As we are concern with financial literacy and money matters, we definitely need to look at the financial landscape, the financial system, into which we operate.
In general terms our economic system is capitalism, versus a socialist system: individually operated with strong protection and enforcement law in property rights vs state operated ownership for the good of all.
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Here’s some thoughts from http://www.diffen.com/difference/Capitalism_vs_Socialism
Capitalism:
“Economist Branko Horvat states, “it is now well known that capitalist development leads to the concentration of capital, employment and power. It is somewhat less known that it leads to the almost complete destruction of economic freedom.”
Environmentalists have argued that capitalism requires continual economic growth, and will inevitably deplete the finite natural resources of the earth, and other broadly utilized resources. Murray Bookchin has argued that capitalist production externalizes environmental costs to all of society, and is unable to adequately mitigate its impact upon ecosystems and the biosphere at large.
Many religions have criticized or opposed specific elements of capitalism; traditional Judaism, Christianity, and Islam forbid lending money at interest, although methods of Islamic banking have been developed. Christianity has been a source of both praise and criticism for capitalism, particularly its materialist aspects.”
Socialism:
“In the economic calculation debate, classical liberal Friedrich Hayek argued that a socialist command economy could not adequately transmit information about prices and productive quotas due to the lack of a price mechanism, and as a result it could not make rational economic decisions. Ludwig von Mises argued that a socialist economy was not possible at all, because of the impossibility of rational pricing of capital goods in a socialist economy since the state is the only owner of the capital goods. Hayek further argued that the social control over distribution of wealth and private property advocated by socialists cannot be achieved without reduced prosperity for the general populace, and a loss of political and economic freedoms.
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Well I remember a saying I heard or read somewhere; something to the effect that extreme capitalism leads to socialism and vice versa. In capitalism, as fewer and fewer owns more and more, eventually the people who “have not” are so great that they totally overwhelm the few and eventually gain control, something like the French revolution.
Today we are witnessing an increased concentration of money in the hands of fewer players which give them more control and effect on the whole economic system.
But more pertinent for us, we have created three classes of earners: the producers of good and services, the intermediary earners ie. the middleman who operate between the producers and the consumers and the speculators who neither produce nor consume, but plays with “ownership” of company and products and extract millions in their universe call the stock market, furure market, currency market and all those fuzzy derivative market.
At one point, there was a semblance of protection for us as the economic system was segregated into different sectors as there was a firewall between them. I am referring to the Glass-Steagall Act (GSA). In 1933, following the 1929 crash, and the Great Depression, the US congress enacted the Act. This act separated investment and commercial banking activities to prevent the public money to be used for risky investment. (after the fact of course)
However, to the delight of many in the banking business (not everyone, on the other hand, was happy), in November of 1999 Congress repealed the GSA with the establishment of the Gramm-Leach-Bliley Act, which did away with the GSA restraints against connections between commercial and investment banks. The repeal, which marked the deregulation of the financial services industry, now enables commercial banks, investment banks, insurers, and securities brokerages to offer each other’s services. As I-banks include retail brokerage and lending to their offerings and commercial banks try to build up their investment banking services, the industry is going through some important global consolidation.
So what does all that has to do with you and me? Well, while you and I are working, the money that we deposited in what we thought was a safe place, is being gambled by our banking institution not for your profit but for theirs. And this money is financing the market casino’s that have those people playing a game that they created with capital and ownership that sucks out of the real economy billions of money.
And when they panic, their little castle of card comes tumbling down in an irrational reaction to their own script wiping out the savings of millions who got seduced by their promises for riches for nothing. Its like the ticks feeding of the host: us.
Understanding how money works and tasking control of your finances is a must. The movement of Occupy Wall Street and the others, are the instinctive reaction of people, the one that feed the ticks, that something is terribly wrong with the way our economic system. Here’s a last little quote for you:
“Investment banks aren’t required to act in clients’ best interest Goldman Sachs’ conflict of interest might have been evident to buyers if they had been dealing in plain-vanilla securities, rather than the tutti-frutti mishmash Goldman helped concoct.”
May 16, 2010|Michael Hiltzik
Remember, we contributed to create this tier economy. By educating our self we can elect people that will represent our interest instead of the interest of the corporation and institution lobbist that buzz around our elected politician to insure their own interest.
