Theory of the 3D

THEORY OF THREE D AND DECODING OF THE GENOME OF FINANCE

3D: desintermediation, decompartmentalization deregulation.

Introduction: The “3D”, Désintermédiation, Decompartmentalization, Deregulation, are with the root of the phenomenon of financial Globalisation. The expression was invented by Henri Bourguinat in International Finance and was particularly with the mode in the Eighties and Nineties, period when it touched the industrialized countries. One can add one a posteriori there 4th D: the incredible development of information technologies, dematerialization to continue the list of Bourguinat.

Deregulation: suppression of the payments and controls on the prices of the banking services in order to allow a more fluid circulation of the Financial flows. It historically began with the the United States before gaining the rest of the world. Except the harmonizations of the financial systems and the removals of expenses of transfers, the major innovations in this field are related to the decompartmentalization (Comptes NOW and Super NOW which in the long term allows withdrawals on accounts under very flexible conditions)

Désintermédiation :direct access of the companies with the financings by emission of titles rather than by debt near the institutional actors. This direct access historically appeared at one period (beginning of the year 1980) where doubtful debts (Mortgage credit, renegotiated or with the the DEVELOPING COUNTRIES.), or without much hope to be recovered accumulated. Thus to cleanse their assessment, the banks transformed the loans which one had contracted near them of produced financial that they resell with private individuals, with pension funds… Thus the desintermediation answers according to Bourguinat three great principles:

the distribution of the loans in small titles of low value (in particular for individual funds or investors)
a normal replacement in order to ensure of the loans in long period
to restrict itself to the role of intermediary, free to take again emitted paper if it does not find a purchaser (i.e. in the event of insufficient liquidity of the market)

The large inspirer of this “D” is J.R. Hicks via his Théorie of market economy financier, which corresponds in fact to the direct Finance that we have just evoked. As example, the share of the bank credit in France and Germany passed from two thirds at the end of the years 1970 to 50% nowadays. That thus involves a fall of activity of the institutional actors, from where 3rd D

Decompartmentalization: suppression of traditional divisions between deposit banks and Bank of withdrawal, i.e. between Account at sight and Account in the long term - on the condition of leaving a minimal sum on the account, between banks and insurances, market of length and short term (which before 1986 in France was reserved for certain companies, ENBAMM, having access to the money market). There are thus concentration and repositioning of the traditional actors. With the international level, that results in freedom of movement of the capital permitted by the abolition of the exchange control (effective in Europe since 1990), and the suppression of measurements which would prevent the globalisation of the banks.

the decoding of the genome of finance

In reference to the recent monetary disordered states - and in particular to the crisis of the American mortgage credits at the risk (- Subprime) August-seven. 2007, Henri Bourguinat recommends to stick so that it calls the " genome of the finance" within the meaning of " the sequence of the elementary links of the genetic material of this sector ". This one, because of its increasing sophistication and of the chains of increasingly long and arborescent operations, creates what it calls " a new risk of system ". It is this one which precisely appeared at the end of the summer 2007. It holds with the extreme forms taken by the securitization of the second generation. This one, to leave in particular the derived from credit synthetic (CDOs or Colletarized Debt Obligations), allows the mortage establishments and the banks to transfer the credit risk almost ad infinitum by splitting up them, literally in the " granularisant". With this intention, they " compactent" these credits by " blocs" who are used as backing with wallets of obligations which, themselves, are dismembered soon by sections classified by order of increasing risk. These are the obligations which are then subscribed by the banks, speculative funds, the OPCVM, a little everywhere in the world including by small " pincées" in the placements however famous without - or little - risked. These techniques - moreover often outwards generalized even of the real sector to finance resumptions of credits called " conduits" credit type with the students, credit cards, automobile insurance, etc… starting from the structures ad hoc -, are extremely powerful but they are weakened as of the moment that difficulties of liquidity arise which disturb the refinancing of it. In this case, the corresponding risks, initially classified except assessment , go up in the books of the banks and compromise solvency of it. 2) They do not ensure either the traceability risk: the chains of operations are so long and complicated that one does not know any more, in fine , which carries the risk. 3) They create moral risk ( moral hazard ): as the driver which would count too much on its safety belt, the banks which think of being able to split up and transfer the risk can be less attentive. All that militates for a setting flat of the mechanism and the sequencing of a genome of the finance which becomes itself less and less easily controllable.

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