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IdeasinSubvertingCapitalism&Democracy

Systemicfaultsthatcausedthefinancialcrisis

RahulP.Deodhar

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Summary

Theideaspresentedinthebookaresummarisedbelow.

ChapterI) DominatedbyFinance1) Bargaining power helped finance take over the

organisations.

ChapterII) TheRuleofOrganisations

1) Organisations used their design to take over society.This established the dominance of finance on our

presentdaylife.

ChapterIII) BargainingPower

2) Bargaining power can be understood using MichaelPortersfiveforcesmodel.

a)If applied iteratively we might be able to createmodelofoureconomy,asitexiststoday.

b) Economy therefore seems to be an emergentsystem.Itisfractalinnature.

ChapterIV) MoneyandBanking

1) Moneyhastworoles,mediumofexchangeandstoreofvalue

a) Theroleofmoneychangesasnewinformationthatchangesthevalueofmoneyarrives.

b) Money itself isacommoditywhosevaluechangeswithitsowndemandsupplyequation.

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2) Money in demand deposits seems to function asmediumofexchange.

a) Onlydemanddepositsshouldbeinsured.3) Economicgrowthhasthreesources

a) When volume growth happens in existingtransactions

b) Whennewtransactionsaredevelopedc) Whenunmonetizedtransactionsaremonetized.

4) Inflationispreferredoverdeflation.5) Agoldbasedmonetarysystemisnotfeasible.6) Increaseinmoneysupplymustcompensateincreasein

transactionsandchangesinvelocity.

7) Money is also locked in as inventory to financetransactions.

8) Therearetwotypesofvelocitya) Across the income pyramid (top down or bottom

up)

b) Withinanincomeclass9) Weneedtofindmeanstomeasurevelocityofmoneyinclearterms.

a) Possibly, velocity can be expressed similar todegrees of separation or the way information

spreads

10)Bailoutsthatcreatemoneywithnearzerovelocityareuseless

11)Bankingreservesshouldbecountercyclicaltocreatearobustsystem

12)Crisis reduces available money indicating a thresholdmoneysupplyforgiveneconomicactivity.

13)AnyinstitutewithAssetLiabilitymismatchisatrisk.a) Itiswellknownthatbanksarerequiredtomanage

theserisksandhenceregulated

b) Shadowbankingsystemalsotakestheserisksandnotregulated.

14)Banks should reinvent themselves as microcreditmarkets

15)Low interest rates make egotistical megaprojects oflargecorporatesattractivetobankers.

a) Theycreatelargerassetinonetransactionb) Theyarebackedbyreputedcorporates

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c) Thusmalinvestmentiscreated16)Householdsdonotfullyunderstandtheconceptofdebt

ChapterV) ExcessMoneyParadigm1) Evenexpensesandassetshaveahierarchyjustlike

needs

a) Certainassets, likederivatives, onlyoccur inhighincomeclassbaskets

2) Excessmoneysupplydoesnotcreateinflationiflimitedtorestrictedassetclasses

3) Each asset class has a price expansion margin.Restrictedassetshavehighermargins.

4) Centralbanksmustmonitorinflationa) Theymustfollowassetpricesandpriceexpansion

margins.

5) Sloshmoneyhypothesisa) Excess US money supply created a slosh money

fundthatinitiallyinvestedglobally

b) ThefundcamebacktoUS.c) It followed the asset hierarchy and created asset

bubbles

ChapterVI) GrowthatIndividualLevel1) We need new metrics to measure growth at an

individuallevel.Twopossiblemetricsweneedare:

a) Wagecontentofjobb) Jobprofileofawage

2) Itispossiblethatinflationtargetingmayberestrictingincomegrowthofcertainpeople.

a) We need more investment in productivityenhancementforthisclass.

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ChapterVII) MarketsandGovernment

1) Markets and governments both express the will ofpeopleandhencearecompetingsystems.

a) But markets are exclusive and governments areinclusive hence markets should always be

subordinatedtogovernments

2) Citizens have role to play in both markets andgovernments. However citizens often get confused

betweentheseroles.

3) Taxesneedtobesimplified

ChapterVIII) PoliticsandPower1) Financingpoliticalsetupisstillachallengethatneeds

to be resolved. It is promoting hidden agenda within

government.2) Weneedrestorationofupperhouseofparliaments to

theirrightfulroleoflongtermstrategyformulation.

3) Weneedtoexaminehowweselectpoliticalcandidates.Wearefacedwithelectionvs.selectiondilemma.

4) Political parties have copied bargaining powerelements of organisations. However they have not

copied the essential elements of efficiency and

informationsystems.

ChapterIX) Attribution

1) Property rights as we currently have them areinadequate.

a)They are more appropriate to single ownerscenarios.

b) Theyaredesignedforfirstwaveworld2) Weneedtoexpandpropertyrightstoincludemultiple

ownersanddiffusedownership.

3) Weneedtoaddresponsibilitytopropertyrights.

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4) Attribution is enhanced version of property rights. Itneedsbetterinfrastructuretomakeitwork.

ChapterX) LawandRegulation1) Roleofregulationisto:

a) Defineownershiprightsandresponsibilitiesb) Defineactionc) Definethetimingofaction

2) Regulation suffers from necessary and sufficientconditionproblem

3) To contain toobigtofail we need a systemic riskfocussedregulation.

a) Sizeisnotavalidcriteria4) Weneedtoexpandthescopeoflawtopreparefornext

century.Weneed:

a) Microcontractenforcementb) Costscalableenforcementmechanism

ChapterXI) TheburdenofMedia1) Mediadeservesa lotofblameforfailuretoreport the

crisis.

a)Media has a flawed business model that allowedorganisationstotakeover.

b) Mediafacessamedilemmaasratingsagencies.c) We need to withdraw the special rights to non

journalist

d) We need to redefine journalism to excludecelebrityexperts.

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Disclaimer

Thecontentsofthebookrepresenttheviewsoftheauthor.Theviewsdo

notrepresentanyadvicetobuy,sellordealinanyfinancialinstruments.

The author expects the reader to exercise caution and judgement in

dealingwiththeideas.Theauthorwillnotbeliableforanyactionsarising

out of, but not limited to, misinterpretation or wrongful application of

ideasrepresentedinthisbook.

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AbouttheAuthorRahulPrakashDeodhar

Rahul is a buyside financial analyst. He has over 10 years experience

spanning manufacturing, consulting, investment banking firms. He has

advisedawiderangeofclients includingFortune500companies,banks,

hedgefundsandprivateequityfundsamongothers.

He is interested in the changing equations of value, the next chapter of

wealthcreationanditsimplication.Hisinterestscentrearoundfourareas

viz., investment management, economics, poverty alleviation and

developmentofeducation.

RahulisbasedinMumbai.HeisamechanicalengineeringandMBA.Alot

of his ideas are shared freely on his website and his blog. He can be

reachedatrahuldeodhar@gmail.com.

Links

http://www.rahuldeodhar.com

http://rahuldeodhar.blogspot.com(financeandeconomics)