Law should be pro interbank.

The Law as Cheerleader for the Interbank Market

Law should promote the interbank market. In such a market, consumer-taxpayer-end users are maintained en masse as leverage for the bond markets. By this I mean that the consumer-taxpayer-end user should be incentivized to remain in transactions mode, readily able to participate on the buy-side of transactions.

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Encouraging the consumer-taxpayer-end user to readily participate will call for transparency in pricing including making available information about input pricing, fees, taxes, and other costs of output. There is no need for the sell-side to hide fees or deceptively inflate prices. It is not a moral or goody-two-shoe perspective. It is a matter of bringing true efficiency and securing profits unencumbered by some legal or regulatory dispute down the road.

The law should also support volatility in pricing. Volatility gives brokers an incentive to enter markets to buy and sell. Volatility refers to the range and speed of pricing. The more volatility, the more risk of lower returns. This also means the greater chance of higher rewards.

The law should also support tighter spreads. The spread is the difference between the price a broker bids for an asset and the price at which she sells the asset. Not only should these spreads be made transparent to traders thus encouraging market participation, but should be tight which signals to traders and brokers an increased willingness for market participants to trade and bring liquidity.

Like any market, the interbank market acts like what I call an energy transfer node. The energy generated by transactions conducted in the interbank market is transferred to the State via taxes. This energy transfer is the lifeblood of the State.

The Role of Politics

The political portion of the political economy should work to balance interbank market participants’ need for profit with the capacity of consumer-taxpayer-end users’ capacity to make purchases in the transactions market. How successful the politician is in reconciling the two depends on his ability to craft a narrative that quite frankly makes brokers and traders look like the bad guys while making the consumer-taxpayer-end user available for exploitation.

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The Takeaway

The ideal political agent should maintain the appropriate firewalls between the interbank market and the consumer-taxpayer-end user that limits consumer-taxpayer-end user involvement to consumption.

Alton Drew

22 August 2023

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