05 October 2011

Hello again

I'm toying with a total revamp of my blogging output. Once a couple of big projects are out of the/proper under way, I'll think about how that'll work. But in the meantime, a rambling rant...

It looks like big chunks of the globe have a once-in-a-lifetime opportunity to remove a lot of the clutter from their economies - allowing their finest minds to focus on long-term planning, innovation and genuine wealth creation.
They can nationalise the financial services system.
Here's the problem. Financial services has grown up rapidly thanks to people's innate greed - not just that of bankers and City traders looking to boost activity in order to skim off fees and carry. No, I'm talking about *most* people.
We're sold the idea that we should look for above-average returns on our savings and below average rates for our mortgages. We spend time and money delegating that obsession - because we're scared of being the "dumb ones" but too lazy to do anything about it ourselves - to the financial services industry. It then spends massive amounts of money and layers in huge complexity to try to deliver those returns. And it mostly fails.
Some people will get lucky in their choice of unit trusts or mortgage. Some companies will benefits from that high-falutin' hedging strategy, or get a few extra points on their cash holdings using complex investment approaches.
But for every winner, there are losers. The only consistent winners are the very, very smart people - Soros, Buffett - and the very lucky. Oh, and the bookies (as Billy Ray Valentine so memorably put it) of course. Goldman Sachs partners tend to be very, very rich.
The irony is that the essence of the financial services industry's offer to individuals and companies isn't very complicated at all. A big group of people club together and share the risk of investing across a range of projects. Basic risk management allows you to charge those projects more or less for those projects on the basis of their chances of success or ability to repay. The returns are shared out among the investors with a mild weighting for the amount of money they put in.
It's that simple.
(The fly in the ointment is forex and commodities hedging. We'll ignore than for now - although really all we're talking about is smoothing...)
The way to make it happen is to have one big bank. Every depositor gets a risk weighted return, every borrower pays a risk weighted interest rate. We're all in it together. Suddenly, we can forget about asset allocation. We can forget about "beating the market" or "underperforming". We all pay less in fees, so we get better value for money.
(The Tea Party likes to talk about the taxes government levies - what about the taxes Wall Street levies, hmm?)
So seize the opportunity. Make us all average. Encourage companies to manage risk better, plan for the long term - and allow us all to do so, too.

1 comment:

porta said...

Very interesting
thanks. I believe there's even more that could be on there! keep it up.

Depository trust & clearing corporation