'Occupy' must understand there is nothing fundamentally wrong with banking

And the beauty of a truly global financial system is that borrowers may tap into a greater pool of savings therefore securing credit at lower interest rates, while lenders have greater opportunities to diversify their financial portfolios that secure healthy financial returns.

That innumerable private sector operators, large and small, had to borrow funds to fill their financing gaps before producing the everyday conveniences we enjoy today is a point that seems to be lost on the Wall Street occupiers, and many non-occupiers for that matter.

And just like any other business, financial intermediaries have an occasional tendency to go bust. While no financial institution or investment broker in Australia ceased operations during the 2008-09 global financial crisis episodes of bank failures, including as far back as the 1890s, have been a recurring feature in Australian economic history.

There is little question that the closure of any business, whether they be a corner store grocer to a bank with a multinational presence, is of great inconvenience to those personally involved in the venture.

That said the exit of firms usually acts as something of a cleansing process, in which private entities that cannot generate sufficient value get driven out of the market in favour of those who more effectively please their customers and thereby generate economic value.

It is from this perspective that the bailout of firms by governments, at taxpayer expense, is particularly reprehensible and should be opposed at every turn.

By preventing the closure of financial institutions on grounds that they were 'too big to fail,' governments effectively rewarded the practices of bank managers who engaged in overly risky financial practices prior to the GFC as well as shareholders who selected the managers who caused the banks to get into trouble in the first place.

The implicit transfer of wealth from poor taxpayers to rich bankers, who are prevented from being rendered poor as a consequence of bailouts, is another aspect of the bailouts that have not been lost on the Occupy Wall Street protestors.

Arguably the greater problem is what might occur down the track.

Having been rescued from almost certain insolvency by governments in the recent past, financial market participants expect that future governments will repeat a similar bailout strategy should another global economic downturn or significant episode of financial market dysfunction materialise.

And so an element of 'moral hazard' becomes ingrained into the financial system whereby financiers are prepared to finance riskier economic ventures or purchase more securities of dubious financial backing, than would otherwise be the case, safe in the knowledge that a future government will rescue them anyway.

While it is convenient for the occupiers, with an inherent bias against market capitalism, to sheet home the entire blame for these unwelcome developments to the financial sector lobbyists who no doubt secured bailout arrangements much to their liking, they seem to miss the point.