Greece – a victim of finance curse?

Those who have studied development economics will be familiar with the term ‘resource curse’ – a paradox of plenty, when countries or regions with abundance of natural resources tend to have less economic growth and worse development outcomes.

The recent developments in Greece reminded me of another phenomenon – finance curse – which is a story about ‘country capture’ where an oversized financial sector comes to control the politics of a finance-dependent country and to dominate and hollow out its economy.

One particular quote seems to be so timely to mention here: “Beyond a certain point, financial development is bad for an economy. Instead of supplying the oxygen that the real economy needs for healthy growth, it sucks the air out of the system and starts to slowly suffocate it.”

You can read more about finance curse here.

ending ‘too big to fail’ era?

“No banker likes to say it, but they get subsidies from the public. Banks worked on a ‘heads we win, tails you lose basis'”.

Mark Carney, Governor or Bank of England, head of the global Financial Stability Board.

(Evening Standard, 10 November, 2014)

Seems like there is some hope. If Carney is really serious about his campaign to end the ‘too big to fail’ era’, there is hope.

bonuses

“People generally are reluctant to accept the fact that paying performance bonuses make things worse not better – the executives themselves are certainly in denial – but there is wealth of research to show this is the case. A recent paper by Michael Cooper, Huseyin Gulen and Raghavendra Rau says bluntly: “we find evidence that chief executive pay is negatively related to future stock trends.””

A. Hilton, Evening Standard, 3 July.

 

fixing or pampering the EU banking sector?

The new Banking union created by the EU in order to improve regulation of the big European banks is proposing banks to have the minimum level of capital – 8%. When Lehman Brothers went bankrupt, their level of capital was  11%.

Moreover, in case a government of an EU country will want to tighten the regulation and increase the minimum level of capital, they will need to seek permission of this central Banking Union. Imagining the level of lobbying and influence by the financial sector on this Banking Union, it is not hard to figure out whose interests will define this regulator.

I might be too quick to draw conclusions, but i’m afraid, this will be yet another missed opportunity to address the real issues in the sector – size and complexity of financial institutions and their products, quality and riskiness of investments, and more importantly – making banks 100% responsible for their failures. Negotiations on levels of capital clearly demonstrate that the attention has been elegantly shifted from the real causes of financial crisis withing the banks to various external institutions and processes, which therefore predetermines failure of preventing financial crisis in the nearest future.

we are all in this together..

so David Cameron, Obama & Co said few years ago referring to the recent financial crisis and austerity measures cutting public services, freezing public sector salaries and increasing unemployment.

but are we?

from 2009 to 2012 the total wealth  of world’s billionaires has doubled – from USD 3.1 trillion in 2009 to USD 6.5 trillion in 2012, writes MarketWatch.

 

Money and Life

During the last few years following the global financial crisis many films have been produced to explain the paradoxes of current economic/ political system and what are the real consequences and impact of modern capitalism on the state of economy, our lives and planet.

This particular film has managed to find the right balance of simplicity and quality of argument from analytical point of view. This is not a mainstream film and not everyone would find it easy to follow, but it does give a great insight into the history of money, money creation, consumerism, growth, enoughness, Wall street, financial sector, democracy, new alternatives, redistribution of resources and wealth, cooperation, Occupy movement etc.

Film is particularly critical about the financial sector which has doubled in its size over the last 14 years in USA and is simply taking over economy. It is not economically productive, but is becoming as a cancer of a real economy as it is sucking real resources out of it. One of the story tellers in the film claims: “if financial sector was working as Las Vegas gambling business, we would not be in that mess now.” This perfectly illustrates how out of control this sector is and how dangerously relaxed and asleep we still are. Watch this film and wake up.