San José, Costa Rica, since 1956

Market Madness: What are we to make of it?

There is general agreement that any activity capable of causing widespread destruction should be closely regulated. Thus after the experience of Hiroshima and Chernobyl only a half-wit would advocate sharing out nuclear material on the grounds that regulations forbidding it are unfair to terrorists.

Jack O’Brien

Jack O’Brien

Yet, strangely enough, there is a seemingly innocuous activity capable of causing far more worldwide damage than a nuclear holocaust, and that is the commodity market. Yet the regulations governing operations there are routinely ignored without penalty.

The purpose of the market is to bring buyers and sellers of a commodity together so as to establish a recognized spot price and to facilitate contracts for future delivery at a presently agreed price. Regulations are in place to prevent duplicity and excessive volatility. Unhappily, in recent years, the markets have been hijacked by morally bankrupt financiers in league with corrupt regulators.

These gentlemen reap enormous profits by driving commodity prices up to extreme levels having no connection with production cost or supply or demand, followed by short-selling to bring the price down again, then repeating the process. The technique is organized, high-speed, index-driven dealing by computer, securing modest profits per transaction but making thousands of transactions per hour.

For example, the price of West Texas crude oil increased from $50 per barrel in 2006 to $147 per barrel over 14 months, then fell to $30 per barrel by December 2008, then rose to $114 per barrel in April 2011, falling to $80 per barrel the following August. Many other commodities followed similar trajectories. This bizarre behavior dangerously affected economies worldwide, delaying their recovery from the 2008 financial meltdown.

The finance houses funding high-speed trading are also responsible for the global distribution of worthless mortgage-backed securities, which, following the collapse of the U.S. housing market, brought almost the whole financial world to its knees. Both types of activity represent the triumph of deregulation over common sense, to the point where, incredibly, a succession of presidential aspirants assure us that excessive regulation is responsible for our troubles and the solution is further deregulation!

Within this rich tapestry of deceit are woven many vignettes illustrative of moral decay: an income tax system so riddled with loopholes that while honest corporations pay at a 35 percent rate, the highest in the world, some of the biggest pay absolutely nothing; a compensation system whereby the CEO of an also-ran company receives $85 million a year compared to a national average of about $40,000; a national debt close to the national income; and unemployment at 9 percent, while in order to survive, desperate firms are exporting jobs by the thousands. Meanwhile, the government seems unable to govern while Congress bickers and goes on vacation. What are we to make of it all?

Firstly, our leaders worldwide have forfeited the trust of their people. So much damage has been done that Osama bin Laden himself might well have been in charge throughout.

Secondly, among the reasons for the decline of empires, we must now include loss of moral fiber and of confidence in leaders, in institutions and even in ourselves.

Thirdly, whom the gods would destroy, they first make mad.

We live in stirring times, and the Apocalypse is waiting just around the corner.

Comments are closed.