Social Networking! Facebook, Twitter, LinkedIn; these are all global social networks.
Financial Networking! Stock Book, Bidder, Moneyed-In: these are all names I made up.
Put your hands up all those people out there who believe everything that they read, or watch on the mainstream media? I bet you are not sitting there with your hand up. No, quite right too.
In the 21st century we have a multitude of information sources, and we are not reliant on single-source information flows. However, the delivery of news has become like a Hollywood production, with the major global news organizations competing with each other as to who can not only break the latest news, but who can give the slickest delivery of that breaking news. Quite often, in the rush for ratings, we don’t let the truth get in the way. However, due to social networking, with Twitter, Facebook, or any number of blogs, we can question and discuss to find the truth. If these avenues fail, then WikiLeaks dumps raw information on the market en masse. Either way, the truth gets out.
Hands up all those who believe the stock market is trading at fair value, or that gold is too cheap or that oil is fairly priced? Ok, so I know there are few gold bugs out there with both hands in the air, but the reality is we simply do not know. Even those who are market professionals, dreaming of obscene pay packets, have a view which at best is biased, normally in the direction of their dreams. The point is, unlike modern media, the financial markets do not have an outlet for truth. The social revolution is happening, across the Middle East, Europe, the U.S. and it is beginning in Russia. However, the financial revolution is not. I am talking about the information revolution in financial markets, or Financial Networking.
We know the term social networking; connecting people directly, using a service provider. We can also broadcast our personal details to many people at one time, via personal or professional networking sites. Socially, we are networked!
Financial markets are not networked. As a result the information we are provided is hard to verify at best, and serves the interest of banks and global corporates at worst. We know that the ratings agencies - all of them – who gave CDO’s (Collateralized Debt Obligations) AAA ratings, which allowed the investments banks to easily stuff their clients with worthless paper, clearly served the interests of the banks, rather than provide accurate information. Today in Europe, we are seeing these same ratings agencies serving the interests of banks by downgrading sovereign credit ratings, increasing borrowing costs for governments leading to austerity measures and higher taxes for the people, whose pensions have disappeared in pension fund losses because they bought worthless CDO’s with AAA ratings. Now the same banks want to charge us more for creating fake money. Stop it!
The latest round of misinformation was the surprise coordinated interest rate cut by central banks to give the illusion that our economies are not contracting and all is ok, because the new money went straight into stock markets, which all rallied sharply right on cue. The only problem with that is we know how utterly rigged (there is no other word for it) stock markets and financial derivatives markets have become. They no longer provide an accurate assessment of our global financial network. The good news is that the derivatives markets have become so concentrated that when it vaporizes completely - in the not-too-distant future - it will be a spectacle rather than a global crisis.
We have all the tools for a Financial Networking revolution, or really evolution to take place. The most important one is the internet, which will provide a web-based platform for information, we have mobile phone based payment technology, and we have buyers and sellers. The current, non-networked system relies on intermediaries, usually banks, who create complex and opaque markets based on closed market systems who report information after the fact. Financial Networking will be real time, decentralized peer-to-peer (buyers and sellers directly) markets, with service providers adding value by providing service rather than intermediaries trying to create transactions for profit.
Financial Networking is not about bank bashing, despite my rants. It is about providing a clean and clear flow of information which reflects actual trade, from both the personal and commercial level. Financial Networking will by its very nature be networked and decentralized. As a result of this Financial Networking, commerce and trade will become free from politics and failed economic policies because the information on the network will be from actual users; the peer to peer market.
The Financial Networking age is here. We have the technology. The only ingredient we need to add is raw information. Stock Book, Bidder, Moneyed-In; here we come.
Current markets are anything but global or integrated. What if we had a paradigm shift in the way we think and transact when doing business with each other? Balanced global trade can only occur if we have transparent, accessible and efficient markets. We are on the cusp of achieving this, although most people cannot see it. Sam’s Exchange aims to give its readers a clearer view and a platform for discussion. Markets, trade and economics are in fact nothing more than the result of our thoughts and actions expressed in numbers, not the reverse.
Sam Barden is founding Partner of SBI Markets DMCC, a Dubai-registered commodities trading and advisory company. Barden has worked in the global financial markets for more than 17 years in Europe, Russia and the Middle East. He has advised and executed strategic transactions for both the government and private sector, in particular in energy and commodity markets, advising various energy producing nations on their strategic market developments and interaction. He holds a degree in economics and finance from Victoria University, Melbourne, Australia.