Who pulls the strings?

Robert Peston believes that Margaret Thatcher did a good job in transforming Britain's archaic industrial relations. He also believes that capitalism can bring about social justice. But don't let that put you off this book - it is a devastating indictment of today's jungle that is finance capitalism.

Peston grew up in a Labour-voting household and his parents believed in social justice - that's why they sent him to his local north London comprehensive. From there, he had a steep career ladder.

He became assistant editor of the Sunday Telegraph, financial editor of the FT and the BBC business editor. He knows his onions as well as his equities, hedge funds and city boys.

He says: "The point of this book is not to argue that free markets are in general a bad thing," but he seems to do just that. He shows how the seeds for the collapse of Northern Rock and the crises in the financial markets were sown years before.

Something of his upbringing must have stuck, because what he finds obnoxious about the present system is that it allows greed to become rampant, it makes a few super-rich, leaving most of us slaving to pay the rent.

He demonstrates how enormous profits are made not from producing goods, but by the processes of takeovers and selling of businesses and by investing in hedge funds.

"I don't believe there is some secret conspiracy between plutocrats and governments to sustain a mutually beneficial status quo. But I do believe that politicians are too fatalistic about their ability to shape globalisation and it is in the interests of the super-rich to encourage such fatalism, to have it believed that the current system is more or less the best available," he says.

The City has become a sort of city state within a state, he maintains. A law unto itself. Because Britain's manufacturing industry virtually disappeared, post-Thatcher, financial institutions are now vital in creating jobs and, despite huge tax avoidance schemes, provide income for the Exchequer.

That's why governments are running scared. The bottom line is don't offend the City, whatever you do. That's why we have no legislation to stop tax avoidance, lax rules on capital gains and minimal profit tax.

Britain, he argues, has become dangerously dependent on financial services and thus extremely vulnerable in times of economic crisis. And this reliance on the financial sector totally distorts government policy.

He explains, for a layman like me, what such arcane terms as futures, hedge funds, short-selling, statistical arbitrage actually mean.

Hedge funds, particularly, have enormous power over whole swathes of industry, determining life or death for employees, communities and indeed nations.

Ten years ago, hedge funds were making very little for the big banks. Now, these funds are generating 30-40 per cent of their income. He shows how pension funds, one of the most lucrative targets for financial managers, have been plundered.

His argument is interspersed by short, revealing interviews with some of the big boys. These reveal the ruthlessness of the system, the mind-boggling sums of money that these characters play with and also "earn."
He gives an example of how a big banking firm employs dozens of PhD graduates - the cream of a country's brains - to compute risks, gamble and play the world's markets, rather than doing what they have been trained for, such as research into Aids vaccines or developing eco-friendly energy resources, where they would only earn a pittance compared with what the bank is paying.

He gives us a fascinating, if revolting, insight into this secretive world. The implication is that, if finance capital continues to dominate economic relations and governments continue to cower before its power, then the world is heading for unmitigated disaster. He explodes the myth that, if the rich get richer, then we all benefit. Peston's book is an appeal for political courage and action.