Financial markets are powerful engines for progress when they ensure free flow of capital from those who have capital to the entrepreneurs who bring workable ideas of how to start or expand a business. Just as important, financial markets should ensure the efficient flow of capital at reasonable costs to consumers who need to finance a house, a college education, and other investments.
Financial markets have largely abandoned these intended purposes. By attempting to wring as much profit from financial institutions as possible, owners of financial entities have made them opaque and illiquid, and to drive spreads and fees as high as possible. Worse, the largest institutions have learned how to game government guarantees and insurance, underwritten by the taxpayer to increase their advantage of smaller financial firms. These guarantees were originally designed to stabilize the system and protect small investors, but now they entice senior executives to enter into highly risky and speculative investments, knowing that they are protected by explicit and implicit guarantees at taxpayers’ expense.
ASBC seeks a restructuring of financial markets to restore their original purpose: To provide liquidity at reasonable cost to the rest of the economy. This reform includes:
- Structural changes that discourage speculation by imposing more risk on owners and major investors, and less risk on borrowers, depositors, and the public at large.
- Regulatory changes that require greater disclosure and transparency, to protect unsophisticated borrowers from stealthy, exploitative financial products such as payday loans.
- Structural changes which push a greater share of market activity onto listed exchanges where leverage can be monitored, spreads remain reasonably small, and systemic risk can be kept within safe levels.
- Expansion of lending programs to meet the needs of micro-enterprise and Main Street businesses, where much of the nation’s growth and job creation occurs.