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'Occupy' must understand there is nothing fundamentally wrong with banking

By Mikayla Novak - posted Thursday, 27 October 2011

It is all too easy to dismiss the Occupy Wall Street protests in the United States and elsewhere over the past month.

After all it was almost inevitable that the assorted groups, ranging from communists to environmentalists and every other professional grievance movement in between, would tend to lack focus about what they're marching and camping out about.

Even so, it does appear that some of the anti-market sentiments expressed by their loudest protesting mouthpieces do reflect some ingrained, but mistaken, beliefs about the nature of the economy.


Some of the angered messages uttered by the occupiers are in fact similar to those one might occasionally come across in conversations with decent, hardworking, non-protesting kinds of folks in the outer suburbs.

A key criticism from some spokespeople in the protest movement concerns the workings of the financial system, and the bank bailouts during the 2008-09 global financial crisis.

There is no doubt that the financial system and its participants, including banks and traders of financial securities, have long been the subject of antipathy. Even the Bible says that 'the love of money is the root of all evil.'

The economist Friedrich Hayek reckoned that hostile attitudes towards market activities are especially prominent in cases in which intangible services, rather than the exchange of physical goods, are being rendered.

Financial market services in particular tends to agitate those who believe that because a transaction is of an intangible nature, such as the lending of money at interest or the purchase of securities with the promise of a return later, then it is worthless at best or the product of black arts at worst.

Furthermore, it is claimed that any profits gained from such financial transactions must be underhanded in a zero sum manner in which the creditor or financier gains and the debtor or purchaser loses.


Perhaps to a great extent some of these hostile feelings towards the financial system might be due to a misunderstanding, or lack of comprehension, about the beneficial role of a functioning financial system for economic prosperity.

Fundamentally, the role of the finance sector in the modern economic system is to connect those in the economy who have saved part of what they earned with those who desire to borrow funds to invest in various ventures.

In other words banks and other financial institutions, when they function normally, play a constructive role in transferring financial assets to more highly valued uses.

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About the Author

Mikayla Novak is a Research Fellow with the Institute of Public Affairs. She has previously worked for Commonwealth and State public sector agencies, including the Commonwealth Treasury and Productivity Commission. Mikayla was also previously advisor to the Queensland Chamber of Commerce and Industry. Her opinion pieces have been published in The Australian, Australian Financial Review, The Age, and The Courier-Mail, on issues ranging from state public finances to social services reform.

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