The awful truth is emerging: globalised rogue finance is disordering human societies and destroying our ecological life-support systems on a global scale. A spate of books and studies examining the role of finance finds deep flaws in the way money is created and credit is allocated. The age-old invention of money, which extended opportunities for trading beyond barter, has become a computerised global monster. Blind to other human values and goals, this global casino has decoupled and abstracted from real economies.

Financiers make money out of money by automated high-frequency trading buttressed by faulty ‘financial economics’ and its bogus models, engineering only corruption and using false indicators of profit and national progress such as GDP.

How did global finance turn from its earlier role as a useful service for real economies into an overgrown ‘too big to fail’ colossus which tyrannises democratic governments through its political power of the purse?

In the US, control of the young nation by banks was feared by its founders. In 1816 Thomas Jefferson said, “Banking establishments are more dangerous than standing armies”. Benjamin Franklin voiced similar warnings as did many other founders, and as early as 1777 Samuel Webster warned, “Let monopolies and all kinds and degrees of oppression be carefully guarded against”.

Change in loyalty

In the last US presidential election, tens of millions of US voters, from the conservative supporters of Congressman Ron Paul to those across the spectrum who supported Congressman Dennis Kucinich, attested to the growing understanding of money itself, which has no intrinsic value. These voters now support the over 200 members of Congress whose bill calls for examining the role of the Federal Reserve Board, founded by a secretive group of politicians and bankers in 1913.

Since then, central banks around the world have modelled themselves on the US ‘Fed’ and promoted their claims to secrecy and independence from political control by even the most democratically-elected governments. The profession of economics advanced this cause with thousands of academic papers and theoretical models of finance.

World leaders like Sarkozy, Angela Merkel, Lula da Silva, and Hu Jintao are calling for the reform and downsizing of the global casino at the G-20 meeting in Pittsburgh, Sept 24-25. They rightly argue for restricting huge bonuses, raising capital reserve requirements on all banks and financial companies, curbing excessive risk-taking and regulating derivatives that are simply bets, such as credit default swaps. This is necessary but not sufficient.

The entire system of global finance must be restructured. China has rightly led the debate over the need to phase out reliance on the US dollar and create a more stable global reserve currency, which is supported by the UN General Assembly and its Stiglitz Commission. Beyond this, Britain’s Lord Turner has called for a small financial transaction tax to curb speculation and downsize the overblown financial sectors. Such a tax was advocated by James Tobin in the 1970s and by Larry Summers, now chief White House economic advisor, in 1989. Financial transaction taxes have been debated ever since as the best way to reduce speculation: the billions raised would be used for deficit reduction, repaying taxpayers for their bailouts, and investing in the low carbon Global Green New Deal supported by most governments, private investors, trade unions, UN agencies, and by 72 per cent of the public in 20 countries in the BBC-Globescan poll, Sept 14.

In addition, a new level of insurance against the risks of systemic financial crises can be created. This Systemic Financial Crises Insurance Fund (SFCIF) would have all financial firms above a certain size pay to insure themselves against future bankruptcies and panics. Similar to the FDIC, which all US banks pay into, this new SFCIF would shift risk from taxpayers to where it belongs: the financial sector. In addition, governments must finally tackle reform of central banking and their money creation and credit allocation activities, which are widely seen as shockingly unfair. Their trillion-dollar bailouts of Wall Street and the financial casinos is now revealed as politics in disguise.

All these reforms must be enacted globally by the G-20 and by widening these agreements to include all countries of the UN. This more democratic G-192 can join with the G-20 in finally facing down the bankers, downsizing and taming the global casino and returning it to its traditional role of facilitating businesses, production, and innovative sectors of societies and in growing a cleaner, green, more just global economy that works for all.

IPS