The financial system was considered a tool for meeting demand, not the main one. From food and accommodation to family vacations, every task of daily life is completed in one way or another by financial payments. If we don’t have cash, we borrow.
So do companies. Either they take loans from banks or they raise capital from the stock market. Then, It takes it from investors. Those who invest in the hope of future profits. Thus the capital market plays an important role in the economy by bringing together both the borrowers and lenders of capital
Finance is no longer just an intermediary. which transfers money from savers to borrowers. However, Its function is no longer limited to giving money to people who promise to pay back the money at interest in the future. In contrast, finance is now in the driver’s seat. It sets the agenda for others including the government.
The major problem of Finance
Finance has two major problems. One. It’s dumb. Because it can only read numbers. unable to understand underrated Difficult social problems or complex business or engineering plans.
Two. It is dangerous. Because people at the helm of financial institutions think they are smarter (not really). Because of this, they think that they will be the leaders of the society.
If you look at the price tag, ruling the world might seem easy. Everything is comparable. Just buy low and sell high to make a profit. You are not an ethical investor if you don’t care about where you put your money, or what you buy or sell. The pricing process involves a product’s actual qualities, negative attributes, or potential side effects.
Indeed, the less investors know or care about such matters, the more liquidity-crunched the market will become. So assets that have been around for a long time, such as shares in oil and gas companies, – are more attractive than new businesses Lack of documentation can make asset prices seem less credible, which can signal uncertainty of profits.
Finance thus ends up showing the need for debate. What if everyone understood that price? There is nothing left to discuss If you believe a product is overpriced, you can lower it Markets do not require political influence. It puts resources into the hands of the highest bidder here and now.
This trend swaps problems and solutions through pricing. It is not limited to market transactions. Many governments willingly or unwillingly follow this approach. Even lenders are forced to accept the conditions.
How Money is Complicating Life
In the United States, the Congressional Budget Office must cover the costs of legislation and the cost of benefits. Courts sometimes criticize measures that do not include such an analysis. For example, the important insurance company Metlife challenging the designation can be mentioned.
Reducing the consumption of products reduces costs. The difference in price of goods and services is an important issue. It can give us a false impression. Although we are well aware of this. It leads us to associate factories and products with nature, health, happiness, climate, and life. It only forces us to ignore things that cannot be valued. such as matters of justice.
We can thank this reductionist view of the world for the ‘solution’. such as security measures to establish home ownership, a private pension system to develop or deepen financial markets, and green asset management to address climate change.
Create a product with a price tag. Investors will flock to it. Especially if there is no risk of loss, everyone trusts the government guarantee (as is often the case).
But consider the consequences We’ve got a mortgage market, which has caused construction materials and house prices to soar. Failed to solve the housing crisis. Pension systems require secure assets to meet future liabilities.
If investment in oil and gas continues, changes in the way energy is sourced, produced, and distributed are decades late; Because green resources don’t work that way.
The Magic of Financial System
In the ‘magic of the market,’ we have an inflated, fragile financial system. Where constant central bank supervision is required. Let it explode and destroy the economy.
None of this creates much of a stir. After all, price is a poor guide to the future, which is inherently unknown and unknowable. When there is strong evidence that it will deviate significantly from the past.
In the 1930s, John Maynard Keynes said, ‘It is impossible to know when the next world war will occur or what the inflation rate will be in the 1960s.’In 2023, we do not know how fast climate change will be, where the next wildfires will spread, or what parts of the world will experience drought. , will face flooding.
Since these conditions are uncertain, the market cannot accurately determine the price. Unless we ignore the scientific evidence. We know one thing for sure: more climate-related devastation is coming. We cannot imagine the additional social and political impact this could bring.
The situation is so bad that money is sitting in the driver’s seat today. Admittedly, the most obvious solution is to reduce carbon emissions immediately. It is also very ‘expensive’. That’s why businesses and governments are backing away from promises to cut emissions. Correcting previously set goals. Adopting a policy of delay in the implementation of conditions.
Money management is so deeply entrenched, it seems to be a politics of ignorance. By blindly relying on price tags, we have deprived ourselves of the ability to build consensus and craft effective strategies. Huge costs should not be imposed on people whose lives are less valuable. No one benefits more than money from this disaster. But that responsibility cannot last forever.
Source: Katharina Pistar: Professor, Comparative Law, Columbia Law School, author of The Code of Capital: How the Law Creates Wealth and Inequality.