Will America Recover? Of Course !
I have long maintained that the inherent strengths of American and Western societies would prevail in the long run, and that we are currently in the trough leading to the next big wave of prosperity. The rights of property law, the basic belief in the freedom of the individual, the rights of the individual being stronger than the rights of the state, the rule of law, and the balance provided between the judiciary, and the legislative all make Western societies inherently stronger.
In today’s economic reports (aside from the stock markets which this week had another of their pullbacks that moderate exuberance), almost all reports were positive. Reports varying from corporate profits, to consumer confidence, to manufacturing output, to export/import ratios and so on were all positive.
Don’t be misled. As it has always been in the past, the recovery will again occur. The problem of course is dealing with the legacy that Greenspan left us of ‘PRINT MONEY’ as the cure-all. That foolishness will haunt us for some time to come.
Capitalism Needs Tweaking – Point #7 of 10 – The Issue of Self Insurance & Providing Safety to Investors.
In my blog of December 9, 2010, I pointed out how our capitalist society suffers from dramatic up and down cycles that rob the middle class of their wealth and earnings. I suggested 10 points that would very much moderate these cycles and bring about a far better capitalist society. This is the 7th of that series.
Point #7 We Have to Fix Capitalism
The Basic Principle is preventing greed from overtaking common sense and responsibility.
The issue here is creating an atmosphere of responsibility. In previous blogs I have suggested a number of moderating effects based on taking just a little bit of profits earned and setting them aside for the benefit of the system. For example, when commissions are made on the sale of securities, a small portion of them should be set aside and released over the ensuing 12 months.
When stock offerings are made to the public, a small portion should be likewise set aside and released in the event that the securities sold do not decrease in value.
When a derivative or similar instrument is sold, the seller should bear the responsibility of a small amount of that loss.
This type of attitude would provide a similar responsibility on the part of financial salesmen to the responsibility borne in the normal course by sellers of cars, or shoes. A warranty accompanies sales in the normal course. This basic principle of responsibility for one’s actions should be universal.
Responsibility
If capitalists agree that responsibility is a main element lacking in the financial industry, then there have to be two significant changes in our attitude. Firstly the current attitude of “buyer beware”, has to change to “I am responsible for my actions”.
Secondly, society must recognize that in spite of best efforts and reasonable due diligence, mistakes occur. No-one can guaranty that every investment will be profitable, or that excess will not occur, or that scoundrels will all of a sudden disappear. Bad things happen. It will always be that way.
How Can This Safety Net be Established?
A case in point are Banks in most industrialized countries. Regardless of how big they are, or how well capitalized they are, a small amount is paid by every bank in every Western country into an insurance fund.
In the event that any bank defaults on its obligations, losses are made good to the extent of the insurance provided by those banks’ contributions to the safety insurance fund.
Self Insurance
There is so much money floating around in the financial industry that people employed in the financial industry generally keep the restaurants in business, the fancy cars on the roads, the mansions in exclusive residential areas high priced, and vacation hotspots populated.
A minor amount deducted from every transaction – say 1/2 0f 1 % – and placed in an insurance fund would hardly be noticed. Yet over the average seven year term of boom cycles, this paltry percentage would provide staggeringly large amounts in the insurance funds.
Funds could be run by the financial firms themselves. This would provide the industry with an incentive to support the scheme, and surprisingly, it would turn out similar to a large pension fund, where the proceeds have to be invested by the financial industry, thereby providing more profits to the industry.
A very nice reward for doing the right thing.
Bottom Line – Profits that are excessive to any reasonable criteria should also carry the obligation to self-insure against errors and problems.
