Bitcoin, Tesla And Gamestop – Democracy Risk

One of my favorite descriptions of the universe comes from JM Keynes, who wrote at the end of the first wave of globalization (in Economic Results…)

Wisdom of Keynes

A London resident could order over the phone, sucking his morning tea in bed, the various fruits of the whole earth, in as much as he saw fit, and reasonably expecting early delivery on his threshold; it could at the same time and in the same way build up its wealth of natural resources and new ventures any quarter of the world. ‘

In today’s version Keynes may be driving Tesla, considering Robinhood and paying for a new house with bitcoin, all while respecting defense rules, obviously . It may not be as diligent, Tesla may catch fire, Robinhood account may collapse or it may face a margin call and bitcoin may be too volatile to do anything with it .

The confluence of these financial ecosystems has led many to say that we are in an age of financial democratization – where platforms, tools and products are emerging in the spring that will enable the average man and woman to financial opportunities that have existed so far with hedge fund managers.

This is not the case. Instead of financial democratization, we are in an age of risk democratization – where a range of risks, mostly arcane financial market, are increasingly spread over retail investors. The issue is that the man or woman is on the street, unprepared for these dangers. The brightest point is, when many people across the population find that they are at the same risk, and all react against it at the same time, a move takes place.

Amsterdam passes by London

The news that Amsterdam has overtaken London as a financial trading hub reminds me that it was in the 17^th because it was a center of financial innovation (William Goetzman’s book ‘Origins of Value’) and innovations in finance follow a pattern of early investors and pioneers (especially those who own it). infrastructure) is doing very well, asset prices are rising in a parabolic way and this is attracting the investing public (the level of democracy), there will be a crash or scandal and late regulators will come to the site of the accident.

The yield in the U.S. housing market in the early 2000s is a good example. Cheap funding meant people could pay more, and houses bigger, until the whole market collapsed.

Risk assessment

Risk analysis is now a major area. Organizations such as the OECD produce a risk scorecard that countries can use in risk assessment, while a good number of institutional and hedge fund investors have grown well in risk management. The coronavirus crisis offers a unique lesson in risk assessment, crisis management and risk inclusion (through fiscal stimulation, the organization of public services such as healthcare and the provision of vaccines, not to mention human resilience.

The fascinating and dramatic experience that the world has survived with the coronarvirus – following the chaotic Trump Presidency, Brexit and other catastrophes – could lead many to believe that the level of danger to the world has gone up. I would say that they are not – although there are two major risks – climate damage and debt – and it is the factor that makes them special that they are ‘democratic’ or that they affect large numbers of people.

Independence

If there is a lesson here for politicians and policymakers it is not going to allow the democratization of the double risks of debt and climate damage (if you graph the average global temperature compared to the long – term average). his time with global debt compared to his average, the two lines fit neatly over each other).

The descriptive example was the response of euro zone countries – notably Spain and Ireland – to their financial crises in 2011. In all cases, bond market investors, and the eurozone itself, may have the risks associated with rising debt but, ultimately those risks were borne by government balance sheets, and by extended families.

Concretely, what I have in mind is probably two principles. Policymakers think not only about the likelihood of the outcomes of a particular risk event (i.e. from floods to wars) and the potential risk, but how those risk outcomes are disseminated. Markets work like this – risks never go away, they just re-distribute them consistently across different investors and timeframes.

Chinese rule

The second element is that policy focuses more on realigning the risk of an event (e.g. pollutants) with the fortunes of those who ‘produce’ that risk. In China, the former chairman of Huarong Asset Management was recently executed for gargantuan corruption rates. This is an accountability that will be taken to very high levels, but for the Biden administration and many governments in Europe, which predict a belief in ‘resettlement’, ‘stakeholder capitalism’ and ‘ESG’ , risk democratization is something they need to fight against.