Wednesday, January 23, 2013

After the Occupy Movement

Danach – After the Occupy Movement, After Capitalism?

The Occupy movement, originating on Wall Street, rapidly swept through the US, Europe and Latin America, reaching also Asia and Africa, albeit with less fervor. Under the banner of “Occupy Paradeplatz” the protest planted itself in the middle of the Swiss financial heart right in front of the headquarters of the two largest Swiss banks, the UBS and Credit Suisse. After being politely told by the police to move, they set up camp in the Lindenhof Park overlooking the old town of Zurich, where they held out until the police once again cleared the terrain after some weeks.
What happened since then? Was this just a momentary venting of outrage, gone as soon as the emotional waves waned? Whereas this may have been the case with some of the participants, the action has taken root in numerous ways. Behind the scenes a lot is buzzing, including a first Symposium ( which united leading thinkers and doers. Anything but reactionary, I was impressed by the well-reasoned, nuts-and-bolts approach to shedding light on our current financial system and what to do about it so as to avoid a complete crash (although, as the title “Danach”, German for “Afterwards”, suggests, most shared the conclusion that it will crash before truly significant change will make its way also through the political and economic systems).
One of the most fascinating insights I gleaned was just what money is and how it was created in today’s economy. What precisely money is, is not based on some kind of natural law, but is what we have made it to be. Thus we can deliberate about how we want to employ it and what precisely we want it to do for us. Conventional economic wisdom (and what I was taught in my undergrad economics course) has it that when I or you deposit our money into a bank account the bank makes good use of it by pumping it back into the economy in the form of loans for businesses or home owners. In reality, they do not even require such deposits but rather are able to “create” their own money pretty much out of thin air or simply go to the central banks where they get it for next to nothing. Thus, as claims, some 97% of all money in circulation in the UK is “created out of nothing” by private banks (see  The problem with this scenario is that there is a complete detachment of this kind of money with the real economy, real value creation and real wealth. Moreover, since money creation is so easy, it inexorably leads to various financial bubbles and to rising personal and public debts.
To solve this problem, the concept of “positive money” or, a similar initiative in German called “Vollgeld” ( , has been promoted. The basic underlying idea is that there should be a complete separation between speculative money (loans, bonds, stocks, derivatives etc.) and the “real money” that is deposited by people in a savings account.
Since these speculative investments would no longer be insured by the government, it would consequently solve the “too big to fail” dilemma, all the while also attributing the real burden of risk on such investors in search of superior returns. Since simple savings accounts would no longer be subject to being dragged into a bank failure due to the speculative investment part of the bank, the risk of bank runs would be largely mitigated. One version of this would make simple bank deposits no longer be part of the bank’s balance sheet and no longer reaping any interest rates.  Only savings accounts, with which the bank makes direct loans, would still reap interest rates. Moreover, through the introduction of “Vollgeld” there could be a one-time write off of all state debt as banks  are required repay their credits to the national banks. (For a detailed explanation of this, in German, take a look here: )
Numerous other interesting insights were presented, including the notion of the use and/or misuse of interest rates and how interest rates force economies to keep on growing in order to not collapse (an impossible proposition in a finite world).
The simple take-home message was quite clearly that the current financial system is not sustainable and bound to collapse sooner or later unless fundamental changes of how our money is created and organized are undertaken. Current remedies, beginning with financial transaction taxes, the Volcker rule, Basel III and all the way to the separation of investment and deposit banking, fail to get at the systemic problems inherent in the current system. As always, the jury is out on just what will transpire. But I think it’s safe to say that it can’t remain “business as usual” or even “business more or less as usual” forever for the financial institutions of the world.
Manuel Heer Dawson

Two further very interesting links regarding this matter:

No comments:

Post a Comment