Ideas in subverting capitalism and demcracy
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Transcript of Ideas in subverting capitalism and demcracy
IdeasinSubvertingCapitalism&Democracy
Systemicfaultsthatcausedthefinancialcrisis
RahulP.Deodhar
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Summary
Theideaspresentedinthebookaresummarisedbelow.
ChapterI) DominatedbyFinance
1) Bargaining power helped finance take over theorganisations.
ChapterII) TheRuleofOrganisations
1) Organisations used their design to take over society.This established the dominance of finance on ourpresent‐daylife.
ChapterIII) BargainingPower
2) Bargaining power can be understood using Michael
Porter’sfiveforcesmodel.a) If applied iteratively we might be able to create
modelofoureconomy,asitexiststoday.b) Economy therefore seems to be an emergent
system.Itisfractalinnature.
ChapterIV) MoneyandBanking
1) Moneyhastworoles,mediumofexchangeandstoreofvaluea) Theroleofmoneychangesasnewinformationthat
changesthevalueofmoneyarrives.b) Money itself is a commoditywhosevalue changes
withitsowndemandsupplyequation.
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2) Money in demand deposits seems to function asmediumofexchange.a) Onlydemanddepositsshouldbeinsured.
3) Economicgrowthhasthreesourcesa) When volume growth happens in existing
transactionsb) Whennewtransactionsaredevelopedc) Whenun‐monetizedtransactionsaremonetized.
4) Inflationispreferredoverdeflation.5) Agold‐basedmonetarysystemisnotfeasible.6) Increaseinmoneysupplymustcompensateincreasein
transactionsandchangesinvelocity.7) Money is also locked in as inventory to finance
transactions.8) Therearetwotypesofvelocity
a) Across the income pyramid (top down or bottomup)
b) Withinanincomeclass9) Weneedtofindmeanstomeasurevelocityofmoneyin
clearterms.a) Possibly, velocity can be expressed similar to
degrees of separation or the way informationspreads
10) Bailoutsthatcreatemoneywithnearzerovelocityareuseless
11) Bankingreservesshouldbecountercyclicaltocreatearobustsystem
12) Crisis reduces available money indicating a thresholdmoneysupplyforgiveneconomicactivity.
13) AnyinstitutewithAsset‐Liabilitymismatchisatrisk.a) Itiswellknownthatbanksarerequiredtomanage
theserisksandhenceregulatedb) Shadowbankingsystemalsotakestheserisksand
notregulated.14) Banks should reinvent themselves as micro‐credit
markets15) Low interest rates make egotistical mega‐projects of
largecorporatesattractivetobankers.a) Theycreatelargerassetinonetransactionb) Theyarebackedbyreputedcorporates
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c) Thusmal‐investmentiscreated16) Householdsdonotfullyunderstandtheconceptofdebt
ChapterV) ExcessMoneyParadigm
1) Even expenses and assets have a hierarchy – just likeneedsa) Certain assets, like derivatives, only occur in high
incomeclassbaskets2) Excessmoneysupplydoesnotcreateinflationiflimited
torestrictedassetclasses3) Each asset class has a price expansion margin.
Restrictedassetshavehighermargins.4) Centralbanksmustmonitorinflation
a) Theymustfollowassetpricesandpriceexpansionmargins.
5) Sloshmoneyhypothesisa) Excess US money supply created a slosh money
fundthatinitiallyinvestedgloballyb) ThefundcamebacktoUS.c) It followed the asset hierarchy and created asset
bubbles
ChapterVI) GrowthatIndividualLevel
1) We need new metrics to measure growth at anindividuallevel.Twopossiblemetricsweneedare:a) Wagecontentofjobb) Jobprofileofawage
2) Itispossiblethatinflationtargetingmayberestrictingincomegrowthofcertainpeople.a) We need more investment in productivity
enhancementforthisclass.
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ChapterVII) MarketsandGovernment
1) Markets and governments both express the will ofpeopleandhencearecompetingsystems.a) But markets are exclusive and governments are
inclusive hence markets should always besubordinatedtogovernments
2) Citizens have role to play in both markets andgovernments. However citizens often get confusedbetweentheseroles.
3) Taxesneedtobesimplified
ChapterVIII) PoliticsandPower
1) Financingpoliticalsetupisstillachallengethatneedsto be resolved. It is promoting hidden agenda withingovernment.
2) Weneedrestorationofupperhouseofparliaments totheirrightfulroleoflong‐termstrategyformulation.
3) Weneedtoexaminehowweselectpoliticalcandidates.Wearefacedwithelectionvs.selectiondilemma.
4) Political parties have copied bargaining powerelements of organisations. However they have notcopied the essential elements of efficiency andinformationsystems.
ChapterIX) Attribution
1) Property rights as we currently have them areinadequate.a) They are more appropriate to single owner
scenarios.b) Theyaredesignedforfirstwaveworld
2) Weneedtoexpandpropertyrightstoincludemultiple‐ownersanddiffusedownership.
3) Weneedtoaddresponsibilitytopropertyrights.
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4) Attribution is enhanced version of property rights. Itneedsbetterinfrastructuretomakeitwork.
ChapterX) LawandRegulation
1) Roleofregulationisto:a) Defineownershiprightsandresponsibilitiesb) Defineactionc) Definethetimingofaction
2) Regulation suffers from necessary and sufficientconditionproblem
3) To contain too‐big‐to‐fail we need a systemic riskfocussedregulation.a) Sizeisnotavalidcriteria
4) Weneedtoexpandthescopeoflawtopreparefornextcentury.Weneed:a) Micro‐contractenforcementb) Costscalableenforcementmechanism
ChapterXI) TheburdenofMedia
1) Mediadeservesa lotofblamefor failure toreport thecrisis.a) Media has a flawed business model that allowed
organisationstotakeover.b) Mediafacessamedilemmaasratingsagencies.c) We need to withdraw the special rights to non‐
journalistd) We need to redefine journalism to exclude
“celebrityexperts”.
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Disclaimer
Thecontentsofthebookrepresenttheviewsoftheauthor.Theviewsdonotrepresentanyadvicetobuy,sellordealinanyfinancial instruments.The author expects the reader to exercise caution and judgement indealingwiththeideas.Theauthorwillnotbeliableforanyactionsarisingout of, but not limited to, misinterpretation or wrongful application ofideasrepresentedinthisbook.
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AbouttheAuthor–RahulPrakashDeodhar
Rahul is a buy‐side financial analyst. He has over 10 years experiencespanning manufacturing, consulting, investment banking firms. He hasadvisedawiderangeof clients includingFortune500companies,banks,hedgefundsandprivateequityfundsamongothers.He is interested in the changing equations of value, the next chapter ofwealthcreationanditsimplication.Hisinterestscentrearoundfourareasviz., investment management, economics, poverty alleviation anddevelopmentofeducation.RahulisbasedinMumbai.HeisamechanicalengineeringandMBA.Alotof his ideas are shared freely on his website and his blog. He can [email protected]://www.rahuldeodhar.comhttp://rahuldeodhar.blogspot.com(financeandeconomics)