Monday, February 6, 2012

Reality of Financial Systems

Sebastian Mallaby is a financial journalist with a strong understanding of the financial economics of capital markets. He is author of More Money than God which describes, explains and analyses the hedge fund phenomena. 

The following description of the financial system from the FT is accurate.

Most critiques of modern finance miss the mark. There is no point hoping, for example, that armies of Dodd-Frank enforcers will ever render finance truly stable. Finance is a system of promises about an uncertain future; barring the advent of some magical prediction machine, regulation cannot change that. Currencies will rise and fall; interest rates will fluctuate; some companies will succeed while others go bust. A good financial system will absorb these risks without taxpayers picking up the pieces. But the risks will still be there; financial firms will still blow up.

It also shows why people find the whole business a little hard to swallow, why conspiracy theories are so attractive, denial is to be found everywhere and politicians figure they can “fix stuff” – all responses which are – in the words of the immortal Black Adder – like a broken pencil - “pointless”.


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