Bertie Ahern‘s recent touting as a possible presidential candidate (a possibility he has now discounted) put renewed focus on the 2008 economic crash and its devastating impact. But what about the next crash?
A few weeks ago, the front page of the Financial Times carried one of the scariest headlines since the Lehman Brothers collapse: “Global crypto assets soar to €4 trillion” (€3.42 trillion). It followed news that bitcoin – a financial “asset” that is basically nothing – had hit a record high of $123,000, up from $1 in 2011. Its rise has been greatly helped by Donald Trump’s U-turn on crypto.
Just four years ago, he said bitcoin “seems like a scam”. But that was before he realised he could enrich himself by becoming a prime scammer. His family’s media group last month agreed a $6.4 billion deal to buy tokens issued by a crypto exchange that hosts bitcoin and other digital assets. In his role as United States president, Trump has passed legislation, called the Genius Act, to facilitate a massive return on his investment.
During the global banking fraud of the noughties, institutions such as Lehman Brothers and Anglo Irish Bank boasted about profits they reaped through “financial innovations”. These included synthetic loans, “credit default swaps” and “collateralised debt obligations”. All fancy terms for ripping off Ordinary Joes, siphoning off wealth and hiding debt until the whole house of cards collapsed.
Today, the great innovation is the stablecoin – a mainly dollar-backed cryptocurrency that Trump has a vested interest in flogging. Will the reckoning be any better when it comes?
There are three echoes of the past that are particularly worrying.
1. Deregulation
First, a drive towards financial deregulation. Wall Street is partying like it’s 1999 under Trump and the mood is spreading to Europe. The UK’s chancellor Rachel Reeves has announced plans to water down a series of regulations introduced following the 2008 financial crisis, saying red tape is acting as a “boot on the neck” of business. On crypto, she is drafting laws to align with the Genius Act. The EU is under growing pressure to follow suit.
2. Uncritical thinking
Second, the critical faculties of sections of the financial press are being blunted. Publishers such as The Irish Times don’t tend to sway markets but the same can’t be said for the Economist, the bible of tax exiles and people who winter in Davos. In an editorial in July, it threw its weight behind the Genius Act, claiming some of the risks about stablecoins are “overblown” while “others can be mitigated”.
The Economist proclaimed “it is better for entrepreneurs to try and fail, than for regulators to set today’s system in stone and stop promising innovations from being pursued at all”. But why? I have yet to hear an explanation as to how ordinary citizens are going to benefit from the growth of crypto markets.
FT columnist Gillian Tett looked at the pros and cons of crypto in a finely balanced article last month. The best she could come up with on the plus side was “the underlying technology can be useful as a geopolitical and financial diversification tool”. Well, that’s worth risking another economic crisis for.
3. Contamination
The third worrying echo of the past is contamination. High-street banks and global pension funds are diversifying with blockchain portfolios. Members of the public are dabbling in greater numbers too. Trading crypto on a digital exchange platform is now as middle class as snorting cocaine off a marble-topped kitchen island. Each holds out the promise of a sudden high but you know someone down the line is going to get hurt.
Among those getting hurt are the people of Ukraine – Russia is using cryptocurrencies to circumvent trade sanctions to fund its war machine. Just who will get hurt in the future depends on how much money the crypto industry manages to pocket before reality bites. We can take as a rough guide the 2008 crash, which rocked western democracies, emboldened authoritarian governments and caused heartbreak and suffering for countless individuals and families.
In their book How Much Is Enough?, father and son Robert and Edward Skidelsky pick over the entrails of the global economy following the last crash. They make the case that the only way to put manners on capitalism and to keep economic fraudsters in check is to double down on moral indignation. “Modern value-neutralism” needs to be rooted out, they argue. Stop making excuses for financial “innovations” that aid international criminals. Stop passing off exploitation as digital enterprise. Stop debasing yourself on the altar of greed just because “everyone else is doing it”.
The Penny Catechism of the Catholic Church is much maligned these days, with its dogmatic questions-and-answers format:
Who made you? God made me.
What is mortal sin? Mortal sin is a grievous offence against God. And so on.
Whatever about the religious content of this document, we can learn something from its tone. We need a very clear understanding today of moral red lines.
Will you burn in hell if you buy crypto? Yes.
