Fronteza

Getting Over Financial Illness

You cannot catch at once two rabbits, which run two different paths. But you can make them run to one destination and set your trap there.

The fiscal pipeline is created by general financial houses, such as retail and commercial banks. You have to make sure this pipeline is secure and strong. These are to secure stability of the financial system because they deal with real economy and taxpayers’ monies.

Profit-centric ventures such as investment banks, financial gambling houses, private equity funds, venture capital firms, etc. must be treated distinctly and separately from the key fiscal pipeline. Thus relevant curbs, nail-down and corporate governance rules must be applied to them.

Though capital flows between financial institutions must not be hindered, but they must be strictly controled in order to curb the excessive gambling activities of profit-centric financial ventures, to make sure they won’t play recklessly and put too much money at risk (I don’t mean different blind models such as VaR).

Do we need to separate R&C banks from profit-centric ventures? Absolutely yes. Do we need to apply different rules to each of them? Absolutely yes. Do we need to hinder capital flows? Absolutely no. Do we need to control how much money we put in gambling and reckless playing? Absolutely double yes. Do we need to prevent financial world from becoming sort of financial cartel that dominates real economy? Absolutely double yes. How we do that? Split up and conquer.