It’s more than just Wall Street – it’s central banks that seek to massage headline economic statistics like unemployment, inflation, and GDP with boundless liquidity. (Bernanke just doubled down again!) But the result has been to increase asset price volatility, creating endless gambles for traders, while providing a taxpayer safety-net for their gambles. It’s “heads we win, tails you lose!” It’s the current politics of finance. We either stop it or destroys our free market system. Our politicians prefer to let it ride.
How can we expect stability when volatility increases the value of the instruments owned by the people who make or influence all important decisions?
By John Kay
When the global worldwide banking system went into meltdown in 2007-8, the short-term response – the appropriate one – was to use public money to prevent a sequence of collapses of financial institutions. But the right long-term response is not to try to stop future bank failures, but to construct a global financial and economic system that is robust to individual bank failures. That is a fundamentally different objective.