Magazine article Sojourners Magazine

A Paper God: How the Out-of-Control Buying and Selling of Money Led to Our Current Crisis

Magazine article Sojourners Magazine

A Paper God: How the Out-of-Control Buying and Selling of Money Led to Our Current Crisis

Article excerpt

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COMMENTATORS HAVE FREQUENTLY COMPARED THE credit crisis of today with the economic crisis of 1929, just before the Great Depression. Yet almost no one speaks about the deeper causes of the economic crisis: the eagerness of banks to give, year after year, huge amounts of credit to speculators and all of speculative funds, with an enormous worldwide growth of financial markets and new financial products as an unavoidable consequence.

In recent years there has been a staggering increase in the amount of money being invested by investors worldwide and most of it has been put in highly speculative markets in the financial, rather than the "real," economy. What does this distinction mean? To oversimplify, the "real economy" is the part of the economy that involves making, selling, and goods and services, from groceries to shoes to visits to collection. The contrast involves the and selling of as a product in its own right.

On its simplest level, this involves the trade in loans or bonds (someone borrows money and pays back more money in the future), the buying and selling of foreign currencies, and the buying and selling of shares in the stock market.

But these money-for-money transactions didn't stay simple. Year after year, speculators' bank accounts grew enormously. And this new, financial-sector money--call it "debt money" or "credit money"--was mainly used for more speculation. One popular kind was options or "futures," bets about the expected future price of a currency or commodity.

Other kinds of new, complicated financial "products" were also invented. You could, for instance, invest in large pools of mortgage loans (these "securities" sold so well that banks started handing out mortgages in an extremely reckless manner). Another example: credit default swaps, an insurance-like arrangement whose buyer gets money if a bond issuer can no longer pay his debt. These were not called "insurance" to avoid the sensible regulations placed on insurance.

Statistics about the growth of "debt money" are not public information (this is itself a telltale sign of how financialization has been hidden from public view), but recent estimates suggest that, for a full decade, the volume of debt money has increased four times faster than the growth of the so-called real economy. Economist Herman Daly recently calculated that the amount of paper exchanged for paper is now 20 times higher than the amount of paper exchanged for real commodities.

But now the enormous balloon of collective speculation has burst, people have lost confidence, and the real economy is deeply threatened.

Greed and magic

Underneath it all lies the driving power of greed, which motivated not only private speculators and investment funds but also the once-reliable banks. In the new order, banks fully engaged in speculation themselves, making huge profits.

But is greed the only factor? Consider that money and magic have something to do with each other. Making printed money--or now, electronic, "virtual" money--confers power, as if by Faustian magic. It opens doors, giving the moneymaker more control over investments and the power to acquire ever-greater material wealth and luxury.

But money does something even more powerful: It can set people and markets in motion. Expectations climb higher and higher. Year after year, the financial markets have grown more rapidly than the "real economy." Money turns into a kind of compass for all--a guide that seduces a society to follow wherever it leads.

Idolatry

In all this, one senses idolatry at work. The essence of idolatry is that high expectations, combined with fear, narrow your consciousness, restricting your focus down to pursuing the right interaction with your "god." You delegate power to your idol, allowing it to take the lead, and it inscribes within you patterns of obedience to itself. …

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