Structuring financial institutions for catabollic collapse

$6.35 billion, $5.6 billion, $5 billion, $4.58 billion. These numbers are the big four banks profits for financial year 2010. Big numbers, big profits, record profits! Is it any wonder that the Australian Bankers Association proudly states that Australia has a strong, successful and stable banking sector. This being the case, is there any need to worry about our banks or our financial system? On the face of it, the obvious answer would be no. But dig a little deeper and the obvious answer could well be wrong! And if the obvious answer is wrong, then we may well need revolutionary change to our banking system, our financial system and indeed the very fabric of the way we live our lives.

It is easy to get wrapped up in the masses of information released each day about the economy. The ASX was up, the dollar down, oil stronger, gold weaker, RBA minutes, Treasury forecasts, profit announcements and the list goes on and on. Being bombarded with so much information makes it difficult to see the big picture. So let's tune out the white noise and have a look at the historical and strategic context at this juncture in history from which we can examine Australia's financial system.

We live in a globalised industrial civilisation, the likes of which has never been seen on earth before. Just because it is the biggest, most complex civilisation in the history of mankind, does not however, make it immune to the cycles of history. The rise and fall of civilisations is something that occurs with historical regularity and there are a number of reasons to suggest that our current civilisation will be no different.

Perhaps the best explanation for the decline of civilisations is that provided by Joseph Tainter in his seminal work, The Collapse of Complex Societies. Tainter argues that as civilisations attempt to solve problems they increase in complexity until they reach a point where further increases are subject to declining or even negative marginal returns. At this point civilisations become vulnerable to collapse, unable to cope with new problems or external shocks. Industrial civilisation is already facing declining marginal returns in many areas, such as energy production (bio-fuels and tar sands), fiscal stimulus and health.

Additionally there are plenty of indicators to suggest that a multitude of new problems and external shocks are on the horizon. No doubt over the course of this century we will have plenty of opportunity to test the validity of Tainter's thesis.

The strategic context is one of converging crises. Globally, we face a climate crisis, where by some estimates, the annual damage bill from weather related events could equal global GDP by mid century.We face a liquid fuel crisis with conventional oil production having already peaked, according to the International Energy Agency, with the alternatives being far inferior in both quantity and quality.

We face a financial crisis with the global financial system being effectively insolvent and only maintained through fraudulent accounting practices and the creation of money out of thin air to temporarily maintain financial stability. We face a food crisis where large parts of the worlds poorest are struggling to afford the increasing price of food.

We face a population crisis, with a rapidly growing world population placing ever greater demands on the earth's resources.

Each of these crises are interlinked and interdependent, culminating in the most deep seated crisis, namely that of dysfunctional political systems.

Our political systems are failing on two counts. First they are struggling to meet the expectations and in many cases needs of the people they govern and secondly, their responses to the aforementioned crises are woefully inadequate. The net result is that we are likely to see increasing levels of political unrest in the years ahead whether that is the benign type such as the minority government in Australia or more extreme levels as recently demonstrated in Egypt.

These crises are setting the pre-conditions for, if not actually triggering, the decline of industrial civilisation.

Enter catabolic collapse.