C21st wealth distribution problems...
Mood:
a-ok
Topic: Getting beyond people...
C21st affairs are complex because they differ from C20th affairs in two key dimensions 1) they are global 2) they are about access to, connection with, and use of networks.
Most C20th affairs were about people. Why? Because people were the key asset in all organisations. So it is not too surprising to me that most commentators still blame people for the current financial crises. These crises, yeah they are a series of crises not a singular crisis, are blamed on the people who run derivative trading on Wall Street, on mortgage brokers on Main Street, and on any group of people around the world who can be tagged with "greed".
This is the common perception of what happened to our wonderful world. This perception and the analyses that flow on from it is totally flawed, thus we all lose sight of what has really happened here.
What has really happened is simple to explain. We have a new global economy that produces more wealth than we have ever seen before. This is a good thing not a bad thing. The problem with it is there is no distribution system that enables people around the globe to share in this new found wealth.
Our C20th banking system was the beneficiary of this new wealth creation and it sought to do what it does best - make money off it while the money was in its care. In respnse to this new situation the bankers on Wall Street accidentally came up with a new distribution system, of sorts, that could have worked brilliantly.
The most clever talent on Wall Street worked out a new way to lend money to people who otherwise would not qualify so they might buy assets - primarily real estate assets. Thus they enabled a group of people who were never going to share in this new found wealth to share in some of the action. The notion was that these "sub-prime" borrowers could buy appreciating assets and so build wealth. This system actually worked well for about 3 years and then it came unstuck.
It came unstuck because bankers and banking systems are C20th entities not C21st digital networked systems. They networked the risk of lending to these "sub-prime" folks in ways that could only be sustained if their global networks continued to expand. Unfortunately their global networks began to contract because these banks became less and less transparent about what they were doing. The dam broke once they began to ignore their fiduciary responsibility to their shareholders - probably around 2005. Thus they were running a business/banking model that was not sustainable - they were running the banking systems' equivalent of an Enron scam.
As per Enron, but on a much wider scale, eventually the money trail led accountants and even shareholders to ask questions about the soundness of their lending practices. This began the implosion of the whole system.
Significantly it was not falling house prices as some now claim but the inability of the banks to be transparent in their lending practices. Credit got squeezed to new borrowers and so the prices of houses had to come down.
The real crisis here is the lack of a wealth distribution system. The C20th had jobs as the distribution system. Ford built cheap cars in 1908 and paid his employees a high wage of $5 per day because he wanted them to be able to buy the T-model cars they produced. Ford had a wealth creation and distribution system that re-inforced each other.
Today we have an emerging C21st wealth creation system that is totally detached from the C20th wealth distribution systems.
Posted by richard-lipscombe
at 11:35 AM NZT
Updated: Wednesday, 15 October 2008 12:38 PM NZT
