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Guest blog: The Means of Exchange

US finance | The Means of Exchange Bill Sharon

The past several weeks have seen new revelations about the complexity of the mortgage industry and the astonishing level of sloppy work done to document that complexity. We are on the verge of massive lawsuits and a good deal of wailing and gnashing of teeth on the part of the banks that issued the loans and the entities that processed, repackaged and sold them as securities. According to William D. Cohan’s piece in the New York Times the banks not only knew about the problem, they hired a company to tell them all about it and then apparently ignored their report.

This is but the latest revelation in the unwinding of our monetary system. It is a symptom of a fundamental underlying problem. Much of the debate has been and it seems will continue to be whether or not we should ignore moral hazard or root out and punish the greedy. Viewed in terms of the current argument, there doesn’t seem to be a solution. People are living in houses that they couldn’t afford and now are worth less than the debt that encumbers them. Banks extended loans with the knowledge they were unlikely to be paid and then failed to comply with the legal requirements which simply mirror the complexity of the securities that were created. A fine mess.

Last night a nameless spokesperson for the Bank of America insisted that even if the bank hadn’t obeyed the law, the underlying facts were accurate. In other words, people had taken out mortgages, weren’t paying and should lose their homes. As the Attorney Generals of forty states join together to halt foreclosures and the debate rages about what should be done we will not doubt hear more of the same. But the laws were written so that the banks could resell, package and securitize the mortgages. Which set of rules should apply? Eventually we will reach a compromise on this issue. People can’t own homes for free and banks can’t decide which part of the law they want to obey. But even as we develop a solution that no one will like we will not have addressed the core issue.

For the last thousand years we have had a debt based monetary system in one form or another. Where money comes from remains a mystery to most people. We teach very little about how our economy works and how we get money into that economic system in our public and private schools – even at the high school level. When people do educate themselves it seems that many of them feel compelled to write about what they have learned in capital letters on the Internet. It’s difficult to have a dispassionate discussion about money when more and more people don’t have any, but we really don’t have much choice in the matter.

It is not new that we have very large issues that we choose not to address. As anyone who has lived through a failed marriage knows, ignoring problems doesn’t make them go away – they simply get bigger. That’s what is happening now. The drive to address the demands of interest on the debt exploits a human trait that we call greed – not the other way around. Those who insist that our solutions lie in the thoughts of the 18th century minds who created the US Constitution, brilliant though they may have been, are missing the point.

Money is a means of exchange. It is developed as cultures become more complex. Accumulating money gives individuals and organizations power, but only up to a point. In the past, disproportionate accumulation has met with societal resistance sometimes manifesting in revolution. An increasingly vocal minority seem to be insisting that we are at this point again. But returning to simpler times is not really a viable solution. We are hopelessly interconnected (or perhaps hopefully) with each other across national borders. We have to begin to discuss and address the issue of money, interest and debt. It could be argued that the current debt-based system has served us well and perhaps, on balance, it has. But nothing is forever and it would be useful if we began to think about whether the level of complexity in our means of exchange can reasonably be expected to serve us in the future.

This guest blog was first published on

Tags: banking , financial crisis , securitization , subprime mortgages , transparency , US , us banks
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