Is the global credit crisis a free market punch line?
April 9, 2008
 By Ann Crotty
Our editor has kindly declared Business Report an April fool-free zone, which is why you were all spared the chore of working out which of the front page stories last Tuesday was a jape.
This gesture is a huge relief. Not that I don't enjoy a good laugh, but I increasingly wonder, when reading any paper on any day of the year, whether stories are really true, suspecting that the work of a terrifyingly overactive imagination. Could it be that journalists are conspiring to make the reading public feel a little unhinged?
Take it from me: it is not just the local newspapers, with their daily diet of death and mayhem, that threaten us with cognitive dissonance every day. The appalling reality is that over time you become a bit inured to the amazingly gruesome ways of murdering somebody just for the sake of it.
What I am talking about is the more prosaic cognitive dissonance that is threatened by even moderate exposure to the business pages of any newspaper these days.
After several hours of close scrutiny, I still cannot decide which of last Tuesday's Financial Times front page stories was an April fool's joke. Was it the story that UBS would announce $18 billion (R140 billion) in further write-downs and ask for another massive capital injection from a powerful sovereign fund? Or could it be the little story about hedge funds imploding? Or was it my most likely candidate: governments are considering radical measures to deal with the global financial crisis?
"Radical strategies to fight the credit crisis, including temporary suspension of capital requirements, taxpayer-funded recapitalisation of banks and outright public purchase of mortgage-backed securities, are being actively discussed by governments and central banks," wrote the Financial Times, chortling to itself no doubt.
But as the week progressed, I began to fear that we might have drifted into some twilight zone where reality is more baffling than your average April fool's trick.
What about the columnist who seemed to suggest that the accounting policy of "marking to market" should be abandoned when markets were in decline, because they were then unreliable? What a hoot.
It seems that when markets are moving sharply upwards, even in the absence of sound fundamental reasons, they provide a reliable indicator of the "value" of an asset. But when markets are in sharp free-fall, they become unreliable and should not be used to assess the value of an asset.
And so, argues this particular free-market advocate, financial institutions should not have to mark to market, as it is unreliable and is aggravating the crisis.
Global financial conditions certainly do seem to be testing the humour of most free marketers, who have, throughout the past decade and a half of generally bullish activity, strenuously argued in favour of the benefits of non-interference in markets.
Most are now clamouring for government intervention of any shape or form to protect them from the inevitable destruction wreaked by unrestrained market forces.
Now the financial community is learning what most of us took for granted: namely that so-called free markets are not really effective or efficient unless you are powerful enough to manipulate them, which means that they are never free.
The last laugh is on decent American and European taxpayers, who have not enjoyed even a half-decent increase in real income in the past 15 years and must now watch helplessly as their governments bail out the worst excesses of the "free market" system - and in the process, let top executives ride off into the sunset laden with fabulously generous "retirement" packages.
|
|
