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The “financialisation” of the economy: Professor Yeomin Yoon

December 12, 2018

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Professor Yeomin Yoon, who shares Thomas Attwood’s concern for the ‘real economy’,  has commented on an earlier article in the Financial Times which, with the benefit of hindsight, described the proximate causes of the 2008 financial crisis and discussed some relevant measures to prevent another calamity. He points out that it did not address a fundamental cause of the crisis: “financialisation” of the economy.

Financialisation is the phenomenon by which finance and its way of thinking have come to dominate every corner of business) and the damage inflicted on the entire economic system.

A few months earlier he said – also in the Financial Times – “the fundamental flaw in economics being taught at universities is the disappearance of morality from economics, which was originally a branch of moral science”. He continued:

“The national economy comprises two sectors: the real sector and the financial sector. To use a metaphor, the former is the body of a dog and the latter its tail.”

The ‘real’ sector, or economy is defined by the FT as being ‘concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets’. Yoon continues:

“In a healthy economy, the financial sector should serve the real sector as the lubricator of economic activities (production, distribution, consumption) by maintaining a well-functioning payment system, acting as custodian of the assets of the people and providing financial risk management tools”.

Professor Yoon asserted that the tragedy of many western nations was that their policymakers have forgotten or misunderstood the intrinsic role of finance. They allowed the tail (Wall Street) to wag the dog by letting what Adair Turner, former chairman of Britain’s Financial Services Authority, called “socially useless activities” (rampant financial speculations) ruin the national economy. He added:

“Worryingly, many policymakers still do not see the danger of the ephemeral value-added created by the make-work and make-believe practices of the industry” and ended:

“Politicians should ensure that serving the real economy is the duty and purpose of the financial sector. At a minimum, they should avoid letting financial speculators privatise gains and socialise losses by bailing them out with taxpayers’ money”.

Yeomin Yoon is Professor of Finance and International Business at Seton Hall University, NJ, US

 

 

 

 

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Conference: The Future of Money – 10 Years after Lehman and Nakamoto

November 17, 2018


Joseph Huber draws our attention to the upcoming international conference 

The Future of Money – 10 Years after Lehman and Nakamoto

http://conference2018.monetative.de/

24th November 2018, Frankfurt, Germany

Venue: the Frankfurt School of Finance and Management Adickesallee 32-34, 60322 Frankfurt am Main.

The conference will be jointly held by the NGO Monetative, the International Movement for Monetary Reform  (IMMR) and the Frankfurt School Blockchain Center

The aim of the conference is to present the current debt-based money system and to debate the pros and cons of two major reforms to this system. This is organised in three sessions.

The conference program includes frontline topics in monetary system development 

presented by renowned speakers and panelists (scroll down that page).

 

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Central bank digital currency coexisting with bankmoney

October 25, 2018

In January, Joseph Huber sent a link to an article on Monetary Reform Light: Sovereign digital currency coexisting with bankmoney.  He now adds that the discussion on central bank digital currency (coexisting with bankmoney rather than replacing it) has made much headway:

“As it turns out, the devil is in the details. Whether the entire approach serves to maintain the bankmoney regime or whether it might really be the first step towards a gradual system change towards a sovereign money system depends on a number of design principles as outlined in my new paper on Digital Currency – Maintaining or Overcoming the Bankmoney Regime? Design principles that make the difference, at https://www.sovereignmoney.eu/digital-currency or https://www.sovereignmoney.eu/digital-currency-sovereign-money-on-account

 

 

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THE BUILDING OF GOSABA: a legitimate use of money

September 23, 2018

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Ken Palmerton is the co-founder of a small ecumenical group (Muslim, Jewish, Christian) called the Institute for Rational Economics, which has been active in several areas, including the promotion of local currency schemes and reform of banking systems. For years he has been trying to find out if there are any traces\memories\further records left of the scheme he describes below.

This project is an example of the legitimate use of money, which should not be treated as a commodity but as a medium enabling the exchange of goods and services in situations where direct barter would have posed difficulties. Used within a sound financial system, ‘honest’ money can serve the community by facilitating trade and above all can ensure the application of the talents and labour of each person to the meeting of his or her community’s needs.

Millions of people in the subcontinent of India, despite its great natural wealth in land and labour, live in poverty. A detailed examination, however, reveals local small-scale patterns of success that hold out hope in a world where hope is at a premium.

One historic example was a co-operative scheme undertaken in Gosaba, a previously uninhabited area of the Ganges delta in West Bengal.

In 1903 a Calcutta businessman, Sir Daniel Hamilton, (left) took out leases on tidal swamp land. During the next thirty years the flood-prone area was drained and turned into productive agricultural land, supporting about 12,000 people.

Schools, dispensaries, small industries, river transport and the means of processing the surplus crops for sale in the city were organised on co-operative lines – and the co-operative movement eventually spread throughout Bengal.

In its twenty-five villages, all disputes were settled locally and there was no alcohol in evidence.

A photograph of his bungalow taken in 2013 by Lokenrc, Creative Commons licence

 

A radical method of funding made this development possible.

From the first, Sir Daniel had issued notes called ‘hachitta’, in exchange for work done and redeemable at a co-operative store set up to supply the needs of the community.

The official backing for these notes was a deposit of 11,00 rupees, supposedly held at the estate office, but in fact they were simply a medium of exchange as the wording on one side of the notes explained:

Sir Daniel Mackinnon Hamilton promises to pay the bearer on demand, at the Co-operative Bhundar, in exchange for value received, one Rupees worth of rice, cloth, oil, or other goods.

Signed: D.M.Hamilton

On the other side was written: “The value received in exchange for this note may be given in the form of bunds constructed, or tanks excavated, or land reclaimed, or buildings erected, or in medical or educational services. The note may be exchanged for coin, if necessary, at the estate office. This note is made good not by the coin, which makes nothing, but by the assets created, and the services rendered. The note is based upon the living man, not on the dead coin. It costs practically nothing, and yields a dividend of one hundred per cent in land reclaimed, tanks excavated, and houses built, etc. And in a more healthy and abundant life”.

 

 

Read more here:

 

http://archive.spectator.co.uk/article/2nd-march-1945/9/the-gosaba-experiment

http://tigertourismproject.blogspot.com/2015/06/sir-daniel-co-operative-movement-one.html

https://en.wikipedia.org/wiki/Daniel_Hamilton_(businessman)

 

 

 

 

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A regional co-operative development bank for Wales?

August 21, 2018

John McDonnell, in his 2016 speech about socialist economic policy, said, “For too long major decisions about what and where to invest have been taken by Whitehall and the City. The result has been underinvestment and decline across the country. It’s time for our regions and localities to take back control. So we will create new institutions”.

A Labour government would set up a £250billion National Investment Bank to supply the long-term, patient finance needed to sustain a new, more productive economy. It will be backed up by a network of regional development banks, with a clear public mandate to supply finance to regional and local economies. They will have a mandate to provide the patient, long-term investment needed.

The Co-operative and Community Benefit Society Act (2014) allowed co-operatives to hold a deposit-taking licence for the first time, clearing the way for full service high-street retail banks to be owned by their customers.

Tony Greenham, who promotes the creation of regional co-operative banks writes: “In response, the Community Savings Bank Association was established in 2015. Its purpose is to help set up a network of 18 regional co-operative banks across the UK with a mission to serve all people on equal terms and to focus on honest and transparent savings, loans and banking services for SMEs, community groups and households of ordinary means. By providing the back office functions and regulatory frameworks to operate a bank – a ‘bank in a box’ – this model allows smaller regional banks to stay close to their customers while also enjoying the cost efficiency advantages of national scale. The banks will be controlled by their customers, one member one vote”.

Mr Greenham is working with similar projects in London and Bristol. In Greater London, two local authorities have put up £10 million towards the £20 million needed to get a co-operative bank licence.

Ellen Brown, in an earlier post on this site, reminds us that there are over 50 similar initiatives taking place all over the USA, from Maine to Hawaii and Alaska, involving citizens, civic leaders  and elected officials, bankers and stakeholders from all walks of life who want to break the chain of dependence on mainstream banks and then looks further afield, writing:

“Greater access to finance for Welsh businesses has long been a key political issue. Brexit has both added to the need and opened new possibilities”.

After years of discussion, Welsh Labour and Plaid Cymru have finally agreed on a compact which includes a commitment to establish a development bank focused on finance for small and medium-sized enterprises (SMEs), to be formalized in the Fifth National Assembly. A Welsh Development Bank would target particular sectors and types of business that have difficulty getting funding, such as microbusinesses and new businesses.

Members of the Public Bank for Wales Action Group, which includes Arian Cymru, Responsible Finance, Move Your Money, WCVA, Wales Co-Op Centre and WLGA have significant experience and knowledge of other US and European models that may be particularly relevant to the Welsh project. The group had two public meetings last year with the Welsh government, including the chief economist and the local government and finance minister. A public meeting in Cardiff in January last year led to the first commissioned report on a Public Bank for Wales and the Public Bank for Wales Action Group is in dialogue with the Welsh government about commissioning a more detailed report.

Ellen points out that the US state-owned Bank of North Dakota (BND) and the German community-owned Sparkassen banks, have been remarkably successful. She writes: “One key to their success is that rather than simply lending their capital as a revolving fund or development agency does, they can leverage their capital into roughly ten times that sum in loans. This is something all banks can do – but only if they take deposits”.

If Labour’s National Development Bank comes into being, a Welsh regional co-op bank could be one of the network of twelve regional development banks under a Labour government, with a clear public mandate to supply finance to regional and local economies.

 

 

 

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In November Los Angeles will choose whether to set up a public bank with a mandate to serve the people

July 31, 2018

Voters in LA will be the first in the United States to choose whether to set up their city’s own public bank to serve the people, instead of private interests.

LA’s charter currently prohibits the creation of industrial or commercial enterprises by the city without voter approval. The City Council voted on June 29th to put a measure on the November ballot that would allow the city to form its own socially and environmentally responsible, state-chartered public bank.

Public Bank LA banner

Public Banking Institute Chair Ellen Brown reported on this in a recent article:

The [Los Angeles] bank is expected to:

  • save the city millions, if not billions, of dollars in Wall Street fees and interest paid to bondholders,
  • inject new money into the local economy,
  • generate jobs
  • expanding the tax base,
  • reinvest in low-income housing,
  • critical infrastructure projects
  • and clean energy.

The City of Los Angeles paid over $109 million in fees and interests to commercial banks in 2016.  With a city-owned bank, our revenues will stay within our city. By cutting out Wall Street as the middle man, banking profit will be reinvested back into our communities.

BANKING FOR THE 99%

Public Bank LA writes:

“Imagine a City Public Bank revolution where every major city has its own public bank with a social and environmental charter, explicitly designed to serve the needs of the local community” and ends:

“It’s time for our banking system to evolve into publicly-owned financial institutions prioritizing people and planet over profit”.

 

 

 

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Climate change should be placed “front and centre” of the central bank’s mandate to boost green investment

July 12, 2018

A Green Bank of England, Central Banking for a Low-Carbon Economy

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Delphine Strauss (Financial Times) summarises advice in this report (link to pdf above) from the campaign group Positive Money.

It recommends that climate change be placed “front and centre” of the Bank of England’s mandate so that the central bank can boost green investment.

The report has won backing from Lord Deben, who chairs the independent Committee on Climate Change which was set up by the government to monitor the UK’s progress in meeting its statutory targets for cutting emissions:

“They are right to seek some radical measures, because the issues are radical. I think that monetary policy does need to reflect these risks”, he said, adding that central banks should do more to ensure the availability of green finance and divest from fossil fuel companies that showed no inclination to change their business.

The BoE has been reviewing UK insurers and banks’ exposure to climate-related risks and supports efforts to develop international standards for voluntary disclosure.

Mark Carney, the BoE’s governor, has repeatedly warned of the physical damage climate change could wreak on the economy and the risks to financial stability that might result from a sudden revaluation of carbon-intensive assets.

Positive Money argued that this concern for financial stability will look “incoherent” unless the BoE does more to boost investment in the transition to a low-carbon economy. Its report urged the government to rewrite the mandate of the Monetary Policy Committee to include green objectives explicitly and called on the BoE to look at ways to build climate-related risks into its macroeconomic models.

The Positive Money report urges the BoE to set an example:

  • by disclosing the carbon risks of assets on its own balance sheet
  • by ending the practice of buying bonds issued by fossil fuel companies
  • and by financing green projects via quantitative easing during any recession.

It argued that the BoE has unintentionally promoted high-carbon sectors because its criteria for asset purchases favoured the bonds of large fossil fuel companies.

 

 

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