Monetary exchange as a GPG
Have a presentation to make tomorrow. Lots to prepare, but instead have spent the last 3 hours trying to imagine a world where “monetary exchange” is treated as a global public good. My brain’s all in knots now, but the general conclusion I have reached is that it is not possible. Even if monetary exchange can be thought of as a global public good, an agency that enables monetary exchange cannot function as a well intentioned “global public good provider”. It has to necessarily be a profit making center. That seems to be the only way one can overcome moral hazard problems in the investing, lending and borrowing of money.
Sounds so simple. But gee, for a few moments I was really excited. This now makes me question the reasons why I have built up a dislike for capital markets, or to be more precise, capital markets trading (after all that is how almost all of monetary exchange happens today). Investment banks making fraudulent valuations based on arbitrary assumptions is one thing, but is there anything at all wrong in taking advantage of market imperfections using impassionate quantitative methods/gut feel or whatever else.
I suppose one of my concerns is with the “accountability” aspect – the ability to move money in and out of companies and countries as and when one pleases with scant regard for possible spin off consequences on the economy as a whole. Which makes me wonder whether speculative trading actually impacts the real economy. If it does not, then it should not matter. But I guess it probably does.
More importantly, I seem to be coming to the conclusion that Derivatives for all their uses are the main reasons for financial instability. They pander to greed, allowing people to trade with high levels of leverage. They enable people with limited money to gamble, and to gamble beyond their means. The cumulative effect I am afraid is fairly unpredictable. That I think is the bigger issue. I think governments should impose severe restrictions on the use of derivatives.
A global public good btw, is a good that is a global public good. Seriously 🙂 Its one of my more favourite jargons. 🙂 Well, its actually something that everyone would agree is good for everyone – basically the world’s public property, something that nobody can claim as their own. Water, clean air for instance are natural global public goods. Health, information, peace etc are others.