The problem I see immediately with that paper is that it assumes that banking and finance are the same sort of thing as natural disasters and other physical matters: they are not.
It is really an extended metaphor so far as I an see: but it seems to have a contradiction at its heart: on the one hand it proposes that the financial system has been essentially unchanged for about 200 years: on the other it argues that in the last 7-10 years it has changed its nature so that it is now very vulnerable and so are we all in consequence. This makes no sense at all to me.
I do not see any reason to accept that this is a system akin to the human body or the environment: nor do I see any reason to suppose that the crash of a bank or 10 is akin several natural disasters.
Finance is not a natural system nor does it have anything in common with those. It is man-made and man-controlled if we wish it to be. As it is currently constituted it is causing a great deal of harm and attempting to preserve its current state is causing yet more. But the question at the heart of the paper is why on earth would we wish to preserve it? Why would there be the kind of alarmist consequences they assert but do not justify?
According to this paper if there is no money and no credit and no financial mediation then there will be collapse: ok let us accept that. What reason is there to suppose that if we let the banks collaps there will be no money? What there is will still be there, and the rest is illusory, so there is no substantive change. Money is properly the sole preserve of governments. So long as governments are there there will be money. The change which allows banks to control the money supply is a cause of the problem but it is not a necessary thing at all. We can reverse it tomorrow if we wish.
Similarly, why should the collapse of banks mean there is no credit? If I, food producer A, decide that I will not release my vegetables on to the market because I do not trust that the purchaser is creditworthy it is fine so long as there is some other purchaser: but in global collapse such as this envisages there won't be. So what am I going to do? Keep the stuff and allow it to rot in the field? Why would I do that? I am not swapping my vegetables for money: I am swapping them for other goods: that is what trade is. Credit is a promise that will get those goods a some point. Yes I need confidence that will happen: but my suppliers have not changed and my customers have not changed. So if trust them now why would I not trust them in the future? I have the impression that the authors cannot imagine that which they purport to outline. Although they mention the different hats that money can wear they do not seem to distinguish them in any practical way.
It is true that they talk of money as a way of mediating transactions: and so it does. And so can any entry on any computer or any piece of paper. Government can produce as many of those as it likes. My problem is that so can banks and I can't tell the difference. We can sort that: compare rentenmarks. Let the banks hold as much worthless paper or computer entries as they like: it will not make any difference at all if government has scrapped the currency they represent and replaced it with another.
I see absolutely no reason nor any argument within this paper to accept that
QUOTE
If the financial and monetary system failed, so too would production flows and replacements for critical
infrastructure while bank runs and food riots could bring down governments (behaviour).
They assert it more than once: the do not demonstrate it at all. Much like every other paper I have seen so far
Edited by FionaK - 16/7/2012, 18:36
