Yes Proper Property is the solution to prevent future financial crisis says Peruvian economist Hernando
See some of those interesting discussion.
- “This poisonous paper is scaring off potential creditors and investors who lack the legal means to understand what this paper signifies, how much there is, who has it and who might be a bad risk. Finally, policymakers in the White House seem to be coming to grips with the real enemy: the debasement of the legal financial documents that represent value, allow it to be transferred and signal risk.
- You are able to hold, transfer, assess and certify the value of such assets only through documents that have been legally authenticated by a global system of rules, procedures and standards. Ensuring that the relationship between those documents and each of the independent assets they represent is never debased requires a formidable system of legal property rights. That system produces the trust that allows credit and capital to flow and markets to work.
- In recent years, governments have debased paper by carelessly allowing into the market a biblical flood of financial instruments derived from bad mortgages nominally valued at some $600 trillion or more—twice as much as all the rest of the world's legal paper, whether it represents cash, traditional financial assets, or property, tangible or intangible.
- The main challenge for Obama and Geithner is to restore trust in the prime vehicle of credit—not money, which we know how to control, but paper, which we clearly don't. The overwhelming amount of available credit is made up of proprietary paper, such as mortgages, bonds and derivatives, all of which is not money per se but has some of the financial attributes of money—what economists used to call "moneyness." To prevent the debasement of paper and adequately infer its value, the Obama administration must turn to well-tested rules ensuring paper's credibility.
- Moreover, every financial deal must be tethered to the real performance of the originating asset, ensuring that the amount of debt secured on the basis of assets does not become dangerously "out of scale" with those assets underlying the debt—the most prominent cause of a recession, according to the economist John Kenneth Galbraith. And assets can continue to be leveraged and repackaged—but only to improve the value of the original asset. Finally, it must be recognized that clarity and precision are indispensable for creating credit and capital through paper.
- Still another challenge to Obama is that many of those involved in resolving the crisis now claim that it is virtually impossible to identify and value all the toxic paper now on the financial institutions' books. Yet in the past
and European lawyers and bureaucrats have proved brilliant at sorting out toxic paper whether it referred to bad debt, confusing claims or opaque legislation. In doing so, they have untangled claims after the California gold rush, picked up the pieces of Europe's crumbling precapitalist order, converted Japan's feudal enclaves into a market economy after World War II and reunified Germany after the fall of the Berlin Wall. That's the process of capitalism: continuous detoxification. And we're hard at it today, too, in developing countries, searching for toxic paper in our shadow econ-omies—informal titles, licenses, contracts, laundered money and identity documents —in an effort to bring their people into the mainstream”. U.S.