Sandip Sen

Author,

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Will Bankers or the People dominate economic decision making? What is the Future of Democracy?

Global economic policies are being increasingly framed by Banks

Key Questions:
A) Should Banks be recapitalized repeatedly to grow bigger?
B) Can Central Banks Be Trusted To Manage The Global Economy?
C) Are Banks Competant to find solutions?
D) Will A Banker’s Solution Help The Average Citizen
E) Are Banks managing Elected Leaders?

Let us see and debate on what happened recently.

IN THE US : The Federal Reserve pumped in trillions of dollars through QE1 and QE2 in order to ensure liquidity . It enabled Wall Street banks to corner commodities, oil and metals and caused massive price hikes that further tempered global demand As per Gallup and NYS data the Fed initiative had no positive effect on economic growth or jobs and led to protest.
IN ASIA AND AFRICA : Inflation raged in the emerging world including China and India. Central Banks hiked interest rates to control inflation . The supply chain inadequacies were not addressed, but money supply squeezed. This only helped in further rising of prices and dampened growth. Sharp rise in food prices contributed to the start of the Arab Springs.
IN NORTH EUROPE : Rich north European and EU nations pumped in liquidity to prop up banks. Like in the US recapitalization of Banks were done but toxic assets not written off. The added liquidity led to futures market speculation, price rise and protests in London and Rome.
IN EUROZONE : The ECB, the IMF and IIF (the banking lobby) indirectly took over policy making of growth hit high deficit Eurozone economies, like Greece, Spain and Portugal. Severe spending cuts were imposed and growth became near zero or negative in absence of liquidity. Structural reforms like internal competitiveness deregulation and issues of high exports from Germany to Eurozone taking advantage of Euro parity were not addressed. Poverty and joblessness rose in cash starved Eurozone, as protests broke out from Athens to Madrid.

Despite the 2008 Bank crisis, it is Banks that make key decisions !!!

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    Nov 21 2011: Greetings,
    Personally I believe that Capitalism as it stands has outgrown it's usefulness in this world. This includes the use of Banks world wide. We live in a finite world with limited resources. As long as we pretend that "someday I'll have everything I need to be happy (rich)", we continue to prolong the problem (25,000 die daily from starvation) and bring our species closer to a decimation point. This point being where there will be a cataclysmic reduction in population due to Disease, War, and Natural/ unnatural catastrophe. All of which are compounded by the inequality in the financial world which does not allow a large portion of the population to have food, health care, or a place to live in safety without fear of violence.
    The answer for sustainability and happiness for the greatest amount of people lies in the removal of the monetary based reward system. A revamping of Education and legislative moves towards creating a resource based economy. Nation by Nation until it is adopted around the world.
    Then we may find we no longer need an elected government but rather can do it our selves. Peace~
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      Nov 21 2011: You are right to an extent when you say it has outgrown its usefulness in this world.......I still believe in free market economics,but the problem is that today we do not have free markets anymore Bankers have hijacked free markets by the virtue of fictional paper money and helped create mountains of debt,to first distort and then control free markets. A free market is an equal opportunities market. But today credit is not available to the puny physical commodity traders while Banks awash with liquidity gobble them up.... result is a failure of the free trading markets, price rise ,inequality etc.
  • Nov 23 2011: There are no true democracies- that's why the question cannot be answered. Capitalist republics are not what is meant by democracy- and they have led us into the pitiful state we are in now.
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    Nov 8 2011: Interesting to know that you keep away from high-profile banks due to possibilty of high risk....very few customers including me would really do that in practice, though we would perhaps avoid Banks with a poor credit rating or historical record of poor performance or brushes with the law.
    What i do not agree with however is that Banks have the solutions. I would believe a physical trader of wheat or copper would have a better knowledge base of the production, trade and supply chain Similarly GEwould have a better hold on energy issues, though you would find principally Bankers as principal advisors to UN or any Govt Energy comittees just because they do or arrange the funding.
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      Nov 8 2011: The only high profile bank I still trust is HSBC. BTW, after I switched to smaller local Banks I have experienced better service, no loss of any facility that I used to have in big banks. In fact, I get better facility and lower interest loans. Such smaller banks are more forthcoming and talk straight, easier to access "higher officials" if need arises, unlike big Banks. Of course, by "small" banks I do not mean the cheat fund type fraud financial institutions/banks with very short term history and low credit ratings.

      Most of the time, educated, middle or lower income group people do not use bank to earn a living, to increase their savings to have a fortune or for opening another business/industry. They just need safe keeping of THEIR money.

      According to my experience, Governments still approach "expert" institutions/industries/people to frame its policies, not Banks; at least in developed countries. But there is the possibility to get biased opinion if all such "experts" come from the concerned industry/lobby, as they will try to push their agenda(s), instead of what is good as national, public policy. We see many such instances in many countries, including India (e.g. biofuel policy). In many instances, Govt keep few people from outside to act as "devil's advocates". Bank executives may act on that capacity.

      I think, Banks have solution because they know the business inside-out, they are the "experts" of that subject. Majority (if not all) of US treasury secretaries or Chairmen of the Federal Reserve comes from there. It makes prefer sense and I am not against that practice. If someone knows real practical solutions of financial problems, then it will be the people who knows it the best, not a technocrat or a scientist or even an academic "economist". I was watching the TV interview by 2 recent Noble laureates in Economics. They had no clue, no answer when they were asked about ways to come out from recent financial mess.
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        Nov 8 2011: True a nobel prize winning economist may not have a clue of coming out of the recent financial mess. I don't think even Ben Bernanke had a clue because his solution of liquidity push is not working. Neither economic growth has picked up nor has unemployment reduced, while both the Fed debt and the US Govt debt has baloonedHow can one ever think that the financial mess can be cleaned up without writing off the toxic assets as Ben Bernanke believes. I read your TED conversation Jayanta about steady state economics, but am not sure how it could be achieved without increasing the efficiency of resource utilisation. People will accept zero or negetive growth only once they get more bang for the buck.So perhaps you have to think how you would acheve the same. That is going tobe a big challange but I believe that innovative use of technology could perhaps make it possible
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          Nov 8 2011: Without some basic structural reform in general governance, in our basic principles and role of a government- it is not possible to sustain any long term recovery in financial sector, whatever Bernanke may suggest or do. Now it seems that you have reached where I want you to be!
          Without those change in our direction of "growth based" economy and maintaining status-quo of so-called "free market" economy, the long term sustainable development will remain a mirage for any country. Without that structural reform any financial reform will be just cosmetic.
          It is not "more bang for our bucks" even if few people earn more and create some jobs for few others in the short term. Doing business as usual will ultimately reduce our "bangs for our bucks" - in terms of sustainability of investment and quality of living- that includes environmental degradation, increasing pollution (that has severe consequences on our health), reducing personal happiness (that includes financial security or job security, probability to own a home, time available for family activities etc), increase in conflict and in more acute cases- violent conflicts (as we see in post-"liberalized" India as measured by increasing number of districts affected by some sort of violent/extremist movements (mainly by naxals/maoists).
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      Nov 8 2011: You may also like to check the discussion on my post - "Will a cap on (outrageous) salaries & executive benefits promote growth of meritocracy in any creative profession, including research?- http://www.ted.com/conversations/6598/why_should_we_not_adopt_or_pro.html
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        Nov 10 2011: I am not sure whether any one can accept the theory of zero growth per se However if you are able to improve the resource utilization (bang for the buck) it may still be remotely acceptable
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    Nov 7 2011: Short Ans to ur Qs (considering Big Banks like Citi group, Bank Of America, JP Morgan Chase etc):
    A) Should Banks be recapitalized repeatedly to grow bigger? NO

    B) Can Central Banks Be Trusted To Manage The Global Economy? NO

    C) Are Banks Competant to find solutions? YES and NO (YES- because it has the ability. NO- because it does not provide much incentives to the Banks and, so, no desire)

    D) Will A Banker’s Solution Help The Average Citizen: most probably NO

    E) Are Banks managing Elected Leaders? YES

    Now I do not trust and do not put my hard earned money in any bank that offer outrageous salaries and benefits to its top executives. It is not only unethical but also provoke the banks to undertake many predatory lending practices, hidden charges, false promises, and other financial practices that negatively affect my investment in such banks.
    I trust local, smaller banks in US and nationalized banks (e.g State Bank) in India.
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    Nov 7 2011: True our economic model of today is not perfect. Changing that is not easy. However here we are not proposing a debate on the economic model, but on banks virtually taking over decision making from our elected leaders. Your opinions on the role of both bankers and borrowers within the system are also welcome, apart from your responses on the 5 key questioons proposed.
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      Nov 7 2011: You can not treat a disease by treating its symptoms. It is not just banks but almost any big corporate house (that include even elite universities) have major influence in public policy, simply because of their ability to control election campaign finance and entry of many former/present stake holders from such corporate houses into politics. For example, as the real estate and financial sector profit declined and market evaporated, many entrepreneurs (as I know) entered politics in US. In India it already has reached an alarming situation.
      "Conflict of interest" and election campaign financing need to be addressed first to make sustainable reform to make free market economy a reality. Now "free market" economy is a myth, just like "communism". It works nicely for less influential business sector (low and middle income group) but totally fail for big banks and other big corporate houses (e.g oil, pharmaceutical companies). Many reform proposals ( e.g by Obama admin in US) are effectively blocked by special interest groups. All such activities were accomplished though policy makers (irrespective of party affiliation). The same is going on in India, in many sectors.
      Without addressing this basic issue, whatever reform we propose will not get sustainable change and make national governments more accountable to its people as a whole, not just a minute section of them.
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    Nov 7 2011: Dear Sandip. The answer lies with how we administer "democracy" and how we define the role of a "government".
    Majority of the countries / economies still do not recognize a very rudimentary fact that global resources do not sustain the "growth" based economic model. They still refuse that there is a limit. For detail you can check my article- "Steady state economy and de-growth models of development" (http://jaychatterjee.blogspot.com/2010/10/de-growth-model-of-development.html)
    Unless that very basic fact is recognized among policy makers (forget about bankers and big corporations at this time) and global leaders (I am not talking about "politicians" per se) the problems associated with so-called "globalization" will increase and proponents of globalization will have to site only few (highly debatable) "success" stories of few countries- BRICS countries.