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Macroscope | We need a better financial system so bankers can’t go on crashing it

  • Outside China, banking and finance often seem more of a black box than is healthy for the system. We need a better design for the benefit of many, not bonuses for the few

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A masked protester at a protest in Rome on October 15, 2011, against the greed of bankers, in what was the worst violence of worldwide demonstrations against corporate greed in the aftermath of the global financial crisis. Photo: AFP

If pilots crash their planes or train drivers their trains, or if captains sink their ships (and assuming that they survive), they often lose their licences or face more serious consequences. Yet bankers seem to crash the financial system with alarming regularity and seeming impunity.

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To deal with this alarming problem, we need perhaps not only tighter regulation and stiffer penalties for offenders but also greatly improved financial system design and better training (in ethics as well as technical knowledge) among financial system practitioners.

Banking and related financial system “accidents” just go on happening, and with increasing frequency. Even as marvels of technology – be it in artificial intelligence, space travel, biology or nuclear fusion – advance elsewhere, finance remains bogged down in a relative Stone Age.

Even where there is innovation, it is often in the development of exotic financial instruments that foster risk (think subprime mortgages or other complex derivatives) rather than in better-functioning systems and practices. Finance seems exempt from the laws of progress that apply elsewhere.

It is true there has been significant innovation at the micro level in finance, in everything from the use of credit cards to cryptocurrency and online banking, but at the macro level of international transactions and financial transparency, such innovation is sadly lacking.
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The irony is that this service which we all need (unless we revert to exchanging conch shells instead of money) is the one least understood by most people and it is just not reasonable to apply the dictum caveat emptor (roughly translated as “at your own risk”) to banking and finance.

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