Friday, August 23, 2013

The Other Side of Finance

We need multiple exclusive currencies and markets so we can reduce the regulatory burden on the rich. If you have been paying attention to the recent technical problems with the NASDAQ exchange, you will hear regulators saying that we need more regulations to "keep this from happening again." Those who run the exchanges are equally convinced that this incident was just a glitch. Let us not over-react, they say. The exchanges are over-regulated as it is, they say.

We would not need a heavy burden of regulations if the rich and their managers could resist putting the boot in when the poor are down. It is not that the poor are better than the rich, it is just that in any group of people, only some can resist the temptation to take advantage of weakness. Government has to step in to protect the "weaker hands."

Rich people, pay attention – we have a way for you to have your totally unregulated exchanges. You know that you want it. Your need to avoid regulation is why those "dark pools" of capital were created. You had to get away from public scrutiny.

A better way to do it is with multiple exclusive currencies and markets. Make the separation official and easy to enforce. Without all those small investors working in the same markets that you do, there will be no need to protect them.

It does not make any sense to let children on the same field where the adults are playing. The measures taken to protect the children from getting hurt will make sure that no one has any fun.

In a similar way, our financial regulations take a lot of fun out of our markets. The regulations try to accomplish two things at the same time. They try to keep the markets open and free, but at the same time, they try to restrict what he rich do because it might hurt the poor. That is, our regulations try to promote opportunity and restrict it at the same time. No wonder they do not really work.

If we had multiple markets at different levels of financial competitiveness, separated by firewalls of different and exclusive currencies, then the regulations for each level could be rational and focussed to benefit those at that competitive level. The financial instruments at each level would be denominated in the currency at that level, limiting the impact of disruptions in other markets.

Financial services would improve. Small brokers in less-competitive markets could survive and offer services to small investors. As it is, the large brokers eat up the small brokers, and the small investor is ignored. It is just too expensive for large brokers to take on small accounts because the regulatory costs and legal risks outweigh any tiny profits they might make from the accounts.

There are other points we could make, but mainly we want you to stop and think a bit about the advantages of multiple exclusive currencies and markets. Many of the rich are reactive rather than thoughtful about having a single currency that is used in all the markets. However, maybe the extra complexity of multiple currencies is justified. Would the cost of any inefficiencies be worse than the regulatory climate that we have today?

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

TheOtherSideOfCapitalism (

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