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Dialogue on Moral Hazard and fixing the financial sector

September 25th, 2013 Leave a comment Go to comments

[Cross-posted from the “we build our society” on Facebook: https://www.facebook.com/groups/webuildoursociety/permalink/426592164111339/]

[Brackets are my comments; some edits.]

Terry said this (edited) https://www.facebook.com/groups/webuildoursociety/permalink/426292260807996/?comment_id=426402304130325&offset=0&total_comments=33:

“Now, I don’t know if you’ll so much like the following, because it is taking scissors to how business is done. The regulation that gov’t can do on business.
1) Business cannot be too big to fail, and ever hold America hostage again.
[Okay; how to de-link businss and politics is a deep issue.]

There must be complete and utter transparency in all negotiable instruments, nothing can be hidden in the books. Anything else is fraud.
[No–the problem isn’t lack of complete transparency, but lack of ACCOUNTABILITY. In the case of privately-held/not publicly-listed/not govt-insured business, those who own the company or deal with it on a voluntary basis are entirely capable of being satisfied with the financial condition of the company, or choosing not to deal with it.]

2) There must be a review of derivative trading. It must be either tossed or highly regulated. Trading should be on intrinsic value.
[We care about banking, finance, securities and publicly-listed companies only because government has stepped in to “manage” these particular businesses (in response to risks flowing from the MoralHazard set in motion by their govt-granted LimitedLiability status), and to “protect” ordinary people, who no longer pay much attention or have much if any of a personal voice. Besides that, there is no such thing as “intrinsic” value; things physical or not have value only because people value them, based to their use to such persons–and everyone has different purposes and values things differently.]

3) Uncontrolled swaps of structured debt should not be allowed. [No; this doesn’t address the real problems.]
4) There should be immediate and thorough review of any new proposals for contracting of negotiable instruments. None of this going ahead with credit default swaps like JP Morgan did without submitting itself to review.
[No–we should remove the public support for banks/investment banks, and for their shareholders, and let them manage their own risks.]

5) NO businesses writing regulation. They can have input, but they can’t be, or buy off. or put pressure, on regulators.
[Nice to say, but the fact of the matter is that the more regulation their is from government, (1) the greater the incentive of regulated business to invest in influencing/controlling the rules of the game, (2) the greater the corruption/unaccountability of public figures and (3) the less the influence that We the People actually have/the more hostage we are to a corrupt process.]

6) I don’t suppose too many people have entertained the notion that Wall St may not need to exist in a form other than regulated informative, with liars being held accountable (jail time) for Ponzi-ing us, or even misleading us about investments (non-transparency). We have the internet, we ourselves can decide what to invest in, and should then be able to invest by ourselves. I don’t think there should be a class that can decide how to invest our money. They should be there to give us all the background. Let us make the decision, not build their porfolio quotas or fund their schemes.
[YES! Agree 100%.]

7) We need to stop high frequency microsecond transactions. They leverage the market, and cause market computer failures. Sorry to put you out of work, you who work in that little building 300 yards from Wall St central, but you should have gone to work at CERN, where your skills would have been used better.
[This IS a problem, but only because of govt regs that purport to “protect” shareholders in publicly listed companies, but instead leave them at the mercy of smarter men to be gamed. Shareholders are at the mercy not only of the listed companies, but also to the securities companies that once used to own the markets and have incentives to make them relatively safe places. Now, they prey on the investors that government purports to “protect.”

And finally, (8) prosecution of the fraud and robbery that was 2007-2009. In short, either there has to be a complete review of how Wall St does business really, or Wall St should be shut down entirely. This of course would require potential investors to educate themselves.

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