The first problem to recognize is that there are no generally accepted definitions for concepts like “financial problem” and “world and US economic health.” For the vantage point of the average isabankertoday, “the problem” is likely to be strongly informed by concerns about “threatened” or “diminishing” incentives for “innovation” — esp. but not exclusively the kind of financial innovation that has garnered isabankertoday many many more multiples of the “average” notabanker’s annual income every year for the last couple of decades. For isabankertoday, a (the?) key component of the ideal project plan/roadmap would be preserving that earning potential, which requires restoring enough investor and counterparty confidence (plus a return to the usual passivity/indifference among great unwashed non-counterparty majority) so that deal-making can resume, and demands for oversight and comp caps again recede into the general background noise. Achieving this will be no small feat, and will probably involve a great deal of “strategic ambiguity.”*

Any other kind of decision-maker — e.g., isaregulator, isanonlobbyistopinionleader, et al. — with the means and inclination to advance a different (perhaps even the opposite) agenda will almost certainly need to make extensive use of the same tool* to blunt some of the impact of the inevitable obstructionism and obfuscation coming from their opposite numbers during the long march to some new financial industry coordination/regulation arrangement.

So while your apparent frustrations are completely understandable, the apparent absence of a clearly outlined “fix” in public discussions does not necessarily mean that it really is just clever comments all the way down… or at least I hope it doesn’t anyway. MH

*c.f., http://en.wikipedia.org/wiki/Policy_of_deliberate_ambiguity

Having read all these comments I see no fix, just incredibly clever comments about details of the debacle!

Do we have a solution in mind or only criticisms?

Since the Regan era, the financial system has been left to be free. Complex financial structures and products, plenty of secrets that only true specialist could understand. Derivates were out of control. Hedge Funds are a massive ball of products, that invested in something, whit hallway nice statistics, managed by Mr. X who anybody know (or think are known), promising exceptional returns that where cap by lofty incentives. And as the financial markets where not enough, a group of selected rich and powerful people decided to go after the commodity market, manipulating their prices and destroy investors and consumers welfare.

Financial markets, or better said, a group of “few”, took over the Governments and the economies. Yes a “few”, 7 banks and a restricted group of 20 families, control the US and most probably part of Europe. Their power have deep reach into the US and UK Government, and that is why scenario 1 is on it’s way, and personally do not expect a shift in policy, even as some parts on the Governing party will try to change them.

I can spell many lines on it. We can read many questions that have not been answered, or may be answered as simple as it is, in order to comfort citizens of the world.

For example:
• Which was the first yellow light to the financial Crisis? BNP – Oct 07.
• Who spread the buzz that lead to Bear and Stern collapse? Deutche Bank, who later on try to get B&S but was denied.
• Why JPM got B&S ? Yes the answer was, that JPM was the only bank able to absorb the 3er most important Broker.
• But was this true?. JPM put 2 BL$, and the Fed put 29BL$, JPM offered 2$/SH, and 5 days later 10$/sh. Was that a mistake ?
• Who favored the run on Lehmann? JPM was in so bad shape (!!) that cut Lehman 17BL$ line of credit from one day to another.
• How is that JPM bought Washington Mutual, for 1.9 BL$ . This is a long story, that we will still hear about due to the ongoing Legal cases.
• For those that are interested, please learn how JPM was created, and how the FED was born ? You will get many astonishing answers.
• Merrill ? Was B of A forces to absorb ML??, why? How can B of A purchase a company without an due diligence?? Yes no time to think, and the need to act. But billons of $ where spent in hidden agreements at ML.
• Mr. Paulson, he came from Goldman Sacs, as many previous Treasurer. Is that a coincidence? Mr. Paulson distributed 700 BL$ without even putting clear rules. No wonder that he now opened a Bad Assets Fund. He intends to gain double, since he was shorting the big banks/brokers that failed (public information)
• The Fed and Short selling on main financial institutions? Why those that where big and failed where not included in the No short list ??
• Shorting Naked was not allowed But?……………………..
• Even the trading rules for big institutions are less strict than for individual investors. Is this true? Or are more favorable for the Big Guys?
• Hedge Funds ?? What are they doing ?? Who knows!!!!!
• Mortgage re industrialization has been even worst. We can right 10 books on that.
• AIG derivate contract with GS ? 12 BL$ from taxpayers to GS using AIG as a bridge !!!
• Who is World Bank, FMI, etc……………………….??
• ………………………

Unless the financial System and Political structures and responsibilities are changed, we will find, in 20 to 30 years from today , a world of poverty and a reduced elite, that will image some Spielberg films.

Why would any commercial interest willingly accept, or perhaps even actively prefer a future where direct participation in the Internet is subject to extreme scarcity constraints when alternatives exist, especially when all of the other prerequisites for creating and delivering innovative new services (e.g., bandwidth, data processing capacity, data storage capacity, etc.) are getting cheaper at near-exponential rates year after year? For starters there is the incremental capital cost that incumbent Internet service providers would have to bear to integrate IPv6, a cost which provides them with no obvious/direct offsetting revenue. However, even if the excuse provided by this modest but immediate hurdle did not exist, it’s likely that the competitive/commercial advantages of artificial scarcity would induce at least in some an equivalent if not stronger and more enduring reluctance. Simply by doing nothing and allowing IPv4 addresses to be exhausted “organically” (i.e., through existing endogenous growth processes) with no clear successor Internet attachment mechanism, incumbent Internet operators would passively but decisively install themselves as the owners of all of the Internet’s “ground floor real estate.” In an industry where open competition continues to dramatically undermine producer pricing power, the prospect of inheriting the power to preempt or co-opt all future disruptive innovations (e.g., by permitting them only if/when they directly benefit the incumbent providing the essential bottleneck IPv4 input) might be difficult for even the most forward-looking companies to resist. But an even greater temptation is likely to emerge as a consequence of one of the unique features of the Internet’s basic liquidity mechanism, the “business ends” of which are represented by IP addresses. Unlike the contingent, self-limiting “means of payment” mechanisms that fuel the conventional economy (i.e., money in all of it’s various forms), the Internet’s underlying liquidity mechanism depends on a relatively durable, usage insensitive “means of attachment” function, which is embodied in every unique IP address. Although a non-circulating, attachment-based medium of exchange makes perfect sense in context — the Internet’s “real factors” being inherently nonrival (since online “exchanges” are conducted via a duplication process) — the resulting “virtual economy” of unbounded supply and demand factors has wrought havoc on the scarcity-dependent commercial strategies that prevail in the conventional economy. How convenient it might be, then — e.g., for investors driven by “conventional economy” models — if the Internet’s unique but to-date commercially intractable liquidity mechanism could finally be captured and transformed into a more pliant vehicle for online content producers, distributors, and other middlemen to individually assert their own incremental reserve pricing requirements on different aspects of Internet usage. As long as the Internet’s liquidity mechanism remains open and immune to capture by any particular commercial interest, that would be extremely difficult to achieve. Once it becomes fully enclosed, however, making new entry impossible except for those who secure permission from an incumbent, it becomes almost inevitable — as does the perverse direct monetization and de-coupling of this virtual liquidity mechanism from the productive, innovative elements of the “real” Internet economy.

If this scenario sounds vaguely familiar, it is not a coincidence.

The way out, if I understand it correctly, is to grow other sectors of the economy. The financial sector has shown itself to be “rent seeking” and produced castastrophic “innovation”. Reflating the financial bubble is not the right place for investment. Rather, the right investment is innovation that grows a real economy.

I might add: With a “green economy” as central to the real economy.

Actually, if you’re really a startup, you don’t have much time or energy to worry about problems over which you have almost zero control. Inventing the future (R) is hard.

I can believe that established technological companies tend to behave like their financial counterparts.

But surely young entrepreneurs looking for funds to start a new company must be livid that people with money prefer to invest in hedge funds or real estate rather than in something that can potentially create real sustainable growth.