"The banking sector is rotten to the core. Banks do not do what they should be doing: mediating between saver and investors. And they do what they should not be doing: selling each other inflated nonsense that benefits no one. This was the situation before the economic downturn and it is still the case today."
– Ewald Engelen, professor of financial geography at the Free University of Amsterdam, in the newspapaper Financieeel Dagblad, December 10, 2010
"I think more and more: this is the end of the road, the end of the whole economical system as we know it."
– Joris Luyendijk, a Dutch journalist for The Guardian, September, 2013
Action leads to reaction. I am talking about our financial crisis. At a national level, in particular, from the political spectrum, there is a call for more control and oversight over the banking system. The banking world is reacting as well, although they are singing the tune of "we have learned our lesson, now trust us and let us deal with it." The first international business banks have – while the crisis is not yet over – already paid out more bonuses than they have made in profit. So, no sign of a self-correcting capacity can be found, and control systems do not work either. But, we can still see the same players shifting about. That does not instill much confidence. Evidently, change has to come from outside the system.
Politicians and the establishment are, naturally, calling for more regulations to protect those poor consumers. But does the consumer want to protect himself? Just recently, the most complex financial products, with their high commissions, were selling like hot cakes. Nobody was receptive to the warning signs as we didn’t really understand these financial products. As long as the stock markets kept rising, the consumer quickly doubled or tripled his or her returns. Everybody was happy, and everybody wanted more; and yes, we the consumers wanted that, too. We only started to complain when returns and payments fell behind. The term “usurious policy” was born. It was gradually forgotten that collecting tons of money is coupled to great risk. No regulation can withstand the glitter and glamour in regard to subordinated bonds and other nice financial terms.
The only remedy for a healthy financial market is a critical consumer or a private investor who knows that earning money and taking risk go hand in hand, and who is capable of asking advisors critical questions, whether they work independently, for large banks, or for insurance companies. It goes without saying that providers of financial products have a responsibility to maintain. In other words, their products need to be transparent. The customer has to be able to find out quite easily what the bank is doing with their money. Under these conditions, the consumer can regain control over his or her financial affairs.
Several levels up, we find our nation in a Euro-political system that evidently allows, as we have learned the hard way, countries to be creative with national budgets. How much confidence is there, then, in the Euro? If buyers and financiers of our Western public loans would rather invest their money in the upcoming markets, instead of the no-longer-so-rich-and-influential West, or if they no longer have faith in the Euro market, this will lead to unwanted results. This way of thinking already led to a consumer strike of government bonds for our Euro countries in May, 2010. A Euro meltdown could only be prevented by swift action, taken by European politicians and the European Central Bank with an injection of €750 billion into the system, and central purchases of government bonds, respectively. I am not a financial wizard, so I lost track of how much money, in the meantime, is poured into the Euro system to keep it afloat.
Some people take a gloomy view on our monetary system. The international expert in the design and implementation of currency systems, Professor Bernard Lietaer, predicts the collapse of the dollar in the next five years. Only by borrowing dollars abroad (China) or printing more dollars can the United States still finance its government deficit. You can’t do this endlessly. According to formal international standards, the United States is actually already bankrupt. The American economist Lachman predicts the same outcome for the Euro. Euro countries with poor records still may decide to exit the Euro system, simply because they are unable to get their balance sheets in order under the current requirements. Escaping to their previous currency, and devaluing it, could be a way out for them.
These situations always lead to debate. Do we stay in the European Monetary Union, or do we start a new European currency union with the countries in Northern Europe? It’s the traditional body of thought: choosing between one and the other.
I suggest making another choice. We let the EMU be and at the same ensure that we will be less dependent on that same Euro. Make the financial system less important. How do we achieve this? By giving new players and new value systems a larger playing field.