ABSTRACT
Our financial system is a very negative zero-sum game. “Never was so much owed by so many to so few.” Is this a Churchill quote describing gallantry in the 1940 battle of England, or a line about the 2008 U.S. bank bailout? Ever more complex instruments such as credit default swaps and opaque shadow markets such as dark pools have helped enrich a few on Wall Street at the expense of many. Main Street and Joe Public do not understand the risks of the investment instruments promoted by their bankers, though they themselves bear the risk. This leads to a lot of inequality, with implicit public guarantees helping Wall Street at the expense of all the U.S. taxpayers. Periodic financial crises have a profound effect not just on our economy, but also on the confidence most citizens have in the fairness of our system. And when regulators attempt to regulate the excesses of the financial world, they create very complex legislation, such as the Dodd–Frank set of laws. Regulatory complexity then piles up on top of industry complexity. Should we go back to the simple effectiveness of the FDR 1933 banking act, Glass–Steagall? Or simply increase the equity capital requirements of global banks, through the Basel III set of global regulations? And what is the value added of modern finance to our societies?
