Capitalism thrives on a free market and its staunch supporters are heard loudly complaining if the R-word is mentioned (R = Regulations). Free market proponents claim that any kind of government interference in the form of regulations will constrain the market and strip the organic system of supply and demand from performing its natural balancing act. I contend that it is impossible to claim we have a free market when banks and other financial institutions play with exchange rates and interest rates, fixing them to enhance their personal accounts.
The big financial headline yesterday was Record Fines for Currency Market Fix, which focused on a large group of banks who “used a private electronic chat room to manipulate exchange rates.” Instead of allowing the market to set exchange rates, big banks colluded secretly with one another to fix the rates, with big impact: US Attorney General Loretta Lynch emphasized that their actions were costly to”countless consumers, investors and institutions around the world”
This kind of behavior is not free market oriented. Instead a small group of people determine exchange rates for the sole purpose of gaining personal profit, crippling the free market from doing its job of keeping the rates competitive for the consumer.
In another example of price fixing, Deutsche Bank was prominent in the Libor scandal where it contrived and manipulated “interest rate benchmarks critical to the U.S. and global financial markets.” More specifically, those ‘fixed’ interest rates increased the rise in speculation on the quite shady derivatives market associated with home mortgages which created the housing bubble and its subsequent crash. We still haven’t recovered.
Again, the free market was prevented from working effectively by just a few people who agreed upon fixed figures for personal gain. A primary symptom of The Financialization Revolution is that policy is decided upon by the financial elite and institutions – no where is this more exemplified than in these two price fixing instances.
The irony is that those people who claim that government interference strangles free market processes are the very same people who strangle free market processes with fixed rates. It is a myth that they claim to believe in free market enterprise, they only fear government constraint because it is counterproductive to their own imposed constraints. It is a lie that mainstream media promotes capitalism and free market and zero government interference when banks interfere to their own benefit time and again.
The crux of the issue is that regulations are in place to prevent our proclivity as humans to become greedy bastards. (Even where laws and regulations exist, they are broken and ignored outright, hence the immense fines being doled out.)
When it comes down to it, we should probably recognize the idea that a completely free market economic system isn’t plausible. Either government imposes checks and balances, hopefully in just enough portions to allow as much freedom as possible, OR they can be manipulated and fixed by just a few people who stand to benefit personally from interfering.
The free market myth is busted. Now it’s time to discuss the issue and come to terms with the idea that interfering with the free market will happen no matter what, it is up to us as voters to choose which platform to support: Interference by the government for overall stability, which means a certain acceptance of socialism OR believe the free market myth which enables banks and financial institutions to make policy decisions that create unnecessarily volatile markets and benefit only a few.
Here’s to informed decisions.