Blueprint To Fix The Financial Crisis

It is actually very simple to fix the current financial crisis if the major economic powers in the world can agree to do all of the following things.

Create a form of basic banking services that is non-profit and guaranteed by the governments

What this requirement means is that normal people who are seeking a place to park their money should have a choice to do so. It is part of the law in almost all the western countries that the personal assets are supposedly to be protected. This change essentially make sure these countries enforce the law that is already in place.

People who seek for return on their savings can choose to park their money with the so-called banks as we know them nowadays.  This separation of the banking classes give the people a choice – they can choose to park whatever amount of money they have with the non-profit service knowing that their money is 100% safe. Or, they can choose to put their money in various financial institutions with 100% wipe out risk.

The idea is to give the power back to the people. They will tell the world exactly how much money they are willing to risk with the financial institutions. To lure the people to put money into these banks so that they can conduct their speculative activities, the banks will be forced to offer much more attractive terms. This means the risk capital from the normal people and business finally being recognized properly, as oppose to being disguised or labelled as deposit when the banks can rip all the profits from the utilization of the funds.

With the technology we have nowadays, it is easier than ever to implement this simple protection for the citizens of the advanced countries. A free / affordable basic banking service with no risk to the money put into the accounts can be a reality any time. From this new foundation, people will have the power to limit the banks from growing too big. Real check and balance against the banking sector.

Enforce personal liabilities on bank management

One of the ways bank management (well, any major corporations) loots the system is by engaging in activities that are high risk with no consideration of the consequence. If things work out, they pay themselves with huge bonuses. If things do not workout, they walk away with money in their pockets already.

To stop this kind of reckless behaviours, whatever bonus they setup for themselves, should be deposited into government monitored accounts for decades before the funds are released. Reducing their outright pay cheques to significantly smaller amounts so that they would feel the pain.

This is real skin in the game. Not the bullshit some of these bankers said that shift the blame to normal people.

This will make sure people doing their jobs at these banks do not do it with the mentality of committing a robbery (i.e. take the money and run) as oppose to the proper thinking of building a sustainable business.

Write down of sovereign debts among the countries and invalidate all the related bets together

There is no point to argue from one country to the next to hammer out special deals to bail out their banks. The banks should not be bailed out in the first place anyway. The focus should always be protecting the saving of normal people and liquid assets of the normal businesses. In another words, the priority of all countries should have been protecting their productive economic activities, not the frictional cost (banking sector) of their economies.

By structuring a complete removal (or permanent reduction) of the sovereign debt together with the related speculative derivatives, it will stop the stupid bail out game all together and buy the world time to recover from the destructive path it has been taking over the past 5 years.

Structuring bail outs without the removal of the related derivatives is simply an act of looting money from the poor people into the hands of the banks. It will never stop the problem from spreading. Considering all the facts, isn’t it better to contain the damage now as oppose to letting the system bleed to death at this point?

Just think about it from a detached point of view. An overall reduction of the outstanding debt from the unstable countries at 20% to 40% with related derivatives removed from the system is not that much different from the bail out deals we have seen so far. But it has the added benefit of visible stability for all involved parties. It is something the piecewise solution EU seeking so far cannot offer.

Just Like Any Policy Change, There Are Always Declared Winners and Losers

If the changes I talked about are implemented. The world financial system will recover slowly over a decade or so as the majority of money from the normal people and businesses are already looted by the bankers. It will take a long time for normal people to regenerate their wealth as the amount of money looted from them is a significant portion of what they used to have. To speed up the process, governments can choose to prosecute and confiscate the assets from the top executives of the banks which may not be viable under the legal system of most countries.

In short, once the changes are implemented, the banking section worldwide will suffer a heavy blow like the dot com era where the excessive internet businesses at the time are destroyed. And it happens to be the best thing happening to the internet sector. As all the non-productive workers in the sector has left the industry and that many dot bomb companies closed their doors, the current state of the internet companies are much more stronger and functional comparing to the dot com era.

Unlike the dot com era where the bubble burst on its own, this time if the policy makers around the world can implement the changes I mentioned here, the burst of the financial industry will be a controlled one with manageable impact into the other parts of the worldwide economy. It is way better than the alternative of letting the financial industry running wild and leading the world into total economic collapse.

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