Blog 48

During the week that followed September 16 2008 billions of monies disappeared from the stock markets of the world triggered by the collapse of Lehman Brothers, the wayward investment bankers. It was the beginning of the biggest recession since the 1930’s, almost a century before.

In the panic that ensued, politicians ran around like headless chickens unsure of what to do to avoid the onset of financial collapse and the onset of a full blown recession, even depression.

It was the banker’s friend, the incumbent British Prime Minister Gordon Brown, pompously proud of his classical economics background that came up with the misguided solution that pouring more borrowed money into the coffers of the perpetrators of the crimes would solve the problem. Unfortunately London’s misguided solution [and self interested solution since the banks own London] was taken up quickly by other governments as also being their panacea.

But consider this, on that fateful week in 2008 when the stock markets lost their billions, what happened to the wealth of the world? Was a car still worth a car? Was a plane still worth a plane? Was a house still worth a house? The answer is simple, the wealth of the world was unchanged, all the roads, bridges, buildings in fact every physical thing that represents the worlds wealth was worth exactly the same. No loss, well at least not yet.

The tragedy of the ‘bail out the Banks’ policy is that it just bolstered up an already seriously faulty system. The money governments used to bail out the banks was borrowed from the banks [where else would they get it from?], using the future as collateral. Which is just another example of how most the money in the financial services sector is fictional; it can have any value you want to give it, it’s just a giant money-go-round. The fact that it can be worth this much one day and less the next is a measure of its volatility, its unreality.

Who in the real world cares if the total amount of money swilling around in the financial services sector is worth a dollar to the dollar or a cent to the dollar? Who in the real world cares if one financial services company makes 5 billion profit in the first quarter? It just means that someone somewhere else made a 5 billion loss.

But the biggest tragedy in all this is the knock on effect of all ‘bank misdemeanor’ induced recessions, unemployment. The unemployment of just one potential wealth creator is the single most devastating factor in social economics.

But before I go any further with this, let me just say that unemployment is too broad a description for the non-employment of a person. First we have to identify in which sector of the economy the individual is employed, for it is only the loss of a ‘wealth creator’ that will affect the health of the economy, anyone employed in the financial services sector that loses their job will have little or no effect on the economy, [other than possibly the negative effect if they claim unemployment benefit]. In this respect I prefer to think of the ‘employed’ as two distinct groups:

• Wealth creationists and,
• Those in parasitic employment.

So, it is my contention that if the billions poured into the banks had instead been poured into wealth creation industries the world’s economy would not only have recovered very quickly but it would have been built upon a solid foundation of boosted wealth creation. Unemployment would be replaced with a demand for more workers.

Salt of the earth wealth creation companies like Chrysler Motors would not have teetered on the edge of extinction through no fault of their own. Unemployment, instead of increasing would have been dramatically reduced, almost overnight and the creation of wealth would have continued unabated. The inevitable migration of those formerly in parasitic employment towards the wealth creation sector would have further boosted the economy.

At the time of the 2008 meltdown a senior executive at of one of the large investment banks admitted during a TV interview on BBC World News, that a "cull in the financial services sector was overdue". I suspect that 'cull' is not exactly the word most people would use these days.