Readers letters
I like Ian Crossley’s engineering analogy on the vibrational behaviour of the financial markets, but I think he has overlooked some important points.
The reason that we see boom and bust in any kind of marketplace is because those who are invested in it expect either growth or decline. The predominance of the media ensures that the majority are either focussed on ‘good times’ or ‘recession’, and so the economy follows the herd mentality. So while it’s tempting to blame Gordon for the state of the economy, it always reflects how the masses feel about it. (Jim Cramer’s famed public meltdown on CNBC’s mad money in August 2007 was particularly transparent.)
Regarding the ignorance of bankers, financiers and politicians to this cyclical behaviour; while the markets are too complex for any human being to truly comprehend and effectively trend, I believe that those who work in banking and finance are only too well aware of this process of cause and effect. And as we can see, they use this understanding to their financial benefit. As engineers we would seek to stabilise such an erratic and unstable system, and assume that others would aim to do the same. But in fact bankers find this characteristic a highly desirable mechanism for making lots of money, likewise ‘investors’ in the UK property market.
In the days before the internet and real-time access to information, a small number of people controlled the markets and generated huge profits. Nowadays there are more players in the game, and the markets behave in a more real fashion, but the swings caused by changing investor confidence still prevail, and professional investors are happy to gamble on these rising and falling markets.
As we saw in the lead up to this most recent economical dip, banks were falling over themselves in a lending frenzy to consumers, getting more and more brazen as the competition from rival banks heightened. Unfortunately, in a desire to preserve our fractional reserve banking system, this sort of reckless banking behaviour goes unpunished; if we allow these banks to go to the wall then the economy will collapse entirely, and so once again ‘Daddy’ at the Bank of England steps in to bail out his irresponsible son. Rather than taxing bankers and other creators of wealth, we need to accept that with our current economic system, if the banks are not prepared to take responsibility for their actions (or aren’t required to), they should yield to heavier regulation. Perhaps the government can tell them what to do? Unlikely, politicians don’t understand economics, and kowtow to the bankers anyway (the no-strings-attached bailout package is a case in point). What we need is a panel of wise advisors who are not motivated by money. And so you see the problem.
As an engineer, I appreciate the value of manufacturing goods, but I think criticising bankers and financiers is old fashioned and unhelpful. Firstly, whatever you say about their means, they do create and spend lots of money, which benefits the economy and many people (including you) along the way. Secondly, businesses which thrive have always been in the business of selling ideas. They may produce goods for people to sell, but their true value lies in the fact that people want to buy these ideas. Life is moving away from the ownership of physical objects into the concepts such as cloud computing, media streaming and pay-as-you-go. The value of money is no longer linked to any tangible asset, and rather is a representation of perceived value. The 21st Century economy will grow out of concepts and ideas, manufacturing plays a part in this, but it is not the last word in wealth creation.
Andrew Goodman
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