Sunday, January 8, 2012

"The Great Transformation: Shaping New Models" for a 21st century financial system

The topic for this year's Davos get together is "The Great Transformation:  Shaping New Models".  Given the clear failure of our current financial system model and the efforts by global policymakers and regulators to restore it, your humble blogger thinks that the FDR Framework should receive a lot of attention.

There are many reasons it should receive this attention:

  • It was the basis for predicting both the financial crisis and the failure of the efforts by global policymakers and regulators to restore trust and confidence in the financial markets.
  • It was the basis for answering the Queen's question of how could the economics profession have failed to see the financial crisis coming.
  • It proved itself, at least according to the NY Fed, by breaking the back of the Great Depression.
There are many reasons it will not receive this attention:
  • Because the opponents of transparency will fight it to the bitter end.  As Yves Smith observed "no one on Wall Street was compensated for developing transparent low margin products".  
  • Because the policymakers who champion free markets and the invisible hand would rather have massive amounts of costly regulation than much less regulation and transparency.
  • Because the economics profession assumes transparency rather than teaches it as a necessary condition for the invisible hand to operate properly.  
If the Davos get together is to be successful, the FDR Framework will be championed as the new model for transforming the global financial system.

Absent championing the FDR Framework, the Davos get together will be a failure that results in the global economy continuing on the downward spiral it began on August 9, 2007 with the beginning of the solvency crisis.

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