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The systemic problem is that markets are inherently manic depressive and incapable of rationally assessing future risk.

During boom times of irrational exuberance bad companies are funded because risk is underestimated.

During recessions of irrational pessimism and paranoia, good companies aren't funded because risk is overestimated.

Neither is optimal.

These boom/bust cycles are a kind of social illness - an economic plague which reappears cyclically.

Rather than trying to recreate traditional forms of banking, which at best are only barely stable and are likely to react to the present situation by being excessively conservative, what's needed is a distributed organic economy in which credit isn't monopolised and parasitic speculation is illegal.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Jan 22nd, 2009 at 06:32:26 PM EST
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