WORLD DEVELOPMENT REPORT 2014

Risk and Opportunity

Managing Risk for Development

The World Bank has finally declared that the international community must focus on risk management./world development report

 Five key insights on the process of risk management :

1. Taking on risks is necessary to pursue opportunities

for development. The risk of inaction may well be the

worst option of all.

2. To confront risk successfully, it is essential to shift from

unplanned and ad hoc responses when crises occur to

proactive, systematic, and integrated risk management.

3. Identifying risks is not enough: the trade-offs and

obstacles to risk management must also be identified,

prioritized, and addressed through private and public

action.

4. For risks beyond the means of individuals to handle

alone, risk management requires shared action and

responsibility at different levels of society, from the

household to the international community.

5. Governments have a critical role in managing systemic

risks, providing an enabling environment for shared

action and responsibility, and channeling direct support

to vulnerable people.

 Likewise, better insurance and protection

can make coping less difficult and costly.

The benefits of preparing for risk outweigh the

costs

Crises and losses from mismanaged risks are costly, but so are

the measures required to better prepare for risks. So, does preparation pay off? Evidence suggests that the benefits can outweigh the costs—sometimes overwhelmingly so. For example,

mineral supplements designed to reduce malnutrition and related

health risks may yield benefits at least 15 times greater

than the costs.

Risk management also requires evaluating different risks and

the relative need of preparing for each. Given limited resources,

setting priorities and making choices is both unavoidable and

necessary. For instance, a small country prone to torrential rains

and also exposed to international financial shocks must decide

how much to spend on flood prevention and how much to save

to cushion against financial volatility.

Not only trade-offs must be considered, but also synergies.

“Win-win” situations can both diminish risk (the possibility

of loss) and increase potential benefits. Prime examples

are investments in nutrition and preventive health; improvements

in the business environment; and disciplined monetary

and fiscal policies. Such synergies are widespread and

should be emphasized—which is not to say they are costless

or easy to implement.

People and societies struggle to manage risk

If risk management can have positive impacts and is cost effective,

then why aren’t people and societies better at manag-

ing risk? The specific answer varies from case to case, but is

always related to the obstacles and constraints facing individuals

and societies, including lack of resources and information,

cognitive and behavioral failures, missing markets and public

goods, and social and economic externalities

 The interlinked components of risk management

Knowledge

To understand shocks,internal and external conditions, and

potential outcomes, thus reducing uncertainty.

Coping

To recover from losses and make the most of benefits

Insurance

To transfer resources across people and over

time, from good to bad states of nature

Protection

To reduce the probability and size of losses and increase those of benefits

Preparation Coping.

This realization leads to an important message. Identifying risks is not enough: the obstacles to risk management must also be identified, prioritized, and addressed through private and public action.

An holistic approach to managing risk

Individuals’ own efforts are essential for managing risk, but

their success will be limited without a supportive environment. Most individuals are inherently ill-equipped to confront

large shocks (such as the head of a household falling ill),

systemic shocks (such as a natural hazard or a financial crisis),

or multiple shocks (such as a drought followed by a food

price shock). In such cases, risk management requires shared

action and responsibility at different levels of society, from the

household to the international community. These social and

economic systems can support people’s risk management in

different yet complementary ways.

• The household is the primary instance of support, pooling

resources, protecting its members—especially the vulnerable—

and allowing them to invest in their future.

• Communities provide informal networks of insurance and

protection, helping people deal with idiosyncratic risks and

pooling resources to confront common risks.

• Enterprises can help absorb shocks and exploit the opportunity

side of risk, contributing to more stable employment,

growing income, and greater innovation and productivity.

• The financial system can offer useful risk management tools

such as savings, insurance, and credit, while managing its

own risks responsibly.

• The state has the scale to manage systemic risks at the national

and regional levels, to provide an enabling environment

for the other systems to function, and to provide direct

support to vulnerable people. These roles can be achieved

through social protection (insurance and assistance), public

goods (national defense, infrastructure, law and order), and

public policy (regulation, macroeconomic management).

• The international community can offer expertise, facilitate

policy coordination, and pool resources when risks exceed national

capacity or cross national and generational boundaries.

These systems interact, often complementing and sometimes

substituting for each other’s risk management functions.

For instance, enterprises rely on macroeconomic stability, public

services, and financial products to remain dynamic and continue

to provide income and employment to people. The financial

system can provide tools of insurance, saving, and credit

only if enough households and enterprises are able to partici

pate in the system and the economy features a certain degree of

stability and predictability. Markets, in general, can provide risk

management tools and resources at a growing scale only if the

necessary public services, such as the rule of law and a sound

regulatory framework, are in place.

Mainstreaming risk management into

development programs

The World Development Report 2014 offers dozens of specific

policy recommendations to improve risk management at various

levels of society. Its overarching advice, however, is

that these recommendations should be implemented in a proactive,

systematic, and integrated way to optimize their effectiveness.

For this purpose, it advocates that countries establish

a national risk board, which can help mainstream risk management

into the development agenda. This could be a new

agency or come from reform of existing bodies: what is most

important is a change in approach—one that moves toward a

coordinated and systematic assessment of risks at the national

and even international levels. Implementing this recommendation

may require a substantial change in the way governments

develop and implement their general plans, considering

change and uncertainty as fundamental characteristics of

modern economies.

Five principles of public action for better risk

management

Analysis throughout the WDR 2014 suggests that the public

action essential to supporting people’s risk management can

usefully be guided by some key principles.

 A few facts about risk and risk management from around the world

Despite some progress, many people remain vulnerable:

• More than 20 percent of people in developing countries live on less

than $1.25 a day, and nearly 75 percent on less than $4.00.

• 70 percent of people in developing countries do not use formal

financial tools.

• Over 70 percent of the labor force in South Asia and Sub-Saharan

Africa are self-employed and do not benefit from risk-sharing

within firms.

• People living in fragile and conflict-affected countries made up 15 percent of the world population, and one-third of people living in extreme poverty in 2010.

When risk is mismanaged, crises ensue:

• More people die from drought in Africa than from any other natural hazard, whereas virtually no one has died from drought in

developed countries in the past four decades.

• The mortality rate from illness and injury for children under age

five is almost 20 times higher in low-income countries than in high income countries.

• 147 banking crises struck 116 countries from 1970 to 2011: the average

cumulative loss of output during the first three years of crises

in emerging markets was 26 percent.

• During 2011–12, the famine in Somalia claimed 258,000 lives,

despite 11 months of repeated warnings; opportunities for early

intervention were missed by the donor community to avoid political and security risks.

Effective risk management can improve resilience to negative shocks and the ability to take advantage of positive shocks:

• Between 1990 and 2010, the share of people in developing countries with access to improved sanitation increased from 36 to 56 percent, while the immunization rate for measles doubled. Infant and maternal mortality fell by more than 40 percent.

• Farmers in Ghana and India—among other countries—who have

rainfall insurance have increased their investments in fertilizer,

seeds, and other inputs.

• Whereas a decade ago most developing countries suffered from

a pro-cyclical bias, now more than one-third of them conduct

recession-reducing countercyclical macroeconomic policies.

 Do not generate uncertainty or unnecessary risks

The state should strive to lessen uncertainty and reduce risks—

or, at minimum, not worsen them. Why or how would a government do that? First, it may perpetuate social norms that

discriminate against certain groups, such as women or ethnic

groups, making them more vulnerable. Second, it may favor

the group that supports it politically against the legitimate interests

of others. Third, a government that is internally fragmented

and disorganized may adopt ambivalent policies or

implement policies ineffectively. Finally, the government may

be guided by ideology, wishful thinking, or simple desperation

when confronting difficult problems, instead of relying on

measures based on good evidence and analysis.

 Provide the right incentives for people and institutions

to do their own planning and preparation, while avoiding

imposing risks or losses on others

The right incentives are critical to avoid cases in which some

benefit at the expense of others. Bailouts should be avoided,

but if they occur, they should be designed to prevent providing

the wrong incentives. Turkey’s experience after the 2000–01

banking crisis (and especially the unwavering stance of the

country’s bank regulatory agencies) offers a prime example.

Social protection can be criticized for not encouraging selfreliance

and posing an unsustainable burden on the state.

These problems can be avoided by a design that takes people’s

incentives directly into account. Well-designed safety nets—

such as conditional cash transfers or workfare programs in

Bangladesh, Brazil, India, and Mexico—have promoted better

household practices in education, health, and entrepreneurship,

while remaining fiscally sustainable. Two changes in

people’s mindset related to individual and social responsibility

are critical for effective risk management: moving from dependency to self-reliance, and from isolation to cooperation.

Providing the right incentives can contribute in both regards.

 Keep a long-run perspective for risk management

by building institutional mechanisms that transcend

political cycles

Institutional mechanisms are needed that induce the state

to keep a long-run perspective that outlasts volatile shifts in

public opinion or political alliances. For instance, the state’s

provision of health services must be funded on a continuous

and sustainable basis to succeed. Thailand and Turkey offer

successful examples with their recent shift to universal health

insurance programs. The financial system must strike the

right balance between inclusion and stability. In Malaysia, the

central bank, the finance ministry, and the private sector are

preparing a long-run strategy for the financial sector. Countercyclical monetary and fiscal policies also require a long-run perspective. To this effect, Chile, Colombia, and Norway have

been targeting a long-run budget balance.

 Promote flexibility within a clear and predictable

institutional framework

Flexibility in adjusting to new circumstances is essential to

promoting resilience and seizing opportunities.

 Selected policy recommendations from the WDR 2014

For the household:

• Public health insurance, run in partnership with the private sector,

with emphasis on preventive care and treatment of contagious

diseases and accidents

• Public education, run in partnership with the private sector, with

focus on flexible skills, adaptable to changing labor markets

• Targeted safety nets for the poor, for instance, conditional cash

transfers with payments directly to women

• Enforceable laws against domestic abuse and gender discrimination

For the community:

• Public infrastructure for the mitigation of disaster risks, built in consultation with surrounding communities

• Transportation and communication infrastructure, especially to

integrate and consolidate isolated communities

• Police protection against common and organized crime, especially targeted to communities under threat

• Enforceable laws against racial or ethnic discrimination

For the enterprise sector:

• Secure and respected private property rights

• Streamlined and predictable regulations for taxation, labor markets, and entry and exit of firms

• Enforceable regulations for workplace safety, consumer protection, and environmental preservation

• Consider the possibility of delinking social insurance (that is, health insurance and old-age pension) from work status

For the financial system:

• Sound financial infrastructure (payment systems, credit information) to facilitate financial inclusion and depth

• Enforceable regulations that foster both consumer protection and

competition among financial institutions

• Macroprudential regulation, for the financial system as a whole, to lessen financial crises and avoid bailouts

• A national financial strategy that addresses trade-offs between

financial inclusion, depth, and stability

For the macroeconomy:

• Transparent and credible monetary policy, oriented to price stability and conducted by an autonomous central bank

• For the majority of countries, a flexible exchange rate regime, in a context of transparent and credible monetary policy

• Countercyclical and sustainable fiscal policy, aided by an independent fiscal council

• Provision for contingent liabilities, such as natural disasters, financial crises, and pensions of an aging population

For the international community:

• Engagement in bilateral, regional, and global agreements to share

risks across countries, enhance national capacity, and confront

common risks, favoring proactive and coordinated interventions

• For elusive global risks, such as climate change, formation of a

“coalition of the willing” with like-minded country governments,

creating incentives for other countries to join in.

economic trends, and innovation by enterprises in the face of

technological and demand shocks. A challenge for the state is

to promote flexibility while preserving a sensible, transparent,

and predictable institutional structure. For enterprises,

the Danish model of “flexicurity” offers such balance, combining

labor market flexibility alongside a strong social safety

net and reemployment policies. For the macroeconomy, inflation

targeting regimes with floating exchange rates offer

a good model of flexible yet institutionally sound monetary

policy.

 Protect the vulnerable, while encouraging self-reliance

and preserving fiscal sustainability

For households that remain highly vulnerable to shocks, the

state can provide safety nets. These are possible even in lowincome countries, provided the support is clearly targeted to

vulnerable populations and is designed to encourage work effort.

Ethiopia’s Productive Safety Net System protects millions

of households from food insecurity while investing in community

assets. The international community can also provide

resources and expertise to vulnerable populations. Although

much criticized, foreign aid has been successful when provided

in coordination with accountable local institutions, as

occurred in Indonesia after the 2004 tsunami. Effective risk

management, by promoting sustained growth, can lessen vulnerability and help eliminate extreme poverty.

SKU 32799

THE NEED FOR BANKING REFORM 2014

 BANKING IS A CON?

 MONEY IS A FANTASY?
BANKERS AS CRIMINALS.?

The collapse of the global banking system 2007/2008 revealed  that the regular crises of the financial services industries are fundamentally due to dubious practices by banks. I have been puzzling about these practices and their implications for bankers and fund managers, and the needs for banking reform.The biggest puzzle is the cash delusion. I have found it very difficult to come to terms with the facts that we talk 'cash', but deal in numbers. The Global economy has expanded in the face of digital money, and that we no longer depend upon 'hard cash'. Indeed, we could not possibly deal in  quadrillions $ or GBP as cash. We can only use 'digital entries' that are created out of nothing!

Investment bankers and fund managers have been concerned for a long time to manipulate other people’s money to maximize profits, and minimise risk. Finance companies like JPMorgan, Goldman Sachs, Lehmans , MorganStanley, Barclays, RBS, DeutscheBank, worked out schemes that enabled them to increase the range of their clients, and invest their monies for the best returns, and highest fees and bonuses. The development of de-regulated markets following President Reagan in the USA, and Prime Minister Thatcher in the UK, led not only to more innovations in the financial services industries, but more dubious practices; and bankruptcies and the collapse of the global financial system! It is not surprising that from 2007/8, and the global banking crisis, bankers have been called ‘banksters’: bankers as criminals!

This is not new. It is easy to forget that in the past, banking was a crime. In particular, lending and charging interest was forbidden by Christians. It was known as usury, and was classified as a sin. Of course, this did not mean that money exchange and loans did not happen. It did mean that only specific groups, such as Jews, were permitted to be bankers and described as usurers. Jews as usurers led them into social and political disrepute, best represented by Shakespeare’s Shylock., in the Merchant of Venice.

               Today, we have come to think of bankers as ‘crooks’, and fraudsters’ in the light of  millions of people across the world  losing their savings, or defaulting on their loans, and banks losing money, and investment bankers being busy paying themselves million dollar fees and bonuses. In fact as the poor have got poorer, the rich are getting richer.

Bankers  are part of the ‘loan cycle’.   One of the first steps that bankers take is to create new money in the form of loans. An interesting trick is that modern banksters are allowed to create money out of nothing.  They do not depend upon the availability of  customers savings or deposits.  How do they do that? simply by writing numbers in a ledger and  charging you interest for the transaction and paying themselves a bonus for the business.  For example, you  pay into the bank $1000 and they can lend you 54,000 or 70,000 at 8% compound interest. Banks are allowed to leverage the money they create 54 to 1 or 70 to 1, or even 100 to 1, [if they are unregulated] on the assumption that the loans and interest will be recovered within a specified time limit, generating profit.  The more loans that are allocated the more profits are generated and the more interest paid. There is a world-wide market for loans.  The loans are new money. They do not consist of coins and notes. They are ‘digital’. This is part of the overall ‘scam’ that is ‘banking’. It is highly likely that disreputable bankers simply create numbers to trade. Bankers talk cash, but deal in numbers. They do have to make sure that the statements of account balance in the day book. But some do not bother.  Traders in investment banks make and transfer and exchange money as number entries on statements of account. They bet against each other in various markets: stocks, shares, bonds, currencies, commodities, derivatives, credit default swaps; buying and selling so as to make profits.

Loans are bound by contracts but not by cash.  ‘Banksters’ protect their cash monies by creating new money. It is only when new money is greater than earned income, or traded products and exceed GDP, that problems arise. If loan money is $20 trillion and ‘products’ only generate $2 trillion, the loan cycle survives only when there are no default events. It is estimated that the current markets create more than $700 trillion. New money/digital money is far greater than cash: at a ratio of 97 to 3.

Fund managers are using ‘saver’s money’ to invest in government projects and corporation stocks and shares They focus on maintaining and increasing the funds. And of course the savers have similar demands: often depending on the funds for their pensions.

Fund managers want to encourage people to join their funds, and increase the capital and generate interest. These demands lead fund managers into ‘evil’, into fraud! Into dubious practices, when unregulated.

The classic fraud is to operate a ‘Ponzi scheme,’ whereby the capital invested by new members is used to meet the demands for  payments by other members. Ponzi schemes promise high returns with no risk. But what is kept secret is that the fund managers do not invest any of the deposits.   But as soon as the deposits decline, and the demands for payments increase, the scheme will collapse! and holders will lose their money. Of course the scheme could set up a Credit Default Swap and promise to cover losses on accounts.

Legal Pension Fund managers, who control many millions of savings deposits, are desperate to find investments that are safe, and capable of growth. It is reported that Fund Managers respond positively to ‘hedge funds’ which are limited partnerships for ‘millionaire’ investors. Hedging these funds is the attempt to reduce risk, and maximize returns by carefully managing the fund. Indeed, they need the hedge fund manager to manage meticulously with insight to anticipate variations, and protect the value of the investments.

When the financial markets are volatile with all items going up and down in value, it is important for fund managers to be able to place their monies into other items, such as  futures, swaps, options such as oil, currencies, wheat, rice. They will set up derivative contracts to buy or sell at a given time, for a given price and thus hedge their bets, and ensure the value of the funds. In the past, it was common for derivative contracts to be made against the price of rice. Implicit in the dealings is that the items would go up in value. And the skill is in identifying when the prices go up, and being able to manage the trading, and the prices. If they went down, the investment funds would lose value. The manager would have gambled and lost!

Credit Default swaps came into operation because of these risks. CDS’ are a contract to compensate you in case of a credit default.  In view of the millions of pounds/$ in circulation looking for appropriate investments, fund managers would make financial contracts for compensation, in case of default, arranging for swaps or options to exchange monies for commodities/items. Money managers can be involved in buying or selling stocks and bonds; and currencies;or commodities.

It is worth noting that in every case the deal would be to safeguard the value of funds, not to promote the success of trading companies or production companies. The capitalist investment is designed to increase the funds.

Most deals in ‘derivatives’ would take place over the counter. They would be beyond the regulation of an exchange. The trade was previously valued at $700 trillion, and now in 2014, at $1.2 quadrillion. The trade is unregulated, and subject to illegal manipulation.

Credit default swaps have been described as ‘pretend insurance’. The contracts may have been drawn up carefully so that the ‘swaps’ will be made, and the investments retrieved in the case of a default. But  Credit Default Swaps have been also been accused by Jeff Neilson in Canada as a $600 trillion  ‘paper Ponzi scheme’- that is, a fraud designed by Wall Street syndicates that have no intention of honoring the contracts. The syndicates receive payments, initiate default, and refuse to pay compensation.

Banks, Building Societies, [in the UK] or Savings and Loans companies [in the US] act as mortgage brokers. Over the last 20 years in the USA, in particular, mortgages were increasingly given to poor families who had little hope of repaying the full mortgage, and a high likelihood of defaulting on their loans. They were called sub-prime mortgages. This was possible as a result of new schemes of insurance supported by government agencies. The mortgages were credit default options whereby ‘default’ was covered by insurance and the sale price of the property at auction. In effect the mortgage brokers received payments of interest from the clients, and insurance payments from the Insurers, and auction value of property. The Banks created new money as loans on many millions of property. However, once the mortgage holders started to default, and payments stopped, the Insurance groups, such as AIG, were the first to suffer. They were unable to keep up with the insurance payouts, and soon became bankrupt. In the UK, customers demanded cash from Building Societies, causing a ‘run on the bank’. In this way the financial crisis unfolded in the USA and the UK, and later in the EU. It became clear that many of the principal global Banks had been actively involved in the ‘sub-prime’ scheme: buying and selling mortgage options across the world; putting loans together as bonds and selling them as investments. As soon as the sub-prime schemes failed, and the poor families defaulted on their loans, many banks became bankrupt and appealed for help from governments. The failure of the financial sector was the direct result of their dubious practices in unregulated markets.

In the past money as ‘cash’ was tangible, solid, handled, moved, carried, transferred, exchanged, created and distributed:  created by Central Banks from copper, silver, gold, and paper, or plastic, and used by the citizens, governments and bankers for payments of services and products.

Many citizens are convinced that all ‘money is cash’ and that all dealings are in cash. They go to the bank, take cash out to pay for items or services or they receive cash in payment and take the cash to the bank. All dealings are in cash!  Citizens, including myself, experience a ‘cash delusion’.

Irrespective of what we may think, financiers in the UK inform us that only 3% of money dealings are ‘cash’. 97% of money dealings are ‘digital.’ Global banking is ‘cashless’ internet banking. All transactions are digital and involve altering the number entries in the statements of accounts. Transactions and exchanges can now be done in a few seconds. Money is transferred, exchanged in millions, simply by clicking a keyboard and altering the numbers.

In a computer system, ‘digital numbers’ represent cash/gold/silver/ bank notes, cheques and bonds. Many people now pay for things and services by credit cards. The transactions are digital and cashless.

Nevertheless, it is assumed that cash reserves are available to cover the transactions. It is assumed that the digital transactions are based on the ‘cash’ in your bank account, and the ‘cash’ that will be transferred to your account in the future. These assumptions ignore the fact that there is no cash in bank accounts. The only cash in the bank is the banknotes in the ATM, printed and delivered by the Central Bank.

It is true that many  countries  do have gold reserves, and their wealth is judged in terms of the balances  between their reserves and their spending. 

The USA has the largest gold reserves of any country at $361.8 billion; followed by the IMF $125.7billion,. Germany $34.9 billion; Japan $34.6 billion; the Netherlands $27.2 billion; the UK $13.8 billion. Gold reserves are normally used to under write the cash demands of banks. Gold is used as collateral for the monies created by banks. Gold is the basis of digital money. But these reserves are inadequate for the digital money demands of the global money funds. For example, the total gold reserves do not cover the $1.2 quadrillion traded in derivatives markets.  

97% of money in circulation is ‘digital’. It is ‘bank created money’.

It is used to buy houses/ equipment/vehicles/transport/ to pay wages,etc.. This  money is created  as a loan, out of nothing. For each loan that the banks arrange, digital money is created. The ‘numbers’ are treated as if they were ‘cash’. They are talked about as if they were cash. Digital numbers are regarded as ‘cash’ and to have the value of ‘gold’, simply because we think them to be!  The numbers in our bank accounts are cash simply because we think they are. Given that we never see the cash, nor the gold, but only the numbers, perhaps it doesn’t matter that there is no hard cash. The digital money is easy to handle, easy to manipulate, easy to calculate, easy to transfer, easy to protect, easily available on computer systems. If most of the transactions are ‘digital’, and the entries are simply numbers, banking becomes a game of arithmetic! A banking casino!

The essential aspect of all these bank transactions is that the numbers ‘balance’ in the ‘day book’. There has to be balance between debits and credits; loans and cash; debts and income.

The Central Banks and the governments have to judge as to whether the finances of a country are in balance. They must regulate the creation of money. However, when it is necessary for banks to possess ‘cash’, they simply arrange with the authorized government, and Central Banks, to make and print the coins and notes they need. In effect, all countries are in debt. They do not have enough money to cover their expenses.

 In 2013, the USA borrowed up to $17 trillion; in 2012, Japan borrowed  $11.7trillion;  the 27 countries of the EU, $16.4 trillion, with Germany, France, Italy and the UK having the biggest debts. China, with one of the largest GDP, has international debts of $2.5 trillion.

At this point we have to confront the fact that the sovereign debt of the USA and Japan, and other countries, is greatly in excess of their gold reserves. They are not able to cover their debts. Are they all ‘bankrupt’?

In contrast, out of a world population of 7.2 billion people, there are 12 million who are valued at $46.2 trillion.  There are 1,426 billionaires who have an estimated  wealth of $5.4 trillion.

In North America, 3.73 million people have $12.7 trillion.  

In Asia, there are 3.68 million with $12 trillion.

In Europe, 3.4 million individuals have $10.9 trillion.

It is clear that some individuals have access to larger sums of money than many countries. But we have to confront the fact that these riches are not cash money. They are

digital money created as loans by banks, and entered on bank accounts. We conclude that banking systems are digital, cashless, internet banking in which numbers represent cash. And few people have ready access to cash. We work in systems in which there is little cash. The total gross wealth of $54 trillion is on paper in numbers. This digital money is not covered by cash. The total gold reserves are $1.02 trillion. We are operating a capitalist system in which digital money is greatly in excess of cash money: and in which all money is created by banks, regulated by governments.  The money is ‘leveraged’ 54 to 1: that is, if the bank has one pound it can create 54.

What we think of as money is created out of nothing by banks. What we think of as cash is created by Central Banks with the authority of governments. Banks create money as loans out of nothing, and make paper profits out of the interest charged  for the loans. The capitalist system is based on ‘leveraged money’, which is created by banks, and is best regarded as ‘fantasy money’  and is best described as ‘digital money’.

It is difficult to be clear  about what the financial services think they are doing. Why was Greece penalized so severely by the EU and the IMF and the World Bank for having a sovereign debt far less than many other countries in Europe? The penalties seemed to deny the fact that  countries and corporations depend upon loans. Their development and growth are a product of debt. If they had to have money as cash, growth would be a slow process.  The austerity imposed by the Troika made the crises in Greece worse, restricting all access to hard cash and loan cash; and condemning the Greeks as spendthrifts!