Putting Finance Capitalism "Back in Its Box"

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Putting Finance Capitalism "Back in Its Box" - by Stephen Lendman

So writes Philip Augar in an April 13 Financial Times (FT) op-ed. He's a former UK investment banker/broker and author of The Death of Gentlemanly Capitalism, The Greed Merchants, and most recently Chasing Alpha: How Reckless Growth and Unchecked Ambition Ruined the City's Golden Decade. More on his newest book below.

He quotes Nicolas Sarkozy, a questionable choice, at the G 20 summit saying "The all-powerful market that is always right is finished," then on departure adding "a page has been turned." For Augar, that depends on whether a "free-market" successor is constructed, something "entrenched interests in America and Britain would be well-advised to encourage if they wish to remain centre stage."

Things unraveled after Bretton Woods collapsed - the post-war monetary system of convertible currencies, fixed exchange rates, free trade, the dollar as the world's reserve currency linked to gold, and those of other nations fixed to the dollar. Absent that, Chicago School economists "persuade(d) the Reagan and Thatcher administrations to adopt laissez faire policies and deregulation." We then printed money freely, spent and lived beyond our means, and created an illusion of prosperity and wealth that led to the current crisis.

Earlier, academics and consultants embraced "free markets" and built a "coherent" business strategy on them. Regulation-freed investment bankers sold "the whole package" to CEOs. Once "derivatives theory (and securitization took hold, they) opened the door to share options and performance-based compensation (followed by) three decades in which tooth-and-claw capitalism ruled supreme." In other words, anything goes, checks and balances are out the window, let buyers beware, but look what it brought us.

"Conditions are now right for another radical rethink. The old model is busted. The big beasts of free-market economics, Britain and America, are more wounded" than most - among developed nations, that is.

So far, "governments, central banks and regulators (the few of the latter still around) are groping unconvincingly for solutions." It's high time for new ideas. Clearly the current ones don't work and must be replaced by something else. But to happen, Washington must take the lead followed by "a more effective and creative" academic response than we've seen up to now.

It "requires finance to be put back in its box." Knock it off its "commanding heights" under (Goldman Sachs) bankers like Robert Rubin, Jon Corzine and Hank Paulson, who "upheld the American tradition of Wall Street titans taking public office" and engineering disaster while there. The same thing happened in Britain with former investment bankers in high Treasury posts giving advice beneficial to themselves and companies.

In both countries, money bought influence, the way it always works. The more spent, the more other voices got crowded out, again the usual result.

Former government and Wall Street insider turned activist, Catherine Austin Fitts, recalls an Indonesian cab driver asking her: "Why do you let Goldman Sachs run your government?" Until recently, it's hard imagining that comment in America.

Surely not from mainstream academia. Instead of stimulating debate, the majority go along and are well paid for it. The few dissenters are "dismissed by economic liberals as living in the past or told that the new financial system had 'transformed risk' and raised global living standards" - despite clear proof otherwise. Markets were having a party, and nothing would was allowed to interrupt.

Finance capitalism took over at most business schools, training a young cadre of adherents. Wall Street, High Street, and hedge funds recruited academics with quantitative skills with offers of "life-changing sums in consultancy (and compensation) fees." Little wonder then that finance capitalism drew such interest and that "so much academic output" supported it.

Change is now vital lest other nations displace America and Britain with alternative models. In addition, "academics need to recapture their heritage," their integrity, their "independent thinking, and throw off the (pernicious) influence of finance." Short of that, today's financial titans may discover soon enough that "the page has indeed been turned and they are no longer on it."

Augar's new book, Chasing Alpha, attracted considerable UK attention but not in America. A financial definition calls alpha a "coefficient which measures risk-adjusted performance (of a) specific (investment to) the overall market." The higher it is, the lower the risk, the idea being to find the holy grail of high, sustained returns.

London did it for 10 years, but it's now chastened by a dark era replacing its "golden" one. How spectacular it was while it lasted, and the same is true for America and elsewhere.

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I am a 72 year old, retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.

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