Presentation on theme: "Core problem: A global financial system turned to gambling or….more precisely put: Lax Regulation, Debt, Leverage and Financial Fragility: The Economics."— Presentation transcript:
Core problem: A global financial system turned to gambling or….more precisely put: Lax Regulation, Debt, Leverage and Financial Fragility: The Economics of Trouble (Minsky)
Nutshell: While the value of assets can plummet posthaste, it takes forever to shrink the debt used to buy them... Especially if those assets are toxic- Bad collateral or securities with fictitious valuations.
An Analytical Framework : Financial Systems and Economic Performance Returns in the Financial System Financial innovation financing productive Investment Schumpeterian Paulsonian (John) A. Spirits +Long- term Funding: Public & Venture Capital Hedge Funds, Securitization & Over-Leverage Development/ Structural Change Ponzi/ Madoff Capitalism CAPABILITIES REQUIRED: Unique knowledge by fin instit. of business firms competences; strategies and of their competitive ecology + sound fin governance. CAPABILITIES REQUIRED: Knowledge about the regulatory/legal loopholes and how to structure bets on the formation & evolution of prices in currency, commodities & securities markets + governance by lobbying Financial innovation financing gambling Creative destruction Destructive creation Schumpeterian Capitalism Madoffian Capitalism
Bring the financial system back from its current rent-seeking configuration to a productive fit by (but not exhausting the list): What has to be done ? Re-regulating leverage, liquidity creation and K. movements, Supervising by examining balance sheets' evolution (dynamic regulation), Removing limited liability from financial institutions (Brazils case), Re-shaping the incentives for private finance (close the casino), Expanding the public financial system (look at China), Adopting the Singapore model of bureaucracy. In Short: The Socialization of Investment (Already proposed by Keynes in GT, Chapter 24)