Markets – Another View

It seems all of Britain is watching TV and the Internet this Sunday, catching up in the news on a downgraded US and waiting for the opening of a stock market that has once again fallen apart. I am on vacation, but I decided to go for a bit of market research myself. This took  me to Spitalfields Market in London, on the periphery the banking district.

As I stand at the entrance to this chaotic place, I take a moment to reflect on where we are in the world today. Our politicians have failed us, driven by greed and voted in by the champions of the politically correct, the religiously mad – or both. Market risk mechanics go for regular, chaotic walks – with their corporate lapdogs on leash. In order to make money in a society obsessed with the service industries, our best talent is sucked into investment banking to come up with new algorithms to predict the next big move, with about as much certainty as we predict the weather – which is not very certain at all.

I step into the hall of the market, with its Brunel-like steel pillars, holding up what looks like a makeshift roof. Underneath this roof, hundreds of vendors make their living, peddling their wares. The noise hits you like a wall, but this is not the noise of phones ringing, keyboards typing or air conditioning trying to cool the latest generation of CPU cores and suit clad armpits. It is the noise of humans selling the goods they produced themselves, in unbranded stalls decorated for the day. One skill is traded for another: I have something you want or know something you don’t. We can do the transaction right here in my 4 m2 booth. You walk home with something new – we both win. This is the oldest form of business: the bazaar. But today, it is fuelled by technology: If you want more goods (perhaps to resell?) you can contact me on my homepage or follow me on Facebook. You can pay me with credit card, using a WIFI or 3G connected POS device. I can even hack technology for you on demand (phone unlock anyone?). Soon, I can create something for you almost instantly that lives in the cloud. My profit and loss statement is simple. I save up money, I invest it in materials, I sell my skill – I have cash flow. The bazaar has high availability and scale built in. Like the cloud, it remains in business even when several of the self sufficient units fail. There are very few rules and regulations here in the bazaar – common sense does a good job at keeping the peace and stability.

Society enables this modern, super powered bazaar through the infrastructure it provides: Phone lines, WIFI networks, money printing (soon to be extinct if this keeps going!), safe streets, roofs, heating, electricity, education, healthcare, roads etc. Once basic civilisation and technology is available – the human race sorts the rest out. Soon, computing power itself will be part of that infrastructure. Some basic policing of the rules is required – but if we don’t go to bed hungry or cold, or worry about he health of our children, it is amazing what we can achieve when powered by a morality that is not driven by greed. In this market, I can buy goods that are hand made, creating jobs, at a price that is highly competitive to the high street shops. I can have a chat with the vendor who may not be trained in the art of selling – but who is proud of the goods he has created or the skills he exhibit. The air feels fresh here in Spitalfields. These people are empowered in a way that no MBA motivational rant comes close to mimicking.

I realize that I may come across as communistic to some US readers. Though I see no need to defend myself against a failed system, you may want to consider that I am FOR private property and AGAINST stupid, government spending, I am not in favour of the nanny state. But, I am beginning to wonder if capitalism, in the big corporate form it has mutated into, distracts us from what it truly means to be human: to flourish in life, interact with each other, and to feel the correlation between your labour and the happiness it creates in others. It seems to me that the “crisis” we are experiencing is not one of liquidity. Instead, it is the unexpressed frustration of loosing our true priorities – and becoming slaves to market mechanics that were meant to power the bazaar and serve the people, but today answer to only one master: the balance sheet.

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  1. thomasivarssonmalmo   •  

    In my case it was only about statistics of US budget deficit and it started to increase under Bush. Since the US dollar was the most trusted currency earlier, and that country could print money that the rest of the world accepted, that process can never go on for ever.

    Most governments in this situation both need to increase taxes and cut spending at the same time and that is tuff for most political systems.

    Thomas Ivarsson

  2. Thomas Kejser   •  

    Everyone, thanks for the views. My comments on this:

    @Chris: I was not familiar with that document. Thanks for sharing – interesting reading.

    @Farhan: You might not get FDR, but it could have been worse: You could have had Sarah Palin take over from a man that was already skindead during the election process. Or you could have had a woman obsessed with power.

    @Alex/Davide: I think it is important to remember that the money and “market” we talk about in modern terms is a convention – a simulation of the world. A revolution might be to stop trusting the system altogether and return to a more old fashioned – first order risk, non leveraged system to control the market. But it would take an entire nation that agrees to step outside the system. Such a nation would also need to barter with the nations “inside the system” for goods – but our good old friend: gold bars may be used as currency here.

    @Davide/Thomas: I share Davide’s view that we have become slaves to the algorithm and the system itself. While it is tempting to point to individuals as the sinners here, it requires the consent (or at least inaction) of a large crowd to create the conditions we have seen. As much as I would like to blame Bush (and also see him put on trial for crimes against humanity) – I think we need to look at a bigger picture than that.

  3. thomasivarssonmalmo   •  

    The financial crisis started in 2008 with the Lehman Brothers break down. That crisis was about ruthless bankers gambling on the old rule for capital covers of risk. These bankers can always rely on that the state/government will clean up the mess when they have filled their pockets with generous bonus systems. Markets always needs regulations but personal greed always make it tempting to bypass rules as capital covers for risk by constructing new financial tools. After that we had a general mistrust of the world financial markets that forced governments to underbalance budgets. If they had not done that we would be back in caves right now. At the same time a lot of governments have runned underbalanced budgets for decades and one of them is USA that started this process with Bush with high military expenditure and large tax cuts. We have also even worse countries like in Europe.

    Thomas Ivarsson

  4. Farhan   •  

    Thomas,
    I think strong regulation with strong social programs (safety net) are important to deal with any crisis. Lots of countries weathered better like Canada where strong Govt regulation avoided subprime mortgages and there was virtually no effect of financial meltdown.
    Tragedy is all the players who caused the financial armegadon walking freely. We are looking for FDR in this situation but we got Obama :(

  5. Davide Mauri   •  

    Thomas I agree with you, and the only words that come to my mind in these troubled business days are the words of an almost unknown to the most song: “I am human [...] a servant to the mosters I have made”…
    We built or society to make our life easier, but that “society” is now a living beast that needs to be fed and doesn’t really care if we’re happier or not. I just demand to be fed more and more and that’s it. And from my Italian point of view this is true not only for the economy but for the entire government. The distance between todays economy, financial institutions and government and the “working people” not involved in such business is so huge that it seems that there are two different worlds.
    Queensryche would say “Revolution Calling”….

  6. Alex Whittles   •  

    Hi Thomas

    I was having an identical debate with my wife over lunch today. It seems the only way to curb the problem is to either reduce greed or introduce elements of communism. Not sure either of those are that feasible!

    Unfortunately we didn’t manage to figure out a solution to the problem, but the soup was fantastic.

    Let us know when you figure something out!
    Alex

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