Before we can understand that the
finance system needs to be isolated from the commercial system, if we
want economic stability, we need to understand finance.
What is finance? Finance is the monetization of anything and everything.
I
promise, in writing, to pay you $100 in three months. You can monetize
that written promise. You can sell it for anything, maybe $90 if there
are people who know I am a trustworthy borrower. You, the owner of my promissory note, can write three
promises based on my promise and sell each for $31 if the buyer's
assume you are more reliable than I am. You can sell insurance to guarantee my note for another $1. Got it? My promise, in writing, has been monetized. It is now several pieces of financial product and can be sold to other people.
What can you monetize? Draw a rectangle, put numbers on it, draw a pattern and make part black and part red. Generate random numbers and sell the outcome of the number plus the design of the board. Sound ridiculous? It's called roulette. Roulette is the monetization of a specially designed rectangle and a random number generator (and some booze).
You can sell the belly of 1,000 pigs for delivery in Feb. You can buy them in the real world on your computer from a market in Chicago. People have sold Florida swamp land, plots of land 50 feet under water in San Francisco Bay and even the chance to spend a few minutes looking at a Chinese Panda. You can buy or sell sequestered farts from cows (I have sold these myself), buy or sell billions of thermal units of methane for delivery on March 4th and you can even buy or sell 15 minutes of sex (the oldest known monetization).
Anything
can be monetized, and that monetization can itself be monetized,
insured and the insurance policy can be monetized and the chance that
the insurance policy will be paid out can be monetized. Land on the
moon, Mars, a seat on a satellite ride.... all can be monetized.
Because finance is a world of promises, hopes, guesses, probabilities it will always be volatile.
The volatile finance system should be isolated from the commercial system. The simplest way to do that is to have two large banks subject to government rules that make sure the banks can not call-in a loan, or refuse to extend a loan. Simple. Businesses that get loans will be able to keep the loan as long as the loan is secure (as long as the underlying asset doesn't decline). With secure business loans in place financial volatility won't spread to the commercial world.
Right now, when a bank makes a financial mistake in a Swaziland investment, a perfectly healthy businesses in Minneapolis has their solidly secured loan called-in. People are laid off and new products are not produced. The volatile finance system infects the stable commercial system.
What is finance? Finance is the monetization of anything and everything.
What can you monetize? Draw a rectangle, put numbers on it, draw a pattern and make part black and part red. Generate random numbers and sell the outcome of the number plus the design of the board. Sound ridiculous? It's called roulette. Roulette is the monetization of a specially designed rectangle and a random number generator (and some booze).
You can sell the belly of 1,000 pigs for delivery in Feb. You can buy them in the real world on your computer from a market in Chicago. People have sold Florida swamp land, plots of land 50 feet under water in San Francisco Bay and even the chance to spend a few minutes looking at a Chinese Panda. You can buy or sell sequestered farts from cows (I have sold these myself), buy or sell billions of thermal units of methane for delivery on March 4th and you can even buy or sell 15 minutes of sex (the oldest known monetization).
Because finance is a world of promises, hopes, guesses, probabilities it will always be volatile.
The volatile finance system should be isolated from the commercial system. The simplest way to do that is to have two large banks subject to government rules that make sure the banks can not call-in a loan, or refuse to extend a loan. Simple. Businesses that get loans will be able to keep the loan as long as the loan is secure (as long as the underlying asset doesn't decline). With secure business loans in place financial volatility won't spread to the commercial world.
Right now, when a bank makes a financial mistake in a Swaziland investment, a perfectly healthy businesses in Minneapolis has their solidly secured loan called-in. People are laid off and new products are not produced. The volatile finance system infects the stable commercial system.