"High finance", used to be a phrase exemplifying large amounts of value and high degrees of acumen. It turns out in retrospect that High finance, meant bankers and mortgage brokers gone wild on CDO & CLO crack.
Finance is a shared cultural belief system and set of behaviours, not a physical reality. In finance, the most well known sub-culture from a western finance perspective is Sharia finance which seeks to adhere to various culture practices of lending and interest etc. Many cultures practice alternative forms of lending, saving and allocating capital.
Through various western eras, lending has been allowed or not for various groups with various constraints based on the fashions of the times, the label usury is a culturally subjective term that springs up in times of fiscal crisis..
In music Lo-Fi refers to a style that is purposely sub-optimal from an acoustic fidelity perspective but aesthetically more pleasing. Lower fidelity doesn't always mean lesser quality as quality in music is a subjective value.
I would argue that a culture's use of finance relative to the human biases inherent in any group means that some form of Lo-fi finance may be longer term optimal. Lo-Fi finance could actually increase fidelity (trust) in the system long term. For the econo geeks out there (the groups long term utility function may be optimized using sub-optimal local or short term temporal constraints)
Lo fidelity finance could be an interesting point of research for the behavourial economists out there.
Glass Steagall was an excellent example of Lo-Fi finance in action. Glass Steagall's repeal in 1999 was a call for optimization, speed and ironically financial strength. Woops.
Another great example of Lo-Fi finance is the Credit union. Credit unions are the unwashed little hippies of the finance world. They aren't "power suits" etc., but have done well all things considered. I don't mean to get all "Amish" on you, but Lo-Fi has some serious potential. The Lo-Fi label in finance could serve the same function as the Organic label does in stores. People could choose a brand with known qualities.
The manifesto for Lo-Fi finance has some basic ground rules.
- Seperation of investment banking from deposit taking
- Seperation of any high gamma (or convexity exposures) unless fully hedged with the undelrying. This is about CDS and other forms of asymmetric leveraged low probability high impact risk taking.
- A predetermined threshold of market domination in any geography or market segment to avoid concentration of risk in any entity
- Elimination of the Basel 11 capital accords
- Elimination of the Ratings agencies as a systemic threat
- Lo-Fi participants would not be allowed exposures to non-lo-fi participants
- Others, please suggest them....
The participants would agree to them and most likely any Lo-fi participant would be barred from engaging with a Hi-Fi operator in all but limited forms of risk exposure.
Lo-Fi would involve separating many risk activities and preclude certain firms from engaging in them. Yes it would be short term sub-optimal, but long term stable.
Eventually deep cultural norms are forgotten or thrown off, only to be rediscovered when something bad happens. The Repeal of Glass Steagall is just such an example of a codified norm that may be relearned in some new fashion.
Here is a little Lo-Fi Music to ponder the issue: