The Price Of Trusting “God”
Guardians of the economic system, governments and financial institutions promised prosperity and stability. The God of today’s world is the God of money. But what happens when we can no longer trust God?
Can we still trust “God?”
The 2008 global financial crisis was supposed to be a wake-up call. Millions lost their jobs, and many lost their homes. Lives were wrecked — some beyond repair.
Ironically, the global financial order was rooted in trust for sovereign institutions. “In God We Trust” — the official motto of the most powerful nation on Earth — was always more than just a religious statement.
There’s a reason why “In God We Trust” is inscribed on every dollar note: it’s an affirmation that its allegedly democratic financial system is better than everything else out there.
But 2008 changed how we view the guardians of the financial order. In the wake of the collapse, governments were blamed for their lack of oversight. Banks were blamed for excessive risk-taking — and profiteering off average savers like you and I. Promises were made, though it’s worth examining whether they were kept.
Over a decade after the global financial crisis, have things gotten any better?
Arguably not, at least for the man on the street.
2019 was a year of massive anti-government movements. What has been truly unprecedented, though, is the global scale of these protests. From France, to Hong Kong, to Beirut, to Iraq, to Chile, millions risked their jobs — and lives — clashing with government forces on the streets.
Protestors appear united by a universal cause, regardless of geography: a deep frustration with economic inequality.
Today’s global demonstrations “are fueled by local grievances, but reflect worldwide frustration at growing inequality, corrupt elites and broken promises,” writes Joseph Krauss of the Associated Press.
In Iraq, over 400 people died in 2019 during anti-government protests — described as the largest and bloodiest since the 2003 US-led overthrow of Saddam Hussein. While Iraq is one of the most oil-rich nations, almost 40% of young Iraqis are jobless.
Hong Kong’s protests were much less violent, but managed to bring one of the world’s wealthiest cities to a standstill. The city’s home prices have risen over 400% since 2003, forcing average income earners into toilet-sized homes — while benefiting real estate tycoons.
“A powerful, but oft-ignored factor underlying the frustrations of Hong Kong’s people is inequality,” say economists Andrew Sheng, a member of the UNEP Advisory Council on Sustainable Finance, and Xiao Geng, president of the Hong Kong Institution for International Finance.
Both academics rightly view Hong Kong’s problems with inequality is not a “uniquely Chinese problem” — but a global issue. The current chaos, they say, is “a bellwether for capitalist systems that fail to address inequality.”
Is “God” really on our side?
Arguably, the “God” in “In God We Trust” may not be the God of Christianity, Buddha, or the God of Islam. In most religions, God is fair and just, and all men are equal.
That’s not true in the global financial order, where banks and corporations are offered money at much cheaper rates than to ordinary people.
Over the last decade, banks have injected trillions of dollars into the economy, inflating asset prices.
Money has been pumped into financial markets, pushing up the wealth of the already-rich. This year alone, global stocks have risen by over $10 trillion.
There are many questions, and so little answers. Why isn’t anything done to address the world’s growing inequality issues? Does “God” really care? Who calls the shots? Elected governments?
Not according to outspoken billionaire and Virgin Galactic chairman Chamath Palihapitiya. Chamath says there are about 150 people who run the world — and they’re not politicians.
“And when you get behind the curtain and see how that world works, what you realize is, it is unfairly set up for them and their progeny,” says Chamath.
Today, many of the super-rich “use their power, influence and connections to capture politics and ensure that the rules are written for them,” says the prominent anti-poverty advocate Oxfam International. This approach has worked out for them, so far.
Between 1988 and 2011, the incomes of the poorest 10% of people increased by less than $3 a year — while the incomes of the richest 1% increased 182 times as much, according to Oxfam’s research.
Former Goldman Sachs managing director Nomi Prins calls the widening gap between the rich and poor “mind-boggling” — and it is. Oxfam’s research revealed the world’s eight richest people have as much money as the poorest half of the global population.
“They got bailed out and we got sold out”
The Lehman Brothers’ collapse is widely seen as the trigger for the 2008 financial crisis. But David Skeel, a professor at the University of Pennsylvania, thinks it wasn’t the key moment in the crisis.
Just six months before Lehman filed for bankruptcy, a smaller bank, Bear Stearns, was on the verge of default. Bear Stearns received $29 billion of assistance from the New York Federal Reserve — enough to facilitate the bank’s sale to J.P. Morgan Chase.
“Regulators’ handling of Bear Stearns’ distress set the stage for everything that followed,” says David. He believes Lehman’s management wasn’t prepared to file for bankruptcy — they simply expected the bank to be bailed out. “If regulators concluded that a smaller investment bank(Bear Sterns) needed to be bailed out, surely they would reach the same conclusion about a very large one.”
And while the Fed did not bail out Lehman, it bailed out AIG just a day later, and soon, Congress authorized $700 billion to buy up troubled financial assets.
European governments spent almost 600 billion euros to recapitalize banks between 2009 and 2012. Almost $500 billion was spent in the 2008 bailout of the U.S. financial system, according to calculations by MIT Sloan professor Deborah Lucas.
Deborah thinks the main beneficiaries of the bailout were large institutions, such as banks, pension and mutual funds, insurance companies, and sovereign funds.
While millions of ordinary people lost their jobs (or lost their homes), bankers were paid million-dollar bonuses — even if their banks were essentially surviving on taxpayer funds. A 2013 IMF study showed the profits of the U.S.’ biggest banks were largely “transfers from taxpayers to their shareholders.”
In short, the big boys won.
A history of bailouts: repeating itself
The big boys have been winning since 1773. That’s the year that the East India Company was saved by history’s first mega bailout.
Backed by the British government, the East India Company had managed to subdue an entire Indian empire. A private company, the East India Company had just 35 full-time staffers. The bulk of its workforce were mercenaries for hire — more than 200,000 of them.
When the company’s brutal colonial regime triggered a major famine in Bengal, its prized asset, it quickly plunged into insolvency.
But it would be long before the East India Company finally shut shop.
Before that, the East India Company would turn to the Bank of England for loans of £400,000, then £300,000, then £1 million, while 30 European banks collapsed in its wake.(£1 million then is worth over £100 million today.)
East India’s difficulties resulted in a financial crisis that spread as far off as the United States, where British merchants cut off favorable credit terms to colonial planters. But Robert Clive, the company’s owner, remained one of the richest men in Europe.
Fast forward to 2019 — bailouts are “all the rage again,” with two European banks getting billion-dollar cash injections in December alone, reports Bloomberg.
“A powerful corporation can still overwhelm or subvert a state every bit as effectively as the East India Company did in Bengal in 1765,” the historian William Dalrymple observes, citing the global subprime bubble and the 2011 collapse of Iceland’s three biggest private banks — which nearly drove the entire nation into bankruptcy. “The most powerful among them do not need their own armies: they can rely on governments to protect their interests and bail them out.”
Today’s big banks are bigger than ever, and there’s a reason why.
“Banks have a powerful incentive to get big and unwieldy,” writes the Bloomberg Editorial Board. “The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates because creditors perceive them as too big to fail.”
Turning away from God
It is no wonder that trust in financial institutions remains at all-time lows.
“What broke in 2008 wasn’t primarily the economy: it was the people’s faith in the reigning world order,” says Micah White, the co-creator of Occupy Wall Street.
A widely-cited 2013 study found 71% of today’s millennials “would rather go to the dentist than listen to what banks are saying.” In 2019, Edelman, the global PR group, found financial services are the least trusted of all major industries.
Most people “know that the government had to bail out the banks, it cost the taxpayers a fortune, and it was those rich “bankers” down in Canary Wharf and Wall Street that did it,” says Nick Bayley, who was Head of Regulation at the London Stock Exchange in 2008. “The industry took such a hit, including institutions that have been around for hundreds of years and had reputations for being trusted fortresses where you could put your money. That trust just went.”
In other words, many people don’t trust “God” anymore.
Taking God out of the equation
Most governments have focused on fixing the financial world’s problems from within, through tighter regulation on banks, for example.
But regulations can be overturned — depending on who’s running the show. “Congress recently began repealing portions of the Dodd-Frank Act of 2010, which was enacted to prevent another financial meltdown,” points out Victor Li, professor of economics at the Villanova School of Business. “If this continues, it spells a recipe for another financial crisis that will bring back the days of high inflation and high unemployment not seen in more than 30 years.”
Perhaps more importantly, post-2008 regulatory changes failed to address what Satoshi Nakamoto, the creator of Bitcoin, calls the “root problem” with conventional financial systems: the trust that’s needed to make it all work.
Money, after all, is money because people believe in it. But as fears grow over the widening “revolving door” between Wall Street bankers and Washington D.C. regulators, can “God” be ever trusted again?
Finding a new God
In 2009, as the financial world imploded, Satoshi Nakamoto published the Bitcoin whitepaper on an Internet chat forum.
“The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust,” wrote Satoshi.
Perhaps Satoshi realized it was almost impossible to solve the problems within the existing financial system. So he created an alternative one.
“The creators of Bitcoin didn’t see how they could contribute to fixing the holes in the current system, because of powerful incumbents who have a strong interest in preserving the status quo. So they found a way to compete,” writes cryptocurrency researcher Hasu in An Honest Account of Fiat Money.
Unlike the existing financial system, where control is centralized within several all-powerful institutions, the decentralized structure of Bitcoin brings back some semblance of equality among its participants.
“Bitcoin is a way to exchange money or assets between parties with no pre-existing trust,” says the prominent investor Marc Andreessen. This is because Bitcoin and its technology, Marc explains, enable transfers of digital property — including ownership of real-world assets and money — through the Internet, all without a middleman like a bank, or a broker.
Bitcoin transactions are recorded in the blockchain, a sort of digital, unerasable ledger. On the Bitcoin ledger, everyone knows the transfer has taken place, and everyone gets to vote on the blockchain they’ll accept. There is no central authority in bitcoin — “the rules are determined entirely by what the buyers and sellers accept as the legitimate blockchain,” says Cornell professor Emin Gün Sire.
“Trustlessness” — the ability to be used without relying on anything besides open-source software — is Bitcoin’s main attraction, says Matt Corallo, among the main developers of Bitcoin software. “More specifically, interest in Bitcoin appears to almost exclusively derive from a desire to avoid needing to trust some third party or a combination of third parties.”
We are entering 2021 with super-low interest rates and “the largest asset bubble in history.” Despite the trillions of dollars used to prop up the economy, there are widespread fears we may be slipping into a recession.
Even as the world plunged into widespread unrest and a wave of populism, the value of Bitcoin shot up in 2019.
“Conviction in bitcoin grew as the narrative shifted from store of value to potential safe-haven asset,” said Blockchain Capital, which oversees US$300 million of blockchain-related assets. “The unsteadiness of the macroeconomic environment” and civil unrest “sets the stage for bitcoin.”
The 2008 financial crisis “highlighted the major flaw in our current system of fiat currencies — it’s all based on trust,” says Kevin Lu, a data scientist at Coin Metrics. “Bitcoin addresses this flaw by eliminating the need for centralized institutions and the need for trust — instead, everything is based on cryptographic proof.”
Free from the old “Gods” of the financial system, Bitcoin may herald a monetary system independent of financial crises, inflation, and bailouts. The rising popularity of cryptoassets — there are now over a hundred million users — could explain why Bitcoin’s value has risen from fractions of a cent in 2010, to almost $8,000.00 today. Bitcoin, it turns out, has been the best investment of the decade.
There have been many arguments as to why Bitcoin is not the end-all solution to the world’s economic problems. Like the religions of our world, Bitcoin is no panacea.
But unlike the religions of our world, Bitcoin marks a shift from trusting an entity — someone — whether it’s Goldman Sachs, Jesus, Paypal, or Buddha — to trusting that the greater good will always trump evil.
In Bitcoin, trust is held by the majority of computing power, not individual entities or any central authority. “As long as good actors form the majority of the computation used for forming consensus, the bad actors cannot change the trusted ledger,” says the cryptocurrency evangelist Andreas M. Antonopoulos.
Bitcoin believers, it seems, are not anarchists — they’ve simply found God residing in themselves.
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