> We need to stop trusting people - period. This is why, at least in the US, we have 3 branches of government, so that each one will check the other out of self-interest and balance possible abuse/corruption (not perfect - but pretty darn good!).
I think you have the right intuition, but you don't go far enough. The root problem in finance is that people have turned over to government the power to control money. There is too much trust in government officials and in the banks that fund them.
Government's ability to control money has resulted in fiat money that is constantly being devalued, encouraging people to make risky investments and to take on debt. This has been very profitable for government, which has ready access to low-cost funding. Fiat money has also been very profitable for banks, which through the "magic" of fractional-reserve banking, have been able to loan with interest money they can simply create.
The solution is to take away the power to control money from government. Let people decide what they will use as money and they will choose money that maintains its value. They will also invest in institutions that do not use fractional-reserves and other risky schemes and thus are not subject to bank-runs.
A US politician that is talking about real reform is Ron Paul. The bill that would allow currency competition is The Free Competition in Currency Act. It's about one page long. http://www.govtrack.us/congress/bills/112/hr1098/text
Give people the freedom to choose their money, let them choose to invest it in the institutions of their choice, and problems like the Libor scandal will stop being so important. The people who committed fraud will be prosecuted. Damages will be paid. Reputations will be damaged. People will choose to bank elsewhere. No problem.
By trusting government to control money, fraud in the few institutions favored with a bank charter becomes a very important issue. It doesn't have to be.
Indeed... We need to go back to feudalism where we can sell our hacking skills in exchange for slavery to our VCs for 8 years. After the 8 year mark we can finally start drawing a salary instead of just getting room and board and catered lunches.
The reason for fiat money is to allow for venture capital and allow new people (immigrants, new births) room in the economy. Granted what has gone in recent times clearly gives certain people more leverage and ability to escape punishment when they play outside the rules. Something should be done about that, but going back in time to feudalism isn't going to solve the problem.
Surplus wealth, not fiat money, is necessary for investment. Investment is just surplus wealth that is spent to increase future production rather than for the present. This surplus wealth can be invested by the people through their voluntary savings, or can be extracted by deceit and force with fiat money. Deceit because people don't realize that they can buy less than they produce because their money is worth less. And force because people are forced by legal tender laws to use and accept debasable money.
Ok James Madison, but we have 200 years of economic data and reasons for the fiat money. You're hand waving and claiming that it's an evil without acknowledging that it solves some pretty fundamental problems. People aren't poor now because their vast wealth has been decimated by inflation. It's because we are doing more with less and commoditizing the types of work they were doing.
> People aren't poor now because their vast wealth has been decimated by inflation. It's because we are doing more with less and commoditizing the types of work they were doing.
Efficiency in production makes society as a whole richer, not poorer. For example, programming computers to drive cars will ultimately enable a lot of taxicab drivers to do other things to help society that they couldn't do before because they were busy driving. When self-driving cars become widespread, society will benefit because it will have the same benefits of transportation that the taxicab drivers used to provide as well as the new goods and services the former drivers are now providing. The fallacy that machinery reduces wealth and employment is debunked in longer form by Henry Hazlitt in Economics in One Lesson. See http://www.fee.org/library/books/economics-in-one-lesson/#0.....
That's great but go to the rural south where people are dirt fucking poor. Average is an inane statistic by itself--just because in aggregate we are richer because we can afford a $200 meal in Nor Cal doesn't mean that wouldn't be a boon to feed a family at the bottom elsewhere.
I think you have the right intuition, but you don't go far enough. The root problem in finance is that people have turned over to government the power to control money. There is too much trust in government officials and in the banks that fund them.
Government's ability to control money has resulted in fiat money that is constantly being devalued, encouraging people to make risky investments and to take on debt. This has been very profitable for government, which has ready access to low-cost funding. Fiat money has also been very profitable for banks, which through the "magic" of fractional-reserve banking, have been able to loan with interest money they can simply create.
The solution is to take away the power to control money from government. Let people decide what they will use as money and they will choose money that maintains its value. They will also invest in institutions that do not use fractional-reserves and other risky schemes and thus are not subject to bank-runs.
A US politician that is talking about real reform is Ron Paul. The bill that would allow currency competition is The Free Competition in Currency Act. It's about one page long. http://www.govtrack.us/congress/bills/112/hr1098/text
Give people the freedom to choose their money, let them choose to invest it in the institutions of their choice, and problems like the Libor scandal will stop being so important. The people who committed fraud will be prosecuted. Damages will be paid. Reputations will be damaged. People will choose to bank elsewhere. No problem.
By trusting government to control money, fraud in the few institutions favored with a bank charter becomes a very important issue. It doesn't have to be.