money money money

As increasing amounts of private equity money start to flow into Australia and raise questions about how effective or productive an investment tool it is, as the salaries of CEOs grow at multiples of average wage earners, are we seeing a new dawn of the capitalist model - a miracle - or are seeds being sown for some future revolution? This short article in the Times of London is quite instructive.

What's happening in the City - the financial hub that drives the UK economy and is still the global centre for finance - is Australia writ very large. The sums paid to City analysts have always been a talking point - in fact, bonuses and what gets done with them is pretty much the sole running gag in Alex. However, it seems that this year the sums are so great that a few questions are being asked. Is the money trickling down to help improve the lives of 'the rest', or is it now getting diverted elsewhere? And is that money simply crowding out the aspirations of 'the mob' by raising prices beyond their reach?

Also, how is the money being made. When even the new Governor of the Reserve Bank is raising a few questions about the stability of the international finance system (the influence of hedge funds in particular), and the risks posed to Australia's economy, what is being done about the increasing level of risk being built into the system as very clever finance people - who don't make things with their hands but look for ways to squeeze more leverage out of each dollar - do just that? Surely this isn't sustainable over the longer term?

The sums involved are just so vast that it's hard to comprehend how it all works. Just another dimension to thinking that I guess most of us can't get to grips with. Being functionally innumerate, I don't have a specific problem with very numerate people who use those skills and get well rewarded. But I am very uneasy about the growth in complex financial mechanisms that increasingly isolate where the real money is made - ie in the financial world - from the underlying transaction (someone making something!).