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Great stuff, Jerome, and capable of leading a dozen different diaries I think.

Just a few thoughts in respect of Wolf's piece, which I have yet to read.

What explains the growth in financial intermediation and the activity of the financial sector? The answers are much the same as for the globalisation of economic activity: liberalisation and technological advance.

Greed explains it.

Financial intermediaries will constantly invent new and ever more complex and arcane ways of extracting Value from the productive economy, until the parasite kills the host.

It's what they do.

And the complete nonsense of "deficit-based" emissions and carbon trading is just the latest example, the previous one being the invention of credit derivatives enabling credit intermediaries (aka Banks) to outsource the only TRUE value they provide - a Guarantee of a borrower's credit.

Two further long-term developments help explain what has happened. The first is the revolution in financial economics, notably the discovery of options pricing by Myron Scholes and Fischer Black in the early 1970s, which provided the technical underpinning of today's vast options markets.

The ability to measure "Time Value" was definitely a huge advance. But imagine what would happen if the "time" element were taken out of the equation entirely?

Which I believe is now possible simply by packaging revenues or production in new legal "wrappers" to give rise to a new - and time-less - form of "asset-based" finance.

It's already happened - imperfectly - in Canada to create two tiers of "Asset-based" Capital - conventional "Equity" and "Income Trusts".

The second is the success of central banks in creating a stable monetary background for the world economy and so also for the global financial system. "Fiat" (or government-created) money has now worked well for a quarter of a century, providing the monetary stability on which complex financial systems have always depended.

Governments don't create Money (apart from cash). Private Banks do. Period.

The advent of credit derivatives has removed any residual role that Central Banks ever had.

Stable monetary background! What!

<Head Explodes>

The system has never been so unstable, with pyrmaids of risk balanced upon pyramids of risk, a collapse is inevitable sooner rather than later.

We see a mutation all right, but beyond that is an evolution.

Wolf simply cannot see that the disintermediating logic of the Internet has not gone away. ALL intermediaries - and credit intermediaries configured around Central Banks above all - are simply obsolete.

As Gilmour almost said:

"The Internet interprets Banks as damage and routes around them."

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jun 19th, 2007 at 05:40:58 AM EST

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