Finance as a Public Interest

ILLUSTRATED: The sources of capital aren't necessarily capitalists anymore.

An interesting theme is developing as we slowly recover from the Great Recession. Whether the subject is an individual, a company, or the whole economy, financing is hard to come by. The central financial system, colloquially known as "Wall Street", was saved in the fall of 2008 since it is the central artery for the rest of the economy. It was deemed in the public interest to such an extent that enormous public debt was levied on our posterity in order to prevent a crash most thought then and now was imminent.

Except for a few doctrinaire anti-debt crusaders, most economists and personal financial planners think that people, companies, and governments need access to borrowing. The popular media figure Suze Orman recently pointed out that banks are lowering credit card limits and canceling people's policies all the time. She mentioned that (non-profit) credit unions might be the place to go for credit cards.

With venture capital, a friend of mine in biotech has told me that the only realistic sources of financing for biotech firms these days are the Defense Department and private foundations.

With the investment banking system and insurance system, much of it was (at least temporarily) nationalized last year and heavy regulations are probably coming.

The bottom line is that it is non-profit entities that are bankrolling a lot of the private economy. The upshot is that financing is so important, that it (might) not be able to be entrusted to self-interested for-profit entities. Taking that to the extreme of course is communism, which has been practically and theoretically debunked.

However we have to recognize that financing of capitalism is becoming less private. What remains private will be more regulated, and the government and foundation sectors will become more active than ever.