The Financial Crisis: A Political and Financial Shadow Elite Debacle In a very interesting paper from the Manchester Business School, titled Misrule of experts? The financial crisis as elite debacle, at least two important points are made which should be pondered by those wanting to introduce a financial system of sovereign money. The first point is diagnostic, the second one is therapeutic. First of all the authors do not think that the 2007/8 financial crisis was a socio-technical malfunction like an accident or calculative failure in need of some sort of technocratic fix. They make the case that political and technocratic elites were so hubristically detached from the very improvisational nature of financial innovations that the system became so opaque and complex that effective control or management, let alone conspiratorial meddling, became almost impossible. In their words, the financial crisis was a debacle of policy elites who failed to understand finance as ramshackle bricolage which was bound to go wrong (in unpredictable ways). As far as changing the financial system is concerned they think that restorative reform in the shape of further regulations would not be a solution. The banking sector, in its ramshackle bricolage mode, is very creative in absorbing and even exploiting new regulations, which the authors reasoned was the major cause of the crisis in the first place. More regulation would make the system even more ungovernable because it would increase complexity and opacity and thereby create the conditions for the next crisis. Therefore, the authors reason, the whole industry has to be transformed by dramatically downsizing and simplifying it and bring it back under democratic political control. To bring finance under democratic control needs a societal debate about how this can be done. The authors propose certain interventions like greater accountability of politicians and regulators and cutting the size of financial transactions by bringing them onto an exchange with onerous regulations about margin requirements, but otherwise leave it open how we can challenge orthodoxies and embedded elite groups. Nevertheless, The Dutch lead author of the study, Ewald Engelen, is challenging the Dutch financial and political elite with his recently published book De Schaduwelite voor en na de crsis (The Shadow Elite before and after the crisis) in which he observes that the same people who were responsible for the crisis prevented meaningful reform after the crisis through lobbying and dirty tricks and are back shamelessly revving up the very same money-machine which caused the crisis. As far as I can think it through, the introduction of sovereign money as proposed by the American Monetary Institute and Positive Money would dramatically help to accomplish the desired transformation. First of all, the money banks can and will provide for speculative ventures would be radically diminished, because the banks cannot anymore create instant cheap money out of nothing and let others gamble with it. Instead, as Joseph Huber pointed out, real-economic investments might become more attractive again. Without leverage-funded self-propelling financial bonanzas, investment banking and casino-style speculation will no longer automatically offer the quick-buck prospect of elevated returns in comparison to real-economic investment. Second, the introduction of sovereign money will greatly diminish the chance of financial crises because, again, it will be impossible for banks to fuel volatile, destructive boom-bust cycles by creating and destroying their own credit. Kumhof, by looking into the 1930s Chicago Plan, clearly saw that sovereign money would avoid credit-driven boom-bust cycles, bank runs, and high debt levels. In conclusion, it looks like that Engelen et al contribute a necessary piece of analysis of the cause of the financial crisis and its continuation and make it clear that instead of further regulation we have to look for a more radically transformative change of finance. The transition from debt money to public money might be radical enough--though still executed in tandem with strict re-regulation--to satisfy their call for meaningful change. Ewald Engelen , Ismail Ertürk , Julie Froud , Sukhdev Johal , Adam Leaver , Michael Moran & Karel Williams (2012) Misrule of experts? The financial crisis as elite debacle, Economy and Society, 41:3, 360-382. Joseph Huber. Sovereign Money in Critical Context: Responding to criticism of monetary reform from a variety of economic viewpoints. sovereignmoney.eu/papers-and-manuscripts, Oct 2014. Michael Kumhof & Jaromir Benes, 2012. The Chicago Plan Revisited, IMF Working Papers 12/202, International Monetary Fund. imf.org/external/pubs/ft/wp/2012/wp12202.pdf
Posted on: Sun, 16 Nov 2014 23:22:15 +0000
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