As the whole European economy reels and sinks to its knees, those in power blame ‘the markets’ and plan more and tighter regulation to try and curb the activities of speculators.
With Europe and the Euro on the brink a regulation conference is now underway to try and set a framework for a new financial framework. As the German Finance Minister Wolfgang Schauble told the Financial Times “I’m convinced the markets are really out of control. That is why we need really effective regulation, in the sense of creating a properly functioning market mechanism.”
They point at all the complex financial instruments that were created in high powered computers using the brains of highly paid bankers. “It’s all their fault!” the politicians cry.
But it is not a mis-functioning market that is at fault. What the politicians do not want to acknowledge is that the fault lies with them and with the flawed economy they are trying to create. The truth is that at every stage and whatever the machinations of politicians market forces have identified and punished the mistakes. And the bigger the mistake, the larger the punishment.
The politicians who point their fingers at the financiers were all too eager to use the tools they offered, but asked too few questions at the time. They are the ones that framed the laws and rules within which the markets operate. They are the ones who fuelled the engine of unintended consequence. They are also the ones who helped to spend the money at every opportunity.
Politicians just will not learn the lesson that markets can be used but not controlled. And while they berate some finance practitioners for dodgy practice and hiding the truth, they indulge in the same practices but hide behind the skirts of the electorate.
Instead of trying to abolish the business cycle and its tiresome boom and bust phases, politicians must learn to live with them. But this would mean that some governments would have to be in power during downturns and therefore become unpopular. Well, so be it, as we are now discovering that market forces are stronger than politics and can unleash whirlwinds.