The Trade of Promises

By John Miller

The news is now dominated by finance. Its complexity, the size of the sums at risk, the speed at which fortunes may be made or lost, the dance of stock markets and currencies, the rise of forces outside the authority of states—all of this attracts or alarms. What some people see as a win for efficiency and freedom is merely the deadly upheaval of capitalisms to others. The author's initial goal in this essay is to dispel worries based on ignorance and to pose pertinent issues with icy rigour. Why does money go about, and who benefits from it? What is a speculative bubble, how does one start, and who pays the price in the end? Why does globalisation come with rising inequalities? Are obligations for pension funds now applicable to businesses?

Have markets displaced states' whole economic power? There are several inquiries that the author responds to with analyses of exceptional lucidity. This is accomplished by utilising all the ramifications of a straightforward but subtle realisation: what finance deals in are always "promises," or rights to future riches that nothing can guarantee since the future is inherently unpredictable. A message that is stern but not devoid of optimism develops throughout this probe into the core of global finance. Globalisation does tend to provide more active growth occasionally, but it also creates a harsher, more unpredictable, and unequal society where those who are "competitive" are driven to isolate themselves from others.  However, less unequal growth remains possible; it only depends on the return of political will, in forms that are, it is true, profoundly renewed.

• Language: English
• Publisher: Miller
• Release date: Apr 16, 2023
• ISBN: 9798215426272

Book preview

Foreword

"Sleep now,

it is he who does not sleep"

In the days of the tsars, in a courtyard room in the Jewish quarter of Simferopol (Crimea), in the middle of the night, Moïshe, unable to sleep, tossed and turned in his bed. Rachel, his wife, ends up asking him:

"What is the matter, my dear husband, what is it that torments you so?

I don't want to worry you, said Moishe.

– Yes, tell me, I want to share everything with you.

– Do you know Samuel, our neighbor across the street?

- Of course, I know him.

"Well, I have to pay him a thousand rubles tomorrow morning, and I don't have them.

– Is it just that? said Rachel.

She gets up, opens the window and calls Samuel in the night, across the sleeping courtyard.

Samuel, Samuel!

What's going on? cries Samuel, popping out of his window, very worried. The Cossacks? A pogrom?

- No, Samuel, don't worry. Do you know my husband, Moïshe?

- Yes, I know him, of course!

Do you know he owes you a thousand rubles?

- And how ! He has to give them back to me tomorrow. I'm counting on it because I absolutely need it.

"Well, my dear Samuel, he won't give them back to you, because he doesn't have them.

And Rachel closes the window, goes back to bed and says to her husband:

– Sleep now, it is he who does not sleep.

It's one of my favorite stories. I love his profound wisdom and his humanity. It states the obvious: a claim, such as that of Samuel on Moses, is never more than a simple promise to receive money in the future. Nothing allows us to be absolutely sure that this promise will be kept, because no one can be certain of the future. Finance as a whole is therefore never anything but a trade in promises. Considering this evidence carefully has led me to the two questions that are at the origin of this book.

Finance therefore trades in promises. Is it ensured that these promises of future income are not excessive compared to what the future wealth will really be? If this were the case, a mistigri, like the bad card in the game of the same name, would circulate permanently in the financial sphere. This mistigri are the promises of future income which it is certain that they cannot be honoured. But, of course, except at maturity, no one knows who owns it. It exists, it circulates, but everyone hopes that it will end up in someone else's hands. If Moishe cannot repay, it is because the loan from Samuel was invested in bad business, which did not create enough wealth to allow it to be repaid with interest. Rachel only announces in the middle of the night to Samuel, just before the deadline, that he is now the one who has the wrong card. By creating excess rights on future wealth, finance would then be a permanent cause of conflicts of distribution, possibly violent. It would engender and circulate precariousness and anxiety. The anguish that Rachel, in her wisdom, simply transferred from room to room, moving her to where she needed to be now.

Trading in promises, finance is therefore a place where visions of the future confront one another. Financial players only act on the basis of anticipations. It is what he anticipates of the future that decides a household to save, an industrialist to borrow or issue shares to invest, any individual to sell or buy financial securities. If Samuel has loaned a thousand rubles to Moishe, he thought that the latter was going to continue to be a solid trader. If Moïshe borrowed, it was to finance a business he thought would be profitable. Both were wrong. But, conversely, if Samuel had not trusted Moishe, when Moishe had identified a truly profitable business, potential wealth would not have been created.

The question is therefore: what is the nature of this thought of the future that determines actions on the financial markets? How is it formed? Is it rooted in the observation of the past? Is it just a simple extrapolation? Or does it have greater autonomy? If so, then this thought would be active. The thought of the future would shape the future.

The widespread distinction between a real sphere, that of production, and a financial sphere which would only be a reflection of it would then be irrelevant. Just as irrelevant would be the seemingly opposite interpretation of purely virtual finance, a simple casino where what is played has little relation to the reality of human labour, the only producer of real wealth. Finance, on the contrary, would demonstrate brilliantly that in economics, the thinking of actors is an essential dimension of reality.

This is, however, what economic theory has the greatest difficulty in admitting, it whose whole effort consists in reducing relations between men to relations between things. This would explain why economic theory is so often embarrassed by finance ¹ .

Embarrassed, I was first and foremost by these questions. In fact, in 1996, I published a book on economics: The Inequality of the World ² . It offers an interpretation of the major historical evolutions of economic inequalities between territories and within each territory. It analyzes the consequences of current globalization on inequalities without making reference, except in a very minor way. to finance and in particular to financial globalization. The underlying trends in inequality are explained above all by the intensification of the flow of goods (commercial globalization), while people remain essentially attached to their territory. I had therefore adopted the thesis that finance is only a subordinate dimension of the real economy, which can be neglected when one is only interested in the long and massive trends of inequalities.

As for the influence of thought on economic developments, I had not been unaware of it, contrary to many economists who affirm that there exist in our field laws as objective as that of gravitation. But I had situated this thought in the sphere of politics. I had supported the thesis that the economy was influenced from the outside by a political thought embodied in a form of state, more precisely in a set of institutions and stabilized rules framing economic dynamics. This set of institutions and rules defines in my eyes a particular capitalism, of which it is possible to elaborate the theory, whereas it is useless to seek to establish valid economic laws at all times and in all places. And here was the hypothesis of a thought acting from within the economy itself, expressing itself in a privileged way in the financial sphere.

I therefore had to verify the intuitions engendered by Rachel's story and assess the importance of financial globalization in the general process of economic globalization. In the light of these questions, I therefore undertook a re-examination of financial theory, of the articulation of finance and economics, of recent events, in particular the crises, the most significant of the effects of financial globalization, finally current debates relating to finance: pension funds, pensions, irrational exuberance of the financial markets. Faithful to the conviction that economic questions should be able to be debated by non-specialists, I have tried to make them accessible to them, without however avoiding the difficulties.

1 .

It should be noted that at the academic level, finance is a discipline attached to management and not to economic sciences.

2 ., The Inequality of the World. Economics of the ­Contemporary World , Gallimard, coll. Current Folio, 1996.

Chapter 1

An introductory discussion

Eonomists do not agree on the consequences of financial globalization. They do not have the same opinion on the advisability and the methods of intervention of the States to control them. These disagreements feed lively debates in specialized journals. The Journal regularly echoes it. To ask these questions, I imagined a contradictory debate between three economists representing the main schools of thought. In this way, we will be able to examine the analyzes and opinions with great strides, and take a first measure of the object and extent of the disagreements ¹ .

Our first economist is a liberal. We will call him L. L is convinced that only the free functioning of markets can achieve maximum economic efficiency. He knows that the markets are not perfect, but he believes they can be improved. In his view, the only justification for state intervention is to correct market imperfections. L believes above all in the virtues of competition. He is therefore naturally very favorable to free trade, which, according to him, necessarily increases the wealth of the countries that engage in it. L does not deny that the free functioning of markets can lead to social inequalities, but he demands that the question of economic efficiency be separated from that of social justice. If we want to correct social inequalities, it must be done through neutral transfers, that is to say transfers that do not disrupt the functioning of the markets. For him, sacrificing economic efficiency in the name of social justice always ultimately leads to less well-being for all.

The second economist is a Keynesian and an institutionalist ² . We will call him K. With Keynes, he knows that markets are inherently imperfect and that this can permanently set the economy on inefficient trajectories, for example underemployment. The State must intervene on a regular basis to compensate for the deficiencies of the markets. But, more fundamentally, K argues that markets simply could not function without institutions that organize and regulate them. The quality of institutions is therefore, in his view, essential to market efficiency. Markets and regulatory institutions constitute systems, more or less coherent, products of history. According to K, these systems differ significantly in terms of their ability to generate sustained and regular growth, their effects on the distribution of wealth, and the types of crises they experience.

The last was a Marxist and, if he is no longer one, he nevertheless retains something of it. We will call it MM thinks that capitalism, left to itself, is incapable of fully mobilizing the beneficial effects of scientific and technical progress and can only generate crises of increasing gravity. Since the socialist revolution does not seem to him, temporarily, more topical, he has become a reformist. The only way to thwart the naturally destructive tendencies of capitalism is, in his view, to supervise it closely by public policies for the benefit of the greatest number. M. believes that the extension of markets should be reduced as much as possible, removing from their laws all that is most essential to the life of ordinary people and organizing it within the framework of the State or of a social economy based on solidarity.

The presentations thus made, let's launch the debate with a deliberately very general question: "How do you judge the evolution of finance over the past twenty years? »

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L: It's a real revolution! So measure how far you've come! In the 1970s, rich countries were mired in stagflation ³ . Unemployment was rising everywhere, Keynesian-inspired stimulus policies only fueled accelerating inflation. Because of inflation, real interest rates were often zero or even negative ⁴ . Money being thus almost free, it was wasted (you know well that any free resource is wasted). We could go into debt without counting, because we repaid in devalued currency. Many inefficient investments could thus be financed. In the Third World, the ideology of self-centered growth, of disconnection from the world market, was driving most countries into a hopeless backwardness. Corrupt local elites captured and placed in Switzerland most of the very limited public aid which, moreover, was used as a means of neo-colonial pressure for the benefit of narrow private interests. The gap between the rich world and the Third World was widening.

Now see where we are! Inflation has been brought down thanks to financial liberalization which allows capital to flow freely across borders. From now on, the markets, that is to say the investors, that is to say the managers of the savings of all, of you and of me, immediately sanction any government that claims to trap savings in its territory and laminate it by inflation. Now, real interest rates correctly reflect the balance between the desire to save and the possibilities of investment. They allow savings to be channeled and invested in the most profitable projects, on a global scale. What a powerful lever for growth this allocation of capital to the most efficient projects thanks to the financial markets! What a powerful lever also for catching up with Third World countries whose governments have abandoned so believable the mistakes of the past! Public development aid, which is parsimonious and politically measured, has been replaced by much more abundant and efficiency-conscious private funding. Thanks to these capital flows and the opening of the borders of the rich countries to their exports, the emerging countries have finally taken off.

The engine of all this: competition. We had national financial systems cut off from the outside and compartmentalised inside into watertight compartments, where cartelized banks dozed on rents which they wasted in manpower and overstaffed branches, while offering very mediocre services to their customers. . Fortunately, this has been replaced by generalized competition because it is global. Savers bring borrowers, States and companies, into competition on a global scale. This competition is organized by financial institutions themselves in very fierce competition with each other. Their efficiency has increased, the saver receives a higher remuneration while the borrower benefits from more favorable rates. The fundamental function of finance, the transfer of wealth over time thanks to its productive investment, is thus much better ensured. And what about its other essential function, the transfer of risks from those who want to avoid them to those who are best able to assume them? It is truly prodigious. The imagination at work in the risk trading markets that are derivatives markets ⁵ is such that you can now choose exactly how much risk you want to take on. If you want to run none by insuring yourself, you can be sure that the price of this insurance is very correctly priced by the markets.

Besides, look at the United States. Their prosperity is certainly not due solely to finance. But I will argue that entrepreneurship, liberalized finance and new technologies of information are the keys to this success. Truly brilliant success, since this regrettable but indisputable reality of the 80s and the beginning of the 90s, which good skeptical minds had failed to underline, namely the impoverishment of the poorest, is now only a memory . The poorest are now getting richer. Even if the rich get richer, isn't that the fundamental criterion for success, as the great philosopher John Rawls demonstrated in his famous Theory of Justice ?

Once again in this century, the United States is leading the way. They are engaged in a new economy, based on the deployment of information technologies. We do not see what could today break this momentum, which of course will experience inevitable economic fluctuations. But more importantly, thanks to financial and commercial globalization, the benefits of this new economy are spreading to the whole world.

Since today I have the pleasure of debating with K, whose nostalgic sympathy for Keynes we all know, I cannot help reminding him of the following judgment, made by the young Keynes on the world before 1914: "What an extraordinary period in the economic progress of mankind was that which ended in August, 1914! The greater part of the population, it is true, worked hard and lived in an uncomfortable way, but they were, however, to all appearances reasonably satisfied with their lot. For any man of ability or character, rising into the middle and upper classes was possible, where life offered conveniences, comforts, and possessions beyond the reach of the most powerful of monarchs of old. The Londoner could, while drinking his tea in the morning, order by telephone any product from the whole earth, in the quantity that suited him, and reasonably expect it to be delivered promptly to his door. He could at the same time and by the same means invest his capital in the natural resources and new enterprises of any part of the world and share without effort or even the least concern in their future profits. [...]. He could immediately secure cheap and comfortable transportation to any country or climate without a passport or other formality. He could send his servant to the nearest bank branch to procure as much precious metal as he thought fit, and taking with him value in the form of coins, he could then go to foreign lands without knowing anything of their religions, languages or customs. And he would have been very upset and surprised if anyone had tried to thwart his plans. But, most important of all, he considered this situation as normal, certain, permanent, just likely to improve further, and any deviation from this course of affairs as aberrant, scandalous and avoidable. . The projects and policies of militarism and imperialism, the social and cultural rivalries, the monopolies, the restrictions and the exclusions, which were to play the part of the snake in this paradise, were nothing more than amusements of his diary. everyday life and seemed to exert practically no influence on the course of economic and social life, the internationalization of which was in practice complete. » ⁶

If we except the reference to gold, this barbaric relic, which we have fortunately been able to get rid of, and if we replace telephone by Internet, there is practically nothing to subtract from this description to fit the world we have entered. Since K, and no doubt M. too, will agree with me that today we are not on the verge of a world war, so these are radiant decades that are opening up before us! I would call them, without fear of emphasis, a new golden age. I know that this is how the post-war years were called in the United States, those that Fourastié in France called the Trente Glorieuses. But note that prosperity was then reserved for the United States, Europe and Japan, just as Keynes obviously only spoke of the world. wealthy before 1914, if not of Britain alone. However, it is now for the whole world that the prospects for improving well-being are better than they have ever been since the start of the industrial revolution at the end of the 18th century !

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K: First of all, I would like to say that I totally disagree with L on one point: his negative judgment of the pre-liberalization financial systems, which were, particularly in Europe and Japan, predominantly banking ⁷ . Bank financing of the economy has an undeniable advantage over market finance, which puts borrowers and lenders directly in contact. A bank knows its client much better than the market can. She appreciates the risks better. It is therefore capable of taking on larger ones, of financing profitable projects whose profitability will only become apparent in the long term, of financing innovation which is always risky. The closed, predominantly banking systems that we knew until the mid-1970s were therefore more favorable to investment and growth than current finance, global finance where the traditional role of banks has been greatly reduced in favor of the markets. financial. Admittedly (and on this point L is right), the danger of the old systems was weakened competition. When a large company was intimately linked to its bank, as was the case in Germany or Japan, it could not put the banks in competition, unless it lost the advantage of this link. But, as often in economics, we have to choose between joint advantages and disadvantages. Nothing says that at the time, the inefficiency generated by the weak competition was not more than compensated by a greater capacity to take justified risks. As for inflation, I concede to L that it had harmful effects, but those responsible were much more lax governments than the financial systems themselves. On the contrary , evidence of this is Germany, a typical example of a financial system dominated by banking, which has never given way to easy inflation, because of the traumatic memory of the hyperinflation of the 1920s.

Since L took the initiative to invoke examples, I will do the same. Can we say that financial systems dominated by banking were inefficient when we see the dazzling (I use his adjective) success of France, Germany and Japan until the beginning of the 1980s? Hadn't the United States at the time sunk into doubt and self-depreciation with regard to the successes of Japan and its little brothers in Southeast Asia, the dragons and the tigers?

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L: No one remembers that today! Japan is in the doldrums, Southeast Asia has been severely corrected. All of them have thus paid for their past mistakes, when they thought they had found an original model that deviated too much from the proven rules of economic liberalism!

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K: Good, but let's not stop at analyzing the past. In any case, financial globalization was inevitable, and we have to live with it ⁸ . I willingly recognize in it, like L, certain advantages. But there is no point in hiding the disadvantages. I mainly see three. The first, I have already quoted: I fear that liberalized finance will generate a loss of growth in the economy by its preference for quick and sure profits compared to possibly greater, but more distant profits. and risky. In other words, I fear that it will impose on industrial companies a purely financial short-term logic, to the detriment of innovation and growth. Secondly, liberalized finance makes the economy much more cyclical: it amplifies economic downturns. Third, liberalized finance, and especially the uncontrolled and perhaps uncontrollable development of derivatives markets, significantly increase system risk. That is to say the risk that an initially localized financial crisis does not degenerate, like the collapse of a house of cards, into a general crisis of very great magnitude from which it will be long and difficult to emerge by the available means of politics. economic. These risks of amplified fluctuations and major crises result, in my opinion, from the fact that liberalized and globalized finance has taken the lead in relation to State means, in this case inter-State, of its regulation. Powerful instruments for regulating global finance are essential. They are notoriously insufficient today.

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M: How can we judge the evolution of finance over the past 20 years? Your question is badly put. Financial globalization is only one aspect – certainly one of the most negative, as we shall see – of the process of globalization as such. Globalization includes the systematic and rapid opening of countries, not only to financial capital, but also to goods, to direct investment (see the draft Multilateral Agreement on Investments – MAI – which we have fortunately succeeded in aborting) and information, including cultural products made in Hollywood. But you are right to start with finance, because it is certainly in this field that the destructive enterprise that is globalization is the most advanced. Its objective is, in fact, to destroy the fragile balance which had been established in the post-war period between capital and labour, under the threat of communist contagion. This balance, in spite of its flagrant injustices, has nevertheless allowed in Europe, Japan and the United States a general increase in living standards. Today it is being destroyed for the sole benefit of capital. Financial globalization has deprived the States, guarantors of this fragile balance, of any means of controlling the henceforth limitless appetites of money which seeks only to transform itself into more money. The financial markets now dictate to the States their monetary policy: what should be the exchange rates and the interest rates. They even mingle dictate fiscal policies, demanding that the state slim down", that social insurance systems and public service companies be dismantled and privatized, that taxes and social benefits be cut. Tendentially, if we do not put an end to it, the world will be governed by a group of financial institutions and multinational firms without any democratic legitimacy.

But all this for what? For an economy that is becoming increasingly virtual. L's assertions about the efficiency of capital allocation in the current system are fables. The massive reality of global finance is speculation. Thanks to increasingly sophisticated derivative instruments, money circles around in a virtual sphere, in search of immediate profits, and without fueling the growth of the real economy. When he invests in companies, on the stock market for example, it is to demand excessive returns on capital, which can only be obtained through a reduction in labor income and massive layoffs emptying companies of their substance: accumulated skills of the men who make them up. The Stock Exchange favors hostile mergers and acquisitions through takeover bids and OPEs. See the result! After each merger, we cut fat, we lay off to eliminate duplication, to make full use of synergies. But stock prices are going up. For the sole benefit of shareholders and managers who earn indecent sums thanks to the stock option system.

As for the Third World, where is the windfall of private capital? Countries that have gone through the caudinal forks of the IMF and have become economically correct are undoubtedly seeing an influx of private capital, hungry for quick profits. But, at the slightest difficulty, at the slightest hitch to official orthodoxy (maintaining its exchange rate, privatizing, making the state thinner), this capital flees faster than it had entered, once again throwing the country between the hands of an IMF lecturing him: "It's your fault, you haven't yet fully understood the rules of the market economy, you aren't 'transparent' enough, banks, companies and governments maintain somewhat murky relations with you (to put it bluntly: you have a lot of too much corruption). So, one more effort (on the backs of the people) and you will regain the confidence of the markets. In short, inequalities are worsening everywhere, to the benefit of a minority that is not only greedy but also unaware of what it is driving the global economy straight into the wall.

It is fascinating to note that the closer we get to the edge of the abyss, the more ideologues there are to concoct an ad hoc theory on the new age in which we have entered. You quoted Keynes' observation on the state of mind, before 1914, of those who benefited from the globalization of the Belle Époque. But also towards the end of the crazy 1920s, when the stock market crash of 1929 and the catastrophe that followed were imminent, there was talk, except for a few lucid minds, of only a new period of infinite prosperity, founded on an irresistible technical progress, which would spread its benefits to the whole world and which perfectly justified the surge in stock market prices! Fortunately, lucid minds are a little more numerous today than in the 1920s. Even Georges Soros ⁹ now says it: there is nothing good in financial globalization and its casino economy.

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L: I find it pleasant to see Georges Soros picked up by the ultra-left! Malaysian President Mahathir, who because of his economic nationalism certainly attracts M's sympathy, recently accused Soros of being at the forefront of international speculation. But let's leave that, because if Soros is a remarkable investment fund manager, he doesn't have to be called into this debate. His last work, in which he unfortunately wishes to pass for a thinker of modernity, is indeed of a distressing theoretical mediocrity ¹⁰ . The problem is obviously that M. does not understand the role of speculation, which he makes an easy scapegoat. First, it is obvious that speculation is essential to the equilibrium of risk markets. If there are players who want to get rid of certain risks, there must be those who take them! Speculators play this role, the social utility of which is indisputable. Then, speculators are never more than the light horses of international finance. They are often the first to spot future imbalances, to identify state policies that cannot be extended without generating cumulative imbalances. By their rapid action, if they are right, they prevent imbalances from accumulating and force them to be corrected in time, before the inevitable correction is imposed, but in an even more painful way. If they are wrong, they lose. But when they are right, they only raise a healthy alert. The big battalions, those who really impose the correction, are made up of all the institutional investors and the banks. There is no speculation against a currency, for example, which succeeds solely because of the speculators. Speculators, like central banks, can do nothing against the majority opinion of those who manage the savings of hundreds of millions of people. Unless you consider these hundreds of millions of small savers to be speculators themselves, which I think M would not dare to do, there is no sense in focusing its attacks on speculation in this way.

With you, my dear K, I am all the same in a better position to dialogue constructively, since you recognize the not inevitable – I think this word you used has gone beyond your thinking – but clearly positive character of globalization financial. So I want to address your concerns about a possible worsening of system risk because, to some extent, I share them. But not for the same reasons as you. Where would this aggravation come from? From this that certain players would take excessive risks in today's global finance. But let's think about the reasons that can lead an actor to take excessive risks. The best and by far the most effective is that if he wins, he pockets the winnings and, if he loses, it is others who pay. In other words: "Heads: I win. Heads: you lose. You know very well, my dear K, what it is called: 'moral hazard'. It arises when gains are private and losses socialized. This is the real danger for any financial system. But the main source of moral hazard is the states themselves and state-run institutions, such as the IMF. Do you want examples? Take the crises of Credit Lyonnais, but also many American savings banks. The French and American states saved them from the brink of bankruptcy with massive injections of public money. As long as the big banks are convinced that this will always be the case, how do you expect them not to take excessive risks which could, in the event of failure, threaten the stability of the entire financial system?

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K: But you yourself know very well that, with public or private capital, the big banks are too big to fail ! Because, indeed, their bankruptcy could cause chain bankruptcies and a system crisis.

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L: Well, no! Nothing is more perverse than this doctrine. Even the big banks must be able to go bankrupt. At the risk, are you going to retort, of causing panics, rushes towards the counters, of interrupting the payment system? Certainly not. For the payment system to be guaranteed, it suffices that the banks can offer their customers the possibility of insuring their deposits in the event of bankruptcy. A private insurance system, subject to the normal rules of insurance companies, can perfectly provide for this. To agree to insure a bank's deposits, insurance companies will exercise control over them and establish sophisticated contracts that minimize moral hazard. They know how to do that, it's their job. point is need for a state deposit insurance system. If a bank does not subscribe to deposit insurance, its depositors know what they are doing by leaving them at home. As deposits are insured, the bankruptcy of a bank would only have consequences for its creditors and shareholders. If they know that it can go bankrupt, you can be sure that they will take it upon themselves to demand from it the guarantees, the transparency and the prudent management that the States strive, with mediocre success, to obtain by regulations that fail to keep up with the evolution of modern finance.

As for the IMF, it's the same thing. Today, if investors take excessive risks in emerging markets, which are naturally very volatile, it is largely because they know that, if these countries fail, the IMF will always be there to socialize losses in order to avoid the bankruptcy of the big banks which are also investing massively in them. At the same time, the governments of emerging countries cannot resist the temptation to attract this mobile capital. They too know that the IMF will be present in case of problems. Admittedly, the latter will impose unpopular policies on them: but, precisely, they will be imposed. A little political skill will then make it possible to designate the IMF – and international speculation – to the wrath of the people. In the name of preventing systemic risk, States therefore take measures that amplify the phenomena of moral hazard, which, in turn, actually aggravates systemic risk. It's not more state that we need, it's even less! Nothing surpasses the efficiency and self-regulating capacities of markets, provided that the actors who intervene in them are held accountable for their actions.

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K: Reality, alas, my dear L, makes me fear that your final lyrical flight is only a profession of faith. The 1980s, the first decade of financial liberalisation, were marked by serious monetary and financial disorders, both at the center (the richest countries) and at the periphery (the developing countries) of the system. Things seem stabilized at the center, but the end of the 90s saw the Asian crisis, seriously affecting a region famous for its economic dynamism, while the countries of Latin America are constantly under the threat of crises of the same type.

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L: Learning phenomena, inevitable in a transformation of this magnitude! You say yourself that things are stabilized at the center; it is normal that emerging countries, less accustomed to the rules of the market economy, need a little more time to learn. They will get there.

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K: Let's hope so. But you cannot in my opinion deny two things. The first, confirmed by the most recent developments in economic theory, is the existence of multiple equilibria. The free functioning of markets does not necessarily lead to a single one equilibrium, which would also have the virtue of being optimal.