Der Spiegel is convinced that the financial sector is once again an imminent threat to the world economy. (As I wrote that I found myself wondering if financial markets were the world economy. They aren’t of course, just as the occasional shutting down of governments doesn’t halt countries.) Sadly the article argues for more regulation but then says it will never happen.
Regulation doesn’t in and of itself stifle innovation, but when regulators get deep into the detail of the industry they are regulating (such as energy, telecoms, healthcare, finance) they tend to become part of the industry rather than a true check and balance on the industry. A simple prescription for finance? Separate liquidity provision and maturity transformation into open-book accounted and taxed entities (which should have low profit margins) and then tax transactions of the speculators (just as with gambling).
I loved Vogl’s presentation of financial markets (and why they are so unlike anything else):
“Someone who doesn’t have a product, and neither expects to have it nor will have it, sells this product to someone who also neither expects nor wants to have it, and in reality does not receive it.”
The only product the financial markets want is money, which lead many banks to lie about their use of loans from the Federal Reserve during the crisis. This was additional propping up to the tune of $1.3trn. Admittedly, the Fed says it made several billion on these transactions, but the fact is the banks would have gone bust without them. Other industries don’t have this lender of last resort (or any lender for some small businesses).
Die Welt quotes an interesting viewpoint: “the west has already consumed part of its future” and will therefore lose a decade or so of its development (analogous to the Japanese lost decade). During this time the yuan will appreciate as a global currency (and there’s a suggestion of a super-rouble, too). To be sure, China has its own debt bubble which could yet haunt it.
Figaro also argues that we have to drop our Keynesian approach of kickstarting global demand. Going further, Monbiot writes convincingly on the need for non-growth economics. Again, he doesn’t really explain the underlying concept enough for me (so I’ve downloaded Jackson’s book to stop my whining).
Lots to digest in there, but the summary is that the capitalist financial system is broken and we need to change it substantially. There are ideas out there that could form part of a future and less fundamentally broken system.