If a bookmaker decided he wanted to buy a savings bank and use the deposits of customers to gamble on horse racing or the performance of Indian cricketers at Lord’s, what would government do? It would outlaw such a “commercial” venture. But governments in Europe and the US allowed this to happen with the Big Bang “liberalisation” of the financial system in the 1980s. Those governments lost their gamble. That’s why most of them are bankrupt today.
So-called “investment banks” operated as casinos. They exposed the deposits of people who wanted to save their money to risks associated with the turn of the roulette wheel.
So-called “trades” by these gamblers are pure speculation on future trends that are barely anchored in the real economy. Risks are associated with investing in the formation of capital in an enterprise that manufactures goods or delivers services, but such risks are tied into the world of real people.
So-called “hedge funds” are casinos. They “take positions”: assume that the price of a bank’s shares, or the relative value of a currency, will move in a particular direction. Bets are placed accordingly. If they are incorrect, they lose Big Time. If the dice rolls in their favour, they win spectacularly.
In a Free Society…
If people want to gamble their savings, they should be free to do so. But we should call a spade a spade. Language matters. A large part of the so-called financial system operates on Las Vegas principles. So-called banks are casinos, betting shops. They should not be designated as part of the system called banks that take deposits from savers who want to accumulate pension funds on which they can rely when they retire.
But there is some value to be derived from the structure of today’s financial system. It exposes a great deal about the character of our society in general. Gambling banks are no more irresponsible than (say) the political process that we mistakenly call “democratic”.
If we are to survive the current financial crisis, we need a fundamental re-examination of the ground rules on which western culture are founded. That will not happen if we fail to clean up our language.