Our financial system must be fixed

The financial system collapsed – again – a few years ago – it is not over yet – what have we learnt? The fictitious world of high finance is all taking place in your mind, the link between value creation and money value has been broken, it is all about fictitious values: short/long, investors stampeding greedily, a game is played, bonuses are still there, the central parts of the system are just the same – no change – and new disasters will come. Why is there such a hardline resistance to betterment?

The economies of the world are feeling pain, people are out of jobs. Financial services have broken down: savings, hedgefunds, shares, banks. Who took the money? They are still there?

Crises keep coming, we cant have that, we must mend the system. Basically we must aim to have an open dynamic innovative system, but regulation must be dynamic too and open to risks and excesses coming up. It seems the name of the game is bubble watching – or greed watching – the picture of human nature is of irrationality, greed, optimism, following the herd etc… There is also the case of the big operator going bust – too big to fail syndrome. Product development – derivatives, synthetics – should clearly be allowed, but risk assessment and transparency must be ensured. Much should be evaluated: Collateralized debt obligations, perverse incentives, models of mortgage financing.

New basic thinking about value creation, money, the real versus the financial economy is required. It is rather bizarre: Values are created through daily work, but financial losses are allowed again and again to destroy peoples lives. Finance is clearly not a science, it is emotional by nature and must be regulated much tougher than it is today. Let us start by demanding more reserves, better risk regulation,

The aim of the banking system should be aligned with society’s aims which is to allocate and deploy money long term, geographically distributed for purposes that are socially beneficial, sustainable – banks and financial institutions are servants of the people doing their daily work.

Further lenders as a matter of principle must face the losses, there are no no-risk loans. The state is not safe, systemic crises should be dealt by making changes, not just paying our way out of it, investors are running in a stampede, investors should assess risk and cover themselves.

The banking system should be mended so that everybody including the poor and unemployed have access to credit and finance. We should separate retail banking and “financials” – split up reporting, add geographical aims, go by type of business, book-keeping to show what is going on, reduce size of banks – we don’t want to hear too big to fail.

We should arrange finance for the journey towards a sustainable society, align bankers incentives to suit this long term goal. We must ensure there is competition between banks financing governments and big companies. The size of financial institutions should be limited, and new cooperation practices evolved for large scale financing.

Banks must take the consequences of insufficient risk evaluation and risk coverage, and face the full consequences of bailouts. Banks must also have more capital and risk coverage. Default of banks are their own business. Owners of debt and shareholders should take the blame, and the senior debt-holders should share the blame. The size of the banks should be regulated and they should be allowed to fail. Insolvency should lead to losses among shareholders and creditors, and we need modern resolution regimes to handle that.

We should institute a national bank available everywhere to solve the problem of exclusion and poverty, and an independent ecological investment bank to finance all ecological investments, and as a prototype of future banks.

Why should we  pay back debt, and not accept the forfeiture of state debt? When the borrower is a state that can not pay, the lender loses his money. If a debtor can not pay he stops paying. This risk should always be in the creditor’s mind. Who are these losers? Why can’t a state go broke? There is also the question of who can create money in a society, in the world?

Why is this a political game – should money matters be removed from politics and put into independent stewardships?? Investors should be getting used to banks being a normal business that can go bust.

Excess bonuses should be curbed – now.

Is there a natural and good order to be found? Is anybody interested? We can’t go on like this – we are intelligent people – behind our emotions.

Leave a Reply