Many of the technical details that led to the near collapse of the investment/hedge firm in the movie are reminiscent of the 2007 collapse of Bear Sterns and the 2008 collapse of Lehman Brothers and the financial meltdown of the fall of 2008. While the hedge fund’s finances started to unravel based upon a faulty computer model of volatility in the market, the real causes of the financial collapse were more complex, particularly due to the deregulation of the financial industry.
What also shines through in the movie is the fragility of the system on account of system’s defects and of human limitations, including greed of some. That fragility existed before the fall 2008 and has not been dealt with, though the US Dodd-Frank might have been a force in the right direction if it had not been watered down so much.
The fragility of the international financing system, also shown in the weakness of Europe to bring its euro and financial system into order, would be greatly reduced if banks and other financial institutions such as hedge funds were to operate on 100% reserves rather than the present fractional reserve system. A most ringing argument for that position was made in 1936 when Irving Fisher, economics professor at Yale, presented in 24 pages “100% Money and the Public Debt.” It is the foundation for much present day thinking about a money- rather than debt-based financial system where banks become utilities whose money creation privilege has been reclaimed by the public sector.
Amid the present worldwide economic slump several neo-classical economists are advocating a return to the gold standard, among whom the editorials of the New York Sun stand out in their stridency. Indeed, the monetary, financial, economic and commercial systems need a monetary standard besides a financial system that is money- or credit-based. However, the return to the gold standard will not do because of liquidity and rigidity concerns.
Why not develop a monetary standard that incorporates humanity’s most pressing problem of a changing climate that can wreak catastrophic impacts on people and planet? This type of monetary transformation would affect the international financial, economic and commercial systems because the international monetary system as glue and as lubricant of those systems is their linchpin. How this can happen is foremost a question of transformational thinking in monetary economics an example of which is presented by Australian economist Steve Keen of Debunking Economics fame who together with several other radical economists predicted the financial fiasco in the fall of 2008.