http://www.cts-ideas.com/ tab Cognose.blogspot.com
Dynamite Economy 3 - Deadly Urgency
3.11 Approach - Finance Industry
Banks are lubricants for market economy.
Banks shall not, can never be wealth creator.
It was clearly stated in Aug 2007, that Banks making 9% profit over weak economy that barely made 1% profit is unsustainable. The big profit is through instruments, then sub-prime instruments.[1]
All the Top 5 Investment Banks has since faced the realities, except the top two still able to resist, the rest collapsed.
When there are OAW in banks clients’ pocket, the temptation is so high.
So they pretend they are wealth creator, these are fabrications, fabrication cannot be really fulfilled
Banks shoulder upon themselves promises they can never fulfill.
So dreamers’ hearts broken, banks bankrupting.
Rules of law are last resort, is late, it can be applied only after grave harm is inflicted.
Greed for profit is human nature, trying to ignore, using money to feed, law to control are feeble.
Salvaging is too late, too costly, usually the result is decimation of wealth.
So to satisfy temptation is the most important for design, for regulation.
Successful application will improve social order, for economic stability.
Banks should be divided into two categories:
First, Banks as they are remain as a conduit, a lubricant, continuously improving effectiveness, efficiency for capital formation, capital flow in the market. This category subjected to lower return, tight governance, and government backing.
Second, Investment Characters. These are avenues for higher return, naturally coupled with higher risk. No one should bank on it for survival, emergency. So they should not be called banks. The coupling of the secured character of banks with the promises of high return investment led to overwhelming popularity. Just like most euphoria, eventually brought about today’s disaster. By calling themselves Investment Characters, they make everyone aware the nature, the character of such investment – taking high risk may be rewarded handsomely. Investors take their own risk – “caveat emptor”. When it fails, there is no embankment to protect against the onslaught of storm.
The creation of this category is so very important for channeling excess capital back to the market. These are excess liquidity that is not survival critical. Failures in venture shall not be supported by government. Since they are not survival critical, the impact of failures will not affect the economy at large, surely not national stabilities, global orderliness.
US government chose to support Insurance and not Investment Banks is one great improvement in understanding, despite inadequate one, too late.
Finance Industries is not the only industry that needs this segregation, philosophical segregation.
In face of OAW, Medical cares, Education, Insurances also need such differentiating approach to differentiating for the survival essential and the comfort, pampering of the overly-endowed.
We shall divide Cosmetic Care from Essential Medical Care; Enjoyment Institutions from Scholastic pursuits, Basic Education; Wealth Protection Insurance from Disability, Retirement Pension.
With this approach, the governance of such institutions is made easier:
1. Aggregating to achieve economy of scale, in training, in facilities, in expertise.
2. Segmentation to provide premium products,
3. Dispensing of public subsidies, canvassing for support can be appropriately managed, scaled.
This is the wisdom derived from the great Western culture. Western strict disciplines, strict discipline of research brought about today’s leadership in the world, in science, in technology, in financial institutions.
Even a simple, singular transaction, we need to enter twice, one left, one right, one credit, one debit, to ensure there is accountability, accounting trails, mistakes minimized.
Even Black & Shore inspired many, very complex, very precise models, none can stand to the very basic requirements of strict science – cause and effect, measurable and repeatable. Forgotten the Western Strict Discipline in research, this cancer was allowed to grow under the eyelids of the best of Finance Industries for almost a decade, led to the collapse of world finance industries and repercussion spread through out the world.
Without addressing it now, it may bring about worse than Great Depression & World War II.
To ensure a stable, progressive, efficient economy, strict discipline in managing the essential is essential to survival, if not social serenity, if not transaction efficacy, efficiency, world order.
Every one yearn for freedom, full freedom of expression, full spectrum of fabrications, not limiting to Collaterals, Derivatives, Options, Free- willing Valuation. When one is such given, one must shoulder his own risks, and cannot count on others to bear the blunder, just like no one is entitled to taking a slice away from the pie, when it is ready, when it is tasty. This again is Western Strict Discipline of Transparency, then Accountability.
This two-prone approach provides solutions that satisfy seemingly mutually exclusive requirements –
highly secured vault for essential liquidity AND infinite free flowing cannels for excessive capital
together they shall ensure the spirit of free market principal and social good order –
Basic, critical capital flows efficiently, reliably.
no capital is stashed away from the economy
no creativities is stifled
no naive lost his sole piggy bank.
It is darkness that bring us cherish the sunrise.
It is strict disciplines that provide us the basic securities, so that we can venture beyond, venture freely, venture for high profits – even reach the unreachable stars, dreams the unrealizable dreams.
It is only when the society can provide everyone with basic securities, that society can be safe, stable, progressing.
The rich, the powerful, are the most vulnerable, in a society that is full of strife, conflicts, unemployment.
Why should they not support such categorization?
[1] “Dynamite Economy” Aug 8, 2007 http://www.cts-ideas.com/G0813DynamiteEconomy.pdf
No comments:
Post a Comment