Internet financial firms

The potential for geeky financial firms is featured in an article in last week’s The Economist.  At this time the firms are small compared to the banks but there is probably enough potential that the banks could be threatened.

This could be both good and bad.

It will be good if there develops and alternative to fractional reserve banking.  I am thoroughly convinced that money creation by fractional reserve debt is a Ponzi scheme which frequently collapses in a financial crisis.  If these firms do replace the banks and avoid fractional reserves  we will have to find another way of creating money.  Whatever it is it will require that the money supply be flexible up and down to correspond with the level of economic activity.  I rather like the concept of Local Exchange Trading Systems which could be expanded to a national level.

The not so good feature of geeky financial services is that they would be an ideal new venture for large firms such as Amazon, Facebook or Google, firms whose commitment to privacy appears to be limited to their own.

buttom2I can see two groups rubbing their hands at the prospect of one of these large firms becoming  involved in most financial transactions.

The first are those in the online advertising business who use information about people to target advertising and the second are government spooks and those in government who believe they know what is best for the rest of us and want to control our lives.  Just think: emails, friends, shopping and financial data on everyone all available from one source. I wonder if the spies already have access to personal  financial data.

Probably the people into social control are the most threatening.  Once the monitoring  systems are all in place it will be easy for somebody to misuse them.

Another article this week, from Forbes,  talks about small groups of people getting together to provide each other with financial support.  This sounds like the early  credit unions on the Canadian prairies where a lot of transactions took place on someones kitchen table.

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