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Very succinct summary.  What is preventing Governments, Bankers and the other stakeholders from going down this road if it is in everyone's interest?  Hidebound conservatism?  Lack of imagination?  A belief they can still game the system to their own greater advantage?  An insufficient appreciation of just how broken and unfixable the current system is?

I know you are proposing a new model of finance, but what would you do with the old ones?

  1. Let insolvent banks go bankrupt
  2. Recapitalise them with public funds
  3. Guarantee all their liabilities
  4. Nationalise them
  5. And then what?  How would you enforce or incentivise a massive change to your model?


notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 20th, 2009 at 11:29:38 AM EST
Monetizing paper debt with more paper would be a nice incentive on investment that would yield an energy backed currency. Just an idea...

luis_de_sousa@mastodon.social
by Luis de Sousa (luis[dot]de[dot]sousa[at]protonmail[dot]ch) on Fri Feb 20th, 2009 at 11:52:20 AM EST
[ Parent ]
What is preventing Governments, Bankers and the other stakeholders from going down this road if it is in everyone's interest?
My guess is that those who have so powerfully benefited from their ability to manipulate the existing debt based finance system to their advantage don't believe that a system such as you describe is nearly so easy to rig to their advantage and everyone else's disadvantage.  This has a lot more explanatory power than "hidebound conservatism" which is more of an excuse.  Were we using a system such as you describe and should the opportunity to switch to a debt based system arise, I seriously doubt they would exhibit such hidebound conservatism.  That would be the term they would use to describe the opponents to such a change.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 20th, 2009 at 02:09:44 PM EST
[ Parent ]
Frank Schnittger:
What is preventing Governments, Bankers and the other stakeholders from going down this road if it is in everyone's interest?

At the moment, they are not aware of the possibility, which is to be expected.

Frank Schnittger:

An insufficient appreciation of just how broken and unfixable the current system is?

I think that it will take a few more months before this really sinks in, although we are well down the road.

Frank Schnittger:

I know you are proposing a new model of finance, but what would you do with the old ones?

  1. Let insolvent banks go bankrupt
  2. Recapitalise them with public funds
  3. Guarantee all their liabilities
  4. Nationalise them
  5. And then what?  How would you enforce or incentivise a massive change to your model?

What I have in mind is more akin to what is known in the insurance world as a "run-off" of liabilities.

Put all assets and liabilities into the hands of a Custodian.

Share the revenues (ie the net interest income) between an "Investor" (ie the original Private shareholders, plus the Public state capital injection) and a "Manager" (ie a John Lewis-Style cooperative, where ownership and control of existing banks - stripped of assets and liabilities - is transferred in trust to the staff).

Capital losses (from defaults) are then shared proportionally between private and public investors.

I would advocate expediting the "run off" with a programme of conversion of existing secured debt into "units" of land rentals. ie a Debt/Equity swap.

The outcome would essentially be the transition of the distressed banks from credit intermediaries to service providers facilitating "Peer to Peer" investment in property "rental pools".

What's in it for the banks is that they no longer have to risk their capital creating credit based upon it.

There's no enforcement necessary. If it works, banks will do it, and the last to market will "have their lunch eaten" (or clocks cleaned), as they say...

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

by ChrisCook (cojockathotmaildotcom) on Fri Feb 20th, 2009 at 07:20:35 PM EST
[ Parent ]
... attitude, but that institutions are intrinsically past-bound, without any need of motive or attitude to explain that fact.

That is, institutions are regular habits of behaviour and legitimising folkviews regarding those habits that provide regularity to social interactions which allows people to function. They are at their most fundamental level supported by our need to make ourselves understood if we want to mobilize any social activity -- they provide the grammer and syntax to social interactions that make people's actions comprehensible to others.

Institutions are intrinisically part of those things we take for granted as we make the routine decisions of our day to day life.

Institutions are not completely rigid, but institutional change normally involves a substantial investment in effort and quite often an intrinsically risky appeal to sovereign authority to resolve disputes over what rules are applicable ... so there has to be a more than trivial pay-off to changing institutional rules, and there is of course no guarantee that a "socially optimal" choice will be made when there is a fight over the institutional rules in force in a given setting.

Further, once a change is achieved in a given social setting, it is easier to win change in a neighbouring setting by appeal to the precedent of the change that has already been established, rather than winning support for a novel institution, so institutional change often runs in "tracks", as decisions are won based on innovations already established in what are seen as similar social settings.

And of course, the more dramatic the institutional innovation, the more dramatic the unexpected consequences of the change are likely to be.

Indeed, a major appeal of this mix of all-equity finance and right-to-output finance is the institutional conflict between debt finance and Islamic prohibitions on fixed debt obligations ... this is a structure of finance that can be quite readily approved as not falling foul of those prohibitions.

As far as why banks are not aggressively pursuing this form of financial partnership, note that under existing capital adequacy requirements, the same amount of money put into fixed nominal debt obligations of the same credit rating would be allowed to back more obligations than this form of direct participation stake in revenue or profits or output. That is, the fixed interest obligation is assured income until it can no longer be serviced, at which point it collapses, while this form of finance degrades gracefully when faced with system-level adverse impacts (like, say, a synchronized global recession mixed together with an international financial meltdown).


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Feb 22nd, 2009 at 03:09:21 PM EST
[ Parent ]
BruceMcF:
Institutions are intrinisically part of those things we take for granted as we make the routine decisions of our day to day life.

I see no future for institutions or organisations in the emerging post-Internet "Peer to Peer" economy. I see the future in networked self organisation within consensually negotiated legal framework agreements.

BruceMcF:

As far as why banks are not aggressively pursuing this form of financial partnership, note that under existing capital adequacy requirements, the

In my own simplistic language, banks lend: they do not tend to invest.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 03:20:06 PM EST
[ Parent ]
... institutions as far back as our history stretches, the idea that Peer to Peer networks will eliminate regular habits of behavior and suddenly people will start making conscious decisions for each and every one of their actions, a la neoclassical fantasy economics, is just an outlandish claim.

Maybe you are reading "institutions" in a derivative sense, rather than its fundamental sense? EG, the often described "financial institutions"?


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Feb 22nd, 2009 at 04:05:13 PM EST
[ Parent ]
BruceMcF:
institutions as far back as our history stretches, the idea that Peer to Peer networks will eliminate regular habits of behavior and suddenly people will start making conscious decisions for each and every one of their actions, a la neoclassical fantasy economics, is just an outlandish claim.

..and it's not a claim I'm making.

BruceMcF:

Maybe you are reading "institutions" in a derivative sense, rather than its fundamental sense?

Possibly.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:16:38 PM EST
[ Parent ]
... institutions in the fundamental sense ... the sense of the definition that I gave at the front of my comment ... is that you say:
I see no future for institutions or organisations in the emerging post-Internet "Peer to Peer" economy. I see the future in networked self organisation within consensually negotiated legal framework agreements.

Since a legal framework is a formal institution, supported by informal institutions, and consensual negotiations rest in part on informal institutions, often supported by formal institutions, this is saying there is no role for social institutions because the future will be dominated by activity in the context of a named list of social institutions.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Feb 22nd, 2009 at 04:34:42 PM EST
[ Parent ]
Well I'll stick to "organisations" in future if that is how "institutions" are to be defined.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:37:08 PM EST
[ Parent ]
... themselves "institutions" because it sounds so much more august, but social institutions are the regular patterns of social behaviour combined with the folkviews of participants regarding those patterns of behaviour.

Financial enterprises may be more to the point ... there will be going concerns engaged in providing the peer to peer networks, but under your thesis, they will finding ways to make money off of the communications traffic they generate, rather than from taking a financial stake in the process of extending credit, so they would not be financial enterprises as such.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Feb 22nd, 2009 at 04:46:54 PM EST
[ Parent ]
Your assumption seems to be that the nodes in a network will be of somehow comparable size and power.

That is not obvious, necessarily true or even (in my view) likely to be true: it seems to me that you've managed to hide institutions and organisations away in the details of your peer-to-peer network.

When it comes down to it, everything in human society is a peer-to-peer network with some structure on top.

by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:09:58 PM EST
[ Parent ]
Colman:
Your assumption seems to be that the nodes in a network will be of somehow comparable size and power.

Where do you get that idea from?

Colman:

When it comes down to it, everything in human society is a peer-to-peer network with some structure on top.

Correct.

Our current conflicted and obscure legal and financial overlay or "structure" is the problem, and it is here that changes are not just necessary, but already taking place.

I see a decentralised and non-hierarchical network of networked partnership protocols coming about bottom up to gradually make the existing system redundant.  But it's not a case of "either/or", rather of organic evolution.

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

by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:26:22 PM EST
[ Parent ]
And I see a reasonably chance that your new network turning into something like the old one very quickly.
by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:30:51 PM EST
[ Parent ]
...and your suggested solution is?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:32:29 PM EST
[ Parent ]
Probably putting in place a collection of laws and such things to try and equalise the power disparities.
by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:35:31 PM EST
[ Parent ]
....and what is the difference between "a collection of laws and such things" and networked partnership protocols other than that the former is imposed willy nilly by gubmint and the latter are agreed between consenting adults?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Sun Feb 22nd, 2009 at 04:41:07 PM EST
[ Parent ]
Ah now. That's an interesting way of putting it.

Is this just a reformulation of libertarianism then?

by Colman (colman at eurotrib.com) on Sun Feb 22nd, 2009 at 04:42:54 PM EST
[ Parent ]
That is, the fixed interest obligation is assured income until it can no longer be serviced, at which point it collapses, while this form of finance degrades gracefully when faced with system-level adverse impacts (like, say, a synchronized global recession mixed together with an international financial meltdown). (My bold)
This is a key advantage in my view, along with the lack of need for exponential growth of any sort.  The drawback of it not providing greater returns in boom times mostly applies to those at the top who are savvy and agile enough to avoid losses in the periodic crashes.  Unfortunately, almost everyone thinks that THEY will be savvy and agile.  We are now testing those assumptions.  When will they ever learn?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Feb 22nd, 2009 at 11:53:05 PM EST
[ Parent ]

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