A significant part of my science fiction writing involves matters of economics, and one of the things that often annoy me on many discussions of economics, and the positions people take, the advocates do not take themselves out of the picture. In short, their positions tend to be in their own self-interest. Ha! you say, what is so different about me? The simplest answer is that in my novels, I am not advocating the answer, but rather I am pointing out some things that can go wrong. One obvious source of fraud is when there is shortage of accurate information. Fraud thrives when the real situation is difficult to uncover. The most obvious source is obfuscation.
Stock fraud is often accompanied by a plethora of different companies, but deep down, they are essentially the same, and only there to confuse. This situation is difficult to pin down early because there are often good reasons during the start of a venture for a number of companies. During the initial period entrepreneurs may not know where they are going, and may want to plant different assets in different companies to protect themselves, and this is quite legitimate. Another good reason can come from international trading. As an example, I am associated with a company that makes skin gel products. They started out under the name “Sports Essentials Ltd”, but now they are “Nemidon Ltd.” The reason – the first name had been taken by another company in part of the US, so we needed another name for the same organization, and not to sell in the US makes little sense.
When writing a novel, of course, the author tries to accentuate the points he is trying to make. Thus in my Red Gold, which was about the colonization of Mars, a basic problem arose because one of the characters was involved in floating stock relating to new Martian ventures on the Earth stock exchange, and he had the basic problem that he did not have anything that was particularly legitimate. The problem I was showing was the effects of the lack of proper information. On Mars, of course, verification of anything from Earth was very nearly impossible, so the door was open for fraud, and if anything has been shown relating to money, if there is an opportunity for fraud, there will be fraud.
Just recently in Britain, a trader, Tom Hayes, has been convicted of manipulating the Libor (London interbank offered rate, which determines interest rates on interbank lending) so that he could manipulate trades and make quite a bit of money while doing so based on his manipulations. One way the rates can be manipulated comes from the way the Libor is calculated, which involves banks estimating what they would pay to borrow currencies. Because the rates are then calculated and do not involve actual transactions, faulty information alters the rate, and it is alleged that a number of banks conspired to submit false rates, and then take advantage of the result. This type of fraud is simply a consequence of the financial system finding an easy way to operate, and thus giving a limited few a remarkable advantage in transactions. A handful of people in a special position in a bank and operating for themselves could generate the opportunities to make millions. Wherever there is such advantage, people will take it.
Another thing that annoys me is the hypocrisy of the privileged. The following link contains an example:
The basic point was that when it suited it, FirstEnergy Corp., an Ohio-based utility, was strong advocate of deregulation and the free market. As it got what it wanted, it made big bets on coal and nuclear, as these were sources of electricity with stable prices. However, since then, in part due to fracking, which it did not foresee, gas prices have plunged. It bet heavily and lost so what does it do now? It wants ratepayers to cover the full costs from some of its biggest generating plants, even if other sources of electricity would be cheaper for consumers. Apparently FirstEnergy has also lobbied strongly to slow the adoption of energy efficiency technology and to stop implementation of renewable energy requirements. In other words, such advocates of the free market want the market to be free while they are raking in the cash, and to have rescue packages imposed on all and sundry when they are not.
This is not a one-off event. Now that President Obama has signaled the requirement for the reduction of carbon dioxide emissions, we see the coal industry lobbying strongly to overturn this advance. This is an overall problem for governance, and now, confession time, everything I have advocated in my books relating to economics has been the subject of the plot in which every good system I can come up with ends up subverted subverted. And that, I suspect, is the real message from economics: no system will work better than its participants will let it, and where money is involved, letting it work is not a priority for some. Not a pleasant thought.