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The Future of Finance

lozanoSLUG REPORT > A Q&A with UCSC lecturer Benjamin Lozano

The threat of a U.S. government default may be behind us, but the future of the U.S. economy remains uncertain. UC Santa Cruz lecturer Benjamin Lozano remains optimistic, however. Lozano recently sat down with Good Times to share some of the positive qualities of modern finance that he has discovered in his research of derivatives financial technologies, and speculate on what the future of finance might look like.

Good Times: Tell me a little about derivatives and your research.

Benjamin Lozano: The way derivatives are thought of post-2008 are something that brought down the banking system, which it did, but the way I’m interested in looking at it is as a field of synthetic finance that can be used... for different purposes. As you know, there’s a fungible quality to these financial technologies.

GT: Do you think synthetic finance, as it develops more into the future, will benefit a larger amount of people or the same small group of people?

BL: One thing I know right now, we’re not doing a whole lot of derivatives trading, you and me. Look around you. What percentage of the people do it? Right now it’s being used to make .5 percent of the population money. Now is that the fact that it’s always been an issue of power? Who has power and who has capital? How do we make financial technologies available to a wider variety of people?

GT: Could they be scaled down to something that mom and dad could [use]? Is there a way to make some of these technologies available to everyone?

BL: Do [they] even have to be used as investing? See here’s the thing: do derivatives even have to be used as a bet for trading on an exchange or whatever? What if it wasn’t actually being used as investing? What if it was used as a way of just basic exchange? You see it right now in ... exchange traded funds (ETF’s). ETF’s are a really cool innovation because it’s something that trades like a mutual fund ... it is a mutual fund, but it trades like a stock. It’s one share that is a collection of S&P 500 stocks. You can create an ETF for anything... silver or whatever. Today you’re seeing these ETF’s that use synthetic finance in a way that ... is actually pretty innovative.

GT: Where do you see this economy going from today? Despite what the Obama administration might be saying or anybody at the Federal Reserve, where do you see it?

BL: The short-term and long-term are probably different answers. Short-term, [the] United States has to take care of its debt issue, right? Short-term, Greece...is... going to default. That’s going to cause borrowing costs, sovereign debt borrowing costs are going to go through the roof. It’s spreading to Italy, it’s spreading to Spain... Portugal, Ireland is having it’s own problems. In the short-term, it may mean that Greece is going to have to bow out of the European Union (EU).

GT: Do you think because these big banks were using these [financial] technologies it forces everyone else now to use them because they’re so widespread?

BL: The one thing is, if you buy my argument that... finance is changing... into a synthetic financial system, and that’s sort of the way of the future, looking forward in time, that’s what we’re going to see increasingly more synthetic finance. Well, what are the engineers doing? Are the engineers discovering something that was a condition of possibility already imbedded within exchange itself, or are they creating these entities [like] Frankenstein’s doctor? It’s kind of... a freak of nature, perversion of life. That’s what Frankenstein is viewed as. Or did the technology for Frankenstein always exist?

 

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