The 'Great Moderation' was actually a Great Fraud perpetuated by financial engineers in Manhattan and London who targeted massive short term bonuses by creating financial instruments that gave the appearance of reducing risk, but actually massively increased risk.Bernard Hickey finally gets it. It's a funny thing: I don't write a column for the business pages and I do not have a website which advises people of money about their financial decisions, yet I knew that which has just dawned upon Mr Hickey. Many other people, such as my friend Clive, knew more than me; yet none of us were ever invited to write for the business pages or to give financial advice. And now the world economy is stuffed. And people are getting angry. Things are so bad for Turner Prize winners that Tracey Emin may be forced to sleep in a tent (brilliant animation by David Shrigley here). And the finance companies continue to make money disappear.
These investment bankers exploited all sorts of holes in financial regulations and in the way pension funds are allocated to enrich themselves at the expenses of middle and under classes in developed countries. The created a long term mess for short term gain. They privatised profits for themselves and socialised the losses for us all.
They worked in tandem with the managers of often publicly listed multinational corporates who specialised their operations in different countries, often moving manufacturing and services to lower wage economies in an endless hunt to lower costs and increase profits (often for their own personal benefit).
This seemed like a good idea at the time and even seemed noble, spreading the wealth around. But all it did was reduce real wages for the middle and under classes in developed economies, who then promptly borrowed more to keep spending as if they were richer. It was a recipe for instability.
All this debt-fuelled consumption growth in the developed world that was funded and supplied by savings and production surpluses in the developing world.
It could not last. Like any Ponzi scheme, eventually the debt keeps rising until the interest bill overwhelms the ability of the borrower to pay.
Once asset values start falling then we find out who has been swimming naked.
This exposure and collapse of a giant fraud is what we have seen in the last two years. It has expressed itself in the usual way.
Oh well. I suppose we have the grim satisfaction of knowing that we were right and the financial advisers were wrong. But it is not much fun watching the people of money helping themselves to our common wealth while we have to pay more tax on every purchase we can barely afford to make.