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Making a killing at our expense

As the European Union struggles to hold together, riven with differences over impending bail-outs to save the euro (while ejecting Greece), others are moving in for the kill.

The fact is that there are profits to be made in periods of economic turmoil. Buying at the bottom of the market and selling on at a later date is classic capitalist behaviour.

Not that the BBC News team grasped this when financial market trader Alessio Rastani was interviewed about the so-called rescue plan for the eurozone.

The candour of his “bring it on’” message at the prospect of economic collapse astonished his interviewers.

The interview is full of choice phrases and suggestions: “The market is toast”, “The market is going to crash”, “Hedge funds are moving their money to safer assets” and “most traders we don’t care about the rescue plan”.

While others hope for pleasant night-time experiences, Rastani said: “I’ve been dreaming of a depression for three years… Just like in the thirties, when the market crashes we can make a lot of money out of hedging strategies.”

After telling viewers that “this economic crisis is like a cancer. By the time you discover it, it’s too late”, he told them: “Governments don’t rule the world, Goldman Sachs rules the world."

Some, trying to undermine his message, are suggesting that he’s a phony, a member of the famous Yes Men hoaxers.

They’d like to think his message is the lie that encircled the world before the truth got its boots on. But the frenzy of withdrawal of funds from the junk bond markets confirms Rastani’s message.

The Yes Men issued a statement commending Rastani for his "masterful performance", adding:

Who in big banking doesn't bet against the interests of the poor and find themselves massively recompensed – if not by the market, then by humongous taxpayer bailouts? Rastani's approach has been completely mainstream for several years now; we must thank him for putting a human face on it yesterday.

By observing the behaviour of traders like Rastani, Felix Salmon of Reuters news agency has arrived at an interesting hypothesis – capitalism has produced its own opposite from within itself. Salmon characterises some traders as anti-capitalists, writing:

It’s a common misconception that all traders are die-hard capitalists. But in fact many of them are quite the opposite. They still want to make money, of course. But that doesn’t mean they want the stock market to go up.

Make no mistake, hedge traders are not the new proletariat, but they do represent the contradictory nature of a capitalist economy that has become hopelessly, irretrievably over-run by the cancer of credit and debt which has metastasized throughout the entire system.

Under extreme pressure from the deepening world crisis, the world’s policy makers have adopted a plan which they hope will stop the cancer in its tracks, isolating it in Greece. But the medicine depends on vast sums of new credit to recapitalise the banks and to build up the as yet non-existent stability fund against further impending crises in Portugal, Ireland, Italy, Spain and France.

Oh, and there is the small matter of getting the banks which are exposed to Greek debt to take a 50% loss. The IMF would also have to act as a backstop for the eurozone, standing by with another even bigger source of credit. The mind boggles at the numbers being talked about.

The costs of another meltdown are, according to Martin Wolf of the Financial Times, “too grave to contemplate”. The panic written all over the faces of political leaders across the globe tells us that, with the world economy contracting, such an event is indeed on the cards.

Gerry Gold
Economics editor
28 September 2011

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