The system is unable to remain stable when countries like China are thrown into the "free trade" mix.
"Free trade" was pursued for the benefit of those at the top of the tree, but the inevitable result was to create imbalances in the "open economy" that a market cannot deal with.
The solution (which I'm not saying I'm wholly comfortable with) might have been to phase in Chinese involvement in the "free market," reducing barriers over a number of years, rather than very quickly.
I guess, I'm groping towards the current crisis as an inevitable outcome of Doha (GATT) and the WTO.
I don't know how correct that is, but I do have a feeling it's part of the story tha Martin Wolf is trying to point to. But he would never want to acknowledge that the instability comes out of "free trade" engineering attempts.
That is to say, deregulation and the ensuing rush into complex financial instruments, creates extra liquidity right up until the moment people lose confidence in them.
So "Bubbles" crime wasn't just his actions on the base rate, but his consistent belief in deregulation.
In doing this, they are essentially permanently outsourcing their principal business, which is the implicit (and sometimes explicit, in the world of trade finance) guarantee of the credit of borrowers.
Banks also offload the guarantee temporarily (credit derivatives) or partially (eg AMBAC and the other monoline credit insurers).
The solution I advocate is putting the assets into trust and dividing the guarantee payments from borrowers (because the guarantee is the true value their interest payments is exchanged for) between investors and managers through the creation and sale of proportional units of this revenue stream.
This partnership-based "unitisation" is of course selling on the cash flows as you suggest.
Because as Canadian financial markets show, you don't actually need to sell ownership and control when you can parcel up the revenues (into Income Trusts in that case) and sell off the units.
This "unitisation" is an emerging "asset-based" alternative to the "securisation" now pretty much frozen solid. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
But what did he know? I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
