Honest Money

The Keynesian business model of the UK government should be criminalised.

While USA president-elect Barack Obama told an audience at George Mason University near Washington on Thursday that the USA economy will become “dramatically worse”, wrecking the dreams of a generation of Americans, if Congress does not act quickly to drive through huge fiscal stimulus plans (1),

UK chancellor of the exchequer Alistair Darling was writing on Wednesday in his letter to all members of the Group of 20 advanced and emerging economies (G20), which he copied to the Managing Director of the IMF and the President of the World Bank, that prudential regulation should allow supervisors to prevent firms using business models or practices which increase systemic risk, even if they might be profitable for the firms themselves. (2)

Darling’s argument forms part of his third objective for the April G20 summit in London, following the November 2008 meeting of G20 Leaders and Finance Ministers in Washington trying to determine how to address the global financial and economic crisis affecting us all.

Darling outlines the seven objectives of the London summit as follows:
ONE, to return trust and confidence to financial markets.
TWO, to retain and build on the benefits that open financial markets bring to the world economy, the key to retaining faith in financial markets being to establish and maintain a consensus within the G20 and elsewhere as to the importance of open capital markets.
THREE, to reduce the likelihood of systemic failures in the financial services industry by  improving governance of financial institutions, by ensuring that the scope and reach of regulation is appropriate making sure that offshore jurisdictions do not permit firms to behave in ways that jeopardise financial stability and by enacting prudential regulation allowing supervisors to prevent firms using business models or practices which increase systemic risk, even if they might be profitable for the firms themselves.
FOUR, to prepare better for failure within financial markets ensuring that we have the mechanisms in place to protect depositors; to ensure the orderly wind-up of failed institutions; and to make sure that there are the appropriate international mechanisms to coordinate the management of failed institutions.
FIVE, to increase efficiency in the operation of financial markets, so that they perform the tasks of capital allocation, risk management and facilitating transactions more efficiently
SIX, to conclude better, more reliable arrangements to protect consumers when problems emerge including a more coordinated approach to compensation arrangements and firms themselves need to have robust contingency plans in place.
SEVEN, to reduce systemic risks and to put in place systems to address future failures carry inherent risks.

The second objective is thus to establish and maintain a CONSENSUS within the G20 and elsewhere as to the importance of open capital markets, thereby achieving the key to retaining faith in financial markets. The third objective is then the regulation of business models.

For Darling, it is the banks’ business models which cause banks not to want to lend any more.

A business model is a framework for creating economic, social, and/or other forms of value. The term business model is thus used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies.
In the most basic sense, a business model is the method of doing business by which a company can sustain itself — that is, generate revenue. The business model spells-out how a company makes money by specifying where it is positioned in the value chain. (3)

The company, here the bank, will do this in accordance with the prerequisites and conditions which the environment imposes. (4)

The problem is that those prerequisites and conditions which the environment imposes are not the real prerequisites and conditions to succeed as a bank.

On the contrary, those prerequisites and conditions are the prerequisites and conditions over/about which there is a CONSENSUS that they are admissible for a bank.

The consensual view considers worthless paper money and fractional-reserve banking as being perfectly admissible practices for a bank.

But that’s of course not what Darling wants to regulate when he’s mumbling about business models having to be regulated.

Or does he want to regulate the business model of his government which is hoping to print its way out of the Greater Depression?

Yes, the printing of unbacked paper money by the Bank of England, conspiring with the UK Treasury, should immediately and retroactively be outlawed.

This outlawing of the printing of unbacked paper money is the way to address the global financial and economic crisis affecting us all.

Ivo Cerckel
ivocerckel@siquijor.ws

NOTES

(1)
http://www.ft.com/cms/s/0/d74ca4d2-dd8e-11dd-930e-000077b07658.html ,

(2)
http://uk.reuters.com/article/businessNews/idUKTRE5065XS20090107

(3)
http://en.wikipedia.org/wiki/Business_model

(4)
Leo Sleuwaegen,  Platel & Partners, and Thinkthank Center of Entrepreneurship, “Het Ondernemingsplan – Aandachtspunten bij het starten van een onderneming – uitgave voor Vlaanderen”, Schoonhoven,The Netherlands,  Academic Service, 1997. p. 21

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