Module Summary

FSRE presents a superficial picture of the UK's financial sector. It's a perfunctory grounding for unquestioning worker drones to facilitate the movement of capital by advising customers on how to use their capital in the financial markets.

The Economic Landscape

The Regulatory Environment

Enforced by the regulatory agencies. Policy is determined by the government.

Economic Agents

• The Family Unit
• Individual Citizens
• Firms

The Forms and Purposes of Capital

• Cash

Liquidity. Subject to inflationary pressures. Earns interest on deposit. Unit of account. Store of value.

• Shares

Issued on primary market and traded on secondary market. Companies issue shares to raise capital. Shareholders own a part of the company

• Securities

Bonds. Loan instruments issued by governments and corporations. Usually a fixed interest rate over a set term. Money market instruments are much shorter term but offering lower yields.

• Property

Different asset classes have different purposes and different clients will have different relationships to them.

How services function and are operated

Intermediation vs Disintermediation.

• Traversing Geopgraphic Distance
• Aggregation of collective deposits
• Maturity Transformation: overcoming differences in desired borrowing/lending periods.
• Risk Transformation

Disintermediation is direct financial arrangements between parties. Sometimes with an intermediary to facilitate the transaction.

Something to consider

While the efficient movement of financial instruments in an economy is enabled by the intermediation factors provided by large financial institutions, it is no longer true that depositors funds are even indirectly used to lend to borrowers. I will need to pin down the facts around how the process actually works and how the myth persists.

Money

Understanding how money works is a useful frame for demystifying the confusing complexity that economics presents.

Money serves a few material functions

• Medium of exchange
• Store of value
• Unit of account

Together these allow individuals and organisations to purchase goods and services, save "earned" value for a later time, and provides a metric for the value of goods and services.

We exchange it for things we need and want. We can store it for later. We used it to measure the value of things.

But its value changes and that can complicate our understanding of it.

• The value of money is subject to inflation. Disinflation too, but this is less common in our recent history (nation dependent). Inflation.... I find hard to understand. Not the concept itself. How to assemble all the influencing factors together and picture how they move and affect the value of money, and each other, and other things.
• Money is also issued in different currencies. These currencies have value relative to each other. These can be bought and sold for each other which is just even more fucking complicated.
• Its existence has an abstract psychological dimension. Its value is contingent upon enough collective trust for it to continue performing its functions.
• Money must be scarce to have value. If we used gold as money or paper backed by gold, this would be one thing. I find it morally awkward that it's now just bits and code on a computer. We have abundance but we shakle ourselves to our outdated tools. I know that it's that the real problem is how to get from here to there, but anyway.
• Governments and central banks work to manipulate the value of money to achieve economic objectives.
• Then there's the historical background. How did people get to have the amount of money that they have? For the most part, it wasn't merit.

So, we have this tool that allows us to facilitate the flow of resources and consumption, but its value is in constant flux. It's also subject to accumulation by actors incentivised to gain as much of it as they can. This leads to a silent arms race where profit margins can be maximised by the wording of terms and conditions and enforced by soft equivocating customer service.