Imagine I am your financial adviser. You are paying me to manage your accounts and investments. You trust my judgment; I am the professional, after all, and you don’t have the time to follow the investment markets to know what the market is, what risks my investments may encounter, and how to take advantage of the best the market can offer in view of my future and the future of my children. You trust me, and you pay me.
Imagine now I use your trust to convince you to buy financial instruments that are known to be risky. There is nothing wrong with this; high risks usually mean higher yields. The market is willing to pay more for higher risks.
But what if I use your general ignorance about the market and convince you to buy high-risk instruments at yields lower than the market yields? The institutional investors know the instruments I am offering are high risk, and they require high yields on them; but you don’t know it, and I trick you into buying the same bonds for lower yields. Also, imagine that I have connections to the company that issues the bonds and I directly profit from the increased capital of that company. Imagine also that the company is bankrupt because of mismanagement, and the institutional investors are shy from investing in it anymore – hence the high risk and the requirement for high yields.
What have I done?
I have committed a fraud, or, to be faithful to the legal jargon when the financial world is concerned, I have committed constructive fraud. I have broken my fiduciary obligations to you. I have abused your trust in me. I am a criminal and I must be prosecuted and sentenced to restore your funds to you; and most probably, in the modern world of highly regulated financial markets, my broker’s and adviser’s licenses will be revoked and I will be looking for another job.
Only if I was a private adviser, or broker, or another type of financial player.
If I was the government, I would get away with it, and I can even call my constructive fraud “patriotism,” “national solidarity,” or any other nice-sounding word that socialist propagandists have used in the 20th century.
That’s exactly what is happening now in Europe. For the first time in history European governments do in peacetime what they have always done only in times of war: Turn directly to private citizens and individuals and call them to buy government debt bonds. Institutional investors, being well-informed about the insolvency of the European socialist governments, refuse to buy those bonds; or, if they buy them, require high yields in reward for what is correctly perceived a very high risk of default. Indeed, Greece showed the institutional investors that government bonds are not risk-free, as was believed for such a long time; time comes when the whole bureaucratic machine of the European Union is employed to bully private investors in government debt to “forgive” it and forget about getting their money back. The market reacted predictably: The yields on government debt bonds of other European governments sky-rocketed, making government borrowing extremely costly.
So the European governments are resorting now to a practice which was only confined to war bonds in the past; ironically, using the same propaganda lines that were used during the two world wars – “national solidarity,” “patriotism,” etc. Which proves abundantly that socialism, when given enough time, produces the same devastation as war does; a lesson Eastern Europeans learned before, and which the West ignored, to its own peril.
And of course, there is one major moral difference between the wartime bonds and the current practice in Europe: Wartime bonds went to finance war effort, to feed and clothe the boys in the trenches who were called away from their farms and jobs to sacrifice their lives. In peacetime, the same practice has for a goal defrauding the productive citizens of their hard-won euros to pay for lazy bums on welfare and for the ever increasing crowd of government bureaucrats. Quite a difference.
The practice of marketing government bonds directly to private citizens in peacetime using patriotic propaganda wouldn’t be so morally horrible if it wasn’t for the lower yields for those bonds as compared to the market rates offered to institutional investors. While big banks and investment houses are offered bonds at rates anywhere between 7 and 12%, bonds marketed to private citizens yield only about 2 to 4%, with the very rare exceptions of a 5.25% bond offered in Spain. In a shrinking economy where the market rates on investments and saving accounts are less then 1% a year, such yields may sound great; but that is only because the risk of government default – as the one of Greece, and what is expected for Ireland, Italy, Portugal, and Spain – is not included. Risk drives the yields high, as institutional investors know very well. Private citizens, unaware of the intricacies of the market, believing in the total trustworthiness of their governments, would not discount the risk, and therefore find themselves trusting their governments. And the governments’ practice is nothing else but a breach of confidence, a constructive fraud for which a private financial adviser would lose his license, and may be even go to jail.
Which brings us to the question of the nature of our present crisis. It is not an economic crisis, and it is not a financial crisis; in its very deep nature, it is a moral crisis. It is a crisis of governments who defraud their citizens of their wealth, and then squander that wealth. And when all that wealth is squandered, and nothing is left, turn back and look for more immoral ways to squeeze more money from the same people whom they have robbed and defrauded.
But more than that, it is moral crisis of the people themselves. The same people who have abandoned their faith in the God of the Bible and placed it in the secular state as their provider. The rulers wouldn’t be able to get away with their schemes if it wasn’t for the gullibility of the ruled; no ruler can force his subjects to place their trust in him as their god and provider. The moral crisis is first and foremost based on the surrender of the Christian faith by the majority of Europeans, and through that, of the liberty which that faith had created over the centuries. Now Europeans are only reaping the unstated premise of Exodus 20:1-3: When you make yourself other gods, you return to the land of slavery.