Global exotic finance engineering-Humanity’s aggressive cancer

Here is a non-economist observer’s view.


Less than two generations ago banking was still carried out on principles established through thousands of years. Institutions, then identified as banks, were channelling savings of ordinary people and institutions such as pension funds to finance industry and services in an efficient manner rewarding the savers as well as the users of these savings and retaining an honourable commission for this. The instrument of money was used for this purpose. Financing of economic activity was closely regulated and efficiently supervised. In periods were this supervision was poor, financial crises, some of them severe, occurred but given the relative simplicity of the edifice we called then “the market” effective corrective action was possible at bearing cost.

It was mainly at the beginning of the sixties’, with the appearance of exotic products of financial engineering helped with the computer technological revolution, that humanity started building the easily recognised today aggressive tumour on its body. These products intervene in the steps of movement of funds from the saver to the user. They are creating gains in making money from money flows violating the essence of its purpose. In speculating on the links, using other people’s money, have raised the art of such risk taking onto an absurdly complicated market beyond reach of the common saver. In this game the main depositors of the appropriate expertise, major banks with global coverage, built a network of institutions to cloud the view and succeeded in acquiring the tolerance of the political establishments at a price. The senior staffs in these organisations hold today an immense power of influence and being human have arranged for them vestigial rewards that demonstrate often in a provocative way. They have become an example for any highly intelligent and willing youngster aspiring to follow. Their unconditional support comes from a special minority of plutocracy that profit out of this activity and for which moral standards have vanished a long time ago.

Soon after the appearance of such products at national levels, the financial world, driven from its main centre in Wall Street, moved far ahead of economics and politics, rapidly building on the back of traditional global financing an exotic network with long term perspective. This network, through speculative games, started manipulating all kinds of instruments reaching the current stage where they are able to very effectively attack sovereign debt and currencies of nations and event powerful groups of nations like the EU. The word “markets” became a mystical symbol beyond the control of any single government and where enormous amounts of real wealth sinks in and disappears in the coffers of the few. Even G-20, the bravest attempt to global governance to date, is in a sense held at ransom under the threat of economic collapse via squeeze of financial flows. Their attempts to regulate this cancerous sector are to say the least mediocre. Given the global reach of the controllers of global exotic financial engineering any single government, even of the most powerful state is seen as powerless.

It is this kind of imbalance of global development between exotic finance and other human activity that gives the impression that humanity is building an aggressive tumour on its body that eventually will destroy it. Probably the defenders of this activity dream of a different humanity and their role in it but it will be the ruins of the existing one.

Unfortunately, there are plenty of signs that aggressive financial innovation is advancing. Riding on the current crisis of the world economy, being its major cause and albeit the desperate pleas of the social side, exotic financing finds little obstruction. Experience of the last three years has demonstrated clearly that with highly intelligent and non-emotional professionals with low morality barriers, supported by a very small minority of super rich with diminished social responsibility, it has acquired such an amount of power of control that succeeded in preventing any effective political intervention; after all the advisors to political leaders very often emanate from this world of finance.

There might still be ways to proceed in tackling this grave threat. One is political leadership on a global scale with the use of existing or new international platforms such as the UN and the G-20. Unfortunately given prevailing cultural realities political leadership seems unlikely to project dominant personalities on a global scale that will have the power and will to face the challenge.

This observer believes that, under the circumstances the main responsibility for action in social self-defence and perhaps the only ray of hope, however utopian, lies with civil society. It is only by a powerful global network on this side and with the help of new communications technologies that humanity would force the political will for the elimination of the tumour, if it is not already too late. And for the development and effectiveness of such a network from its current embryonic state people with resources and reasonable moral standards must bring in the required support.

There are fundamental question for an open debate beyond the usual technicalities that experts of exotic finance present. Is this group of products really necessary? Why the system of financial flows has largely worked up until the Second World War without them? What are the gains to humanity in using them? What are the losses in not using them?

K.P. Vlahodimos, Optir Executive Coaching

December 2010