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Saturday, January 31, 2009

Comments

Alex Tolley

Just catching up on past issues? :)

Another solution is capital controls, which Malaysia imposed after their crisis, and was largely in place through much of the post WWII period in the OECD.

I do think we need to separate "sophisticated" from "complex and opaque". We've had a lot of financial instruments to improve the quality of life for the population for a long time. What was different this time around, was the complex nature of the instruments, that no-one really understood, and used in vast amounts. Given that the US banking sector was drawing around 30% of the profits of the S&P500, it is arguable that the purpose of these instruments was less to facilitate commerce, than to enrich bankers.

The roots of this can be traced to the huge forex markets that exploded in the wake of the collapse of the Bretton Woods fixed exchange rate regime. Forex transactions vastly exceeded global trade requirements and it is pretty evident this was a game being played by banks to make money. Finance for its own sake, rather than serving the needs of the economy.

No need to put the financial genie back in the bottle. But there was a reason you only got 3 wishes from the genie

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