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<p>BETTING ON FAILURE: The market will always </p>
<p>be rigged by the big players </p>
<p>THE FINANCIAL REGULATORY bodies of both the United States and Britain have recently decided to take some kind of civil action against Wall Street's most powerful institution, Goldman Sachs. That was in the same week it was announced the company's profits had doubled. Goldman Sachs is notorious for paying its executive exorbitant salaries and benefits. </p>
<p>What did Goldman Sachs do to receive that slap on the wrist? According to the US Security and Exchange Commission it sold mortgage investments without telling the buyers the securities were crafted with input from a client who was betting on them to fail. They did fail - along with the rest of the 2008 housing bust up. </p>
<p>What's really strange is that comment has been largely limited to Goldman Sachs's fraudulent conduct. In plain language, it lied to an Arab client - but nobody uses the word "lie" in such esteemed quarters. What deserves further interest is that a hedge fund - Paulson & Co - was actually betting on failure. This wasn't a game of chance but an act of rapacity, where morals were for fools and a US$1m profit is all in a day's work. </p>
<p>But John Paulson isn't being charged: he only benefited and he did cheat the buyer. What a world of chicanery, bluff and lies - and no criminal prosecution whatsoever. </p>
<p>Adam Smith believed the market was the perfect regulator. He couldn't have foreseen a system would ultimately develop that wasn't only unsound but which didn't allow for the free play of the market. South Africa's own courageous competition structures educate us on the venality and greed arising from price-fixing and sharing of markets. </p>
<p>The Friedman Chicago School of free marketeers found ardent supporters in Reagan and Thatcher and the third-rate minds that dominate much economic "thinking": no exchange controls, no assistance to the currency, no help to failing industry. I recall that period vividly as one of our young entrepreneurs felt he had to leave SA because our limited exchange control was shackling his money. </p>
<p>It seems now that SA's banks were saved by Trevor Manuel's "conservatism" from the ravages that confronted banks elsewhere, as well as affecting economies in the US, Britain, Ireland, Iceland and others. SA maintained a modicum of exchange control, which regulated foreign lending. Unregulated lending - the Irish banks borrowed money from outside the country to lend to the housing bubble, which soon burst - the lack of effective machinery to monitor movements of money and the behaviour of financial institutions have brought the world to this mess. </p>
<p>A larger world of ostensibly licit behaviour that would strike ordinary people as theft has recently been identified. Third World countries that bear no responsibility for this man-made crash have paid a heavy price for the greed of the bankers and their hangers-on. There's no bail-out for them. </p>
<p>But it seems greed isn't limited to bankers. Africa Confidential carried a rather scary report that ought to put the African aid begrudgers in their place. According to a report from the Washington-based Global Financial Integrity, Africa lost more than $850bn between 1970 and 2008 to illicit financial flows - mainly through corporate tax evasion, trade mispricing and overpriced supply contracts. Such illicit outflows, the report added, have run at well over double the levels of foreign aid to Africa from the rich countries. The report suggests if transfer pricing is taken into account Africa would have lost almost $1,1 trillion, which far exceeds any foreign aid. </p>
<p>It must be clear even to the most benighted free marketeer that the world can't continue lurching from crisis to crisis. The current capitalist system has failed. A new world financial system is required that will also recognise every time a crisis takes place it's the ordinary man or woman who suffers most, not those in Westchester County, Knightsbridge or Constantia. n </p>
<p>
<p>be rigged by the big players </p>
<p>THE FINANCIAL REGULATORY bodies of both the United States and Britain have recently decided to take some kind of civil action against Wall Street's most powerful institution, Goldman Sachs. That was in the same week it was announced the company's profits had doubled. Goldman Sachs is notorious for paying its executive exorbitant salaries and benefits. </p>
<p>What did Goldman Sachs do to receive that slap on the wrist? According to the US Security and Exchange Commission it sold mortgage investments without telling the buyers the securities were crafted with input from a client who was betting on them to fail. They did fail - along with the rest of the 2008 housing bust up. </p>
<p>What's really strange is that comment has been largely limited to Goldman Sachs's fraudulent conduct. In plain language, it lied to an Arab client - but nobody uses the word "lie" in such esteemed quarters. What deserves further interest is that a hedge fund - Paulson & Co - was actually betting on failure. This wasn't a game of chance but an act of rapacity, where morals were for fools and a US$1m profit is all in a day's work. </p>
<p>But John Paulson isn't being charged: he only benefited and he did cheat the buyer. What a world of chicanery, bluff and lies - and no criminal prosecution whatsoever. </p>
<p>Adam Smith believed the market was the perfect regulator. He couldn't have foreseen a system would ultimately develop that wasn't only unsound but which didn't allow for the free play of the market. South Africa's own courageous competition structures educate us on the venality and greed arising from price-fixing and sharing of markets. </p>
<p>The Friedman Chicago School of free marketeers found ardent supporters in Reagan and Thatcher and the third-rate minds that dominate much economic "thinking": no exchange controls, no assistance to the currency, no help to failing industry. I recall that period vividly as one of our young entrepreneurs felt he had to leave SA because our limited exchange control was shackling his money. </p>
<p>It seems now that SA's banks were saved by Trevor Manuel's "conservatism" from the ravages that confronted banks elsewhere, as well as affecting economies in the US, Britain, Ireland, Iceland and others. SA maintained a modicum of exchange control, which regulated foreign lending. Unregulated lending - the Irish banks borrowed money from outside the country to lend to the housing bubble, which soon burst - the lack of effective machinery to monitor movements of money and the behaviour of financial institutions have brought the world to this mess. </p>
<p>A larger world of ostensibly licit behaviour that would strike ordinary people as theft has recently been identified. Third World countries that bear no responsibility for this man-made crash have paid a heavy price for the greed of the bankers and their hangers-on. There's no bail-out for them. </p>
<p>But it seems greed isn't limited to bankers. Africa Confidential carried a rather scary report that ought to put the African aid begrudgers in their place. According to a report from the Washington-based Global Financial Integrity, Africa lost more than $850bn between 1970 and 2008 to illicit financial flows - mainly through corporate tax evasion, trade mispricing and overpriced supply contracts. Such illicit outflows, the report added, have run at well over double the levels of foreign aid to Africa from the rich countries. The report suggests if transfer pricing is taken into account Africa would have lost almost $1,1 trillion, which far exceeds any foreign aid. </p>
<p>It must be clear even to the most benighted free marketeer that the world can't continue lurching from crisis to crisis. The current capitalist system has failed. A new world financial system is required that will also recognise every time a crisis takes place it's the ordinary man or woman who suffers most, not those in Westchester County, Knightsbridge or Constantia. n </p>
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