It’s been a while that I have published something on this weblog - still a lot of things have been gone on in the world since then. One can unfortunately state that we are in a major collapse of the world’s financial systems - with downturning effects on all money-reliant markets - means every market. We have to painfully realize that the fundament of our economy system, a robust financial market, is build on a pile of sand and collides even faster because of the global interdependencies.
So - we are heading for some hard times because a bunch of investment bankers were too greedy to look closely at what they are trading. In a recent post Markus Breuer links to a very nice article of the New Yorker about “The Rationality of Panic“:
People don’t generally panic in the sunshine. They panic in the dark. And we are in the dark about what assets and liabilities are truly held in what has been properly labeled the “shadow banking system”–the global aggregation of hedge funds, privately placed debt securities, and the hedging or insurance contracts known as credit default swaps. By some accounts, the value of assets held in this shadow system is as large or larger than then value of the assets held in the formal, regulated banking system. But nobody really knows, as there is no transparent market for many of the securities of concern, and no systematic disclosure of assets and liabilities to government regulators–not here, not in Europe, and not in Asia, either.
And as transparency is a key condition for a working market structure we do not have to wonder why it is not working. The market is closed and private though it plays a fundamental role on all other markets - hopefully the crisis will change this and leads us to a more open and transparent financial system where the profits for all the actors may be a lot lesser (because of a working market!).
And despite all the overrated hype about Web 2.0 the underlying principles of easy-to-use and decentralized information sharing systems is a way to more transparency of markets. This might give the chance of turning from a seller’s market of scarcity to a buyer’s market of abundance. This leads to another great post of JP Rangaswami discussing the failures of the “scarcity economics“:
You see, scarcity economics is about hiding needles in haystacks; abundance economics is about making haystacks out of needles. What would you prefer?
So - we have to see the financial crisis as a major outburst of the old world as we know it and hope for a change by a far more transparent and decentralized eco-system supported by the new conversational landscape of social media.