Dear,
Although many economists deny it, the economic growth experienced by humanity in the last 200 years has not capitalism as its main factor, but access to cheap and abundant energy brought about by the industrial revolutions.
With the oil shocks of the 1970s, growth weakened and the system had to turn to debt as a resource to boost the economy. For this reason, at the beginning of the 1990s a process of deregulation of the financial system began, which allowed the limits established after the great depression of 1929 to be exceeded.
The 2008 crisis showed us that the seams of the financial system were beginning to unravel due to the unpayable debt. In order to continue turning the wheel of growth, public funds were transferred to cover private losses (TARP), the cost of capital was artificially reduced with the quantitative easing cycles and the use of shadow banking was encouraged. The price to pay has been an artificial stability of the financial system that is more leveraged than ever, but in which in theory, banks are well capitalized. In reality, the overleverage of the counterparties has undercapitalized the entire system, so that the solvency of the banks is fictitious, but another long decade of economic growth has been enjoyed.
The obsession to generate nominal returns while ignoring the cost of capital, a fundamental characteristic of a volume-oriented financial system, has inflated the largest financial bubble in the history of capitalism, with ramifications in the Chinese real estate sector, the US shale oil industry, cryptocurrencies and some more that we will discover soon.
The objective of all this effort to squander resources, until confronting the physical bases of growth, was to lengthen the mirage a little more, whatever the cost.
Congratulations to everyone, we are already close to the limits that the planet can support. And now what?
Now we face multiple and critical challenges; the energy transition, the climate crisis and the transformation of the financial system.
Why has the transformation of the financial system become critical and urgent?
Economic growth is strongly coupled with energy consumption, as we mentioned before, the stages of strong economic growth have required abundant and cheap energy.
But the energy transition and the climate crisis are reducing the availability of energy, so it is reasonable to think that they will reduce economic growth.
And the lower economic growth has as a consequence a lower generation of capital that, together with the excess of debt, has brought about a new economic environment characterized by the scarcity of capital.
If capital is scarce, the main driver of the financial system should be capital optimization.
That is easy to say but very complicated to implement, the proof is that there are not many concrete proposals in this regard.
As the Second Principle of Thermodynamics indicates, optimizing a resource requires reducing the degrees of freedom of the system that consumes it (entropy) and that can only be done by incorporating information.
The practical application of this principle to the management of business processes is the work of the Israeli Physicist Eliyahu M. Goldratt With his Theory of Constraints, Dr. Goldratt taught us how to optimize the consumption of tangible capital (production capacity, transport, storage, etc.).
Since 2008 I have worked on translating the Theory of Constraints to the optimization of intangible capital (solvency and liquidity), based on postulates analogous to those of Dr. Goldratt.
I have been a SAP consultant for 30 years and I have seen how it has transformed multiple industries by integrating business processes, establishing a data and process model that has become a "de facto standard".
This standardized data and process model has reduced the operational costs associated with integration, facilitating the optimization of tangible capital.
Optimizing solvency and liquidity requires integrating the provision of financial services with the processes of the non-financial economy, establishing a common language between both worlds.
In other words, it requires modeling the events, assets and liabilities of the non-financial economy in terms of generation and consumption of solvency and liquidity. This is exactly what we have done for the last 12 years.
With this information, and using standard SAP Banking tools, our system proactively proposes financial instruments that cover solvency and liquidity deficits in a business process. Additionally, it offers investment opportunities to processes that generate solvency and liquidity surpluses. All of this, adjusting the risk weighted investment yield, with the aim of reducing the solvency and liquidity consumption of the system.
Making an analogy, it works like the inventory models managed by the supplier, typical of logistics, but offering financial services instead of restocking products.
We are working on presenting our system to the market, and looking for business partners and investors, if you are interested do not hesitate in contacting me at ferran.frances@capitency.com
Looking forward to reading your opinions.
Kindest Regards,
Ferran Frances.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Ferran.frances@capitency.com
