Trading the debts of others without accountability has been the motor of astronomical financial gain for many in recent years. Primitively, a loan transaction is something which enables someone to do what they might not otherwise be able to do \u201d\u201d start a business, buy a house. Lenders identify what would count as reasonable security in the present and the future (present assets, future income) and decide accordingly.<\/p>\n
But inevitably in complex and large-scale transactions, one person\u2019s debt becomes part of the security which the lender can offer to another potential customer. And a particularly significant line is crossed when the borrowing and lending are no longer to do with any kind of equipping someone to do something specific, but exclusively about enabling profit \u201d\u201d sometimes, as with the now banned practice of short-selling, by effectively betting on the failure of a partner in the transaction.<\/p>\n
This crisis exposes the element of basic unreality in the situation \u201d\u201d the truth that almost unimaginable wealth has been generated by equally unimaginable levels of fiction, paper transactions with no concrete outcome beyond profit for traders. But while we are getting used to this sudden vision of the Emperor\u2019s New Clothes, there are one or two questions that, in government as in society at large, we at last have a chance to ask. Some of these are elementary and practical. Given that the risk to social stability overall in these processes has been shown to be so enormous, it is no use pretending that the financial world can maintain indefinitely the degree of exemption from scrutiny and regulation that it has got used to. To grant that without a basis of some common prosperity and stability, no speculative market can long survive is not to argue for rigid Soviet-style centralised direction. Insecure or failed states may provide a brief and golden opportunity for profiteering, but cannot sustain reliable institutions.<\/p>\n
Without a background of social stability everyone will eventually suffer, including even the most resourceful, bold and ingenious of speculators. The question is not how to choose between total control and total deregulation, but how to identify the points and practices where social risk becomes unacceptably high. The banning of short-selling is an example of just such a judgment. Governments should not lose their nerve as they look to identify a few more targets.<\/p>\n