The Future of Finance

The Future of Finance
6 NOV 22, 2015 10:00 AM EST
By Clive Crook
There’s no shortage of books on the financial crisis and its aftermath. By now the bar is pretty high for new entrants making a claim on one’s time. I want to recommend two new titles that meet that demanding standard, and then some.

I’ll say more about Adair Turner’s “Between Debt and the Devil” (recently excerpted by Bloomberg View) next Sunday. This time I want to focus on the other excellent newcomer, John Kay’s “Other People’s Money.”

Kay and Turner agree about a lot of things, but Kay takes an unusual approach. This is not a detailed guide to the pre-crisis financial plumbing, much less a blow-by-blow narrative of what went wrong. (For the latter, Alan Blinder’s “After the Music Stopped” is hard to beat.) Instead, Kay goes back to first principles, asking what purposes the financial system is meant to serve, and measuring just how far the modern financial economy has moved from that ideal.

The point of finance, he argues, is to connect savers and borrowers — end-users, that is, not financial intermediaries. The test of a financial system is whether a household with surplus funds, say, and a company or government needing to borrow for investment can be connected at low cost and in a way that makes both parties better off. Correctly understood, all the institutions that lie between such end-users exist to serve this underlying purpose.

In Kay’s view, modern economies have lost sight of this vital point. Finance has come to be seen as an end in itself, as though the global economy exists to serve Wall Street and the City of London rather than the other way round. If you applied that mindset to electricity generation, for instance, the absurdity would be obvious: You don’t generate electricity for its own sake.

Yet the modern economy has come to see finance and all its frantic complexities — intermediaries dealing with intermediaries dealing with intermediaries, with never a thought for the end-user — in just this way. Does something of social value happen when investment bank A transacts profitably with asset manager B? Not necessarily. Only if the gain somehow makes its way through to end-users. If that doesn’t happen, the costs of the intermediation amount, in effect, to a tax on everybody else.

This insight raises many intriguing questions, which Kay carefully works his way through. In a modern economy, how big does the financial sector need to be? Not nearly this big, he argues. How did it come to be so big, if it’s failing to justify its expense of resources? Essentially, by collecting various explicit and implicit subsidies — notably, the subsidy implied by the government’s promise to stand behind a failing institution.

What makes Kay’s analysis so probing is that he’s no knee-jerk anti-market type. He’s a distinguished scholar, a successful businessman, and was chairman of a U.K. government review of equity markets after the crash. His overall perspective is actually pro-market. He opposes calls for stricter and ever more complex regulation; he’s against a “Tobin tax” on financial transactions because of its likely unintended consequences; and he thinks the obsession with “too big to fail” misses the point. (The problem isn’t size, he argues, but complexity.)

Capital Requirements

The right way forward, he argues, is to interrupt the flow of subsidy. Do that, and market forces will start to nudge finance in the right direction. This sounds straightforward enough but it has radical implications. It isn’t just a matter, for instance, of requiring banks to hold more capital — though that would be a good place to start. The problem is that, in Kay’s view, the amount of capital needed to make banks safe, and hence to deny them the implicit subsidy of government protection, is probably beyond the market’s capacity to provide.

Then what’s to be done? Deposit-taking banks, he believes, should be confined to buying very safe assets — confined, that is, to “narrow” or “limited purpose” banking. This is a proposal with a long lineage; the idea goes far beyond more standard prescriptions, such as reinstating the Glass-Steagall separation of commercial and investment banking. Narrow banking means that lending to firms and other risky borrowers should be undertaken by institutions that openly pass the risk on to the savers who invest with them. In general, Kay favors a financial system with many more such specialists, each of them more directly connected to one or other class of end-user.

In some ways, as Kay acknowledges, he’s asking for the clock to be turned back. Prudent lending to small businesses, for instance, requires deep local knowledge rather than smart algorithms and rocket-science math. That old-fashioned kind of specialist expertise, he believes, needs to be recovered. Modern finance should be more outward-looking and less obsessed with itself. If that’s turning back the clock, so be it.

[The] perpetual flow of information [is] part of a game that traders play which has no wider relevance, the excessive hours worked by many employees a tournament in which individuals compete to display their alpha qualities in return for large prizes. The traditional bank manager’s culture of long lunches and afternoons on the golf course may have yielded more information about business than the Bloomberg terminal.

Well, let’s not get carried away. The Bloomberg terminal is self-evidently a force for good. But there’s no question that something has gone badly wrong with modern finance, or that the present approach to regulation is compounding many of the industry’s defects.

Kay’s insistence on stepping back, on judging finance by the humdrum standards of any other industry, with its self-serving mystique and aura of inevitability stripped away, makes “Other People’s Money” one of the best two or three books I’ve read on the crash.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Clive Crook at ccrook5@bloomberg.net

To contact the editor responsible for this story:
Christopher Flavelle at cflavelle@bloomberg.net

Ten CyberSecurity Tips for Small Businesses

Broadband and information technology are powerful factors in small businesses reaching new markets and increasing productivity and efficiency. However, businesses need a cybersecurity strategy to protect their own business, their customers, and their data from growing cybersecurity threats.

cybersecuirity

Here are ten key cybersecurity tips for businesses to protect themselves:

1. Train employees in security principles
Establish basic security practices and policies for employees, such as requiring strong passwords, and establish appropriate Internet use guidelines that detail penalties for violating company cybersecurity policies. Establish rules of behavior describing how to handle and protect customer information and other vital data.

2. Protect information, computers and networks from cyber attacks
Keep clean machines: having the latest security software, web browser, and operating system are the best defenses against viruses, malware, and other online threats. Set antivirus software to run a scan after each update. Install other key software updates as soon as they are available.

3. Provide firewall security for your Internet connection
A firewall is a set of related programs that prevent outsiders from accessing data on a private network. Make sure the operating system’s firewall is enabled or install free firewall software available online. If employees work from home, ensure that their home system(s) are protected by a firewall.

4. Create a mobile device action plan
Mobile devices can create significant security and management challenges, especially if they hold confidential information or can access the corporate network. Require users to password protect their devices, encrypt their data, and install security apps to prevent criminals from stealing information while the phone is on public networks. Be sure to set reporting procedures for lost or stolen equipment.

5. Make backup copies of important business data and information
Regularly backup the data on all computers. Critical data includes word processing documents, electronic spreadsheets, databases, financial files, human resources files, and accounts receivable/payable files. Backup data automatically if possible, or at least weekly and store the copies either offsite or in the cloud.

6. Control physical access to your computers and create user accounts for each employee
Prevent access or use of business computers by unauthorized individuals. Laptops can be particularly easy targets for theft or can be lost, so lock them up when unattended. Make sure a separate user account is created for each employee and require strong passwords. Administrative privileges should only be given to trusted IT staff and key personnel.

7. Secure your Wi-Fi networks
If you have a Wi-Fi network for your workplace, make sure it is secure, encrypted, and hidden. To hide your Wi-Fi network, set up your wireless access point or router so it does not broadcast the network name, known as the Service Set Identifier (SSID). Password protect access to the router.

8. Employ best practices on payment cards
Work with banks or processors to ensure the most trusted and validated tools and anti-fraud services are being used. You may also have additional security obligations pursuant to agreements with your bank or processor. Isolate payment systems from other, less secure programs and don’t use the same computer to process payments and surf the Internet.

9. Limit employee access to data and information, limit authority to install software
Do not provide any one employee with access to all data systems. Employees should only be given access to the specific data systems that they need for their jobs, and should not be able to install any software without permission.

10. Passwords and authentication
Require employees to use unique passwords and change passwords every three months. Consider implementing multi-factor authentication that requires additional information beyond a password to gain entry. Check with your vendors that handle sensitive data, especially financial institutions, to see if they offer multi-factor authentication for your account.

The FCC’s CyberSecurity Hub at http://www.fcc.gov/cyberforsmallbiz has more information, including links to free and low-cost security tools.

Zimbabwean Technology

New tech to track soil nutrients, minerals in Zimbabwe

By Farai Matebvu

[MUTARE, ZIMBABWE] Zimbabwean agricultural researchers have developed a remote control technique that could enable African farming communities to identify nutrients needed by crops in an agricultural field.
 
The technology could assist farmers to ascertain the exact quantities of nutrients a crop needs and predict yields using the satellite imagery developed to assess any crop without having to physically visit their farms.
 
According to the developers from the University of Zimbabwe, the technology could exploit and analyse aerospace-based satellite imagery and geographic information to describe, assess and visually depict geographically referenced features, processes and activities on earth to inform strategic and operational decision-making.

“We have developed this agricultural technology to use it at the university farm on a trial run starting in January 2016 before it is rolled out in other African countries.”

Charles Mutisi, University of Zimbabwe

 

Charles Mutisi, the leader of the research team and dean of the Department of Agricultural Research at the University of Zimbabwe, tells SciDev.Net that the technology is able to assess land on which all crops including tobacco, soya beans and maize are grown.
 
Mutisi adds:  “We have developed this agricultural technology to use it at the university farm on a trial run starting in January 2016 before it is rolled out in other African countries. The centre will also soon establish mineral data.”
 
 “We are also working in the area of exploration and actual quantification of the minerals in the country using the same system. The ultimate goal is to have a Zimbabwe and Africa map of minerals which documents the exact quantities.”
 
The researchers began developing the technology in September 2014, with funding from Zimbabwe’s Ministry of Agriculture, Mechanisation and Irrigation Development. It was completed in August this year and commissioned on 28th September, according to Mutisi.
 
May Mrema, a senior lecturer in agricultural economics at the Zimbabwe-based Africa University, calls upon African universities and other tertiary research institutions to review their science curriculums to meet modern global trends to enhance agricultural productivity and mining.
 
“The technology developed by the University of Zimbabwe researchers marks the beginning of an agricultural revolution in the developing world, especially in Africa,” adds Mrema, who is a  member of the Organisation for Women in Science for the Developing World, noting that it could help increase yields to quell hunger and poverty on the continent.
 
According to Mrema, the technology will help African farming communities to tackle climate change, which is affecting agricultural production and farm yields.

Pesanayi Gwirayi, the director of research and postgraduate studies at the Great Zimbabwe University says African governments should prioritise funding science research.
 
“Africa needs to revolutionise its science information by adequately funding research programmes to spur its development agenda and exploit its natural resources which are central to economic development,” Gwirayi explains.
 
This article has been produced by SciDev.Net’s Sub-Saharan Africa desk.

This article was originally published on SciDev.Net. Read the original article.

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Nikola Tesla Quotes

“My brain is only a receiver. In the universe there is a core from which we obtain knowledge, strength, inspiration. I have not penetrated into the secrets of this core, but I know that it exists.”

“Power can be, and at no distant date will be, transmitted without wires, for all commercial uses, such as the lighting of homes and the driving of aeroplanes. I have discovered the essential principles, and it only remains to develop them commercially. When this is done, you will be able to go anywhere in the world — to the mountain top overlooking your farm, to the arctic, or to the desert — and set up a little equipment that will give you heat to cook with, and light to read by. This equipment will be carried in a satchel not as big as the ordinary suit case. In years to come wireless lights will be as common on the farms as ordinary electric lights are nowadays in our cities.”

Tesla
— Nikola Tesla

“Making Your Imagination Work for You” (The American Magazine, April, 1921)

Albert Einstein on Spirituality

“Every one who is seriously involved in the pursuit of science becomes convinced that a spirit is manifest in the laws of the Universe-a spirit vastly superior to that of man, and one in the face of which we with our modest powers must feel humble.”

einstein
Albert Einstein

http://www.simpletoremember.com/articles/a/einstein/

TRAFFICKING IN FRAUDULENT MEDICINE

TRAFFICKING IN FRAUDULENT MEDICINE

TRAFFICKING IN FRAUDULENT MEDICINE

Fraudulent medicines pose a considerable public health threat as they can fail to cure, may harm and even kill patients. These threats to public health have led the international community to call for a stronger and more coordinated response. Compounding this public health risk is the fact that the supply chain for medicines operates at a global level, and therefore, a concerted effort at the international level is required to effectively detect and combat the introduction of fraudulent medicines along this supply chain.

The 20th session of the Commission on Crime Prevention and Criminal Justice (CCPCJ) adopted resolution 20/6 on fraudulent medicines, otherwise referred to as falsified medicines due to concern about the involvement of organized crime in the trafficking in fraudulent medicines. At the same time, resolution 20/6 highlights the potential utility of the United Nations Convention against Transnational Organized Crime (UNTOC) for which UNODC is the guardian, in re-enforcing international cooperation in the fight against trafficking, through, its provisions, inter alia, on mutual legal assistance, extradition and the seizing, freezing and forfeiture of the instrumentalities and proceeds of crime.

As with other forms of crime, criminal groups use, to their advantage, gaps in legal and regulatory frameworks, weaknesses in capacity and the lack of resources of regulatory, enforcement and criminal justice officials, as well as difficulties in international cooperation. At the same time, the prospect of the comparatively low risk of detection and prosecution in relation to the potential income make the production and trafficking in fraudulent medicines an attractive commodity to criminal groups, who conduct their activities with little regard to the physical and financial detriment, if not the exploitation, of others.

Resolution 20/6 contains nine action points among which paragraph nine requests that UNODC, in cooperation with other United Nations bodies and international organizations, such as the International Narcotics Control Board (INCB), the World Health Organization (WHO), the World Customs Organization (WCO) and the International Criminal Police Organization (ICPO/INTERPOL), as well as relevant regional organizations and mechanisms, national regulatory agencies for medicines and, where appropriate, the private sector, civil society organizations and professional associations, assist Member States in building capacity to disrupt and dismantle the organized criminal networks engaged in all stages of the illicit supply chain, in particular distribution and trafficking, to better utilize the experiences, technical expertise and resources of each organization and to create synergies with interested partners.

While focus has been given to the health and regulatory aspect of this problem, it appears that less attention has been given to the issue from a criminal justice perspective. Given its expertise and work to build effective and transparent criminal justice systems and to support states to prevent and combat all forms of organized crime, UNODC can support the fight against the illicit manufacture and trafficking of fraudulent medicines in coordination with other stakeholders.

Additional Information:
(i) Technical Conference of Experts on the Trafficking in Fraudulent Medicines, 14-15 February 2013 in Vienna
(ii) Report on the 20th session of the Commission on Crime Prevention and Criminal Justice (CCPCJ)
(iii) Resolution 20/6: English and French
(iv) Contact UNODC

Source: http://www.unodc.org/unodc/en/fraudulentmedicines/introduction.html