Tuesday, July 10, 2012

A Crisis of Capitalism

 The Wages of Sin, Apparently

Among the scandals that have surfaced since the US sub-prime market came apart in 2008, the currently unraveling LIBOR (London Inter-Bank Offer Rate) fixing conspiracy is the granddaddy of them all.  The interest rates for inter-bank lending in London might seem remote, but LIBOR influences every credit instrument a consumer can buy.  Mortgages, car loans, credit card rates, home equity loans, almost everything with an interest rate is based partly on LIBOR.  So if banks were fixing LIBOR, you are paying for it.

The Economist, not exactly a bunch of Marxists, said that the scandal exposes “the rotten heart of finance”.  They posit that the resulting lawsuits could amount to hundreds of billions of dollars in penalties for the banks involved.  Some of the remaining too big to fail banks may fail as a result, leading to more bailouts.  And the list of banks being investigated is breathtaking; Barclays (who co-operated and got hammered in the press), Royal Bank of Scotland, Citi, HSBC, JP Morgan Chase, UBS and Deutche Bank.  That’s just for starters.  Even the Bank of Fucking England, and possibly the US Fed were involved.  Investigations are going on in the US, UK, Japan, Canada, Switzerland, and the EU.

LIBOR is supposed to be the shining example of what an efficient market can do.  Fixing the rate should result in market imbalances that attract arbitrage which re-balances the market.  Clearly, this did not happen.  Probably because too many people were in on the game, probably because the imbalances were being concealed as well.  Rather than being the proof of market efficiency (the key advantage of a capitalist system), the scandal proves that there can be no efficient markets without regulation and policing.  Pure Capitalism doesn’t work, just like pure Marxism didn’t work.  Both, it seems, devolved into utterly corrupt, unaccountable gangs of thieves that enriched themselves at everyone else’s expense.