Market Mayhem – OpEd


Capitalism at its best involves a hunt for good investments that generate growth and profit.

At its worst, it preys on bad investments, with speculators acting like a pack of rabid dogs, harrying their prey to exhaustion and collapse.

This is what we are seeing happening in the euro zone, with cynical investors reaping profits by speculating against the euro zone equity and bond markets.

Speculators are driving down the markets in euro zone bonds. The more prices fall, the harder they push. Legitimate investors naturally want to sell. Down go the prices again.

While this is making money for them, it is forcing euro zone governments into massive budget cuts. Thus speculators are profiting from an expanding wave of misery for the citizens of countries such as Ireland, Greece and Portugal which, writhing on the hook of austerity measures, have seen companies fail, jobs destroyed, incomes collapse and social benefits slashed.

This is what is so immoral about what is being called “the Race to the bottom” by sharp-suited investment managers. Here is capitalism actively destroying value on a gargantuan scale. It is not even as if the profits these speculators are making in anyway match the money and prosperity that are being lost for millions of ordinary people, who have been innocently caught up in events. Successive Greek administrations may have fixed their books and the Italian government may be run by a man many Italians regard as an immoral clown. But these are not fundamental reasons for investors to abandon these and other euro zone economies. They are merely excuses for investment wheeler-dealers to carry out their callous financial maneuvers.

What is worse is that those who seek to profit from the misery of euro zone populations, happily stoke the fires of panic and despair with public pronouncements. Thus a banker was speculating at the weekend that Italy would have to leave the euro. The reality is that if, as now seems clear, Greece remains in the euro zone, there is no way that Italy, the bloc’s third biggest economy, is going to be forced to abandon the currency.

Such speculation merely (and probably deliberately) has the effect of boosting the appearance of risk and so driving up the interest rate that Italy has to pay to borrow more money. As a result of market mayhem, governments are falling, first in Portugal, now in Greece and perhaps, very soon, also in Italy. Will Spain be next, or perhaps France? On this basis, it is not European voters who are deciding who is running their countries for them but super-rich investors. It has become the markets that make and break governments in Europe, not the electors. The market pressure on Greece and now Italy and the austerity measures which they are being forced into as a result are exactly what the protesters are demonstrating against. Here is the market dictating to millions of Europeans that they have to live less comfortable lives — and making a fortune in doing so. This scandal of unprincipled greed and selfishness is surely bringing about the darkest hour for a once-trusted capitalist system.

Arab News

Arab News is Saudi Arabia's first English-language newspaper. It was founded in 1975 by Hisham and Mohammed Ali Hafiz. Today, it is one of 29 publications produced by Saudi Research & Publishing Company (SRPC), a subsidiary of Saudi Research & Marketing Group (SRMG).

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