Are markets becoming part of the problem?

Martin Vander Weyer

5 January 2008

Martin Vander Weyer wonders whether 'City spivs' are responsible for the current economic turbulence.

I blinked, and decided to press home my killer question. Were we all in this unfortunate state, I asked, because of the stupidity of politicians and the feeblemindedness of central bankers, or the folly of over-borrowed homebuyers and consumers on both sides of the Atlantic, or the unalterable tide of long-term economic cycles, or the whims of 21st century weather and harvests. Or was it down to the action of what I undiplomatically (but deliberately, to get a rise) called ‘City spivs’?

Any complete answer to that question would of course seek to attribute blame judiciously between all the factors: in short, house prices always fall after a long rise, people always borrow more than is good for them if offered attractive credit, bankers always lend more than is wise when the going looks good, politicians allow all that to happen because it creates the feel-good factor that gets them re-elected, and Alan Greenspan of the Federal Reserve should take a slice of the blame for making money so cheap in the first place. But what I was aiming at with the barb at the end of my question was this: I have a nagging feeling, this time round, that the damage done by all the other factors in the economic equation is being magnified by the actions of traders and investors in a way which has never really happened before.

Markets are generally good things: they squirt capital in the directions that it is most needed; they allow real-world operators to protect themselves against financial risk; they are the self-lubricating mechanism without which the wheels of globalization could not spin. But they also stand accused, nowadays, of becoming too sophisticated and complex for their own or anyone else’s good.