the future of money, banks, and credit - reconciling democratic values and the financial world...

The future of money, banks, and credit -reconciling democratic values and the financial world

Univ.-Lektor Mag. Christian Felber

www.christian-felber.at

www.ecogood.org

www.mitgruenden.at

IUHF, 12th september 2014

„Money.

The new rules of the game“

Basis of this input

„too big to fail“ (SIFI)

Shadow banks

Tax havens

High frequency trade

Food speculation

Attacks on currencies

Dysfunctional monetary order

1. Absence of international supervisory authority

2. No size limit for banks

3. Free movement of capital (in tax havens)

4. Unlimited inequality

5. Private money issuance

Old paradigm: „free“ financial markets

This could mean:

1.The rules are made democratically

2.The public central bank issues the money

3.Money is a public infrastructure (for free markets)

4.All banks are orientated towards the common good

New paradigm: money = public good

„Sovereign“ democracy

Democracy

Fundament/Oxigen = polites ≠ „idiotes“

Indirect

Democracy

Main stage

Direct

Democracy

Completion

Participatory

Democracy

Perpetuation

Local monetary conventions• 10 - 20 fundamental questions• deliberation

Democratic framework + process

1. Who issues the money?

2. Who defines the goals of the central bank?

3. How is the public debt financed?

4. Which is the goal of private banks?

5. For which purposes are loans granted?

6. Is there a need for a global Financial Authority?

7. Shall food prices be defined by markets?

8. Shall the movement of capital in tax havens be free?

9. Shall inequality be unlimited?

10. Shall a global monetary cooperation be implemented?

Questions to the money convention

Local monetary conventions• 10 - 20 fundamental questions• deliberation• delegation

Democratic framework + process

Local monetary conventions• 10 - 20 fundamental questions• deliberation• delegation

Federal monetary convention• Referendum by SK method• Constitutional part on money• Clear basis for Parliament

Democratic framework + process

1.Money Issuance

2.Banks

3.Credit

4.Stock markets

4 hot issues of the financial system

1.Public Central Banks

2.Public issuance of bank notes and coins

3.Issuance of bank money only by Central Bank =

„Plain Money Reform“

1. Money as a public infrastructure

1. „Plain money“ reform

Joseph Huber:

Monetary Modernisation

People's initiative in

Switzerland since June 7th

Separation of money (issuance) + credit (lending)

1. All circulating money is fully valid Central Bank money

2. Money enters into circulation as „gift“

3. Gains from money creation are a public benefit

4. Control of money supply by Central Bank

5. Secure „money accounts“ → less bank runs

6. High public gains through system change

1. „Plain money“ reform

„It might even be the case (if not a catastrophe like a World war happens) that the sovereign debt will be eliminated totally.“

Irving Fisher 1935

Idea is older ...

„These results (…) support three out of Fisher’s (1936) four

claims in favor of the Chicago Plan (…) But we can go even

further, because our general equilibrium analysis highlights

two additional advantages of the Chicago Plan.“

IMF: The Chicago Plan Revisited, 2013

History advocates for „public money“

„The transition to a system in which money creation is separated from financial intermediation would be feasible, albeit complex. But it would bring huge advantages.“

Marin Wolf, Financial Times, April 24th 2014

A broader debate starts ...

Many bank types originally common good-orientated

• Raiffeisen

• People's banks

• Credit unions

• Savings banks

• Public banks (z. B. Post Office Bank)

2. Banks shall serve the common good

a) Size limit for banks

Sparkasse Heidelberg Sparkasse Köln-Bonn Deutsche Bank 1980 Deutsche Bank 20120

500

1000

1500

2000

2500

6.6 29 53

2000

Balance Sheets of bankssmall enough/too big to fail

Bio

. €

a) Size limit for banks

Sparkasse Heidelberg Sparkasse Köln-Bonn Deutsche Bank 1980 Deutsche Bank 20120

500

1000

1500

2000

2500

6.6 29 53

2000

Balance Sheets of bankssmall enough/too big to fail

Bio

. €

EU limit for banks too big to fail (€ 30 billion)

… no public deposit insurance

… no refinancing by ECB

… no business with public entities

… no bailout by taxpayers

… regulatory tsunami only for them!

b) Common Good Charta or free market

• Common-good-orientation

• Conservative core tasks

• No distribution of profits to owners

• Exit from interest-taking system

• Ethical creditworthiness assessment

www.mitgruenden.at

„Bank for the Common Good“

„The money and credit system serves the

creation of values and the satisfaction of needs

of all inhabitants.“

Art. 157, Bavarian Constitution

3. Credit

• Only real loans („satisfaction of needs“)

• Only loans that do not harm the common good →

common good assessment

3. Credit lending in line with Constitution

„Property obliges. Its use shall also serve

the common good.“

German Grundgesetz, Art. 14

No unconditionally free use of capital

Loan request Ethical CW + Ethical CW -

Financial CW + Bank ---

Financial CW - Stock market ---

4. Bank or stock market?

• In every EU region

• Not tradable (only returnable)

• No financial ROI

• Triple Skyline

– Meaning, utility, ethics

4. Regional common good stock markets

„Money is not an end, it is a means for an end.“

Friedrich Wilhelm Raiffeisen

Fundamental insight

„Private and stock market entities are not obliged to

serve the common good.“

Alexander Dibelius, Goldman Sachs Germany

Infringement of the Constitution

„The whole economic activity serves the

common good.“

Art. 151, Bavarian Constitution

Goal of the economy

National economy (macro level)

Gross Domestic Product >

Enterprise (meso level)

Financial profit >

Investment (micro level)

ROI/ROE >

Measure economic success differently

National economy (macro level)

Gross Domestic Product > Common Good Product

Enterprise (meso level)

Financial profit > Common Good Balance Sheet

Investment (micro level)

ROI/ROE > Common Good Exam

Measure economic success differently

Clear visibility

- 1600 – 0 Common Good points

1 – 250 Common Good points

251 - 500 Common Good points

501 – 750 Common Good points

751 – 1000 Common Good points

ECG label

• Tax cuts

• Lower tariffs

• Lower interest rates for the bank loan

• Priority in public procurement

• Research cooperation with universities

Legal Incentives

„Our old economic system will never come back

again. It is time to build a new one."

Bill Clinton, Financial Times Deutschland,5th Oktober 2012

Time for a change...

Thank you for your attention!

www.christian-felber.at

www.mitgruenden.at

www.ecogood.org

For the common good!

Proposal Nr. 1 >>>

• Global Reserve Currency instead of US-Dollar

–On the base of a basket of currencies

–National currencies remain

–Stability and flexibility

6. Global monetary cooperation (Keynes)

„The creation of an international currency unit, based on the Keynesian proposal, is a bold initiative that requires extraordinary political vision and courage (…) Unfortunately, the proposal was not accepted.“

Essay „Reform the international monetary system“ 2009

Zhou Xiaochuan, People's Bank of China

„Indeed, the idea of an international reserve currency

issued by a supranational bank is not new (...)

However, this is an idea whose time has come.“

Report to the United Nations General Assembly 2009

Joseph Stiglitz, „nobel“ laureate

1.Shall the federal government engage for the

persistance of the US dollar hegemony?

2.Shall the federal government engage for a

global monetary cooperation?

Question 12 to the money convention:

Thank you for your attention!

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Proceed to convention!

Adam Smith

„Wenn jeder Einzelne so viel wie nur möglich danach trachtet, sein Kapital zur Unterstützung der einheimischen Erwerbstätigkeit einzusetzen und dadurch diese so lenkt, dass ihr Ertrag den höchsten Wertzuwachs erwarten lässt, dann bemüht sich auch jeder ganz zwangsläufig, dass das Volkseinkommen im Jahr so groß wie möglich wird.“

Der Beitrag jedes Einzelnen zählt …

Adam Smith

„Wenn jeder Einzelne so viel wie nur möglich danach trachtet, sein umfassendes Kapital zur Unterstützung der einheimischen Erwerbstätigkeit einzusetzen und dadurch diese so lenkt, dass ihr Ertrag den höchsten Gemeinwohlzuwachs erwarten lässt, dann bemüht sich auch jeder ganz zwangsläufig, dass das Gemeiwohlprodukt im Jahr so groß wie möglich werden wird.“

Der Beitrag jedes Einzelnen zählt …

„Es ist richtig zu stellen, dass eine nachhaltige Entwicklung das Gleiche ist, wie höchstmögliches langfristiges Wirtschaftswachstum.“

Erich Streissler, Wiener Zeitung, 10. Juni 2008

Ewiges monetäres Wachstum

• 1973: Free floating exchange rates

• 1994: EU liberalizes movement of capital

• 1995: WTO services agreement (GATS)

• 1999: EU financial common market

• 2000: Austria: Capital Market Strengthening Law

• 1990-2002: Germany: Financial Markets

Enhancement Laws I - IV

Pseudoliberal Re-Regulation

1. Maximale Vergabe von Krediten

2. Handel mit Krediten

3. Verpackung zu Mischpaketen (CDO)

4. Versicherung dieser Mischpakete (CDS)

5. Maximale Vermehrung der Sparvermögen

6. Global wettbewerbsfähig = systemrelevant werden

7. Gewinnmaximierung und -ausschüttung

8. Lobbyismus = Ende der Demokratie

Wozu sind Banken nicht da?

• Deutsche Bank: 51,4%

• Commerzbank: 23,4%

• Postbank: 22,3%

• HypoVereinsbank: 19,9%

Affiliates in tax havens

• Economic hypertrophy

→ „too big to fail“

• Political hypertrophy

→ „to big to jail“

Hypertrophy

„Was nützt es Deutschland als viertgrößter Volkswirtschaft der Welt, wenn wir die Deutsche Bank vierteilen? (…) Ich komme eher zu dem Ergebnis, dass Deutschland einen zweiten großen Spieler wie die Deutsche Bank braucht.“

Peer Steinbrück, Der Standard, 9. Oktober 2010

Noch ein bisschen größer …

US banks: Balance sheet : GDP

1930 – 1980: +/- 0%

1980 – 2008: + 200%

Banken too big

„Formation of capital is not an end in itself,

But a means of the flourishing of the national

economy.“

Art. 157, Bayrische Verfassung

Constitutional goal

Pension funds 28 Billionen $

Privatly managed 27 Billionen $

Investment funds 26 Billionen $

Insurances 20 Billionen $

Sovereign funds 4 Billionen $

Hedge funds 2 Billionen $

Private equity funds 2 Billionen $

Total 110 Billionen $

Quellen: IFSL Fund Management,

Boston Consulting Group 2008

Assets under management globally

Ausstieg aus dem Anlagedruck

Distribution of wealth in Austria

35%

31% 34%

The masses: 90%

The richest 1%

The next 9%

31%

35%

34%

Welthandel Welt-BIP Derivate-Verträge (OTC) Derivate-Handel (Börsen)0

500

1000

1500

2000

2500

3000

14 55

683

2244

"Finanzielle Massenvernichtungswaffen" Finanzderivate in Bio. US-$ 2008

Bio

. U

S-$

„I'm doing God's work.“

Lloyd Blankfein, CEO Goldman Sachs,

Sunday Times, 8th november 2009

Selfunderstanding of an investment banker

1.Shall food prices be defined by markets?

2.Shall food prices be defined by a multi-

stakeholder body composed by producers,

consumers, and advocats of the environment

and future generations?

Question 9 to the monetary convention

NIW NIL

Property 10.000 10.000.000

„Interest calculator“

NIW NIL

Property 10.000 10.000.000

Yearly income 12.000 500.000

„Interest calculator“

NIW NIL

Property 10.000 10.000.000

Yearly income 12.000 500.000

consumption 10.000 100.000

„Interest calculator“

NIW NIL

Property 10.000 10.000.000

Yearly income 12.000 500.000

consumption 10.000 100.000

10% interest in prices - 1.000 - 10.000

„Interest calculator“

NIW NIL

Property 10.000 10.000.000

Yearly income 12.000 500.000

consumption 10.000 100.000

10% interest in prices - 1.000 - 10.000

savings interest 2% + 200 + 200.000

„Interest calculator“

NIW NIL

Property 10.000 10.000.000

Yearly income 12.000 500.000

consumption 10.000 100.000

10% interest in prices - 1.000 - 10.000

savings interest 2% + 200 + 200.000

capital income tax 25% - 50 - 50.000

„Interest calculator“

NIW NIL

Property 10.000 10.000.000

Yearly income 12.000 500.000

consumption 10.000 100.000

10% interest in prices - 1.000 - 10.000

savings interest 2% + 200 + 200.000

capital income tax 25% - 50 - 50.000

Net interst income - 850 + 140.000

„Interest calculator“

Financial wealth : GDP (world)

0

50

100

150

200

250

300

350

400

359%

119%

1980 2007

Limitation of income inequality (20 times)

Limitation of private property (10 million €)

democratization of companies (> 250 employees)

Maximum/minimum heritage („democratic gift“)

Negative feedback mechanisms

• Austria 800 times

• Germany 5000 times

• US industry 65.000 times

• US financial industry 360.000 times

Top manager : minimum wage

„Private Property is for noone an unconditional or unlimited right.

The ritght to property must not be used at the cost of the common good.“

„Populorum Progressio“Social Enzyklika, Sn 23-24

Pope Paul VI. 1967

„All financial crisis in recent history have

been caused by the fact that an

Econmomic elite became too powerful.“

Simon Johnson, ex senior economist, IMF

Capitalism endangers democracy

Expenses of Wall Street for Lobbying

1998 – 2008

5,1 billion US dollars

Consumer Education Foundation /

Essential Information, March 2009.

Successful Lobbying

„I am convinced that thanks to the new consciousness of the huge advantages that the financial common market offers, highest political priority will be rendered to this action plan.“

EU commissioner on the Common Market, May 11th 1999

Mario Monti, EU commissioner

1. Elect a government

2. Drop a government

3. Stop a law initiative

4. Initiate and adopt a law

5. Change the Constitution

6. Take control over a public good

7. Give a frame mandate for an international agreement

8. Initiate a constitutional convention

„Sovereign Bill of Rights“