When Bernard Madoff, who is allegedly responsible for a $50 billion fraud that has hit banks, hedge funds and wealthy individuals, told his staff that he was "finished" and that "it's all just one big lie", he could just as easily been referring to the global capitalist financial system as a whole and not just his own “investment” fund.
Madoff ran a one-man house of cards, building a pyramid of debt that was undone by the credit crunch. He promised fabulous returns of around 10%, which he “achieved” by taking money from other funds. Were the banks wary of such promises? Of course not. The Royal Bank of Scotland and HSBC were among those who were drawn into the game, cheering as they went along.
After all, they were operating their own house of cards, albeit a relatively legal one. They just defrauded society as a whole – and were then bailed out with taxpayers’ money by the bankers’ government led by that notorious creative accountant, Gordon Brown. The banks are reportedly prepared to write off every penny of what they are owed, knowing that the state will not let them fail. In the end, of courses, bank customers will pay through higher loan rates and a further tightening of credit.
Ah, what it is to be a banker when the rest of the world is facing unemployment, repossessions and poverty as 2008 draws to a close. Or when a million of school kids from poor families are denied access to free school meals because the wretched New Labour government has drawn the rules so tightly that very few qualify.
What the Madoff affair also reveals is that the financial crash is still in its infancy. The US authorities barely knew anything about Madoff’s mostly unregulated business dealings. The auditors to Madoff's $50bn fund were an unknown firm consisting of a 78-year-old retiree living in Florida, one accountant and a secretary, for example. Although Madoff registered his investment advisory business with the Securities and Exchange Commission (SEC) in 2006, it has only just been inspected by the regulator.
Why? Because casino capitalism really took off in the 21st century. The number of registered advisers went up 50% in the first part of the decade. As a result, only about one in ten is inspected each year. But even if the SEC had inspected Madoff’s investment firm, it might not have found anything wrong. "One of the biggest factors that make this situation very difficult is I think it was an unregulated pool of money," former SEC Commissioner Laura Unger said yesterday, adding that as a result the SEC appeared to have "no clear jurisdiction."
So there you have it. Regulation is non-existent and no one really knows what’s going on out there. This all points to a more furious unravelling of the whole house of cards, aka as the global financial system. The consequences in human terms will be catastrophic unless we are able to chart another course.
There is no point in the present banking and financial system. It is part of the big lie referred to by Madoff. You take in other people’s money and then gamble and speculate until the day of reckoning. Bankers and speculators should be put out of business, along with the government that props them up. The world is crying out for a saner economic and financial system based on co-operation and mutual ownership. That has to be our agenda for 2009.
AWTW communications editor