Ideas in Subverting
Capitalism & Democracy
Systemic faults that caused the financial crisis
Rahul P. Deodhar
The ideas presented in the book are summarised below.
Chapter I) Dominated by Finance
1) Bargaining power helped finance take over the
Chapter II) The Rule of Organisations
1) Organisations used their design to take over society.
This established the dominance of finance on our
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
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) 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
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
8) There are two types of velocity
a) Across the income pyramid (top down or bottom
b) Within an income class
9) We need to find means to measure velocity of money in
a) Possibly, velocity can be expressed similar to
degrees of separation or the way information
10) Bailouts that create money with near zero velocity are
11) Banking reserves should be counter cyclical to create a
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
14) Banks should reinvent themselves as micro‐credit
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
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
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
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
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.
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
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
Chapter IX) Attribution
1) Property rights as we currently have them are
a) They are more appropriate to single owner
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.
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
3) To contain too‐big‐to‐fail we need a systemic risk
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
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‐
d) We need to redefine journalism to exclude
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.
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 email@example.com.
http://rahuldeodhar.blogspot.com (finance and economics)