping good ratings on bad bonds, they are pulling back and refusing to issue ratings.

Just ~2 weeks ago, Ford had to pull 2 new bond issues because no one would rate them.