

Hernando de Soto: The Destruction of Economic Facts - gruseom
http://www.businessweek.com/magazine/content/11_19/b4227060634112.htm

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cturner
Not directly related to the article, but something I've been thinking about.

In times past, we had a confusion between politics and church. The pope had a
lot of weight to throw around, kings had an on-again, off-again relationship
with him. Politics and state were intermingled, and the suggestion it didn't
was either laughed at, or someone would try to kill you.

Then we had a series of social revolutions that created the idea of separation
between church and state. This is now a strong principle, and supported by the
man in the street.

The situation now: we have a confusion between banking and state. States hold
themselves to be responsible for the state of the economy ostensibly because
they care about you, but really because it's about power - to legislate things
away, to win elections, to steer graft.

States participate in a complicated dance with the set of organisations that
keep the world liquid through currency transfer, bonds and risk management.

This has created an environment of privilege backed by a couple of huge
advantages: there are active monopolies on the way that bonds can be traded,
and practical advantages to currency trading (you get edge by having flow,
which is why the powers in FX are big banks) that cause it to trend towards
oligarchy. Systemic risk creates moral hazard, an environment of privilege
that attracts many of the best and brightest, just as the church once did.

Perhaps it doesn't have to be that way. What if we had a well-recognised
separation between the extent of banking, and the reach of the state? What
would Martin Luther say?

~~~
ajb
In the case of the banks, their regulation by the state is a recent
phenomenon, as is fiat money itself. So we can look at what happened before
when banks were more independent. I'm no expert on the subject, but it doesn't
seem all that attractive - as the article mentions, crashes and panics were a
regular feature back then.

~~~
iwwr
People had a healthy mistrust of banks and also means to store money outside
them (precious metals). The bank panics didn't have lasting damage, recovery
was fast and they didn't get bailed out by the government. Perhaps government
control has mitigated against these little panics, but it set the stage for
real meltdowns and slow recovery afterwards.

There are two distinct functions banks do: money storage and lending. These
can be completely separate. You only need a money store for the convenience of
not having to carry metal. Nowadays, you may want an electronic store as not
to have to carry cash.

As for lending, that is a function much older than banks themselves. You don't
need consumer deposits to lend money. Some banks do operate that way, but
there should be a more clear distinction. We could have 'vault banks' and
'lender banks'.

Both 'vault banks' and 'lender banks', or combinations can operate in a free
market.

~~~
notahacker
You can store currency or gold in various non-interest-bearing ways in the
current free market. It isn't a very attractive option compared with banks,
however as stored money (metal-backed or otherwise) that isn't lent or
invested necessarily loses value _on average, in the long term_ against
currency that is.

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cstuder
Full text:
[http://www.businessweek.com/print/magazine/content/11_19/b42...](http://www.businessweek.com/print/magazine/content/11_19/b4227060634112.htm)

(I'm tend to be annoyed that I have to read the first page of an article, only
to find out that it stretches across multiple pages, then having to scroll up,
find the print button, click it andthen having to scroll back down again to
where I left off...)

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ramchip
> The importance of economic facts may not be obvious to Americans. "What does
> the fish know about the water in which it swims?" asked Albert Einstein.

Interesting how that water and fish story repeats itself...

~~~
gaius
It is a ridiculous analogy tho'. What do humans know about the air we breathe?
Well quite a lot actually. What do humans know about the ground we walk on?
Ditto.

~~~
gwern
And what did we know about air before the 1500s or so - for the last 50
millennia?

~~~
asclepiades
Without wanting to sound harsh, but we knew it existed and that one could not
live without it.

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roundsquare
Someone I talked to once said that its time to get rid of rating agencies and
replace them with open source rating systems. If we did this, companies could
post their own rating and it could be verified by anyone who was interested in
them. In addition, people with very specific requirements (for whom the
regular ratings don't work) could tweak the systems as needed.

I'm skeptical about this working since rating agencies should, in addition to
following formulaic rules, look for company specific pieces of information
that would affect the rating, but its an interesting idea.

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baconner
The "shadow markets" in this article reminded me of the "shadow systems" we
often run into in the business intelligence space. Except instead of rouge,
hidden, and prone to error spreadsheets it's rouge markets. Because the logic
is effecively hidden dishonest individuals can use their shadow spreadsheets
to massage their numbers into an up and to the right shape. The same potential
for abuse and accident exists in shadow markets but with the global economy on
the line. Terrifying thought!

