How Long is “Long Term”?

The news that a banker is being prosecuted in London for manipulating the LIBOR rate will be welcome by those who think that the banks have got off their criminal and fraudulent behaviour rather lightly. However we have to look at the root causes of why bankers manipulate FOREX and LIBOR rates. Greed is always a factor but there is, I believe, a structural problem with the way that we organise our capitalism. 

In order to make money under the present system there has to be big swings in prices. It does not matter whether prices go up or down as long as they move rapidly. In other words we reward speculation and gambling rather than investment. In those circumstances it is perfectly logical for bankers to do what they can to encourage rapid price changes.

It is hard to know what “long term” means in the present market. If you are a high frequency trader “long term” can mean a millisecond. If you are a FOREX trader long term cam mean a few days.

This concentration on rewarding speculation as opposed to investment is wrong. Most people who save end up with their pensions or insurance policies or cash savings being held by a bank or a large financial institution. It is not in the interests of savers to see rapid price changes; the savers are not trading. The system allows traders to trade with other people’s money.

Although the banks have now greater reserves than they have had for many years, the problem of short term speculation has not been addressed. The best solution that I can think of is to tax gambling winnings and short term gains; if they were taxed out of existence I can see no harm being done.

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