ZNet: AN ECONOMY OF BUCCANEERS AND FANTASISTS - - by Gabriel Kolko from the "Le Monde diplomatique"

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AN ECONOMY OF BUCCANEERS AND FANTASISTS - by Gabriel Kolko from the "Le Monde diplomatique".

GLOBAL financial structure is far less transparent now than it has ever been. A few decades ago daily payments for foreign exchange transactions were roughly equivalent to the capital stock of a major United States bank; today they exceed the combined capital of the top 100 US banks. Financial adventurers constantly create new products that defy nation states and international banks. This May the International Monetary Fund's (IMF) managing director, Rodrigo de Rato, deplored these new risks, which the weakness of the US dollar and the US's mounting trade deficits have greatly magnified. His fears reflect the fact that the IMF has been in both structural and intellectual crisis. Structurally, its outstanding credit and loans have declined sharply since 2003, from over $70bn to a little over $20bn, leaving it with far less leverage over the economic policies of developing nations, and a smaller income than its expensive operations require.

Warren Buffett, Forbes-listed as the second richest person in the world, has called credit derivatives "financial weapons of mass destruction". Nominally they are insurance against defaults, but they encourage greater gambles and credit expansion, which are moral hazards. Enron used them extensively; they were a secret of Enron's success and also of its eventual bankruptcy with $100bn losses. They are not monitored in any real sense, and experts have called them "maddeningly opaque". Many innovative financial products, according to a finance director, only "exist in cyberspace", often as tax dodges for the ultra-rich.

We are "currently not in a situation" where a meltdown is likely to occur, but "expecting the best but planning for the worst" is still prudent. The BIS admits that, for a decade, global economic trends and financial imbalances have created worsening dangers, and "understanding how we got to where we are is crucial in choosing policies to reduce current risks". The BIS is very worried. Given such profound and widespread pessimism, vultures from investment houses and banks have begun to position themselves to profit from imminent business distress, a crisis they see as a matter of timing rather than principle.