Fragile by Design

Fragile by Design is written by two academics, Charles Calomiris and Stephen Haber, who set out to discover why some banking systems are unstable. MoneyWeek reported that
"They looked at five national case studies: the UK and the US (both democracies, yet prone to crisis); Canada (virtually crisis-free); Mexico (a crisis-prone autocracy); and Brazil (a bit of both).
"What they found was fascinating. Starting from the elegantly simple premise that a crisis occurs when banks hold too little capital and/or too many risky assets, the problem, logically, must be inadequate regulation. So their thesis is that regulatory standards and credit provision are "captured" by political special interests. While democracies generally fare better than autocracies, often this is just a matter of degree. Unfortunately it seems that boom/bust cycles are woven into the very fabric of US democracy."
Would Interactive Democracy change this?
Who knows, but it would change the game: power wouldn't be concentrated in a few hands; whistle blowers would be empowered; education about the banking system would be encouraged and transparency enhanced.
Why?
Because regulators would be more accountable to the electorate (who could call for their dismissal); anyone could create an initiative proposing changes; and the ensuing public debate, supported by probing journalism, professional bankers and academics, would shine a light on the system. This last point, that Interactive Democracy educates through debate, is my favourite advantage of direct democracy. It may also be more adaptable and less prone to opaque influence.
MoneyWeek's verdict on the book: "This is a great history of political interference in banking regulation - but a definitive analysis of the recent crisis it is not."

Inspired by MoneyWeek, 14 March 2014.

Icelandic Repayments Frozen

After the collapse of Icelandic banks in the UK and Netherlands forced the British and Dutch Governments to cover the losses of bank customers, there are demands that the Icelandic Government pay back the shortfall. Interestingly, for a proponent of Direct Democracy, a petition signed by nearly a quarter of Iceland's electorate has forced their President to allow a referendum on the issue. The fact that each Icelandic citizen needs to repay £10800!!! But this is just... er... the tip of the iceberg. I'm curious to see how the debate covers all of the other international perspectives: how it will effect IMF loans, EU prospects, their international trade and relationships with other financial markets. Personally, and having listened to a debate on the subject on Jeremy Vine's Radio 2 programme, I suspect a vote against repayments will really be a vote for a re-negotiation of the terms of the deal. Who knows, they may even want us to arrest those Icelandic bankers who have fled to London with their millions!
(More here from the BBC. What they don't report is that part of the issue is to do with the high interest charge (5.55% I think) included in the repayment which many Icelanders believe to be excessive.)

Iceland is a Representative Democracy with a President and Prime Minister.