Greed—and fear – The Economist

Hans-Georg's picture
Sun, 2009-02-01 12:03 by Hans-Georg
Illustration by S. Kambayashi

Illustration by S. Kambayashi

A special report on the future of finance

Greed—and fear
Jan 22nd 2009
From The Economist print edition

The golden age of finance collapsed under its own contradictions. Edward Carr (interviewed here) asks why it went wrong and what to do next

Read the complete article. Note also the links to the right of the article.

THE monument to Soviet central planning was supposed to have been a heap of surplus left boots without any right ones to match them. The great bull market of the past quarter century is commemorated by millions of empty houses without anyone to buy them. Gosplan drafted workers into grim factories even if their talents would have been better suited elsewhere. Finance beguiled the bright and ambitious and put them to work in the trading rooms of Wall Street and the City of London. Much of their effort was wasted. You can only guess at what else they might have achieved.

When the financial system fails, everyone suffers. Over the past 22 months the shock has spread from American housing, sector by sector, economy by economy. Some markets have seized up; others are being pounded by volatility. Everywhere good businesses are going bankrupt and jobs are being destroyed. For the first time since 1991 global average income per head is falling. Even as growth in emerging markets has come to a halt, the rich economies look set to shrink. Alan Greenspan, who as chairman of America’s Federal Reserve oversaw the boom, calls the collapse “a once-in-a-half-century, probably once-in-a-century type of event”. Financial markets promised prosperity; instead they have brought hardship.

Financial services are in ruins. Perhaps half of all hedge funds will go out of business. Without government aid, so would many banks. Britain has suffered its first bank-run since Disraeli was prime minister in the 1870s. America has stumbled from one rescue to the next. The Wall Street grandees have been humbled. Hundreds of thousands of people in financial services will lose their jobs; many millions of their clients have lost their savings. …

Read the complete article. Note also the links to the right of the article.

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