In this series, Frontline hits all the hot buttons.
- the critical importance of banking and finance to the functioning of our economy
- the need for the public sector to step in and stabilize private sector financing if and when its starts to disintegrate, lest the economy itself stop functioning
- the enormous public sector cost of "picking up the tab" for private sector failure
- the way massive failure in one institution reverberates through the entire system, threatening to topple everything - the so-called "too big to fail" problem
- the fundamental failure of this market to effectively regulate its own behavior (the bankruptcy of so-called "moral hazard" as a self-correcting mechanism)
- the enormous difficulty we have regulating this industry from outside
- the troubling shift in banking culture, from responsible professionals managing the money flow in support of real new value creation, to "go for broke" traders, looking to win in a zero-sum game of high stakes poker
- the emergence of derivatives as the Las Vegas of finance, a giant game of "musical chairs" where bets are arranged by professional traders - using other people's money - that always pay off big for the traders, and usually pay off in small ways for the other people, but that from time to time go totally bust, always with catastrophic consequences for the people who put stake the traders in placing their bets, sometimes with disastrous consequences for the larger economic community, as well.
There are undoubtedly many other gems that can be teased out of this excellent work that so comprehensively covers so many shortcomings in a system that is so critically important to each and every one of us, and yet is so incompletely understood even by those of us who make it our business to do our part to make that system work.
There is, however something missing in the Frontline piece. There is no clear and compelling call to action. Instead, we are left with a vague sense of, "Whew! We really dodged a bullet there. Let's hope that doesn't happen again."
Hope won't cut it. It will happen again. We just don't know when.
What can we do?
There are two options: we can remain wedded to the past, and continue to ride a perpetually recurring, but unevenly episodic, and therefor unpredictable, cycle of booms that always eventually go bust; or we can move boldly into the future, seizing the technologies of today to invent new choices that will empower us to replace the booms and busts of yesterday with a new and more sustainable prosperity for today, and tomorrow.
Most of the people who are worried about this problem seem to be heavily invested in holding on to the past, resigned to the recurrence of booms and busts, but intent on using regulation to restrain the banking system, in an effort to minimize its excesses. While some of this effort is adding value, much of this energy is being wasted. As the Frontline piece articulates quite well, regulation is not easy to achieve. We simply do not have a sufficiently popular vision of how the system is supposed to work to muster the political will required to design and implement the rules required to keep it working that way. It is too large, too diverse, too lost.
But we do not have to accept as inevitable a recurring cycle of booms that always go bust. We can build a new prosperity of sustainability. We just can't do that with the banking system. The banking system is not built for sustainability. It is built for liquidity. Liquidity is like government; we need to have enough, but not too much. Right now, we have too much. That is giving us booms that more and more frequently -- and more dramatically -- go bust.
Unfortunately, very little serious effort is being made to move us boldly into the future by inventing new solutions for sustainably financing the business of sustainability. Out on the frontier, we find people who say the solution is to abandon money, but that really does not help. Money is the energy that powers the activities of specialization and exchange that is our economy. Without money, there is less "economic energy", and with less energy, we have a smaller system that offers fewer choices. That is not innovation. That is reversion. All the talk about abandoning money gives the whole idea of innovation as a path to sustainability a bad rap. Money is not the problem. How that money gets managed is.
We do not need a way to manage without money. That will not help. Neither do we need a better way to manage money the same old way. That is not enough. What we need is a new choice to manage money in a new and different way, a way that is purpose-built to monetize sustainability.
This choice, it should be noted, will not replace the banking system. It will not eliminate the need for liquidity, or even compete with the banks in trying to meet that need. It will, however, compete with the banks for the right to manage our money, offering sustainability, as an alternative to the liquidity provided by the banks. Both Enterprise and Investment will choose between the two. Sometimes, they will need liquidity, and banks will continue to be the right choice. Other times, they will want sustainability, and another choice will be right.
Such competition based on choice will be better than regulation in curbing the excesses of the banking system, and moving us beyond the recurring cycle of boom-and-bust.
This is the innovation we need; innovation that is forward looking and additive, not backward-looking and subtractive. We need innovation that looks at the technologies we have today in the context of the challenges we face today, and finds a new and different way to apply what we have to meet the challenges we face. We need innovation that gives us more, not less; new, not old. We need new ways to do things today that we just could not do, and maybe did not really need to do, yesterday.
Such innovation is not easy. It requires letting go of the past in order to move boldly into the future. Not everyone can do that. Not very easily, or very well.
All innovation originates with personal frustration. Our expectations for what we think we should experience are disappointed by the experiences we actually have. When that happens, most of us, most of the time, just shrug our shoulders, and say, "oh, well". But some say "no". This is not right. There has to be a better way.
Once the search is on, finding a solution is only a matter of time.
When it comes to our prosperity, to the creation and direction of the "energy" that drives our economy, we have this choice. We can just say OK, and continue to ride the recurring cycle of booms that always, eventually, go bust. Or, we can say No. There has to be a better way.
I say, "no". We have the technology. Let's build a better way!