In the modern world, the usual forms of capitalism have almost disappeared. It happened imperceptibly, but now we see around us not capitalism, but real financialism.
In September 1787, 39 delegates signed the US Constitution. However, three of them refused: George Mason, Edmund Randolph, and Elbridge Gerry opposed the final draft of the document, including Gerry, who chaired the committee that approved the Great Compromise.
A former revolutionary who previously served in the Continental Congress as part of the Boston delegation of John Adams, John Hancock and Samuel Adams, who fiercely fought for independence, Gerry considered the principles of government "absolutely flawed."
And he was not alone in this. There was a debate on this topic throughout the country. Some of the states have ratified the constitution anyway, but with the proviso that a Bill of Rights must be passed. James Madison, the primary author of the constitution, wrote 19 amendments based on the Virginia Declaration of Rights. Madison proposed to the US Congress on June 8, 1789; the House confirmed 17, the Senate 12.
The final ten were ratified on December 15, 1791, 225 years after that last week. One of the latter, rejected by the states, the original unratified Second Amendment was actually added as the 27th in 1992, over two hundred years later.
Although the proposed paragraph is politically unclear, it is well known what the second, more precisely the Fifth, Amendment is about.
Fifth Amendment: “No person should be deprived of his life, liberty or property without due process of law; private property should not be taken away for public use without fair remuneration."
Private property is central to this amendment, since private property was understood then as the main instrument of material freedom. It was and remains all that a person could think about, dream about, but the way he handled it was important for a just and stable social system.
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John Adams once stated: "When the idea that property is not the same holiness as the law of God and that it should not be protected by the power of law and social norms is recognized in society, anarchy and tyranny will begin." George Mason noted that "frequent interference in private property, laws destructive for the entire public consciousness and confidence in relations between people, flagrant violations of the constitution should not be accepted by the best and wisest part of society, and the general depravity of morals should cause contempt in the legislature."
And it was not only the Founding Fathers who called private property "the basis of capitalism." Winston Churchill, Britain's greatest statesman, said in the twentieth century: “I personally believe that private property has a right to be protected. Our civilization is built on property and can only be protected by private property."
Private property defines capitalism and freedom, which go against collectivism and socialism.
Frederick Engels wrote: “The slave liberates himself when from all relations with private property he destroys only the relation of slavery and thereby becomes a proletarian; the proletarian can free himself only by abolishing private property in general. And from this point of view, the banking system is troubling because it is a crime against these ideals. For socialists and collectivists, banks are the main source of inequality and oppression. Many people today think that banks should be canceled or at least seriously restrict their activities. And one of the ways to do this could be the provision of private property in accordance with the constitution and the Bill of Rights, including money in this area.
The argument for modern banking is that the needs of the modern economy cannot be reduced so dramatically. The most striking example for those who support this point of view was the Great Depression. Banking has become a vital, central instrument of commerce, and consequently, people's emotions about property rights will deprive banks of the necessary means by which to support trade and the country's economic well-being. Banks are less and less mentioned in property laws and more and more often referred to financial law, which imposes this socialist point of view.
Here you can use the term repo, which is the exact opposite of what the full term used in the banking world suggests. Repurchase agreements are not a buyback agreement, they are simply secured credit. The latter clearly shows the impact of financialism on the banking sector and modern money. For a very long time after repo became popular, there was no consensus on what constitutes a buyback agreement.
When the US Court of Appeals for the Fifth Circuit ruled the American National Bank of Austin v. US in January 1970, it interpreted tax rules in its own way and very ambiguously. The government has taxed the bank based on the fact that the bank does not own municipal bonds, which generate tax-free profits. The District Court ruled that the buyback agreements, as they relate to the collateral for loans, do not transfer ownership.
In USA v. Ivy, the US Court of Appeals addressed the issue of taxation of collateralized physical goods. James L. Ivey was a cotton farmer in the El Paso Valley of Texas who, during the 1950s, financial relations were established with the brokerage company RT Hoover Company. The company became an agent for the sale of cotton for each planting season.
And thanks to this agreement, the sale of goods could be realized. The company has received secured loans from time to time and from time to time disbursed cash from these loans to cover the costs of cotton growing.
Ivy has declared advances from RT Hoover as income. However, the IRS determined that instead there were loans secured by collateral and that only proceeds from the sale could be declared income. Ivey argued that, in his opinion, the transactions were exchanges of property through delivery, whether they were generating income or not. In addition, since he had not paid interest on the advances, the cotton belonged to the broker. This is exactly what the court decided.
Therefore, the decision of the court to consider each case separately, where there is a connection with the repo, rather than using the standard approach, is quite logical.
But in the future, the courts began to allow such a free interpretation that it became completely unclear what to mean by the word "sale", "transfer", "bond" in each individual case?
If the basis of capitalism is private property and clear ownership of it, then repo transactions make this a laughing stock. First of all, the term “buyback agreement” sounds very clear and succinct: one party sells something else with an attached agreement to buy back at a later stage at a predetermined price. Ownership of “something” must arise inevitably. However, with so many financial practices, the term “financial” changes everything.
Repurchase transactions must become standardized to be fully defined as a transfer of ownership rather than a buyout. While some of the problems will be eliminated, this form of money will become an exceptional “money”.
The repo market played a role in destabilizing capitalist traditions when the imbalance in this market led to the panic of 2008. When there is a chain of transactions in the system, the ownership of which is defined in the form of fuzzy financial relations, there is no question of any stability. It was the ultimate form of volatile money, and the results of such monetary volatility soon became apparent to everyone.
The entire monetary system turned out to be unstable, not just one of its elements. Repurchase agreements, unlike asset repurchase agreements, are not limited to a single definition. This is a kind of example of a system that works because it works. Every person who carries out a certain number of repo transactions fails because the participants in the system face instability.
No monetary system will ever be absolutely stable, of course, because money is a social structure, taking into account the constantly changing conditions of human life. This is one of the reasons they were once given protection as property in order to better align our own individual interests with our understanding of these variables.
Monetary policy should reduce volatility through various methods of currency elasticity, which itself is another form of money socialism.
The results were predictable: Central banks were mostly satisfied with the reduction of monetary problems in the banking system, at least as the banking system became more and more unsustainable to the point of global monetary deficit. We can see this very clearly in the terms of the repo market.
It is clear that the market has been regularly failing since 2011, marked by short but intense flares of lack of liquidity in mid-2013 and again in mid-2014. Everything changed in the week of August 12, 2015 - a week we will remember what happened to the Chinese yuan. It’s not about the yuan and China’s global importance, but how the Chinese relate their system to the “dollar” system.
As the repo fails, the most volatile forms of money become even more volatile, the financial and economic results of the past year and half of them are absolutely unsurprising.
Since the last week of August 2016, losses from repo transactions amounted to at least $ 200 billion every week. During these 15 weeks, they exceeded $ 300 billion eight times. The losses exceeded the $ 500 billion level three times, and each of these weeks fell on a period of volatility in the Chinese money market.
In 31 weeks in 2015 up to this week in August, repo losses did not exceed $ 200 billion only three times, the highest level of losses spiked to $ 285 billion in the first week in March last year just before the start of the Chinese currency peg.
It can be said that the repo market has been used at a higher degree of volatility over the past two years, but much more difficult for money markets and the economic function at the global level. For economists, the two are unrelated; REPOs fail as only one possible form of monetary instability, but they are a sign of an immediate problem and also a disease of the entire system. This is not capitalism, this is a complete stop.
You can use any other term, but we use "financialism" not only for financial reasons, but also because the word embodies the balance of the transition from ownership to financing the law and everything that accompanies it. The biggest of these shortcomings may be not only the depression of 2007, but more the inability of those who need to know better, who claim to know better, but do not really know anything about what has been happening all this time.
In short, we only spent about ten years calling depression a recovery, and this is because money is so volatile that it has become the mainstream and completely unrecognizable. If you don't know what money is, you won't know when money is a problem.
When money was property, we all should have known more about it, because that property was at stake. In the "modern" version, it remains the center of ignorance and our ego.