21 Nov 2011

Who understands 'the bubble'?

When I was a child, a gloomy portrait hung above the mantle in the dining room. My father, whenever pressed, would tell us of the sitter – Tom Snow, a banker in the City of London – our many times great, and not so great, grandfather.

Tom made a killing out of the eighteenth century South Sea Bubble. Some time in the 1960s my father sold the last of Tom’s ill-gotten bequests, a Georgian silver salver, to fund private schooling for your blogger.

One of Tom’s unlucky investors, lured into losing his money in the South Sea Bubble, was Jonathan Swift who damned my forebear in his “The Bank Thrown Down”. Snow himself lost nothing in this City scandal in which investors poured money into supposed assets far away in the Southern seas.

Today the “bubble” is back. Old Tom Snow survived with his wealth through activities in the City that no one fully understood. So it is today. Derivatives, algorithmic mechanisms, credit default swaps, the instruments abound.

I meet endless city operatives who tell me of the invention of still more incomprehensible mechanisms for gambling, betting, skimming, and simply making money out of moving money in nanoseconds. Much, if not most of this activity, has been facilitated by the evolving power of computing. Much of it has been classed by the Chairman of the Financial Services Authority, Lord Adair Turner, as “socially useless”.

We are now at a point in our global history where sovereign national wealth, corporate capital, and even the smallest domestic investment, are in play in a market the ramifications of which almost no one fully understands. Perhaps it is worse than that. Perhaps we are in a market in which absolutely no one fully understands every mechanism in play. That would include financial regulatory authorities, the police, and us. Hence the return of the Bubble, a moment in which massive fast money seems to be winnable within the law.

But should it be? Should the world’s financial systems include massive bets on failure? At least the bubble was built on the myth that the betting was on distant success.

One of the reasons no banker has been jailed for either the 2008 crash, or the present mire, is that what they did, and what they are still doing, is perfectly legal.

Yet it has resulted in this threatening, looming, global meltdown. We have no idea of the scale of what is out there or how it will play out.

But will not history ask why we allowed interplays of dealing, betting, trading, gambling, and the rest which enriched so few at the cost of threatening the well-being of so many?

Why is there no G20 meeting, no UN debate, no international, or national debate centred on achieving a global ban of these “socially useless” activities?

At least Jonathan Swift was able to understand the criminality that produced the bubble. How many of us today can claim the same of our own very present, infinitely larger, and disastrously toxic bubble?

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