Reaping greed's harvest

My dear Muhammad Ali:

When the Soviet Union fell, Francis Fukuyama proclaimed that democratic liberalism had prevailed and there was no other creed left to challenge it. It was thus the "end of history" - perhaps, subconsciously, end of dialectic.

Capitalism and communism are but two systems of economic growth under the same creed, secularism - atheism in communism and separation of the spiritual from the temporal in capitalism. Both systems are, therefore, bereft of morality: capitalism amoral, communism often immoral. Ironically, there was morality in Marxism (distributive justice), but that vanished in Leninism-Stalinism. A communist economy is run by the central authority and is thus called a 'command economy'. Capitalism runs on the mechanism of 'free market forces'.

The pivot of capitalism is banking and related financial institutions - investment banks, building societies, insurance companies, mutual funds, private equity funds, welfare funds, hedge funds and the like. Whoever controls the banks is king. He calls the shots because he has enough decision makers and opinion formers in his pocket and can influence, if not determine, national economic (and foreign) policies. If the pivot gets knocked out, the system fails and the king is in trouble. This often happens when the king becomes gluttonous and eats too much. He falls ill and also decimates the jungle of food. In time, another king emerges. That is what has happened in the American financial jungle.

Markets and national economies work on confidence in good and sustainable policies that have continuity, rationality and sobriety. Banks work on trust - their motto: "In banks we trust." So do stock and other exchanges - their motto: "Our word is our bond." Poorly regulated, confidence becomes over-confidence. Soon, over-confidence becomes greed. Greed leads to inordinate risk taking. It's a casino. Take too much risk too often and you get wiped out. People lose confidence in the markets and the banks. When trust in banks is lost and markets are unable to keep their word, confidence vanishes as fast as a mirage with a setting sun.

The American dollar is a mirage. Currency is but a notion worth not what it can buy (purchasing power) but what it can be exchanged for that has intrinsic value. In the past every currency note carried the promise: "The Governor of the Central Bank promises to pay the bearer of this note X amount of gold on demand." When a currency is not backed by something with intrinsic value, it becomes a mirage. What greater mirage could there be than a currency that says: "The Governor of the Central Bank promises to pay the bearer of this Rs 100 note on demand"? What the hell does that mean? All the US dollar says is: "In God we trust." It's not backed by anything, flying only on a wing and a prayer, straining credulity to breaking point.