New Banking System

Banking and Finance DLC for Capitalism Lab
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eleaza
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Re: New Banking System

Post by eleaza »

TheDukeOfRockford wrote:
Lending from shareholders? Interesting...
https://en.wikipedia.org/wiki/Shareholder_loan
It's fairly common for SME companies, usually just agreements to major shareholders via various means.
TheDukeOfRockford wrote: I knew there are two common types of capital which is equity capital and debt capital. Stocks would be former while corporate bonds would be latter, as is bank loans, I think.
This is more of a divide in financial reports and for accounting purpose than similarity in their properties. Like shareholder loan should be filed under equity, however it's very much similar to an actual loan, and varied wildly depends on whether the shareholders are natural persons, or holding companies. Honestly a lot of time it's just filed in such a way to "beautify" financial figures so any ratio related to debt or equity would look better.
TheDukeOfRockford wrote: According to Wikipedia entry on corporate finance, notes payable, also called promissory notes, is also considered debt capital but I don't think it is worth implementing since the article on this particular financial instrument seem to suggest it is really just different from loans in terms of detailed agreements and etc.
Notes payable or banknotes, are simply what we now called "paper money" (or fiat currency) today, private issue currency in the early days. They are cheques issued by corporations. Nowadays corporations no longer issue fixed/standardized banknotes, that mostly transferred to the central bank. However promissory notes with arbitrary amounts are still very common and used everyday, mostly as informal tools for delay payments, and most of the time can "cancel" each other out without "actual payment" involved. (Like corporate A holds notes from corporate B, and B holds notes from A, and within the payment date, they can be written out, only the difference need to be paid, or just like tab in a bar as favors, keeps on record for a very long time and can be "used" in later date)
TheDukeOfRockford wrote: Corporate bonds themselves are subdivided into categories like coupons and such but I don't think we would want to over-complicate it in game.

I'm not sure what else to further add to the loan mechanic, I think it is fine as it is, other than having banking become a possible business to enter into which I support. Ideally, a corporation could shop around to get a loan in a best possible deal from a bank. No doubt that would in turn spur the banks to compete, etc.
Corporate bonds is a very wide categories, and basis for many derivatives. Mostly the complexity comes from secondary markets which don't exist in the game. Financial institutes are also practically nonexistent in current version, so any mechanics that exist in real life will not be able to exist in the game without looking ridiculous or creating huge loopholes.

The issue isn't about "where to get money" for the most part, but managing the risk involved. And "money" itself can be "created" in the process (depend on what definition of "money" we are talking about. The real physical "cash" only consists a very tiny amount in real life corporations. Mostly they are cash-equivalent, and a lot of time the use of "raising capital" doesn't involve actual money at all)
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Arcnor
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Re: New Banking System

Post by Arcnor »

Still think we need a new banking system...

I always end up with tons of cash and no where to spend it all. Would be great if I could put it in a bank and at least earn interest... Otherwise I end up making ever AI company a subsidiary.
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eleaza
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Re: New Banking System

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Arcnor wrote:Still think we need a new banking system...

I always end up with tons of cash and no where to spend it all. Would be great if I could put it in a bank and at least earn interest... Otherwise I end up making ever AI company a subsidiary.
Not necessarily need to be in the form of "Banking System" though, maybe we should aim lower as to investment options. The question is always about whether the return of pure capital investment make the late game too easy or might break the game balance from the beginning where players exploit the "dumb AI financiers" easily.
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Re: New Banking System

Post by David »

We have been considering the following suggestion by perimario:

http://www.capitalismlab.com/forum/view ... =14&t=3944
"- Add other companies not in the game in stock exchanges (by mod)"

It will provide the player with new investment opportunities. Investments in high dividend stocks will generate recurring incomes.

What are your opinions on this?
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Re: New Banking System

Post by Arcnor »

I like the thought of that, but it would be nice if we could invest in financial assets like bonds that companies issued instead of just borrowing from the bank. Bonds could offer fixed interest rates for a set term unlike the bank that is variable and is basically a line of credit.
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Re: New Banking System

Post by Diche_Bach »

Interesting thread! Some fascinating points your making counting. Will have to come back and re-read this more closely at some point.

Also: impression Enlight that you guys really listen to your clientele, weigh suggestions and act on the good ones ;)

I'm trained as a anthropologist, psychobiology mostly (though now I'm training as a programmer after 25 years in academia).

There are a lot of things that puzzle me about economic theory/practice, but the biggest one:

How can models developed at a time when schooners, gold standards, snail mail, paper-record systems and relatively mercantilist (or at least relatively less "integrated") national economies be compared to a time with trans-atlantic jets (tens of thousands of them in the air at all times in fact!), no physical commodity backing for currencies, lightspeed communications, Big Data mining / record systems, and much less national economic insularity?

Most of these processes have been incipient during my entire lifetime and yet, as far as I can tell, the 19th century stuff is still being "used" to some extent.

A tangent to the topic of the thread, and maybe should be moved to a different thread, but @ counting: some of your comments made me think of these ideas and I'd be curious to hear your thoughts.
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eleaza
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Re: New Banking System

Post by eleaza »

Diche_Bach wrote: I'm trained as a anthropologist, psychobiology mostly (though now I'm training as a programmer after 25 years in academia).

There are a lot of things that puzzle me about economic theory/practice, but the biggest one:

How can models developed at a time when schooners, gold standards, snail mail, paper-record systems and relatively mercantilist (or at least relatively less "integrated") national economies be compared to a time with trans-atlantic jets (tens of thousands of them in the air at all times in fact!), no physical commodity backing for currencies, lightspeed communications, Big Data mining / record systems, and much less national economic insularity?

Most of these processes have been incipient during my entire lifetime and yet, as far as I can tell, the 19th century stuff is still being "used" to some extent.
I often wonder this kind of questions when I was still undergraduate, and after taking a lot of classes and have field experience in bookkeeping and accounting, I think I somewhat understand why it's very "attractive" for theorists want to use mathematical models, but a lot of the questions we might have at the beginning, would probably still have no good answers, only very good guesses and usually extremely difficult to verify. But the key idea is always about finding the "underlying truth".

Although "contemporary economics" is already very far from the 19th or even 18th century classical economics. Most them were developed after 1970s (and even these "new models" are already outdated for lots of them), and major computational or econometrics theories developed were well after 1990s. Not to mention behavioral or cross discipline economics fields really broke out of fringes after 2000s.
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Diche_Bach
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Re: New Banking System

Post by Diche_Bach »

eleaza wrote:
Diche_Bach wrote: I'm trained as a anthropologist, psychobiology mostly (though now I'm training as a programmer after 25 years in academia).

There are a lot of things that puzzle me about economic theory/practice, but the biggest one:

How can models developed at a time when schooners, gold standards, snail mail, paper-record systems and relatively mercantilist (or at least relatively less "integrated") national economies be compared to a time with trans-atlantic jets (tens of thousands of them in the air at all times in fact!), no physical commodity backing for currencies, lightspeed communications, Big Data mining / record systems, and much less national economic insularity?

Most of these processes have been incipient during my entire lifetime and yet, as far as I can tell, the 19th century stuff is still being "used" to some extent.
I often wonder this kind of questions when I was still undergraduate, and after taking a lot of classes and have field experience in bookkeeping and accounting, I think I somewhat understand why it's very "attractive" for theorists want to use mathematical models, but a lot of the questions we might have at the beginning, would probably still have no good answers, only very good guesses and usually extremely difficult to verify. But the key idea is always about finding the "underlying truth".

Although "contemporary economics" is already very far from the 19th or even 18th century classical economics. Most them were developed after 1970s (and even these "new models" are already outdated for lots of them), and major computational or econometrics theories developed were well after 1990s. Not to mention behavioral or cross discipline economics fields really broke out of fringes after 2000s.
Ah! Well that answers a lot!

I guess I need to delve farther into Economics than the 101 level :D
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eleaza
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Re: New Banking System

Post by eleaza »

Diche_Bach wrote: Ah! Well that answers a lot!

I guess I need to delve farther into Economics than the 101 level :D
Another short answer for why academic researchers (like neoclassical) in the beginning like math models, is that math make writing and publishing paper "easier", and hard to prove wrong. And they don't have to deal with the messy and chaotic real world "noises". :roll:

Although to be fair, people do realize this is kind of a bit wishful thinking, so the fringe economics field like complexity economics, is no longer "fringe" in recent years with the help of modern computational power to "verify" them (more like simulation experiment though, since it will be statistical, than actual "prove").

There are other schools of economics try to put modern computational power to good use thinking like software programmers. Like this one, and it's open sourced. https://sourceforge.net/projects/minsky/
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Re: New Banking System

Post by saffgee »

Diche_Bach wrote:Interesting thread! Some fascinating points your making counting. Will have to come back and re-read this more closely at some point.

Also: impression Enlight that you guys really listen to your clientele, weigh suggestions and act on the good ones ;)

I'm trained as a anthropologist, psychobiology mostly (though now I'm training as a programmer after 25 years in academia).

There are a lot of things that puzzle me about economic theory/practice, but the biggest one:

How can models developed at a time when schooners, gold standards, snail mail, paper-record systems and relatively mercantilist (or at least relatively less "integrated") national economies be compared to a time with trans-atlantic jets (tens of thousands of them in the air at all times in fact!), no physical commodity backing for currencies, lightspeed communications, Big Data mining / record systems, and much less national economic insularity?

Most of these processes have been incipient during my entire lifetime and yet, as far as I can tell, the 19th century stuff is still being "used" to some extent.

A tangent to the topic of the thread, and maybe should be moved to a different thread, but @ counting: some of your comments made me think of these ideas and I'd be curious to hear your thoughts.
I think the answer is simply that in the same way a mobile phone and smoke signals are both expressions of a need/desire to communicate (albeit at different technological levels), the fundamental elements that make trade and/or financial market concepts viable in the 19th century (or indeed far earlier) are still the same today. As I said in another thread, financial markets are about risk transfer - this concept is often made easier by an actual physical transfer, but in no way does it require one. "Risk" in this context is simply an expression of an unknown future event, some call it opportunity, others call it luck, but most just consider it risk. Put simply, your endeavour in a risk transfer is to transfer your risk (or uncertainty) to another party - usually mitigation is the goal, but it does not have to be and increasingly nowadays it isn't. By doing so you are simply increasing your chances of achieving a reliable return on something by giving away much of the possible upside.

Options were proliferated primarily by the jewish community in Amsterdam in the 1600's - they were largely used to mitigate risks associated with cargoes coming from the new world, which frequently sunk or were partially lost/spoiled. An expected cargo not making landfall would have a significant effect on the price of a commodity and the option could secure the trader the right (but not the obligation) to buy or sell the commodity at a certain price on a specified date. The "buying out" of such options at a premium before that date (expiry) was the most frequent and likely occurence once the fate of a cargo was known, leading to the use of these options for rampant speculative activity. Fast forward 400 years and the primary processes that drive options trading are identical. Maybe less ships sink now, but shortages or gluts - whether caused by real news or fake news (to quote the Donald) - will move a market price and create opportunity for that instrument to move, sometimes significantly. In trading terms the pursuit is always to find a reliable source of gain for the lowest risk. That's the holy grail, the so called "free option" - you own all of the optionality and none of the risk. Obviously that is an oxymoron - but it doesn't stop traders from searching for it.

That brings us to banks - the propagators of the biggest scam since religion. They tell you what your risks are, then offer to mitigate them for a fee, in much the same way that religion tells you what will happen to your soul, whilst simultaneously offering you a route to salvation for said soul (for a modest fee). They (banks that is) have become unbelievably adept over the years at taking money off consumers to manage fake or imagined risk, whilst simultaneously introducing more risk into a financial system by over-leveraging the assets they are supposedly safeguarding. This is not a rant, but simply an attempt to show that current bank practices or motivations are not unlike those of the great banks throughout the years - the Medici bank of Venice for example frequently operated with as little as 5% of their deposits held in reserve, which of course eventually became untenable and caused the bank to fail in 1499.

The complexity of trading has definitely increased with computing, but bizarrely its maybe quantum computing that explains the core concept (that has existed since the beginning of time) the best. In a binary system of 0 = uncertainty and 1=certainty, or more succinctly maybe, 0 = no reward and 1 = reward, the goal of every trader is obviously to get a "1" as this represents a positive return. However, if you introduce the concept/idea that the system is not actually binary, but quantum, where both states exist at the same time and it is more a sliding rule (or superpositioning) of ever increasing risk for ever increasing reward, ie the closer to "0" you get, the better your expected "1" gets, then all of a sudden the goal of every trader is to actually have 0 (or as infinitely close to 0 as is possible) and 1 at the same time - and therein lies the great conundrum of the financial markets.
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