Formal Financial Expression

In You Are Not a Gadget (http://amzn.to/2Lqkpf) Jaron Lanier devotes several chapters to the future of money. Lanier suggests that formal financial expression is a potential preventative measure that might help us avoid another worldwide financial catastrophe like the one that began in 2008.

I am by no means a expert on finance, but the basics of Lanier's solution sound plausible. He suggests that we need financial inventiveness if we are to solve crises such as climate change. He asks the questions "How do you finance massive conversions to green technologies that are partially centralized and partially decentralized? How can financial design avoid catastrophic losses, as massive portions of the infrastructure of the old energy cycle are made obsolete" (p. 112). His answer is that we need financiers to continue to create innovative ways to generate wealth so that we can fund these hugely expensive projects.

However, he proposes that the methods for creating these innovative financial intruments must be transformed so that they are less artsy and much more scientific. His claim is that many of the financiers who create these instruments don't even completely understand them because they are created without any defined process. Under a system of formal financial expression "highly inventive contracts, such as leveraged default swaps or schemes based on high-frequency trades, would be created in an entirely new way. They woudl be denied ambiguity. They would be formally described. Financial invention would take place within the simplified logical world that engineers rely on to create computing-chip logic" (p.113).

Unfortunately, it doesn't look like the world has learned much from the current financial collapse. For the most part everything seems to be business as usual. Governments and banks are betting that financiers will no longer take the extreme financial risks that led to disaster. This is a dangerous gamble. Jaron Lanier's solution is one that we would be wise to consider.