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Hazel Henderson is author of Ethical Markets: Growing The Green Economy (2007) and co-creator with the Calvert Group of the Calvert-Henderson Quality of Life Indicators regularly updated at www.Calvert-Henderson.com (http://www.Calvert-Henderson.com). She can be reached at www.EthicalMarkets.com... More
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  • Changing the Game of Finance
    Invited paper for "The World as We Want It to Be" SRI in the Rockies 20th Anniversary, October 25-28, 2009.
     
                                              
     
    Marking the 20th Anniversary of SRI in the Rockies offers more than an opportunity to review the hard-won progress of investors to prove that socially responsible investing is viable and now clearly out-performs traditional mainstream investing. Since the credit crises of 2008-2009, we can now assert with confidence that investing for long-term sustainability and taking ESG factors as material to asset valuation could have actually helped avert these crises.[1] We investors are now winning the paradigm battle and cite the evidence to show that the Efficient Market Hypothesis (EMH) is bunk and by the same token show that the Modern Portfolio Theory (MPT), the Capital Asset Pricing Model (CAPM) and, yes, even the sacred tenets of the "rational investor" and the Black-Scholes Merton Options Pricing Model will soon be part of history.[2]
     
    Thomas Kuhn, told us in 1963 in The Structure of Scientific Revolutions, we often must wait until a generation passes from the scene. Today, we humans are out of time. Climate chaos is upon us and our limiting factor is not money – it never was, since money is simply one form of information. Time is now our limiting factor, as we have until 2020 to keep CO2 and other greenhouse gases, methane, as well as soot, ozone and other pollutants from raising global temperature more than 2˚C.  This means that the game of finance must change to address both its internally-generated global crises and the climate crises which finance has and continues to exacerbate with its blindness to ESG factors and its culture of greed, myopia and short-termism.[3] We were encouraged by our colleague Mindy Lubber's remarks at the introduction of the statement on September 17th of the Institutional Investors Group on Climate Change (IIGCC): "We are ready and willing to up the ante and finance the transition to a low-carbon economy.[4]
     
    Some 15 years ago, I, Steve Schueth and Wayne Silby began creating the Calvert-Henderson Quality of Life Indicators (calvert-henderson.com) in the belief that incorporating ESG factors into asset valuation and corporate accounting at the micro-economic level would be necessary but not sufficient. We and Calvert CEO Barbara Krumsiek knew that traditional micro-level accounting when aggregated into national accounts such as GDP would inhibit the needed corrections at this macro-economic level. We knew that GDP would also have to include ESG factors; otherwise, its faulty, narrow, short-term view of national "progress" would drive us closer to environmental collapse, social inequality, disease and conflicts. Economist Joseph Stiglitz agrees and warned of the dangers of "GDP-fetishism" in his report to France's President Nicholas Sarkozy.[5]
     
    Today, UN-PRI, CERES and other groups of institutional investors continue to lead in promoting ESG and longer-term asset valuation and the need to address climate change. Yet too often, these worthy organizations and their institutional investor members are still captive to the discredited paradigms of finance I have mentioned. Until trustees and shareowners change incentives for their asset managers and consultants, they will still obsess over benchmarking each others' performance according to these now destructive criteria and models. Financial networks are complex, adaptive systems,[6] but reliance on this approach serves little more than to comfortably abstract the debate. Some critiques, such as that of Andrew Haldane of the Bank of England,[7] analogize financial networks to electrical grids. This overlooks the different purposes of these networks: an electrical grid is designed to deliver a useful service: electricity to human societies. Financial networks have expanded globally to increase and speed up the activity of trading which is linked to compensation of the actors and the financial returns of firms. That humans have a propensity to barter and trade is commonplace,[8] but trading for trading's sake has become pathological, an addiction similar to gambling, obsessions with pornography and sex.
     
    Addiction to trading and internet-use are now studied by psychologists as is the elevated testosterone levels exhibited by traders in London's financial markets.[9] Thus, one cannot expect any human actors embedded in today's financial networks to think more deeply about their purpose, social utility or the systemic risk that finance now clearly poses to all societies and to ecosystems. At what point did financial markets metastasize to become a cancer on their host: human societies? To ask individual traders or companies would be analogous to expecting the patients and psychiatrists in a mental hospital to design a more optimal system to address dysfunctional aspects. Even less charitable criticism comes from Prof. Simon Johnson at MIT, former chief economist of the IMF who comments on Wall Street's capture of politicians of both parties in the US Congress as "mind control" (Baseline Scenario, October 8, 2009).
     
    Britain's head of the Financial Services Authority Lord Adair Turner questioned the social usefulness of finance[10] and proposed to downsize financial sectors by imposing a financial transactions tax (originally proposed by James Tobin in 1978)[11] and by Lawrence Summers in 1989.[12] To re-think financial networks requires going outside the box of all current economic models and the financial "innovations" from which they are derived.[13] Current models derived from faulty economics include: the aforementioned EMH, MPT, CAPM, and VaR. The Black-Scholes-Merton Options Pricing Model is now challenged as plagiarized from options traders' practice by Nassim Taleb (Financial Times, October 12,2008). Human investors do not conform to economics' "rational actor" model, but are revealed by neuroscience (not neuro-economics) as being of two minds: the forebrain (logic, foresight ad higher analytic functions) and the amygdala (the primitive, reptilian brain that responds to emotional stimuli). Thus, financial markets, far from being "efficient," are typical examples of herd behavior (monkey see – monkey do!, see my editorials at HazelHenderson.com and ethicalmarkets.com).
     
    The key issues in reforming financial networks are: human social purpose, design criteria and assumptions. Using analogies from architecture and engineering: a bridge, if well designed on physical principles, mapping the forces of nature correctly, will be robust; if badly-designed, as the famous Tacoma Narrows bridge, it will respond to natural forces of wind and oscillate with ever greater amplitude until it collapses. The same applies to buildings that are not designed to account for the laws of natural systems. My late friend Nicholas Georgescu-Roegen made similar observations about economists' love of abstraction in his The Entropy Law and the Economic Process (1971) which I reviewed in the Harvard Business Review
     
    Therefore, financial networks must be examined from these perspectives and we see their design flaws immediately: they were designed by individual actors and firms to maximize their self-interest and produce rewards in money terms. They were never designed to optimize at the societal level, let alone to function within natural system constraints. Furthermore, they optimized for trading as the primary means to money rewards (hence the growth of proprietary trading desks, day traders, high frequency trading and algorithmic program trading which now dominates market activity). This is why a financial transactions tax is urgent and why I and my partner, mathematician Alan F. Kay, designed a computer program which can be installed on all trading systems to collect such a small tax, the Foreign Exchange Transaction Reporting System (FXTRS) for which we were granted a US patent (see hazelhenderson.com FXTRS).[14]
     
    Beyond the pathologies of trading with ever-faster computers, we must next examine the other huge design flaw underlying financial networks: money-creation and credit-allocation. These activities are designed not to create stable, healthy, equitable sustainable human societies. Here, again, money-creation and credit-allocation follow power laws and are designed by sub-system level actors and institutions (banks, central banks, local and national government agencies). Their design criteria are fitted to highly abstract goals: containing or targeting inflation, increasing or decreasing the money supply, NAIRU formulas for unemployment levels, fostering private investment – all vague generalities and measured with dubious statistics: the Consumer Price Index (NYSEARCA:CPI), Gross Domestic Product (NYSE:GDP), M1, M2, M3 (now deleted as too revealing of monetary expansion).
     
    The good news is that today's confluence of global crises in finance and climate are revealed as crises of human perception: a mirror our mother GAIA is holding up for us to see ourselves and our myopic value-systems. The Information Age, as I predicted at SRI in the Rockies in 2005 has morphed into the Age of Truth. Our native American nations and the world's indigenous peoples have been articulating these truths for centuries now echoed by the President of the UN General Assembly in New York, June 2009.[15]
     
    The movement toward planetary awareness is now worldwide and goes by many names: One Planet, socially responsible investing, sustainability, the Global Green New Deal, the Green Economy Initiative, the Climate Prosperity Alliance, Transition Towns, Green Jobs, Green for All, "green stimulus," the Global Marshall Plan, the Post-Carbon Society, the State of the World Forum, the Phoenix Economy, Breaking the Climate Deadlock, Climate Bonds, as well as the hundreds of thousands of groups in over a hundred countries calling for new forms of sustainable livelihoods in their own languages. NGOs are leading and governments are devising responses to protect the most vulnerable populations: women, children, the poor and the least-developed countries from the crises' impacts.[16] Connecting all these groups working on these same interlinked crises can achieve their shared vision of "The World as We Want It to Be."
     
    All our crises are closely related to the dying fossilized paradigm of "economism" and its deadly addiction to continuous economic growth measured in money, whatever the social and environmental costs.[17] The disparate social movements of the past 30 years began coming together over the internet and at the World Social Forums, launched in Porto Alegre, Brazil in 1999.  Today, in their statement on reforming finance, they are coalescing over these ever-accumulating threats to life on earth, now culminating in global climate disruption.[18] The United Nations joined with civil society in calling the financial and climate crises an opportunity to transition to fairer, cleaner, more sustainable forms of human development.[19]
     
    Ever since the UN's climate agreements in 1997 in Kyoto, Japan, the evidence from the scientific community of this mega-threat to our collective survival has grown stronger and more ominous.[20] Still the biggest per capita polluter, the USA refused to sign the Kyoto protocols and, with some of its misguided environmental policy makers, forced their "market-based" cap and trade approaches on  successive UN climate conferences. Their idea of capping carbon emissions was sensible enough, using government targets and regulating continuous reductions. But instead of backing enforcement of carbon caps and shifting tax burdens from incomes and payrolls to taxes on carbon and all other pollution and waste,[21] the US "market fundamentalists" demanded that "allowances" to continue emitting carbon be given to polluters to trade with each other. The disgrace of Wall Street has now made trading carbon derivatives as suspect as the credit default swaps that caused such havoc in financial markets. Widespread public objections forced governments to agree to auction pollution allowances, but fossil fuel lobbies have kept their give-aways.[22] INTERPOL, the UN crime-fighting agency, warned of carbon fraud and that carbon-trading could become the white collar crime of the future (www.heatisonline.org).
     
    Bankers, stock market traders and commodity brokers saw carbon as a new trillion dollar "asset class" and profit opportunity.[23]   Yet the "cap and trade" emissions schemes in Europe created proliferating bureaucracies with caps on emissions easily lifted by lobbyists.[24]  Ironically, the very financial players who caused the global financial crisis see carbon trading as their next big profit source.[25]  As carbon markets failed to reduce carbon emissions, this has shown the efficiency of simply taxing carbon. The Copenhagen conference in December 2009 can include a global price for carbon. 
     
    This debate as well as on how to alleviate the impacts of the financial meltdown and meet the UN's Millennium Development Goals and the Monterrey Consensus of 2002 were forced into the narrow calculus of costs in money terms. Economic methods usually favor quantifying costs to incumbent sectors and existing institutions, rather than estimating savings, benefits and revenues from new ways of doing business, new technologies and social policies. For example, the climate debate focuses on GDP growth "losses." Critiques of GDP-measured growth, including my own over the past 30 years, are finally gaining traction, including the Calvert-Henderson Quality of Life Indicators, making headway with the accounting profession and at the European Parliament's Beyond GDP Conference in 2007 which the European Commission will begin implementing in 2010.[26], [27]  Yet the financial sector still dominates US politics: bailing out Wall Street firms was deemed necessary to "restore" the financial system. Investing in growing the green economy, our children's health and education for a prosperous future are deemed "too expensive," even as a BBC-Globescan poll in 20 countries found 72% of their public's support governments investing in renewable energy and green technology.[28]
     
    At last, focusing on carbon emissions in the obsolete fossil-fueled sectors no longer trumps quantifying the uncounted savings, benefits and avoided costs of investing in a global transition to the green post-carbon economy based on energy efficiency, wind, solar, ocean and geothermal sources.[29], [30],[31]  Guy Dauncey, author of Stormy Weather adds up all the estimates of savings so far at $1.7 trillion annually in the USA alone.   McKinsey & Company finds that a $520 billion investment in energy efficiency would yield $1.2trillion by 2020 and reduce US demand by 23%.[32]  Meanwhile, some still view financing for meeting the UN Millennium Development Goals as a cost when in reality, such finance belongs in the investment category. The "rearview mirror" economism calculations must no longer dominate the financial and climate debates – spreading increasing gloom and fear while governments pour trillions into trying to restore the broken status quo.[33] Meanwhile, fossilized asset-allocation models still blind security analysts to the growing companies in the expanding sustainability sectors of the world economy.[34]
     
    Meanwhile, the greener, sustainable sectors are still growing worldwide, as renewable energy investments by 2008 exceeded investments in coal power plants.[35] The grassroots movements for sustainability are growing as well. The Obama administration in the USA and the General Assembly of the United Nations grasped the potential of the shift to the green, sustainable sectors worldwide.[36] The rigid G-7 and G-20 summits gave ground to the G-192 as all the member countries of the UN came together in New York in June 2009, adopted the Stiglitz Commission Report[37] and declared their support for the new just, green, sustainable global economy led by UNEP, UNDP and the ILO.[38] Eighteen other UN agencies also support what is now called the Global Green New Deal.[39]  The European Union's president called on the USA to make bigger commitments to cut its carbon emissions and assert more leadership on climate.[40] All now see the meltdown of the global financial casino and the climate crisis as a chance to create a new, more just, green economy promoted for decades by civil society.[41] 
     
    Finally, the world can put economism in its place and downsize finance to its limited role facilitating real production. An efficient financial sector should constitute less than 10% of a country's GDP.  Britain’s Financial Services Authority head, Lord Adair Turner shocked many insiders, but his proposals for a financial transactions tax are now supported by many academics and NGOs.  Financial firms not covered by FDIC should pay into a Systemic Financial Risk Insurance Fund (SFRIF) to protect the world’s taxpayers from future bailouts.  As our Chinese friends say, "Markets and money are good servants but bad masters."  Thirty-four percent of China's stimulus package and 81% of South Korea's are focused on investing in solar, wind and green economic growth.[42] UN Secretary Ban Ki-moon praised China's President Hu Jintao for these green economy initiatives.[43] China's "green technology sector" is expected to grow to 15% of its GDP by 2013.[44] As policies of John Maynard Keynes are back in vogue, many forget that his main insight was about the inherent uncertainties and instabilities of financial markets.
     
    The spectacle of the US and other central banks printing money on TV helped raise public awareness that money is not real wealth but just a clever invention of humans to track our promises and intentions and keep score of our transactions and uses of natural resources. The many electronic trading exchanges are flourishing, such as Entrex, showcasing and steering capital to small companies; peer-to-peer lending sites, Prosper, Qifang and Zopa; barter sites  Craigslist, and Freecycle that facilitate sharing, recycling; microloan sites, Microplace and Kiva, and Global Giving, Global Greengrants for charitable donating, as well as local currencies and LETS systems. Today information-based trading has illustrated that money circuits and markets have been overloaded by political directives, "quantitative easing," subsidies, carbon trading, etc., instead of direct, transparent legislative approaches. Furthermore, it is now clear that we don't need Wall Street, the City or any other "financial centers" that have now imploded anyway. The Great Disintermediation away from money circuits is underway.  The 20th century "too big to fail" monsters came to believe that they were "providers of capital" rather than mere intermediaries connecting savers with borrowers and manipulating money issued by banks out of thin air. 
     
    This money-creation and credit-allocation system is so far removed from the real world of human production and exchange, as well as ecosystem functioning, as to be delusional. Following the founding of the Federal Reserve System in the USA in 1913, the money-creation function given to the US Congress in the Constitution was turned over to the twelve private banks of the Federal Reserve System. Only the Federal Reserve Board is appointed by the US President and Congress.   Since then, private banks using the fractional reserve system create 95% of our currency as accounting entries of the loans they make, i.e., as debt. The interest charged on their loans is not created, causing increased indebtedness. This system, which unfortunately spread around the world, was aided and abetted by the Nobel Committee's acceptance of the Bank of Sweden's prize to legitimize the profession of economics in memory of Alfred Nobel. Since this Bank of Sweden Prize was given to Prescott and Kydland in 2004, who used specious mathematics to "prove" that central banks should be independent, many real Nobel Prize winners as well as mathematicians Nassim Taleb, Paolo Triana, Ralph Abraham, physicists Hans Peter Durr and Fritjof Capra, and historian of science Robert Nadeau, joined me and Peter Nobel in calling for its de-linking from the real Nobels.[45]
     
    These deeper issues of design, human purpose and hidden assumptions must be examined for their roots in power dynamics and how such initial conditions in complex systems lead to deviation amplifications, e.g., money systems came to dominate political systems and disorder local social systems and ecosystems. Elegant abstractions and use of analogies obfuscates these basic power dynamics which allowed financial networks to explode worldwide during the 1980s, fostered by the prevailing market ideologies promoted by the University of Chicago School and Ronald Reagan in the USA and by Margaret Thatcher in Britain.[46] 
     
    Many reforms of finance are being debated in the G-20 and the US Congress. These include a clearing house and exchange for credit default swaps (CDSs) and other derivatives; more information on financial network pathways and agents; correcting the errors of Basel II and re-regulation, including an updated version of Glass-Steagall (see my 2009 articles at EthicalMarkets.com). ;Other systemic reforms are also widely debated: reforming financial compensation and incentives; credit rating agencies; re-introducing financial transactions taxes; creating a new Systemic Financial Crisis Insurance Fund (SFCIF) to assess premiums from all financial firms not covered by the FDIC in the USA; setting up systemic risk oversight bodies; creating a new global reserve currency (based on a basket of robust national currencies: the dollar, euro, yen, yuan, sterling, real) and issuing of more SDRs by the IMF.[47] Reforms already in the public debate include auditing and reforming the US Federal Reserve System (in a bill offered by Republican Congressman Ron Paul with over 250 co-sponsors) and the Monetary and Financial Reform Act of 2009 offered by Democrat Congressman Dennis Kucinich and the American Monetary Institute (monetary.org).
     
    This new understanding that money is simply one form of information is helping people realize that, of course, there is enough money to invest in our common future. Hundreds of towns around the world have issued local currencies to link unemployed workers with needed jobs.[48] Lawyer Ellen Hodgson Brown, author of The Web of Debt (2008), explored the Bank of North Dakota, a state-owned bank that has kept North Dakota's budget in surplus.[49] The real constraint has never been money, but rather limited vision and faulty economics. Human societies' ten-year window to install a post-carbon, global economy led to the global network, the Climate Prosperity Alliance, which I am honored to serve as a vice-chair. The Climate Prosperity approach is rooted in ESG accounting and the new Green GDP approaches in Europe, China and here in the USA. The Climate Prosperity Alliance is promoting a rapid ramp-up of private investments in solar, wind, renewables and energy-efficient infrastructure in developing countries.   
     
    Joining the Climate Prosperity movement are many socially responsible investors, charitable endowments, "green" bankers, many unions and NGOs, including WWF, which help fund many climate investment studies. Tomorrow's Company, CERES and the UN Principles of Responsible Investing all have issued reports on investing in green companies. All of this and daily news is reported at ethicalmarkets.com from sources, including New Energy News, Responsible Investor, New Energy World Network, Cleantech, CleanEdge, GreenBiz, Greener Computing, Energy & Capital, Environmental Finance, Green Chip Review, Alt Assets, the American Council for an Energy Efficient Economy (ACEEE), Green Budget News, Germany, China's Syntao, Brazil's Mercado Etico and Instituto Ethos and others from India, Japan and Australia.   
     
    The last piece of the puzzle to achieve Climate Prosperity within the ten-year window limiting temperature rise to below 2˚ centigrade are the climate prosperity bonds (see ethicalmarkets.com Climate Prosperity Funds). Socially responsible retail investors are now joining forces with the Network for Sustainable Financial Markets, the Green Economy Initiative of UNDP, UNEP and the ILO and the eighteen other UN departments and many government agencies.  We welcome greater leadership from institutional investors as they shrug off the old EMH and Modern Portfolio Theory nonsense.
     
    The new global effort to fund Climate Prosperity, would invest $10 trillion over the next ten years and plans to double installed renewable energy and efficiency savings each year.[50] This $10 trillion is less that the $14 trillion spent in the US on Wall Street and other bailouts so far (actual liability is now estimated at $23.7 trillion by the TARP Special Inspector at www.sigtarp.gov). The proposed $10 trillion investment in Climate Prosperity is less than 10% of the $120 trillion of assets in pension funds for beneficiaries' future security. Today, climate change is a threat to them and all humanity's future security.  The British government now estimates the "green" market at £3 trillion worldwide.[51]  What better plan is there than to invest these pensions' assets now in securing their future in a safe, sustainable green economy? Climate Prosperity bonds with governments' guarantees and laddered maturities are geared to the payouts from energy efficiency (the quickest payback) and to expanded efficiencies-of-scale in wind, geothermal and solar. Most developing countries can never afford nuclear energy and are unlikely to be able to afford much coal or oil-fired electricity. Solar, wind, geothermal and small-scale hydro and biomass are their most realistic options, together with new natural gas finds, making it cost-effective for coal plants to switch to natural gas for base load and peaking power – reducing carbon emissions by 50%.[52] 
     
    Such bonds will be attractive to pension fund asset managers as outlined  by Climate Risk, Pty of Sydney, Australia, and the Network for Sustainable Financial Markets.  The Breaking the Climate Deadlock Plan of The Climate Group calls for $1 trillion to achieve a 70% reduction in emissions by 2020 – largely through energy efficiency. The DESERTEC group of 12 European companies led by Munich Re and ABB plans to invest 450 billion in solar-thermal power plants across North Africa to provide 15% of Europe's electricity via DC transmission lines under the Mediterranean.[53]  Surprising support for larger foreign direct investments (NYSE:FDI) into emerging and developing countries comes from The Economist in their special report on the world economy, October 3, 2009, p. 25-6. Such a larger role for FDI is seen as an optimal way of re-balancing the imbalances that helped cause the economic crises.
     
    During this ten-year rollout of the new low-carbon economy globally, coal and oil, as well as nuclear, will become even more costly and less competitive (even without accounting for their external costs or the price of carbon).[54] The faulty logic of economism which sees the problem as a "shortage of money" is exposed by the Climate Prosperity movement which sees the payback on that $10 trillion after 10 years as approximately $30 trillion. This illustrates that the real constraint is time, not money. After wasting decades, we humans must act now. Economists need to correct all the colossal taxonomic errors in all economic texts and models. Finance courses in all business schools also must overhaul their curricula, as many critics including Nassim Taleb, Paulo Triana and I have proposed. Today's financial networks are indeed houses of cards and multi-disciplinary approaches to valuation of all forms of wealth are now supplanting economics and its metrics, including The Economics of Ecosystem and Biodiversity Services (TEEB) and the Green Economy Report forthcoming from the United Nations Environment Program (unep.org).
     
    The Climate Prosperity movement, together with many groups leading in widening awareness, planetary citizenship and perennial wisdom from indigenous peoples and all faith traditions is succeeding in changing the paradigm   From the dismal economism, money-based scarcity and fear to a vision of abundance through sharing, caring, volunteerism and community revitalization, all built on using the energy freely available from sun, wind, oceans and respect for the Earth and all life. The 16 Principles of the Earth Charter are now endorsed by thousands of cities, companies and NGOs (www.earthcharter.org). Copenhagen can host the positive tipping point: the "greening" of finance and a worldwide critical mass of global citizens and their rising eco-aware culture in the emerging information-rich Solar Age.


    [1]   Nick Robins , Cary Krozinsky and Stephen Viederman UN-PRI, Sept. 2009 and Matthew J Kiernan, Investing in a Sustainable World ,AMACOM.N.Y. 2009 
    [2] Nassim Taleb, The Black Swan (2007) and Paulo Triana, Lecturing Birds on Flying (2009)
    [3] Overcoming Short-Termism: A Call for a More Responsible Approach to Investment and Business Management. The Aspen Institute, September 9, 2009.
    [4] Environmental Finance, London, September 17, 2009.
    [5] Bloomberg.com, September 14, 2009
    [6] Best's Review, "Risk, Uncertainty and Economic Futures," Hazel Henderson, May 1978 (invited paper, North American Risk Management Association).
    [7] Andrew Haldane, "Rethinking the Financial Network," Speech delivered at the Financial Student Association, Amsterdam, April 2009.
    [8] See for example Hazel Henderson, Politics of the Solar Age, Doubleday, NY, 1981.
    [9] New Scientist, "Traders Raging Hormones Cause Stock Market Swings." April 16, 2009.
    [10] Responsible Investor. "UK FSA chair slams City of London's 'socially useless' excesses, floats Tobin tax," August 27, 2009.
    [11] James Tobin, 1978, "A Proposal for International Monetary Reform," in Eastern Economic Journal, Vol.4 (July, Oct)
    [12] Summers, V. and Summers, L. "When Financial Markets Work Too Well: A Cautious Case for a Financial Transactions Tax." Journal of Financial Services no. 3, 1989.
    [13] See for example The United Nations: Policy and Financing Alternatives, eds. Harlan Cleveland, Hazel Henderson, Inge Kaul, Elsevier Scientific, UK, 1995.
    [14] Asia Times. "Tax to the rescue," Hazel Henderson, March 24, 2009.
    [15] Speech by President Miguel d'Escoto Brockmann, video and text at ethicalmarkets.com.
    [17] New York Times, Hazel Henderson, "Economists versus Ecologist" 1971; Financial Analysts Journal, "The Limits of Traditional Economics: New Models for Managing Economies," 1973.
    [18] Belem, Brazil 2009, ethicalmarkets.com Reforming Global Finance.
    [19] UN General Assembly Meeting, June 24-26, 2009
    [20] IPCC, UN 2009, and Pew Center, Science Brief, June 2009
    [21] Christian Science Monitor, Hazel Henderson, "Introduce 'Green' Tax" 1990
    [22] Carbon Positive, "US Carbon Bill a Boon for World Offsets Markets," July 8, 2009, www.carbonpositive.net
    [23] The Economist, July 4, 2009, p. 24; Business Week, "How Banks Will Pounce on Carbon Trading," June 8, 2009, p. 51
    [24] The Economist, "Cap and Trade with Handouts and Loopholes," May 23, 2009, pp 33-34
    [25] Institutional Investor, "The Promise of Eco," July-August, 2009
    [27] Journal of the Society of Charted Accountants of England and Wales, F. Capra and H. Henderson, "Qualitative Growth," forthcoming, November 2009
    [28] BBC-Globescan World Public Opinion
    [29] UN World Economic Survey, 2009 (overview posted at ethicalmarkets.com)
    [30] UNCTAD Trade & Development Report, September 7, 2009, United Nations, Geneva and New York
    [31] Center for American Progress and the UN Foundation. Meeting the Climate Challenge, October, 2009.
    [32]Unlocking Energy Efficiency in the US Economy McKinsey Report, July 2009
    [33] Hazel Henderson, Re-Designing Money Systems to Reduce Greenhouse Gas Emissions and Accelerate the Growing Green Economy, presented to the Green Economy Initiative Conference, UNEP, Geneva, Dec. 1, 2008
    [34] Hazel Henderson, "The Sustainability Sector," SeekingAlpha.com, Nov. 5, 2008.
    [35]REN 21
    [36] Obama's American Recovery and Reinvestment Act of 2009, www.recovery.gov
    [40] Environmental Finance, September 17, 2009.
    [42] The Economist, "Green Shoots," April 3, 2009
    [43] Environmental News Service, July 28, 2009, www.ens-newswire.com
    [44] Environmental Finance, September 17, 2009.
    [45] "The Cuckoo's Egg in the Nobel Prize Nest." And other editorials by Hazel Henderson, IPS, 2004-2005.
    [46] World Business Academy Perspectives, "Economic Lessons from the Asian Meltdown." Hazel Henderson, vol. 12, #3, 1998.
    [47] Stiglitz Commission Report to the UN General Assembly, June 2009.
    [48] Marusa Vasconcelos Freire. "Social Economy and Central Banks." International Journal of Community Currency Research, vol. 13(2009) pp. 76-94.
    [49] Ellen Hodgson Brown. "How California Could Turn Its IOUs Into Dollars," ethicalmarkets.com, July 20, 2009.
    [50] Sean Kidney's "Climate Solutions II" PowerPoint presentation from Climate Risk Pty in Sidney, Australia.
    [51] The Economist, July 18, 2009, pp. 54-55
    [52] UN World Development Overview, 2009.
    Nov 25 3:23 PM | Link | Comment!
  • G-20: REFORM THE GLOBAL CASINO
    © Hazel Henderson, 2009, for InterPress Service
      
    The awful truth is emerging: globalized rogue finance is disordering human societies and destroying our ecological life-support systems on a worldwide scale. A spate of books and studies examining the role of finance finds deep flaws in the way money is created and credit is allocated. The age-old invention of money which extended opportunities for trading beyond barter has become a computerized global monster. Blind to other human values and goals, this global casino has decoupled and abstracted from real economies. 
     
    Financiers make money out of money by automated high-frequency trading – buttressed by faulty "financial economics" and its bogus models engineering only corruption and using false indicators of profit and national progress such as GDP. French President Sarkozy and economist Joseph Stiglitz stated, September 14th, that the unreformed global financial system today is more dangerous and risky than before the 2008 crisis, and governments are still blinded by "GDP-fetishism."
     
    How did global finance turn from its earlier role as a useful service to the real economies into an overgrown "too big to fail" monster which tyrannizes democratic governments through its political power of the purse?
                      
    In the USA, control of the young nation by banks were feared by its founders. Thomas Jefferson in 1816 said, "banking establishments are more dangerous than standing armies," and in 1814, "I hope to crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country." Benjamin Franklin voiced similar warnings as did many other Founders, and as early as 1777, Samuel Webster warned, "Let monopolies and all kinds and degrees of oppression be carefully guarded against."   The story of the battle against bankers' control of US and European politics is told by many authors and now is told on TV series  such as historian Niall Ferguson's The Ascent of Money. Millions of US voters now support re-examining the role of money and how the Federal Reserve Board (owned by the private banking system) came to take control of US money creation which the Constitution gave exclusively to the US Congress.

     

     
    In the last presidential election, tens of millions of US voters, from the Conservative supporters of Congressman Ron Paul to those across the spectrum who supported Congressman Dennis Kucinich, attest to the growing understanding of money itself which has no intrinsic value. These millions of voters now support the over 200 members of Congress whose bill calls for examining the role of the Federal Reserve Board, founded by a secretive group of politicians and bankers in 1913.
     
    Since then, central banks and the world have modeled themselves on the US "Fed" and promoted their claims to secrecy and independence from political control by even the most democratically elected governments. The profession of economics (never a science) promoted this cause with thousands of academic papers and theoretical models of finance. The Central Bank of Sweden lobbied the Nobel Committee to set up their lucrative prize in economics – The Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel – to confer on economics an aura of scientific legitimacy. This prize has been openly challenged by many winners of real Nobel Prizes and descendent Peter Nobel, joined recently by mathematicians Nassim Nicholas Taleb of The Black Swan and Paulo Triana of Lecturing Birds on Flying
     
    At the G-20 meeting in Pittsburgh, September 24-25, some leaders such as France's Sarkozy, Germany's Angela Merkel, Brazil's Lula da Silva and China's Hu Jintao are calling for the reform and downsizing of the global casino. They rightly call for restricting huge bonuses, raising capital reserve requirements on all banks and financial companies, curbing excessive risk-taking and regulating derivatives that are simply bets, such as credit default swaps. This is necessary but not sufficient. 
     
    The entire system of global finance must be restructured. China has rightly led the debate over the need to phase out reliance on the US dollar and create a more stable global reserve currency supported by the UN General Assembly and their Stiglitz Commission. Beyond this, Britain's Lord Turner has called for a small financial transaction tax to curb speculation and downsize the overblown financial sectors. Such a tax was advocated by James Tobin in the 1970s and by Larry Summers in his 1989 paper "When Financial Markets Work Too Well: A Cautious Case for a Financial Transactions Tax" as well as experts in The United Nations: Policy and Financing Alternatives (Elsevier 1995). Financial transaction taxes have been debated ever since as the best way to reduce speculation and use the billions it would raise for deficit reduction, repaying taxpayers for their bailouts and investing in the low carbon Global Green New Deal supported by most governments, private investors, trade unions, UN agencies and by 72% of the public in 20 countries in the BBC-Globescan poll, September 14, 2009.
     
    Further, a new level of insurance against risks of systemic financial crises can be created. This Systemic Financial Crises Insurance Fund (SFCIF) would have all financial firms above a certain size pay to insure themselves against future bankruptcies and panics. Similar to the FDIC which all US banks pay into, this new SFCIF would shift risk from taxpayers to where it belongs: the financial sector. In addition, governments must finally tackle reform of central banking and their money creation and credit allocation activities which are widely seen as shockingly unfair. Their trillion-dollar bailouts of Wall Street and the financial casinos, while claiming that there is not enough money to make healthcare available, educate our children or help the hundreds of innocent victims of financiers' excesses, is now revealed as politics in disguise.
     
    All these reforms must be enacted globally by the G-20 and by widening these agreements to include all countries of the UN. This more democratic G-192 can join with the G-20 in finally facing down the bankers, downsizing and taming the global casino and returning it to its traditional role of facilitating businesses, production and innovative sectors of societies and in growing a cleaner, green, more just global economy that works for all.
                                              
    Hazel Henderson, co-editor of The United Nations: Policy and Financing Alternatives, author of Ethical Markets: Growing the Green Economy, is a vice-chair of the global Climate Prosperity Alliance, a co-organizer of the Beyond GDP Conference in the European Parliament in 2007 and co-creator of the Calvert-Henderson Quality of Life Indicators, updates at calvert-henderson.com. ;She can be reached at hazel.henderson@ethicalmarkets.com.
    Oct 07 3:25 PM | Link | Comment!
  • Lecturing Birds on Flying, by Pablo Triana; review by Hazel Henderson
    Lecturing Birds on Flying, by Pablo Triana, J Wiley, 2009
     
    A deeply unsettling insider account of how bogus mathematics overtook finance and was a key contributor to the financial collapse of 2008-2009 and also the 25% losses Wall Street suffered in the crash of 1987. Pablo Triana, like his fellow iconoclastic options trader Nassim Taleb who wrote the foreword, seeks to reform financial markets by dumping most of the mathematical models and the academic "quants" who invaded Wall Street since the 1980s.
     
    With deep insight, Triana deconstructs the "pillars" of mathematical finance: the capital asset pricing model, the Black Scholes Merton options pricing model, dynamic hedging, value at risk and many other foundational assumptions about "efficient markets" equilibrium, normal distributions that comprise the kit-bag of financial economics taught in elite business schools.
     
    Like Nassim Taleb, celebrated author of The Black Swan (2007), Triana is calling for major surgical reform of such business schools' curricula. Like me and my colleagues Peter Nobel, Ralph Abraham, Robert Nadeau and other mathematicians and scientists, Triana and Taleb are calling for the de-linking of the Bank of Sweden Prize from the real Nobels.
     
    An important addition to our deeper understanding of how finance must be reformed.
     
    -- Hazel Henderson
    Sep 01 4:58 PM | Link | Comment!
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