Some of the points are well taken like the gush of talent that the financial industry attracts by virtue of its power and the asymmetric payoffs that this industry commands to its trader-professionals where gains are always privatized, while losses are not. The regulators on the other hand cannot attract talent to find the optimum solutions to excessive financialization and we obviously find floor-crossing happening in one direction. In fact the whole structure of financial market and the rating agencies together with the regulators have one fundamental draw back that independence of the regulating agencies is sacrificed and replaced by inter-dependence which could hardly be the optimum solution; this perhaps creates ground for regulatory capture, which in some ways has been deepening in the last five years. The growth of finance from 4% of GDP to 8% of GDP, is a clear indication that products and processes designed to increase risk taking has replaced the products that actually create value to the common man, otherwise how could it be that the rest of the industries have shrunk as a percentage of the GDP.



Rogoff raises another important pointer that very successful innovative companies like Apple or Microsoft are virtually debt free as they finance their business through equity, while there are host of companies who leverage to balance growth, like the finance companies themselves. It is interesting that finance companies that continue to increase their leverage find value in debt over equity, while innovative companies who have no problem to sell their concepts and products can heavily rely on their equity for all kinds of funding. This leaves a looming doubt that increasing the flow of credit itself cannot be the solution to business growth, it is fundamentally innovation through which value is created and cannot be replaced by lower cost of capital, something that monetary policies have to grapple with.



Procyon Mukherjee