Monday, 18 July 2011

Suicide solution

Ah, the drama. World economic crisis hasn't really ended, it has only started. Why? Because nothing really changed. Bunch of people received bailouts, whole lot of people didn't and lost their jobs, houses and lives, but did anything really change? No. Because to really change anything, you have to change the entire system instead of trying to patch up gaping holes in one that is already present but is inherently broken and will crumble sooner or later anyway.

But what is the problem with global economy? It's not really a problem with economy per se, it's got more to do with the trading system. The thing is, the very system encourages greed and actively discourages any kind of long-term thinking. Thus, in order to cure the problem and not the symptoms, one has to entirely replace the whole mechanism of global markets. And to be honest, the solution is really simple and consists of a really small number of things.

And no, before you start flashing your MBA's and economics doctorates, telling me that this thing is not that simple as i try to portrait it, i tell you - it is. If you think of it, any system, however complex it is, has a few core principles in its base, and if you change those principles - the system will adjust accordingly. There's no need to make a lot of adjustments, they will follow naturally as the market will try to adapt to new mode of operation. So fuck you and fuck your economic degrees. Here's what we gotta do:

  • Kill the derivatives

Yes. Kill the derivatives. This is just legalized gambling, only difference being that really powerful players can actually influence the outcome. One can bet on Microsoft's stock falling and then assasinate Steve Ballmer - and win a whole lot of money on that. This is just not right. Derivatives are just money out of thin air.

  • Kill the money market

Trading money for money is the worst kind of thing you can imagine. The money itself does not have any value, it's just a convenient method to exchange goods. It isn't a commodity. Again, money out of thin air.

  • Forbid stock sales for 1 year after purchase

This will be a little confusing to most people, however it's really easy to explain. Stock was meant as a way for companies to make money by inviting investors to buy a part of a company. Investors will get some kind of rights, too - governance of the company, dividents etc. So basically, it's a win-win situation both for the company, and its shareholders - company gets shitload of money, shareholders get return from profits. However, nowadays no-one buys stock as an investment and as a way to make money. They buy stock to sell later sell them at a bigger price. In other words, the long-term nature of stock market has been overshadowed by narrow, short-sighted thinking nature of human greed. If it was forbidden to sell shares until a year after the purchase - there will be more healthy, long-term decisions made and way less market bubbles.

  • Forbid money-making machines

Let the humans run the show. No, really, that's ridiculous - we now have machines that automagically make money, thereby making any human trader inherently on a losing side in short term decisions, because the machine is able to analyze and do stuff way faster than normal human can. The real advantage of human lies in the long term, because the machine has no way of knowing the outcome of this or that decision made by a company. It will, eventually, but anyway, the market should be run by people, because coupling infinite mental resources of a machine with human greed will result in disaster - with humans we at least can limit the impact of our greed.

These four simple things need to be done. The rest of the market will follow. If you boil it down to one basic principle, here it is - encourage long-term thinking and limit the impact of our greed.

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