The value of currencies
Enter the speculators
How to manage a currency crisis
Monetary unions and dollarization
Foreign-exchange reserves shift to Asia
6 The 2008 crash: debt-driven disaster
Financial bubbles and crazy loans
The credit crunch and how it arose
Meltdown and the world’s response
How quantitative easing works
Public debt and the eurozone crisis
7 How to get our money back
Taking back control of money creation
How 100-per-cent reserve banking would work
The idea of sovereign money
Why we should tax transactions
Closing the tax havens
Index
For years, the world of finance had become more and more distant from the ordinary citizen, its dynamics increasingly shrouded by arcane terms such as short-selling, credit default swaps and securitization. With banks pushing credit cards on people, with seeming disregard for their credit history, and offering them mortgages at low interest rates, many were happy to be swept along by the financial flow without really understanding what was going on. When people were advised by bankers that keeping their money in savings accounts was old-fashioned, and they were foregoing tremendous profits by not putting their money in high-interest-bearing accounts that would allow the banks to make money for them, they were all too happy to oblige, accepting their banker’s word that there was no way for them to lose.
In 2008 that fantastic world collapsed, and millions of unsuspecting citizens were dragged to the brink of personal disaster by forces they could not understand. The banks were bailed out with vast sums of taxpayers’ money and the price of the resultant debts has been paid by ordinary people all over the world. Meanwhile the bankers and speculators have not only gone unpunished but have continued to rake in their huge bonuses.
Had Peter Stalker’s concise explanation of the money crisis been available earlier, many people it might have reached may well have been more circumspect in relating to the financial economy. Stalker does an excellent job of deconstructing finance, taking us from the origins of money to the development of banks, on to the world of high finance, and on to the great crash of 2007-2008. Complex terms such as futures and derivatives are explained simply, though there is a limit to understanding the dynamics of some these instruments. Even the US billionaire investor Warren Buffet admitted he could not understand how derivatives worked, eventually calling them ‘financial weapons of mass destruction’.
The author ends this NoNonsense book with many reasonable proposals to regulate finance. This writer would add others. I would abolish the G-20, the Financial Stability Forum, the Basel Process, and the IMF, and support the establishment of a global financial authority under the umbrella of the United Nations. The aim of financial reform must no longer be to allow a few to corner financial profits. It must be, as the author says, to get banking and finance back to its primordial task of connecting savers to the people who need the money.
Walden Bello
Author of Capitalism’s Last Stand (Verso, 2013);
Adjunct Professor, State University of New York at Binghamton; Member of the Board, Focus on the Global South.
Sellers of Situation Sthlm, Sweden’s street newspaper sold by the homeless, have now been given credit-card readers so that they can accept electronic payments instead of cash. Another step forward in what is already the world’s most cashless society. The purchasers no longer have to contribute spare change, but what exactly are they offering? A few borrowed seconds of plastic, a sudden burst of digits across the ether, critical information about their whereabouts and their lifestyle choices, a new entry in a database, another line in a bank account? The answer is all of these things and more – all of which could be summed up as ‘money’.
What exactly is money? Truth be told, there is no definitive answer. Clearly it is much more than coins in your purse or notes in your wallet, or even gold bars in a bank vault. But after that things get much fuzzier. Money is what money does. Ultimately, it is a system for measuring social relationships – helping define mutual rights and obligations. The cash and coins that we exchange are just tokens of that trust. Seen in this way, money and the monetary system that we use ought to be an essential element of the ‘public realm’.
This principle of money as a ‘public good’ is reflected in the symbols of our currencies, reassuringly embossed as they are with the heads of monarchs and presidents and ornate national symbols. But what about a payment for Situation Sthlm? No sign of King Gustaf VI Adolf or any other Swedish notable. Instead you will probably have to make do with the logos of Visa or Mastercard, or maybe your bank. At this point money glides into the private realm. Not only is the payment a personal transfer, it has gone into a commercial money system.
This has long been the case. Money has evolved differently in many societies, but has always involved complex interlocking roles and responsibilities combining public and private action. Nowadays we might assume that governments print or stamp out the money and that the banks then manage this, principally by taking savings and passing these on as loans. This is far from the case. In fact, most of the money circulating in our economies has been created by banks out of thin air.
We went along with this system while it appeared to work. We trusted our governments to control the money supply and regulate the banks. We trusted the banks to act legally and responsibly. Our faith was shattered by the 2008 global financial crisis. Governments and central banks struggled to manage flows of money, and greedy and incompetent financiers triggered a global economic crisis – plunging millions of innocent families into the misery of public austerity programs. Not everyone suffered. By and large the money men survived and prospered. Indeed they brazenly paid themselves even larger bonuses.
We cannot even rely on bankers for basic honesty. Banks around the world have been caught in a series of scandals ranging from abuse of power to malpractice to fraud. Between 2009 and 2013, a group of international banks were fined a total of $267 billion. This included rigging foreign-exchange markets, lying about interbank lending rates and mis-selling insurance.
These and many other banks were also implicated in the global financial crisis. In fact, however, this was as much a money crisis – which exposed fundamental flaws in our monetary systems. Worse, in trying to revive national economies by encouraging banks to lend more, we are now piling up more of the private debt that led to the crisis in the first place.
Instead we should pay more attention to money itself. Generally we take it for granted.
