Andrew Haldane has argued that:
rapid credit expansion, often through the development of poorly understood financial instruments
has been a scam on investors. Investors were hoodwinked by by the faux certainties of the mathematical chimera which backed up the financial products which they were sold. But the scam goes deeper than that, we are emerging from a forty year financial bubble.
Financial risk has been subsidised by taxpayers, where the interest on business loans becomes tax deductible then the costs of accessing finance is depressed. The risk/gain ratio is compromised, and ever greater leveraging is incentivised.
Had this been used for the generation of wealth, invested in the future, then there would have been some argument for these subsidies. Instead they led to ever greater inflation within the equities markets, supported by the tax payer.
But worse, returns on investment were benchmarked against financial products, where obfuscation and subsidy led to expected returns of 7% per annum. All investments were deemed to be inefficient where they underperformed against the financial product standard.
The consolidation within the newspaper industry is a classic example of how this destroyed real value in the actual economy. Access to cheap cash, enormous leverage has, across the world, seen small local newspapers eaten alive by conglomerates funded by high powered finance.
These investments had to produce returns at 7%. How do you develop such returns in a labour intensive industry?
Sell more papers (in an already competitive market)? Too difficult.
Increase prices? Not at 7% per annum.
Sell more advertising? Not sufficient.
Cull staff, and reduce quality of the publications? BINGO!!!
Well, it is easier than the alternatives. And it has destroyed the media. We live in an information environment where journalists are expected to produce 5, 6, or 7 articles every day. A new story, every hour or two, every day of the week, every week of the year, from every journalist. No journalist can produce a valuable product under such restraints. Stories have become commoditised.
Journalists rewrite, or reproduce, other people’s stories, other people’s press releases; but that isn’t journalist, it is just lazy sub-editing.
Journalism suffers. Society suffers. Democracy suffers. We all suffer. And suffer because that 7% had to be squeezed out of a valuable industry.
The expansion of growth through finance has been a scam, but the diversion of investment, the devaluation of industry, the inefficiencies of the financial sector, the destruction of wealth has been a terrible cost to bear, a generation of opportunity tragically lost.