Ideas in subverting capitalism and demcracy

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Ideas in subverting capitalism and demcracy

  1. 1. 
 Ideas
in
Subverting
 Capitalism
&
Democracy
 Systemic
faults
that
caused
the
financial
crisis
 
 
 
 
 
 
 
 Rahul
P.
Deodhar
 
 
 

  2. 2. 
 
 Summary
 The
ideas
presented
in
the
book
are
summarised
below.
 Chapter
I) Dominated
by
Finance
 1) Bargaining
 power
 helped
 finance
 take
 over
 the
 organisations.
 
 Chapter
II) The
Rule
of
Organisations
 1) Organisations
 used
 their
 design
 to
 take
 over
 society.
 This
 established
 the
 dominance
 of
 finance
 on
 our
 present‐day
life.
 
 Chapter
III) Bargaining
Power
 
 2) Bargaining
 power
 can
 be
 understood
 using
 Michael
 Porter’s
five
forces
model.

 a) If
 applied
 iteratively
 we
 might
 be
 able
 to
 create
 model
of
our
economy,
as
it
exists
today.

 b) Economy
 therefore
 seems
 to
 be
 an
 emergent
 system.
It
is
fractal
in
nature.
 
 Chapter
IV) Money
and
Banking
 1) Money
has
two
roles,
medium
of
exchange
and
store
of
 value
 a) The
role
of
money
changes
as
new
information
that
 changes
the
value
of
money
arrives.
 b) Money
 itself
 is
 a
 commodity
 whose
 value
 changes
 with
its
own
demand
supply
equation.
 2
 

  3. 3. 
 2) Money
 in
 demand
 deposits
 seems
 to
 function
 as
 medium
of
exchange.

 a) Only
demand
deposits
should
be
insured.
 3) Economic
growth
has
three
sources

 a) When
 volume
 growth
 happens
 in
 existing
 transactions
 b) When
new
transactions
are
developed

 c) When
un‐monetized
transactions
are
monetized.
 4) Inflation
is
preferred
over
deflation.
 5) A
gold‐based
monetary
system
is
not
feasible.
 6) Increase
in
money
supply
must
compensate
increase
in
 transactions
and
changes
in
velocity.
 7) Money
 is
 also
 locked
 in
 as
 inventory
 to
 finance
 transactions.
 8) There
are
two
types
of
velocity
 a) Across
 the
 income
 pyramid
 (top
 down
 or
 bottom
 up)
 b) Within
an
income
class
 9) We
need
to
find
means
to
measure
velocity
of
money
in
 clear
terms.

 a) Possibly,
 velocity
 can
 be
 expressed
 similar
 to
 degrees
 of
 separation
 or
 the
 way
 information
 spreads

 10) Bailouts
that
create
money
with
near
zero
velocity
are
 useless
 11) Banking
reserves
should
be
counter
cyclical
to
create
a
 robust
system
 12) Crisis
 reduces
 available
 money
 indicating
 a
 threshold
 money
supply
for
given
economic
activity.
 13) Any
institute
with
Asset‐Liability
mismatch
is
at
risk.

 a) It
is
well
known
that
banks
are
required
to
manage
 these
risks
and
hence
regulated
 b) Shadow
banking
system
also
takes
these
risks
and
 not
regulated.
 14) Banks
 should
 reinvent
 themselves
 as
 micro‐credit
 markets
 15) Low
 interest
 rates
 make
 egotistical
 mega‐projects
 of
 large
corporates
attractive
to
bankers.

 a) They
create
larger
asset
in
one
transaction
 b) They
are
backed
by
reputed
corporates
 
 3

  4. 4. 
 c) Thus
mal‐investment
is
created
 16) Households
do
not
fully
understand
the
concept
of
debt
 
 Chapter
V) Excess
Money
Paradigm
 1) Even
 expenses
 and
 assets
 have
 a
 hierarchy
 –
 just
 like
 needs
 a) Certain
 assets,
 like
 derivatives,
 only
 occur
 in
 high
 income
class
baskets
 2) Excess
money
supply
does
not
create
inflation
if
limited
 to
restricted
asset
classes
 3) Each
 asset
 class
 has
 a
 price
 expansion
 margin.
 Restricted
assets
have
higher
margins.
 4) Central
banks
must
monitor
inflation
 a) They
must
follow
asset
prices
and
price
expansion
 margins.
 5) Slosh
money
hypothesis
 a) Excess
 US
 money
 supply
 created
 a
 slosh
 money
 fund
that
initially
invested
globally
 b) The
fund
came
back
to
US.
 c) It
 followed
 the
 asset
 hierarchy
 and
 created
 asset
 bubbles
 
 Chapter
VI) Growth
at
Individual
Level
 1) We
 need
 new
 metrics
 to
 measure
 growth
 at
 an
 individual
level.
Two
possible
metrics
we
need
are:
 a) Wage
content
of
job

 b) Job
profile
of
a
wage
 2) It
is
possible
that
inflation
targeting
may
be
restricting
 income
growth
of
certain
people.
 a) We
 need
 more
 investment
 in
 productivity
 enhancement
for
this
class.
 
 4
 

  5. 5. 
 Chapter
VII) Markets
and
Government
 1) Markets
 and
 governments
 both
 express
 the
 will
 of
 people
and
hence
are
competing
systems.
 a) But
 markets
 are
 exclusive
 and
 governments
 are
 inclusive
 hence
 markets
 should
 always
 be
 subordinated
to
governments
 2) Citizens
 have
 role
 to
 play
 in
 both
 markets
 and
 governments.
 However
 citizens
 often
 get
 confused
 between
these
roles.
 3) Taxes
need
to
be
simplified
 
 Chapter
VIII) Politics
and
Power
 1) Financing
political
set
up
is
still
a
challenge
that
needs
 to
 be
 resolved.
 It
 is
 promoting
 hidden
 agenda
 within
 government.
 2) We
 need
 restoration
 of
 upper
 house
 of
 parliaments
 to
 their
rightful
role
of
long‐term
strategy
formulation.
 3) We
need
to
examine
how
we
select
political
candidates.
 We
are
faced
with
election
vs.
selection
dilemma.
 4) Political
 parties
 have
 copied
 bargaining
 power
 elements
 of
 organisations.
 However
 they
 have
 not
 copied
 the
 essential
 elements
 of
 efficiency
 and
 information
systems.
 
 Chapter
IX) Attribution
 1) Property
 rights
 as
 we
 currently
 have
 them
 are
 inadequate.

 a) They
 are
 more
 appropriate
 to
 single
 owner
 scenarios.

 b) They
are
designed
for
first
wave
world
 2) We
need
to
expand
property
rights
to
include
multiple‐ owners
and
diffused
ownership.
 3) We
need
to
add
responsibility
to
property
rights.

 
 5

  6. 6. 
 4) Attribution
 is
 enhanced
 version
 of
 property
 rights.
 It
 needs
better
infrastructure
to
make
it
work.
 
 Chapter
X) Law
and
Regulation
 1) Role
of
regulation
is
to:
 a) Define
ownership
rights
and
responsibilities
 b) Define
action
 c) Define
the
timing
of
action
 2) Regulation
 suffers
 from
 necessary
 and
 sufficient
 condition
problem
 3) To
 contain
 too‐big‐to‐fail
 we
 need
 a
 systemic
 risk
 focussed
regulation.

 a) Size
is
not
a
valid
criteria
 4) We
need
to
expand
the
scope
of
law
to
prepare
for
next
 century.
We
need:

 a) Micro‐contract
enforcement
 b) Cost
scalable
enforcement
mechanism
 
 Chapter
XI) The
burden
of
Media
 1) Media
 deserves
 a
 lot
 of
 blame
 for
 failure
 to
 report
 the
 crisis.
 a) Media
 has
 a
 flawed
 business
 model
 that
 allowed
 organisations
to
take
over.
 b) Media
faces
same
dilemma
as
ratings
agencies.
 c) We
 need
 to
 withdraw
 the
 special
 rights
 to
 non‐ journalist
 d) We
 need
 to
 redefine
 journalism
 to
 exclude
 “celebrity
experts”.
 
 6
 

  7. 7. 
 
 
 
 
 
 Disclaimer
 The
contents
of
the
book
represent
the
views
of
the
author.
The
views
do
 not
represent
any
advice
to
buy,
sell
or
deal
in
any
financial
instruments.
 The
 author
 expects
 the
 reader
 to
 exercise
 caution
 and
 judgement
 in
 dealing
with
the
ideas.
The
author
will
not
be
liable
for
any
actions
arising
 out
 of,
 but
 not
 limited
 to,
 misinterpretation
 or
 wrongful
 application
 of
 ideas
represented
in
this
book.

 
 
 7

  8. 8. 
 
 
 
 
 
 
 About
the
Author
–
Rahul
Prakash
Deodhar
 Rahul
 is
 a
 buy‐side
 financial
 analyst.
 He
 has
 over
 10
 years
 experience
 spanning
 manufacturing,
 consulting,
 investment
 banking
 firms.
 He
 has
 advised
 a
 wide
 range
 of
 clients
 including
 Fortune
 500
 companies,
 banks,
 hedge
funds
and
private
equity
funds
among
others.

 
 He
 is
 interested
 in
 the
 changing
 equations
 of
 value,
 the
 next
 chapter
 of
 wealth
creation
and
its
implication.
His
interests
centre
around
four
areas
 viz.,
 investment
 management,
 economics,
 poverty
 alleviation
 and
 development
of
education.

 
 Rahul
is
based
in
Mumbai.
He
is
a
mechanical
engineering
and
MBA.
A
lot
 of
 his
 ideas
 are
 shared
 freely
 on
 his
 website
 and
 his
 blog.
 He
 can
 be
 reached
at
rahuldeodhar@gmail.com.

 
 Links
 http://www.rahuldeodhar.com
 http://rahuldeodhar.blogspot.com
(finance
and
economics)
 
 
 8
 


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