Intelligence at the time of the free market
Critical Phenomena of a natural character
and financial-economic crisis
In past centuries humanity lived in fear of indomitable events – those with external causes – epidemics, famines and serious climatic transformations. Other events which led to dramatic consequences were governed by distant sovereigns or emperors: this concerned wars and invasions which caused destruction and mass killing. Today, the situation has changed. The questions of collective health or the levels of production of food stuffs are relatively under control. In fact, medicine and agricultural productive techniques are able to prevent a vast range of negative phenomena, such as epidemics and serious famines. A relative peace is guaranteed in the industrialized world. But other events which are not easily dominated affect the life and the collective imagination of the society: the financial and economic crises, which we have been experiencing since 2008.
In reality, financial crises have always characterized the economies since the birth of capitalism and they are characterizing, even more, the advanced economies of the evolved capitalism of our times. On the other hand, they seem to be a necessary product of the functioning of an economic system based on the Market. Furthermore, it should be considered that the majority of the crises have only marginally affected the economic systems, producing relatively few oscillations of economic activity. Certain others, however, such as the one of 1929-32 and that of today, affected then, and is heavily affecting now, the States and international economic systems, determining financial instability and a very serious fall in incomes of the societies.
The great crises become, in this way, part of the historical experience of certain eras, and inspire theatrical, cinematic and literary works of art.
The character of the 2008-2009 crisis
The present critical situations probably draw their origins from financial disorder.
In the modern economic theory, there exist at least two explanations for the financial crises. The first ties the crisis to the credit cycle. The second identifies the cause of the crisis in asymmetric information on the financial market.
The current crisis had its beginning and motivating force in the events known as the subprime mortgages, that is, property mortgages not secured by primary guarantees. In fact, many U.S. banks allocated to private parties property loans with rather imprudent modalities. The value of the real estate given as guarantee was, in many cases, completely inadequate in relation to the guarantee itself. When the value of the real estate decreased due to a crisis of the housing market, the insolvencies of the debtors determined critical situations for the brokers who, due to the decline in real estate values, were not able to realize their credits to the full.
Extremely negative consequences derived from the fact that many imprudent brokers securitized their uncertain credits. That is, they sold their insecure credits in exchange for immediate liquidity, transferring the assets themselves to other intermediary suppliers of liquidity. These last, in their turn, sold the credits themselves to other borrowers. A kind of game of the lighted match which “infects” with bad credit, the entire national and international system of financial brokerage. To remain in the metaphoric vein of the lighted match, sooner or later, it is inevitable that the flame burns someone’s fingers. In reality, in fact, the fingers of the entire world economy were burned.
The international system of financial brokerage, moreover, had, in itself, other motives of weakness and instability. The banks, in fact, resorted to a large number of derivative contracts, with which, in various ways, one bets on price movements of underlying financial instruments. Many banks, seeking very high earnings for themselves or promised high earnings to their clients, greatly extended the leverage effect, i.e. the ratio between the volume of credit created and the monetary reserve assets which guarantee the loan itself.
The totality of these factors has caused a chain of bank crises, the most crucial being that of the Lehman Brothers. The financial disorder has led to the decline in the demand for consumer goods. The fall in production of the latter has provoked the contraction of investments. Therefore, a reduction of the volume of product revenue and of the GDP was determined. Essentially, from the financial crisis derived the economic crisis, defined as “recession” in macro-economy. What characterizes the present crisis is the planetary dimension. The high level of inter-dependence between the economies and the so-called globalization which typifies our times, has determined the rapid diffusion of the situations of crises. The close link of the financial intermediaries and the different financial markets has led to the diffusion of disruption and recession in every Country – although with variations according to the major or minor solidity of the economies and of the degree of care taken in the financial and economic management.
In reality, the “financial” explanation of the crisis is not the only one. In fact, D. Hamilton of the University of California observes that in 2007, a strong and unusual increase in oil prices was verified, up to and beyond $150 per barrel, and that this increase could have been a causal factor of the crisis itself. Other authors (Roubini e Setser) foresaw, in 2004, the dangers of a global crisis due to the imbalances which characterized, and still characterize, the national economies and the international economic structure.
Probably, the causal factors of the present crisis are multiple, as is the case in many vicissitudes of life and natural and socio-economic events. The growth in the price of a natural energy source such as oil, of great importance to the world economy, is a critical factor in a situation in which the prime causes are:
a)the unlimited confidence in market forces;
b)the widespread push to achieve extremely high profits
from security trading;
c)the lack of legal regulations to guarantee transparency
and reliability of the transactions and operators who are engaged in the transactions themselves.
banking and industrial crises
The monetary disorder, the instability and uncertainty have extended their effects over the entire economic system within the States and in the world economy. In the overall context of the industrial economies, the first to suffer the serious effects of the crisis were the financial intermediaries, that is, the banks and the insurance companies. “Toxic” instruments of credit (i.e. characterized by low or no possibility of value realization) or other high risk consignments have endangered the budgets of these companies. Furthermore, a serious crisis of liquidity has created tensions and substantial incapacity of the interbank market to function.
The situation of insolvency of the intermediaries was an inevitable consequence of these events. In the United States, for example, the crises of the Bear Stearns and of the AIG were avoided only as a result of a massive State financial intervention. For another U.S. financial giant, the Lehman Brothers, the Government decided not to intervene and the company declared bankruptcy the 15th September, 2008. In Europe, other banks declared the state of insolvency.
A significant fall in income has been registered in the ambit of the economy and of the private and public consumption. This has resulted in reduction of investments. In all the industrialized Countries the economic statistics register a consistent fall of the GDP. In Italy, for example, the latest economic forecasts and surveys estimate the fall of the GDP for 2009 as 5.2% compared with the preceding year, but pessimistic forecasts are not lacking, which estimate the GDP fall at 6% from 2008 to 2009. For Italy, the statistic indicators show a drop of 22.2% of the industrial production in the first half of 2009, compared to the same six months of 2008.
Also some large industrial concerns have been affected. In the United States, the automobile industry constituted a sector of great prestige and economic weight. All the great companies of Detroit – Chrysler, General Motors and Ford – have had to face a large decrease in demand, which has resulted in company crisis.
Also the small and medium enterprises sector is in difficulty all over the world and, in particular, in our Country. We have problems in selling our products – often more expensive than those supplied by the large industry and distribution – and, to make things worse, we are suffocated by the cost and procedures of credit granting by the bank system. Most medium-small enterprises meet considerable difficulties and could run the risk of financial asphyxia.
In this regard, a further differentiation which penalizes the medium and small companies should be underlined. In fact, the large companies, in the months following the crisis, and principally, to overcome the crisis itself, have made a strong appeal to the financial market through bond issues. Essentially, these companies have reacted according to the formula “less credit – more bonds”. In Italy, the issue of bond securities by the large companies is equal, in 2009, to around 12.5 billion euro. Recently, Eni, Enel, Finmeccanica, Edison and FIAT have collected resources on the market by issuing extremely large bonds. The financial market, in its turn, has shown strong interest in the medium/long-term bonds issued by the major societies, underwriting the entire amount of the shares offered or even expressing a higher demand of the offer. These bonds, in fact, are characterized by the balanced mediation between adequate remuneration of the capital and an elevated degree of reliability.
This does not occur in the case of the medium and small societies, towards which the savers, after the insolvency episodes of the Cirio and Parmalat companies, express aversion to the risk and, therefore, extreme caution, avoiding the underwriting of bonds.
Finally, the banking and company crises have severely depressed the stock markets. For example, in Italy, activity fell by 50.99% in the first six months of 2009, with respect to the previous year. It shows from data elaborated by Assosim that the intermediated equity volumes on the Italian Stock Market in the first half of 2009 were equal to 617 billion euro, against the 1,260 billion euro of the first six months of 2008.
In parallel, the prices of equity have suffered in epic proportions. In 2008, the drop in Italian equity indices was equal to 50%, even though at the close of 2009, the indices of the Italian Market were set at levels close to those at the end of 2008. Essentially, market trends have accentuated the elements of structural weakness of the Italian Stock Market, both in terms of absolute dimension and of number of listed societies. At a world level, the average index of prices on the stock market, made 100 at the 1st January, 2008, amounted to 54 for the euro area and 59 for the United States. In 2008, in the United States, the Dow Jones index lost 33.84% and Nasdaq 40.54%. In Italy, the S&P Mib index of Milan lost 49.53%, and FTSE of London, 31.33%
the increase of unemployment
One of the most serious aspects of the crisis is unemployment. The companies in difficulty take on fewer young people than the number who enter the work market and, are even forced to lay-off workers. The failures of the companies create, obviously, a high reduction of jobs. The Public Administrations, on their part, are not able, notwithstanding the introduction of intervention programmes of the expansive kind, to compensate the reduction of private job availability with the expansion of public jobs.
An example of the above was given by the United States where the rate of unemployment in June, 2009, had risen to the maximum in 26 years, with 9.5%. Since the beginning of the recession the number of jobs eliminated in the United States, has always been 6.5 million. In Italy, the rate of unemployment was, in the first six months of 2009, equal to 7.9%, against 7.1% of the same period of 2008.
In the three months, March, April and May, 2009, Great Britain had a unemployment rate of 7.6%. Other industrial Countries are characterized by similar or higher unemployment rates. In Spain, for example, the Institute of Statistics has disclosed, at the end of the first half of 2009, a rate of unemployment of 17.92%. The average rate of unemployment of the States belonging to the European Union (July 2009) seems to be 8.9%. Unemployment is an extremely worrying phenomenon because it weighs heavily on the public budget, which is called to supply resources to pay subsidies, allowances and other forms of compensations. Furthermore, unemployment produces a series of heavy political and legal consequences on the entire fabric of the country-system. In fact, it is a source of instability, widespread social tensions and, at times, constitutes a growth factor of certain types of crimes.
Interventions to combat the crisis
Whereas the previous serious world crisis of the 30’s found, in a first phase, absolutely inadequate governments and institutions of the economy – insomuch as they lacked instruments of general theory to explain the crises and to elaborate forms of intervention – in our times, at least theoretically, Government Authorities possess cultural structures and operating principles which should allow interventions for recovery.
In fact, on the basis of the Keynesian macro-economic theory, economic science has elaborated a series of operating paradigms for interventions of an economic and monetary nature directed to overcome and remedy the crisis.
The Public Authorities, therefore, strong in past experience and with a store of theoretical knowledge in economic science, have envisaged, at least formally, the objective of introducing corrective measures to the crisis and to arrive at recovery over a reasonable time period.
The first remedy suggested by the Keynesian macro-economic theory nucleus was the overcoming of the principle of the balanced public budget and the realization of significant public expenditures financed in deficit; i.e. covered by debt (fiscal policies of expansion). According to Keynesian macro-economy, this was indispensable to remedy the lack of the overall demand of the economic system and to bring the production back to acceptable levels. In fact, this remedy received support, even though not immediately, from the Government Authorities of the Public Finance, in the case of the 2008-2009 recession. Moreover, the different world States were already burdened when the crisis was triggered by fiscal imbalances and debts. Furthermore, many rules of positive law set limits to the power of States to resort to indiscriminate budget deficits. Therefore, some States have urged legislative intervention for the implementation of a conscious and deliberate policy of deficit spending.
Consequently, many actions of legislative intervention, designed to support this necessity and, consequently, the recovery, have been started on the markets. These actions concern both quantitative aspects, that is, maneuver of instrumental variables in the economy, and qualitative aspects. Namely, adjustment of the expenditure or of facts or legal proceedings. Actions directed to the support of the overall question and, therefore, to determine a stable expansion of income and of the GDP. For example, with reference to the policies adopted in the Italian Parliament proposed by the Executive, articulated in the measures adopted in 2008 and concluded with Law Decree N° 78 of the 1st July, 2009, converted with Law 3rd August, 2009, N° 102, it is possible to distinguish four areas of intervention:
1)business activities support;
2)labour market support;
3)support of investments (e.g. the reduction of the taxes by 50% on the investments in new machinery;
Monetary and liquidity interventions
The most notable and important interventions are those which concern the currency and the management of the liquidity. It is well known that one of the prime aspects of the current crisis is that of the finance. In particular, the system of the financial intermediaries has passed moments of structural lack of liquidity, also due to the fact that no intermediary trusted to get credit or give credit to the other intermediaries. From this point of view the State Authorities created two types of intervention:
1)drastic reduction of interest rates, with the objective of facilitating access to credit by the banks:
2)policies of high input of liquid resources into the financial markets.
1.Almost immediately, at the first manifestations of the crisis the Federal Reserve Board made progressive and substantial cuts of the discount rate in the United States. In fact, since September, 2007, the FED has reduced the discount rate from 5% to 4.50%. With progressive determination, the discount rate has been brought down to 2%, between the end of 2008 and the beginning of 2009, up to the present value of 0.50%.
The Bank of England has aligned itself with the choices of the FED. The Central European Bank has, on the contrary, delayed decision, which is in line with its custom in monetary policies, i.e. caution and attention to the need of defending the European currency against inflation. At the beginning, the ECB had even arranged monetary measures that were opposite to those overseas, to the point that still with the resolution of 3rd July, 2008, the Board of the ECB raised the minimum rate of offer on the principal refinancing operations (in essence, the discount rate) from 4% to 4.25%. After long resistance, finally on 8th October, 2008, the ECB Board arrived at a first reduction of the minimum rate of offer on the principal refinancing operations of 3.75%. More progressive reductions were then prepared by the ECB by successive resolutions. In rapid succession (7th May, 2009), the discount rate came down to 1%, which constitutes the lowest value in the brief history of the ECB.
2. Another monetary policy designed to guarantee a strong input of liquidity into the economy is that of the purchase, by the Central Bank, of securities on the financial market, with the purpose of expanding the liquidity present on the market itself with the placing of means of payment (maneuver of quantitative easing). This type of intervention is aimed at avoiding tensions on the financial market deriving from the lack of liquidity and to allow the financial system to adequately cover the necessities of financing of the entire economy. Also in this area it was the U.S. Federal Reserve Board that opened the way with massive interventions of the purchase of bond securities on the market. In fact, since the beginning of 2009, the FED has set up a programme of purchases, on the market, of Treasury bonds for 300 billion dollars. The policy of quantitative easing was then followed, with determination, by the Bank of England. Finally, the Council of the ECB adopted a series of resolutions to allow the purchase, by the ECB, of covered bonds issued by leading companies.
The intervention policies through the monetary instrument adopted by the principal central banks have been able to avoid the more serious tensions and keep the market interest rates (short or long-term) constant at extremely low levels.
For example, the Euro Interbank Offered Rate at three months has fallen constantly below 1% with points at 0.82%. The economic theory underlines the correlation between volume of the investments and the current variable interest rate. But in concrete terms, it has yet to be demonstrated whether the current level of rates is a decisive factor for recovery.
Policy in the business sector
Another area of government acts to counter the economic crisis is constituted by provisions relative to the status or the financial structure of the companies. It is well known that for long periods, also in the industrial States of the West, the public operator has played a key role in the ownership and management of companies with larger capital and that only in the last decades of the 20th Century and in the first decade of the current Century ideological choices and lines of conduct have prevailed, aimed at a radical withdrawal of the States and other public operators from the area of financing and company ownership.
The onset of the crisis has rapidly revived old models and schemes of regulation and financial interventions in the activities of business and management of the enterprises themselves. This has occurred without changes or returns to ideological types, but only for technical-economic and legal reasons.
The once so solid entrepreneurial structures of finance and industry have, in fact, entered into great crisis. The States have found themselves with the difficult choice of whether to let a company fail or to intervene. The first choice was adopted in the case of Lehman Brothers, while in other cases it was preferred to intervene with different types of action.
One of the first kinds of intervention was the concession of financing and facilitating access to credit or State guarantees. This was the type of intervention adopted by the U.S. Federal Administration for the Bear Stearns Company, which had reached the brink of insolvency. This insolvency was avoided with a series of substantial guarantees furnished by the U.S. Government. Another similar case we have already seen was that of the insurance company AIG, which received circa 180 billion dollars from the U.S. Government. In some cases, this type of action has not been sufficient and so, as an alternative to bankruptcy, the Public Operator has intervened by taking possession of shares of majority or minority determinant in the companies. This was the case of General Motors in the United States, which had practically become a public enterprise. In Great Britain, the State had absorbed the Bank of Scotland in ownership after it declared an insurmountable position of crisis which impeded its permanence on the market as a private enterprise. Other events of the same kind occurred in Germany, where the State purchased 25% ownership of the Commerzbank.
The Government Authorities of the economy have also begun interventions of a legal nature, which have introduced regulations of essential conduct with the purpose of correcting the trend of the crises.
An example is given by the regulations on short selling. With such practices an operator of the financial market sells shares for which, at the moment of the sale, he does not have their availability. If the stock market trend for certain securities presents a sure tendency to fall, it is easy for the operator to stipulate short sale contracts of a particular security and purchase the necessary quantity at a lower price after the sale and before delivery. For example, the operator sells 1,000 shares of Company Y at the price of 50 euro each, without having the availability, but with the forecast that the price of such shares will undergo a reduction within the very short term. One can suppose, therefore, that the market price of the shares falls to 40 euro each, within a very short period. The operator immediately acquires, with the sale contract, the right to obtain the equivalent of 50.000 euro, but at the moment of the settlement date of the delivery of the securities, he buys them at 40 euro each, spending only 40,000 euro, and thus delivering a profit of 10,000 euro.
Short selling is a speculative instrument used in normal times, but it becomes a factor of instability and serious crisis as soon as the situation becomes anomalous. This is the reason why, in Italy, the CONSOB has intervened to provide appropriate interventions to deal with incorrect situations. In particular, by the decision of 22nd September, 2008, the Commission ordered that the sale of shares of banks and insurance companies listed on the Italian regulated markets, and therein negotiated, be assisted by the availability of the shares to the one who orders them, at the moment of the order and until the date of the settlement of the operation.
The critical situation persisting on the Italian Stock Market, on the 1st October, 2008, CONSOB introduced further restrictions providing that the sale of bank and insurance company shares listed on the Italian regulated markets, and therein negotiated, be assisted not only by the availability, but also the ownership of the shares by the one who orders them, at the moment of the order and until the date of the settlement of the operation.
Other regulatory interventions concern measures for the patrimonial solidity of financial intermediaries, such as setting limits of adequate reserves or capital endowments to guarantee the financial transactions performed, the introduction of transparency obligations of the financial transactions and the quantitative or qualitative limitation of derivative transactions.
The frame work of the regulatory interventions, arranged or designed, is vast and diversified. As a rule, the regulations designed in Italy and in other Countries tend to reinforce the powers of the Control Authorities such as FED in the United States and other monitoring bodies on the stock market values and on the financial and property markets which operate within the other States or within the Community area.
A possible danger:
the resumption of inflation
An important part of the policies provided for by the State Authorities belong, as has been seen, to the ambit of monetary dynamics: reduction of discount rates and, in an indirect way, of the interest rates; input of liquidity in the economic system, essentially, with the purchase of security bonds on the financial market by the central banks.
This type of action has assumed extremely important aspects and substantial quantitative dimensions. Literally, rivers of liquidity have been poured into the sea of the monetary market to alleviate the tension and as a help to the banks and, indirectly, to the companies that must be financed by the same banks.
All these policies we have mentioned are suggested by the Keynesian monetary theory and are, therefore, theoretic visions of several decades ago. The present monetary authorities, in essence, are using old instruments without being certain that the instruments themselves are still valid, or whether some indirect consequences could result in negative facts. The real danger, in this case, is that once the crisis and the recession is overcome, the enormous amount of liquidity put into the system could cause strong and incisive inflationary tensions.
In fact, a part of the money put into the system goes to finance the spending for goods and services and the concession of credit for productive investments. And this is a positive effect, insofar as it should contribute, at least in theory, to the overcoming of the crisis. But is it also possible that a part of the liquidity might go to fuel a generalized rise in prices and, therefore, determine inflationary tensions. The reversal of the trend and the igniting of inflationary pressures could also be caused by the presence of high public debt issued by the States constituted by short and very short-term securities.
In the economies of the industrialized Countries, the central banks adopted, with success, especially in the 80’s, policies of stabilization and control of inflation, prevalently through actions of containment of the monetary circulation, but also through the action on the overall demand. In this regard, the policy of “monetary orthodoxy” was spoken of. At that time, the new-found stability of prices removed the uncertainty felt by all the operators, starting with the financial operators, and gave rise to an intense process of innovation. At the moment, these results are put in doubt by the policies followed by the central banks in order to face the present crisis. In fact, the liquidity put into the system does not necessarily flow to the families and businesses, but could go towards causing inflationary tensions.
In reality, we do not know when the overcoming of the crisis will render less useful the presence of a strong liquidity in the system and, thereby, determine an effect of inflationary tensions. It is certain that some central banks are already starting to put the brakes on the expansive action of liquidity. For example, the Bank of England was among the more active in injecting liquidity into the economic system, so much so that by July 2009, it had already acquired shares for 105.6 billion pounds sterling, at a rhythm of 6.5 billion a week. Well now, the same Bank of England has recently approved to slow down the weekly purchases to 4.5 billion and has seriously evaluated the possibility of completely suspending the purchases themselves.
In fact, many scholars underline that the British monetary policy has determined fewer advantages than were foreseen and, by now, there exists an excessively strong amount of liquidity in circulation, to the point of determining a real danger of inflation. Furthermore, the Bank of England, in light of the persistence of the crisis, has recently energetically resumed the policies of quantitative easing.
These resolutions, however, have given rise to much disagreement and anxiety for the possible inflationary tensions.
State and Public Administrations
The first macro-economic and public law aspect of the crisis is the emergence of strong imbalances in public budgets. This goes beyond the policies of deficit spending deliberately carried out by governments and parliaments. The mechanism of the growth of the deficits is well known: the tax systems are based primarily on income and consumption taxes. If the crisis creates reduction in income and in consumption, it is evident that the quantitative reduction of the tax assumptions leads to a fall in revenue and, therefore, to a fall in the total revenue of the public aggregate. To the contrary, the onset of the economic crisis determines mechanisms of expansion of the expenditure. In fact, social safety-net interventions grow (subsidies and allowances for unemployment) and also other kinds of support for the economy.
The federal budget of the United States is touching deficit levels far beyond any values of the past years, also in those moments of crises more transitory and minor than the present one. Consequently, the federal public debt returns to high alert levels.
In Europe, regulations of Community law, such as the institutive Treaty of the European Union and the stability Pact, bind the Member States to policies of containment of the public deficits to below 3% of the GDP and, even, hypothesize, in the medium-term, a breakeven constraint of the integrated budgets of the Public Sector.
Correlatively, the same regulations establish quantitative limits fixed to the growth of the public debt. But notwithstanding these regulations the macroeconomic forecasts and projections show a strong tendency to the expansion of the annual deficits and to the growth of the ratio public debt/GDP.
The major European States expect annual deficit dimensions of 5% or even more. For this reason, the European States have resumed issuing high quantities of public debts, constituted, above all, by short-term securities. Certain observers have calculated that between June 2008 and June 2009, the European States have issued short-term securities in the amount of 256 billion euro and the value of this variable could reach 300 billion euro by the end of 2009. The most recent projections for Italy attest, for the negative balance of the Public Administrations aggregate relative to 2009, 5.2% or even 6% in terms of the GDP. The amount of the public debt is foreseen to return to 114-115% of the GDP.
For decades Japan has had an elevated public debt and the present crisis has exacerbated the situation even more, so that now the debt has become extremely high.
On the other hand, the changes which the public apparatus has undergone following the crisis and the interventions established and carried out are very important and far reaching. In almost all of the legal systems of the industrialized Countries, the role and weight of the Public Sector has undergone a strong enhancement, consequent to the financial and economic crisis.
If, in the last decades of the 20th Century and also recently, the State and the Public Sector – following policies of deregulation and privatization – have abandoned vast areas of the economy, the diffusion of the crisis and the extensive and intense policies directed to remedy greater and immediate consequences, has determined a return to a State model in which the Public Sector holds a central position in the economic system. This regards both the role of the so-named Manager State, i.e. the public operator, company proprietor, owner of assets, and the Regulator State, i.e. the public operator who provides for legislative regulation and intervenes at a legal level in the adoption of regulations for the discipline of the economic and financial activities.
Furthermore, the most recent regulations on the administrative activity and organization tend, more and more, to privilege the application of the criteria of rationality and efficiency, with the purpose of ensuring achievement of the objectives of contrast to the situations of the economic crisis.
Even more, the positive law is beginning to attribute new functions of government of the economy and finance, also to bodies and offices of a traditional type. In Italy, the case of the Prefects can be cited as an example. A recent source of Administrative Law (the Decree, 29th November, 2008, N° 185, converted in law, 28th January, 2009, N° 2), instituted in the provincial constituencies certain special observers presided over by the Prefects of the Provinces (and coordinated by the Prefect of the regional capital). These observers are competent in monitoring the correct destination of the credit – to the small and medium-size enterprises and families – of the resources reaching the banks through subscription by the State, of special security bonds.
In essence, in facing the need to provide corrective interventions – above all, reliable interventions which will guarantee the correct functioning of complex economic matters – the administrative body rediscovers qualified public offices of experimented efficiency to which can be entrusted innovative functions directed to tackle some of the major problems of the financial and economic crisis.
New Intelligence Perspectives
The defence of the overall institutional and fundamental interests of the State is traditionally entrusted to the Intelligence apparatus. This protection takes the form of safeguarding the political-territorial entity of the State and the continuity of same. This has led to a series of actions to gain knowledge of the international criminality and events, also secret, which affect the supreme interests of the national community. All this proceeded very well up to the time of the events which have characterized the international scenario, in the last two years.
The events of the financial crisis and the recession have shown that the defence of the National structure goes beyond territorial integrity or defence against negative internal or outside political events. Today, the finance and economy constitute fundamental aspects of the life of the State: a financial crisis or a situation of insolvency of an industrial group or a large credit company constitutes a disturbance to the continuity of the State of equal (if not superior) level compared to military, terrorist or revolutionary actions.
In fact, the continuity of the State passes for its economic stability. And the interest for financial and economic stability is not only, in the world today, qualifying, but by now, represents an extremely important part of the highest interest of the Country. The wars of past centuries were waged, essentially, through the military instrument. Today, wars are conditioned by the economy and the finance and, sometimes, are substituted by maneuvers which touch only the world of the economy and the finance. Power can be conquered in a territory or can be annexed to one’s own sphere of influence without firing a shot or launching a missile, but by simply determining a financial crisis and seizing the major part of the capital of the principal banks and industries which operate on the territory. In the cases in which, decades ago, the operation would have been decided by soldiers and armoured divisions, today, agreements are made for the furnishing of energy sources or for the construction of new means for the transport and supply of the same energy sources.
In this perspective, it is opportune to widen the ambit and the definition itself of the tasks of the Intelligence. In many ways, the center of gravity of the Intelligence activities is moving away from the institutional-political and military sectors to the economic and, above all, the financial sector. If, fifty years ago, the work of the Intelligence principally involved the acquisition of information and political data – monitoring actions of political groups, or again, the planning and events that had their basis in military or, in general, war factors – in the present Century and, more so, after this great crisis, the Intelligence has been forced to turn its attention to other areas: presence of economic tensions, above all, financial, and particularly, inflation developments; design and execution of monetary policy interventions and, thereby, the preparation or realization of movement of the taxes, or of interventions in security purchases on the financial market; changes in ownership of companies listed – or not listed – on the securities markets; situations of industrial crises; movement of prices of raw materials and industrial products, policies of energy sources and design of agreements for the realization of structures for the transport and distribution of the sources themselves. Finally, there is the ample sector of the foreign exchange interventions and of the maneuvers directed to the government of the balance of payments flows.
A fundamental consequence derives from this. The development of the Intelligence requires not only the knowledge of the legal-institutional relations, but also the phenomena related to the financial and economic sphere.
The instruments of access to this latter information must be supported also by a cognitive structure and a scientific-cultural structure suitable to understand, elaborate and develop the extremely complex series of data and elements that constitute the economic-financial affairs. The man or woman who belongs to the Intelligence must, therefore, possess cultural talents that are probably more diversified than those which characterized the personnel of the same services in the past and recent past. In any case, it might be useful to seek the help of the Office of Studies or of consultation for those who have experience and qualifications in economy and finance in support of performing delicate tasks of the protection of the interests of the State and the national community.
In general, the problem concerns polishing the cultural and professional training of the people at the service of the Intelligence, in order that they have additional capacity to gather aspects and events of the economy and finance which, sometimes, are almost invisible, and to give cognizance to the supreme political organs of the State with an end to provoking interventions or, in any case, to make that accurate and conscious observation and, therefore, the detection of the events themselves.
In a wide range historical-political vision, the consideration of the financial crisis and the ensuing recession shapes some serious questions to which it is not easy to find defined and convincing answers.
The events of the crisis have shown us, in an irrefutable way, the unreliability of unlimited faith in the functioning of financial markets totally lacking in regulations and based on the irrational and completely free game of the forces of speculation. Markets, substantially based on greed, more greed and the thirst for immediate gain through the casual use of financial instruments.
Arrangements of this kind can, in the short run, satisfy desires of gain for a few and, above all, delude the operators that they are able to attain (and attain for others) high profits without producing appreciable quantities of resources at the level of goods and services.
But in the long run, the distorted nature of the finance for its own sake is shown, i.e. a finance that does not give any support to the productive activities, but is directed solely to reinforce the power and profits of a few operators.
Furthermore, the impartial and objective observation of the economic reality is showing the importance and necessity of maintaining a close relationship between economy and personal conduct, between economy and moral assumptions, relationships which, for a long time, have been forgotten.
A strong and authoritative stand in favour of the protection of the values of man, above and beyond the tendencies of the industrial enterprises and banking systems in the realization of high and speculative profits is that taken by Pope Benedetto XVI, in the recent Enciclical, Caritas in Veritate of 7th July, 2009.
Many feel that after the 2008-2009 crisis the conceptions of the economy and the relations between the law and the economy will have undergone a profound and irreversible change. In essence, that after the present crisis, relations and economic affairs will be permanently changed. It is not possible to uncritically accept this affirmation because a fundamental tendency of man is to quickly forget the lessons of history and its events, even the most dramatic and incisive.
- Art. redazionale, ‘Credit default swap’: effetti sull’Italia (Gnosis, 2009, 1, pp. 127-146).
- AA.VV., Lezioni per il futuro. Le idee per battere la crisi, Milano, Il sole 24 ore, 2008.
- Adrian T – Song Shin H, Liquidity and Leverage. Federal Reserve Bank of New York
- Borio C. e Nelson W., Monetary Operations and the Financial Turmoil (BIS Quartely Review, 2008, march, pp. 31-46).
- Bruni F., L’acqua e la spugna. I guasti della troppa moneta, Milano, Egea, 2009.
- Bassanetti A., Cecioni M.- Nobili A.-Zevi G., Le principali recessioni italiane:un confronto retrospettivo (Banca d'Italia, Questioni di Economia e Finanza, n.46, luglio 2009).
- Fratianni M., Financial Crises, Safety Nets and Regulation (Rivista italiana degli economisti, 2008/2, p. 169-207).
- Galimberti F., Economia e pazzia. Crisi finanziarie di ieri e di oggi, Bari, Laterza, 2003.
- Giordano F., Storia del sistema bancario italiano, Roma, Donzelli, 2007.
- Onado M., I nodi al pettine. La crisi finanziaria e le regole non scritte, Bari, Laterza, 2009.
- Posner R., A Failure Capitalism. The Crisis of 08 and the Descent into DepressionHarward, Harward University Press, 2009.
- Reinhart C.M. - Rogoff K.S., This Time is Different. A Panoramic View of Eight Centuries of Financial Crises, NBER WP 2008, 13882 (march).
- Roubini N. – Setser B., Bail-out or Bail in? Responding to Financial Crisis in Emerging Economies, Peterson institute for international economics, Washington, 2004.
Official Publications ufficiali:
- Bank for International Settlements, 79th Annual Report, Basel, 29 giugno 2009.
- CONSOB, Relazione per l’anno 2008, presentata il 31 marzo 2009.
- CONSOB, Incontro annuale con il mercato finanziario, Rapporto presentato dal Presidente della Consob il 13 luglio 2009.