I. Innovation
4. The role of the state, the entrepreneurial state
4.4. Fixing Markets - financial crisis ’08
So, the money is self-financing: think of the banks that finance mortgage-backed securities, which in turn are covered by credit derivatives. It would not finance ’capital development’ in the economy. There is nothing wrong with this, as financial intermediaries 'just' drive demand away from supply.
If a business is born voluntarily, it creates value for both parties. The specu-lative and short-term nature of the financial system means that the banker today is much more of a problem than a solution, contrary to what Schum-peter assumed
Initially, only the tensions in the US mortgage market started to accrue later in other leading capital and money markets in the world. Then, in the US, more and more unsold or foreclosure properties became available, and bank-ruptcies of smaller banks and credit institutions increased. And in September 2008 came the great shock, the collapse of the Lehman Brothers, and with it the crisis. The bankruptcy of Lehman Bankruptcy triggered panic sales on American stock exchanges and marked the beginning of a lasting global eco-nomic recession.
The consequences of the deepening financial crisis have worsened in both the US and Europe, and a little later in the Far East. A ’good decade’ has passed since the burst of these dramatic events. It is important to consider whether the dangers of a decade ago may reappear, or whether we can reas-sure ourselves that a shock of this type and magnitude is no longer a threat.
Can we trust that the new safety systems, special brakes and modern fore-casting mechanisms that have come into play on the international financial markets now allow us to see the danger ahead and act in time? Difficult ques-tions, which unfortunately are clearly and reassuringly answered in all re-spects, cannot be offered by politics or investors, especially the narrower pro-fession of finance.
The state budget is not similar to the household budget, so the emphasis on fiscal austerity is mistaken. But what is a good solution140? This question will be answered by the next generation of financial experts.
The most important conclusion is that while both the cyclical conditions and the financial systems have stabilized in the most advanced countries of the
140 Randall Wray and Yeva Nerssyan (2015): Modern Money Theory. 86.
world economy, it cannot be said with certainty that all risks previously lead-ing to recession could have been adequately addressed141.
At the beginning of this century, the subprime mortgage crisis almost cov-ered the developed side of the world with the darkness of the Great Depres-sion in 1929-33. The mispriced real estate what bought from cheap (typically floating rate) loans, and the asset price bubble causes falling growth and then explosion-like falls. As everything in the world strives for balance. The dy-namics of Newtonian physics can also sometimes model economic pro-cesses. Even today, there are growing signs of the next crisis, we know it will happen, but we do not know when142.
In any case, the crisis will have (at least) two big group of losers:
• Those who invested real estate from floating-rate loans in the hope of increasing the house price; they are the yield hunters or rent-seekers.
• And those who have no savings.
There will be an intersection of the two sets, who will not be helped by the capitalist market. “It is therefore recommended to think of crises as the Bud-dhists do about death: it is not certain when and how they will occur. But it sure will happen.”
Let's look at the tools the state balances worldwide. This is one of the true roles of the state: the very visible hand. Here are the Government-funded subsidies (as a first-aid), which (with taxpayers’ money) have rebalanced the capitalist world. And these are only a few tools for the coordination of effi-cient markets:
• capital injection
• asset finance
• credit guarantee
• rate cuts
• wider hedging need
• narrower discount gap
• federal exchange
• suspension of transactions at market price
• dividend suspension
141 Bernanke Ben (2017): Volt merszünk cselekedni - Emlékirat egy válságról és utóéletéről. Buda-pest, Napvilág Kiadó.
142 Magas István (2019): Tíz évvel a világgazdasági válság után Egy retrospektív elemzés. Pénzügyi szemle, 94-110.
• setting payment limits
Sustainable and balanced growing; and ethical economics is away from the money manager capitalism or casino capitalism behaviour. The excessive growth of fund managers and investment funds, in which case the financial sector is gaining more from serving and speculating on other financial firms than the goals of the real economy, and does not bring any significant added value 143. Therefore, following the Anglo-Saxon tradition, you should: fix the roof when the sun is shining.
For example, only a few years ago, as a result of the 2008 crisis, the Bank of England acknowledged that it is not deposits that create loans, but, con-versely, that loans issued by banks trigger deposits 144.
The financialization of the real economy, that is, the phenomenon of ulti-mately distorting the concept of value often results in industrial and service companies generating higher revenues and profits from financial operations than from their core business 145.
Sharply criticizes Milton Friedman's principle that the only task of compa-nies is to maximize shareholder value - it favours short-term thinking over the long-term, supports speculation, discourages productive investment, and ignores the fact that not only owners are considered to be a relevant group for the company, but also employees, business partners, the host community, civil society, i.e., all stakeholders. According to Friedman, shareholders are kűey players because they bear the risks of the business and are therefore entitled to profit 146.
In addition to banks, the large "innovators" and "startups" known today in the innovation industry also, in most cases, also show annuities as profits.
The basic problem is that the mainstream approach does not take into account that innovation is a collective and cumulative process.
In the current system, the risks are borne by the community and the profits are shared by some of the distinguished players in the private sector. The
143 Minsky, Hyman (1992): The Financial Instability Hypothesis. The Jerome Levy Economics In-stitute of Bard College Working Paper
144 Kolozsi Pál Péter (2018): Itt az ideje másként nézni az államra! – Értékteremtés és innováció a 21. században. Hitelintézeti Szemle, Budapest, 140-150.
145 Mazzucato Mariana (2019): Value of Everything : Making and Taking in the Global Economy.
Great Britain, Penguin Books)
146 Milton, Friedman (1979): Crowding Out or Crowding In? The Economic Consequences of Fi-nancing Government Deficits, Harvard University NBER Working Paper no. 284.
theory of innovation in Silicone valley garages is clearly wrong and mislead-ing. They have decades of meticulous scientific work behind them, financed by someone else. The situation is complicated by the fact that these basic researches are typically carried out by public institutions and not by private companies, as the high capital requirements and risks involved are not borne by the private sector. 147
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Szőcs Árpád