Accelerated Immersive Learning

If you have infant children (or have close relatives that has young children); you might recall some delightful experiences when they are just two years old. When they not only begun to string sentences together for the first time, but had deep semantic understanding of problems and tasks at hand? I recall my daughter doing exactly that. How on earth did she manage to pick up complex strings of grammar in such a short time, and then appreciate their context and relevance at two years old?

Take humour! It is arguably one of the most complex heuristic functions: meaning, juxtaposition of contradictory context leading to a punch line and unexpected consequence. My daughter would have me in hysterics even at her tiny age with her funny quips or facial expressions in synch with some spontaneous situation. So, how is it that a little toddler manages to learn so fast?

The prime answer, immersion! Little kids are immersed in the middle of an environment with parents, siblings and other family members. In conversations, they pick up the syntax and semantics at a hugely accelerated rate.

Now here’s the question: ‘Why has it taken me many years to master the German language?’ There are both physiological and psychological reasons for this going on in my adult brain. But one thing is true, my brain physiology is different in my adult life than as a small child. And facts are facts little kids learn more quickly than even their 12, 20, 50 year old counterparts.

But being immersed further amplifies and accelerates learning because you are cognitively engaged in a tangible setting. The simulation is physically visceral, not only is your brain more engaged, you body is too.

So why are schools and universities organised in sterile classrooms, and the pupils then merely spending less than half their time in four or five different classrooms (as in pupils walking fairly long distances between classrooms, breaktimes, lunch)? This is not real-world. It is artificial, unnatural and highly unproductive. Plus, the period of time that kids actually spend in the classroom, they are only engaged for a third-to-half of that time. Things like settling down, opening books, other kid pranks, monotony, teachers doing the same, etc. So in total, kids are at best learning for only about a quarter of the total time. If a typical school week is 30 hours, that's 7.5 hours of active engaged learning a week! Just over seven hours a week!

Alternatively, immersive learning environments, that are designed as multidimensional tools to accelerate learning, are now coming on-line. Kids are collocated in a single class (accept for physical education). And teachers run between classes. This make sense. For example, I went to a high school with almost a 1000 kids, so that's 30,000 collective manhours a week. There were 50 teachers, so that's 1,500 manhours. So 30,000 v 1,500. For a child with perfect attendance, 10,080 hours will be spent in school from fifth grade (age 10) to high school graduation. Then having teachers move between classes is much better, because in fact collectively the kids do most of the work.

My conclusion is if kids are given immersive learning environments and tools, and stay in the same class (mostly), they would all do better at school! They will all speak basic French in a few months! And after a year, quite well?

And as for the financial cost of doing this? What is the cost of 55 percent of kids (UK statistic) leaving school with very little academic and real-world learning achievements?

In the US, the average young person racks up 10,000 hours of gaming by the age of 21. Statisticlly, that’s about the same as spend in a classroom for all of middle and high school if they have perfect attendance. It's a remarkable amount of time we're investing in games.  5 million gamers in the US spend more than 40 hours a week playing games. The equivalent of a full time job!

Gameplay may not contribute to the Gross Domestic Product… but scientific research shows that gameplay does contribute to our quality of life, by producing positive emotions (such as optimism, curiosity and determination) and stronger social relationships (when we play with real-life friends and family – especially if the game is co-operative). And for gamers who prefer tough, challenging games, they can build up our problem-solving resilience -- so we learn faster from our mistakes, and become resilient in the face of failure.

Virtual classes start at a different time every morning, depending on when your children are ready for school. Global superstar teachers lecture to classes scattered across the globe, using telepresence and 3D technologies. Classes are in all languages as a result of automatic real-time translation. Interactive media links diverse and dispersed groups of educators and students in ad hoc groups to establish new forms of collective assessments and qualifications

Virtual learning agents guide you through the massive quantity and different forms of education on offer. To meet your personal needs, the agent will assemble educational offers into a set of functions and roles, producing lifelong and needs-based learning plans tailor-made for you. You can of course adjust your personal learning plan at any time, and there will be automatic updates. Learning experiences are immersed in and mediated by a learning community as opposed to merely digital, computer-bound and isolating e-learning

Your children are much more technologically adapt than you, just as they were in 2010. Fully connected and equipped to live in a world which is simultaneously real and virtual, your child negotiates reality games and real-life interactions equally well. A culture of layered realities has become common and is having a positive impact on learning, involving cooperative, critical-thinking and problem-solving skills as found in digital games today. Younger members of society are mentors for their elders with regards to methods of urban and digital survival, computing and networking

Your children are much more technologically adapt than you, just as they were in 2010. Fully connected and equipped to live in a world which is simultaneously real and virtual, your child negotiates reality games and real-life interactions equally well. A culture of layered realities has become common and is having a positive impact on learning, involving cooperative, critical-thinking and problem-solving skills as found in digital games today. Younger members of society are mentors for their elders with regards to methods of urban and digital survival, computing and networking

Multiple gunshot wounds. Mass casualties. A biohazard incident. It may sound like a typical episode of ER, but a virtual rendering of such serious situations could provide valuable training for future medical professionals. Stanford School of Medicine's Immersive Learning Center will allow medical students to integrate their classroom understanding in parallel with simulation-based practice. By creating a virtual microcosm of a hospital, for example, students can seamlessly maneuver through a variety of medical settings, without worrying about making mistakes.

"The goal is to have experiential learning be completely imbedded in the experience, starting at the beginning of a student's education and maintained through their careers," said David Gaba, professor of anesthesia and associate dean for immersive and simulation-based learning.

Emphasizing technique over technology, the center provides students with a range of simulations, from a single patient setting to a mass casualty. A "Wet/dry" classroom gives students an opportunity to practice suturing and giving injections. Mannequins serve as rehearsal for applying splints or casts.  Actors help students prepare for patient care. A role-playing virtual world would allow students to represent nurses or doctors in a trauma ward and respond to a patient's changing condition.

Merging Gaming and Education: The Gamification of Learning. 

Improving learning performance across the board, from infants entering pre-school right out to retirees engaged in further and higher learning, is a Holy Grail for educationists. And there is a growing stack of evidence that supports that gaming platforms, in its many guises, substantially assisting in this goal. Gaming offers no panacea, but it is having a gross positive impact on learning.

Gaming, as applied to learning, is not simply sitting a student in front of Donkey Kong and then measuring the student’s net gain in academic performance. There is some quite profound at work.

Breaking down the gross positive gains, however, is a bit more tricky. While students may achieve higher overall examination scores as an objective measure, measuring student performance improvement in terms of enabling and learning skills and abilities, is altogether different challenge. These are universal life skills such as general problem solving, critical thinking, creative thinking, ideation, processing, et al (such fluid thinking skills are at a premium today).

The problem is that conventional formal examinations do not measure such enabling skills. But gaming can!

As a point of interest, gaming markets have grown to bigger than both the movie and music industries. And not being a gaming aficionado, that surprises me, considering the modern gaming industry is only around 40 years old.

In a wider context, gaming is a twenty-first-century way of leading, thinking, learning, communicating, and even selling and prototyping (as I will elaborate on later), and of working together to accomplish real change and improvement across and range social and commercial issues. The statistics are mind boggling. 180 million active gamers in the USA playing on average 13 hours per week. The great challenge is to integrate games more closely into everyday worlds, and to embrace them as a platform for collaborating on our most important planetary efforts.

Thomas Frey,

‘Steve Jobs famously stated that “people don’t know what they want until you show it to them.” Educators have been working under a similar assumption that “students don’t know what they need so it needs to be planned out for them.” 

The key difference in these two statements is that Steve Jobs created products that lived or died based on market demand, and consequently, many of his products failed. Market demand in education is vastly different because the customers (students), have very few options, and future employers, the ultimate consumer of an educational system’s output, are only tangentially involved in the whole process. So let’s consider to a more consumer-driven educational marketplace. If a student had the ability, as in a grocery store, to walk down an aisle and pick and choose the “products” they wanted to learn, how different would that be from our educational systems today? To ask this another way, if every course lived or died based on its ability to build an audience, an actual consumer-driven following, what courses would still exist and which ones would disappear. More importantly, what would classes look like and would we even have classrooms, schools, and teachers? In the fluid learning environment emerging around us, the whims of a marketplace will be as fickle as in today’s retail stores’

Reward. One of the kernels of compulsive gambling is anticipation of reward. In fact, the worst thing that youths can experience in early life is run of luck at the slot machine or dog track. It imprints in their mind for a long time to come. The reward-dopamine cycle is route number one to dependence for over eating, watching soaps, sex, violence, politics and gambling. In the case of education, youngsters do not get the kind of feedback in terms of reward in the volume and depth necessary for them to be a compulsive learner. Giving a gold star for an essay and pinning in teacher’s wall only goes so far.

Learning rewards need a bit of inventive thinking. For a start, smart kid will outperform the not so smart over all. And that can lead to a green eye and a questionable ethic. But rewards do not have to be that big and they can be class (team) based.

The first step is figuring out what the would-be pupil, or indeed whole class, likes best. Day trips out (theatre, theme park, cinema, zoo, museum, waxworks, laser tag, football/hockey match? Strawberries, chocolate, ice-cream? Titles, craving infatuation dependence

 

 Gamification Mechanics.

An exciting and potent branch of the science of game theory is Gaming Psychology. Which explains the mechanics and dynamics of not only winning, but motivating in a way that makes the customer, comeback for more again and again, learn more quickly and independently.

 

There is lot of terminology in world of online virtual learning and associated platforms. And it is the same for the videogame world as well. For a start, gamification and gaming are two different things. Gamification is the act of applying rules of thumb, often called ‘gaming mechanics,’ to make a videogame or online course more effective. And gaming is the link between playing and games.

Tom Chatfield's TED talk on 7 Ways Games Reward the Brain. With gamification, these possibility spaces have been expanded beyond just games into other areas like marketing, education, the workplace, social media, philanthropy, and the Web, just to name a few. BioNetwork provides workforce training and education to the biotechnology, pharmaceutical and life science industries.

Immersive applications encourage imagination, support exploration, give risk-free environment, help our understanding, engage our interest, make inaccessible accessible, build relationships, bridge to physical world

Gamification, as applied to online learning is the use of gameplay mechanics for non-game applications. However, it must be made clear that Gamification is not about turning you course matter into addictive video game. The outcome should be focussed on proficient and competent understanding of the subject matter, designed and motivated through gaming mechanics.

Game mechanics are the construct of rules that encourage users to explore, learn, and push the boundaries of their aptitude through the use of clinical feedback mechanisms. The primary reason for applying gamification to online learning is to engage learners. Much of what is used to build engagement in video (and non-video) games can also be applied to other interactive material, such as online learning. But what mechanics need to be considered and integrated most?

Engagement mechanics is the effective pursuit of attention or increased effort of a learner. Basically, engagement occurs when a brain is rewarded, and for something to be perceived as rewarding it must evoke positive emotions. The are two prime mechanisms to the sensitivity of something being rewarding: desire and affinity. Without these motives, the learner will not find something rewarding. Neuroscientists says that desire and affinity occur in two separate parts of the brain. For the purposes of developing engaging online learning courses, the gaming mechanics need to reward the learner's brains by compelling motives to want the knowledge or skill, and develop course content they enjoy.

To do this, contents designers must know and understand the audience, not just the subject matter. This is partly a demographical issue, by studying the popular culture, brands, interests, and the general media the target audience get pleasure from.

You may have seen in the media the reports of activities, or gadgets, or pass times that for a great many people become somewhat addictive (if not ultracompulsive)? We all know someone who compulsively sends text-messages, or aches to post a Facebook comment, or spends every evening stuck in front of a video game.

Deploying motivation. Controlled and autonomous motivation achieve different outcomes. Extrinsic motivation leads to a discrete outcome, such obtaining a life goal. Intrinsic motivation leads to activities that pleasurable, exciting, or interesting, such a hobby or recreational sport.

Motivational theory proposes all humans require the satisfaction of three basic psychological needs, namely:

• Competence (a sense of being able to do something i.e. being competent)
• Autonomy (a sense of control and freedom)
• Relatedness (a sense of being associated or connected to others)

There are a number of strategies that can be used to motivate online situations:

• Give learners some level of control as they work through the module or course.
• Provide regular, meaningful feedback throughout the learning experience.
• Incorporate social elements.
• Provide opportunities for collaboration between learners.
• Keep the stakes low and allow learners to practice.
• Allow learners to make meaningful choices and pursue challenging goals.

Motivation plays an important role during educational experiences. Even though a person may be motivated to engage in an activity leading to a separable outcome, they do have a degree of choice and control if they have internalized their motivation. As educators we have an opportunity to assist with this internalization in the way we design and deliver learning experiences.

Contexts that satisfy these basic needs will support people's actions, resulting in more optimal motivation and positive outcomes. So, if we can use strategies to support autonomy, competence and relatedness needs we can assist learners to internalise their motivation.

DopaLearning. These are what I call DopaProducts; or here, DopaLearning. Products and games that you cannot but help to purchase, even if you do not need them or rarely use them. DopaProduct are any pursuit, interest, object or conduct that develops into a main focal point in an individual's life routines, work and leisure pursuit, often to the exclusion of other behaviours. In fact, people - all people - may become addicted or compulsively obsessed with even simple things (habits are more easy to form, yet harder to break).

Some studies imply that there are comparisons between physical addiction to different substances such as alcohol or cocaine; and psychological dependence to activities such as gambling, work, running, shopping or eating.

All addictions, whether behavioural or substance based, have a decisive thing in common. That they all produce elevated levels of dopamine in the brain. A neurochemical that causes an octane-like high. However, over time, the body begins to develop a tolerance to increased levels of dopamine. In turn, the person then must increase the behaviour such as watching more TV Soaps, Facebook shares, reading violent novels, ultra-cleaning the home, etc, to avoid withdrawal symptoms and achieve a high once more.

This in the realms of clinical bio-psychology is known as the distraction-​dopamine cycle. This behaviour (all behaviour is ultimately dictated by chemical activity in the brain) can promote a wide range of outcomes from food binging, acute gambling, violence, sexual addiction; all creating a lasting buzz and/or relived tensions. The key point is that the excessive activity (food binging) is not connected to the purpose it appears to be directed to (satisfying hunger). Other reasons are often present, but difficult to detect.

Examples could be a person who is afraid of bonding with a partner choosing to zone out with the TV, or a person who has never had enough love filling up on a kilo of ice-cream. Hence, addictive behaviours are often the consequence of invisible factors, but none the less are fulfilled or avoided by choosing an alternative outcome like spending all night in the pub or clearing out the cupboards every-single weekend.

So what does this have to do with commerce, or here, turning online gaming into GigaMarkets? Quite a lot in fact. We all have a passion. There is always something in our lives that we are fervent, zealous, and sometimes fanatical about. A hobby, a craft, a game, a collection, a sport, a TV games show (quick switch on the TV; American X-Factor’s on!). And that is your distraction-​dopamine cycle firing off. And the more you are caught up, the greater the cycle, the more reinforced those positive feelings are by seeking out more and more. And now you know way passion fed products like Harry Potter books and films or 40+ years of Star Trek are so successful.

And that is where a GigaMarket signal resides! Your passion is not a convergent focus, because the longer you seek it, the more you want it, the more you crave, the more the scope for innovation! The goal then, is to seek signals that highlight or embed distraction-dopamine cycles.

 

The learning whole. Student learns faster and better if presented with a holistic picture of the entire material right from the beginning. Thus, a student knows why they are learning the material before they begin to learn it. Small units does serve the purpose of easy digestive learning, but also leads to a fragmentation of the final outcome. It is not enough to pack each chunk with synthesizers, cognitive strategies, activities, discussion forums, and assessments. The learner should have the opportunity to realize, recognize, and comprehend why they are learning the content.

The student is the principal audience and receiver of the learning process. Online learning must be learner-centric and not teacher-centric. The focus of online learning needs to shift to a macro-holistic process. Put the learner in the center of the learning process. Designing instruction is about analyzing and addressing the needs of the learner in a macro fashion. A learner will always need to know the path and goal of instructions. Why is he studying this particular concept? For instance, take a simple example of crossing a stream by hopping from one stone to the other. You know where you are going. Similarly a learner needs to know the where, why, and how of instruction. And the macro-oriention answers this explicitly. It places the learner within the learning context taking the concentration away from hierarchical instructional events

Setting Levels and Goals. Video games are often structured so that players have a range of levels and goals. First is the long-term goal of completing the contest. This is important, as it depicts the overall themes, narratives and big concept challenge. Next, are the medium-term goals of concluding each level. And lastly, the short-term goals of completing the missions in a specific levels.

Each level of a game should get harder; a linear condition with each level becoming more complex. Hence in online learning, each level drives forward learning boundaries. However, if the would-be student demonstrates high performance proficiency, the next step level should offer a choice. A condition where the learning-player could choose whether to play a harder level, an easier level, or the same difficulty level.

Adaptive levelling system determine the level of increasing challenge to the player based on their performance on the previous levels. Good results are rarely achieved on the first round, but when they apply the algorithm to the earlier levels they get impressive results. That says a lot for cognitive tutoring, the ability to have a very customized experience by giving a challenge that is appropriate for the level of proficiency.

This allows players in games to learn and practice skills, prior to having to demonstrate mastery of those skills in the most challenging parts of the game (room to fail, room to play, room to learn in trial and error).

Minimizing cognitive fatigue. It is also important  minimize cognitive fatigue, the learning content within levels should be broken up into short, medium, and long-term goals.

It is typical that learners must complete several modules before completing a course. To complete a module, several topics must be completed. In order to complete a topic, several objectives must be finished.

Obviously, each objective requires several goals to be completed. Structuring online learning this way, allows users to learn new skills incrementally, and then practice those skills before demonstrating mastery of those skills in assessment exercises.

Growing learning competence through the learning game. Essentially, as the challenge of an experience rises, the skill of the participant must also grow in direct proportion. If a user's skill exceeds the challenge of the experience, they will become bored. And, if the challenge exceeds the participant's skill, they will suffer anxiety.

An optimal user experience is illustrated in the flow channel as the squiggly line. This line demonstrates the experience described above where a user is challenged to a high degree with new experiences, and then given an opportunity to demonstrate and master the skill of that experience, before given a completely new challenge to conquer.

Final test level. learners are given goals that get increasingly more difficult as they approach a final level. At this level, the level of difficult should reflect a kind of final exam or test.  The challenge of the test level must higher than any of the challenges in the prior levels. This need to be combo need with the opportunity to replay previous levels to master skills before the challenge ramps again. This keeps the player in the flow channel, thus engaging them in the experience. With learning, the challenge is ramped up immediately after an assessment with the introduction of new material. The learner is presented with new material, which gets increasingly more complex. They are then given a chance to master those new challenges as their skills increase, and after that they are given an assessment that demonstrates the knowledge of that material.

Provide Frequent Feedback. Have you ever used an interactive product, be it eLearning, a game, or a website, and felt lost or confused? It happens to everybody, and it's really frustrating. Maybe you are asked to recall some information that you swear you were never told (or, that you were previously told and you've just forgotten), and you don't even know where to look to find it. Perhaps you didn't know how to progress; you don't know what to do, where to go, or you simply can't find a UI item like a button. Or, maybe you find out that there's an assumption that you need some prerequisite knowledge or experience to even understand the basic principles of what you're doing, and you had no idea you needed this, and you have no idea where to get that knowledge or experience.

Employ smart strokes. Popular science and technology publications do this. The New Scientist, Wired, and Focus magazines induce the reader into thinking they are smart by pushing the reader’s intellect just a tad and dressing the language in techno-babble. Learning a course’s content should be the same. Especially for learning exercises. If a would-be learner is confused, lost or feels that they are thumping their head against a virtual wall, engagement will be lost. Because the contents and exercises will essentially say they are dim-witted.

Learning maps. Users should know precisely what they need to do next, or what options they have at any given time. Learner often take long breaks. Sometimes days or weeks. Would they know what to do when they returned? Keep apprentice informed of what to do now and next. This can be achieved by links back to essential information previously referenced or links to supplemental material that is prerequisite knowledge for the current learning.

Measure progress in easy to understand graphics. An significant part of providing feedback to users in online learning is to let them know how much progress they have made through each level. The course consists of a number of modules, and within each module there are several topics, show progress at each level. Use visual and sound graphics instead of ratios or number fractions. Get creative. The progress indices do not need to displayed continuously. It is possible to turn progress statics in to a reward, especially if it's displayed with some fanfare. However, if you do this, users should be able to access the progress bar somewhere at any time.

Evaluation. Blind tests will also put off the student. During assessment, describe why answers are correct or incorrect. Either in pop-ups or links to appropriate information. Many of the online learning course, game and tests I have viewed merely say, ‘Wrong. Try again.’ These people are not playing for fun, the yare thinking and have goals. So give them the support.

Reward effort. Any good teacher will tell that rewarding for effort, not just achievement, is a key to motivation and engagement. If this is presented in a way which is interesting, your learners will feel rewarded, and thus, engaged. Scale the reward in proportion to the effort, as in an animation graphic to congratulate a learner for a perfect score on a test, do not use that same graphic to recognize lower achievements (star, medal, trophy; or toffee, popsicle, huge chocolate bar).

 

The characteristics of gamification mechanics characteristics might include quests, tutorials, competitive versus non-competitive gameplay, and levelling.

Enjoyment of goal pursuing in learning. Quests are the goal structure in a game, the motivational storyline that keeps you going. Researchers have show that using the quest in the game helps learning outcomes and highly related to gameplay and really well received by the students. There is little increase in student motivation to learn mathematics, for example, but students spend more time playing the game and felt they had a more enjoyable experience when quests were highly aligned with the learning objectives.  Put in quests that are imaginative or fantasy-based to get people into the game and moving through instead of making sure that the quest aligns with the learning objectives.

Impact of tutorials on learning games with varying complexity. Think about how students will learn to play the learning game. Educators tend to believe they always need to give instruction; that we have to include a tutorial. Researchers found tutorials were not well received and were viewed as unnecessary when the mechanics of playing could be surmised through just trial and error or intuitively deduced.  For more complex learning do not force a tutorial, provided lessons that scaffold learning the gameplay, as opposed to mere instruction on how to use the interface. This results in more learning play and higher engagement.

Co-opetition (competitive cooperation) goal structures in learning games. When players think about games they are inclined to assume a competition. This may create an anxiety about building in competition because a defeat might lead to thinking that they have not learned anything. So design the game to make it both competitive or cooperative (co-opetition). They had two players playing against each other in each round of play. They were told in an obvious way and saw that while everybody learned that the groups told to compete and the groups that were paid if they won did actually see an increase in intrinsic motivation. Even adding a reward mechanism in this case did not detract from the learning. The people who won the money did actually have higher self-efficacy, but all winners had higher self-efficacy. It changes the way we have viewed reward structures in games and does illustrate some benefit to competition. I think that we think of it as a hallmark aspect of games because we want to have that "we want to work together" kind of experience.

What happened to the big banks and the global economy in 2007/8 and beyond?

‘Make Money and Do Good!’

Robert Frick,

Former Co-Chairman,

Bank of America.

Despite what the infamous Wall Street protagonist said; Greed is Not Good. But contrary to popular belief, money can lead to good. Because money means access to the possible. And considering what I have outlined thus far, the now impossible too. In the right hands, with right values, and with the right intent, money is good.

What is more, money may not be able to buy happiness. But try not having it. It is a guaranteed pisser! The street is the only opinion. A Street that has no Wall.

Bob Frick, quoted above, was one of the most successful merchant/investment bankers through the 1970s, 80s, and 90s. Anyone who knows him well, would not doubt his monetary values and intent. And as the records show, the legacy that Bob left at B&A enable the giant bank to be one of the few to navigate through the 2008 collapse on top.

So What Blew the Fuse in 2008?

To most, it is still a mystery. The answers are, or moreover can be, complicated only because we make them complicated. And it is the same for the solutions. We may read in the daily news that the financial institutes, thinktanks, and policy makers are at somewhat of a loss for solutions. Again, the solutions they offer are complex in their structure and takes time for them to come to flourish.

But time is not only at the essence, it is the essential quanta. Because banking – and there are a great many kinds – is and always will be about the future. Bank capitalisation is raised on speculation about the future. Investments and loans again are about speculating a good return on the future. And the macroeconomy that banks help create and support is all about a decent future.

A good and successful future is a great many things of course. And that many things comes down to how and what your measure. For a Tibetan Monk that will be a completely different set of metrics to a New York Investment Banker. So in the context of this post’s main theme, the bottom line here is a GigaMarket return on investment over the longer-term. When all is said and done, that is what it boils down to here. Reasonable? We will come to that below.

What are Banks For?

At its roots, banking has a formidable role in monetary and fiscal application, leverage, and innovation in (1) creating new economic spaces, (2) make possible economic expansion, (3) enable the creation and introduction of new products and services, and (4) provide on the street ‘real’ economic functionality and mechanics. Without these four kernels, there would of course be no economy, and no society and technology, at least as we know it today. Thus, financial potential, kinetics and innovation are fundamental.

However, given the latent design of so-called collateralised debt obligations or credit default swaps, and the many other new-fangled fiscal leverage and repackaging gadgets, financial innovation has earned a wayward reputation. But as you will see below, further and even continuous innovation is needed if we are to create and realise the new economic horizons of the future. Because in fact the role of the wicked reputation innovations were in fact merely out crops of a financial collapse caused by deeper means.

And there are two fundamental questions that need to be asked here: ‘Why did we not see the 2007/8 financial meltdown coming?’ and ‘And for that matter, what where the fundamental mechanics that caused the long depression?’

You would think that with such a massive financial tsunami heading our away, some bellwether Davey Crochet financial wizards might have yelled out that something was afoot. But in fact there were indicators, only in the huge hazy noise of the financial world, they went mostly unnoticed. The banking liability emergency exposed a number of defects in both the design and monitoring of such financial systems.

 First, there was no-bailout clause in any of the financial systems; and as a result of this absence there was no monitoring system and cumulative record in place to metricise the interest rate differentials to provide a clear signasl about the build-up of imbalances.

And second, bank regulations treated sovereign debt essentially as risk-free, implicitly assuming that there would always be bailout.

The latter assumption induced banks to take on excessive exposure to their own sovereign credit risk. This led to a ‘diabolic’ loop whereby sovereign risk and bank weakness reinforced each other – in countries where sovereign debt was perceived be riskier, bank stocks plunged, leading to expectations of a public bailout, further increasing the perceived credit risk in government bonds, as illustrated in the following figure.

Current design of the Eurozone promoted excessive capital flows across borders, followed by massive self-fulfilling flight to safety when confidence in a given country’s debt is lost. At times of turbulence, investors run from some countries, such as Italy, to park their investment in safe havens, such as German bunds.

The pressing matter of tacking sovereign-debt and the risk of neo-classic contagions; the full extent to which banking-risk and sovereign-risk are so dangerously intertwined that no EU bank is secure from the latent impact of holding government debt.

A more joined-up approach in regulatory restructuring and stronger worldwide regulatory frameworks in tune with resolution authority for systemically important financial institutions (SIFIs).

The essential role of banks in terms of their vital contribution to the real economy and the pivotal role they play as lenders to SMEs in support of economic growth at local and regional levels.

So rather than moving from privatising profits and nationalising losses and dept to nationalising both, I would advocate privatising both. An old idea that has not really been popular among policy makers these past years in the industrialised world.

For this to happen, the sovereign debt and banking crises that are intertwined have to be addressed with separate policy tools.

The current plan is for banks to seek fresh capital from the markets, with EFSF resources as a backstop. Conclusion 2 is that this plan will not work.

The only feasible solution is to guarantee all public debts, thus avoiding both stigma and lack of credibility. Finland, Estonia and Luxembourg would do the Eurozone an historical service by requesting to be part of a debt guarantee scheme. What kind of guarantee scheme is needed? An example is provided in Wyplosz (2011). In a nutshell, all sovereign debts must be partially guaranteed (eg up to 60% of each country’s GDP, or up to 50% of the nominal value). The scheme would backstop debt prices by setting a floor on potential losses. It would lead to less panicky debt pricing by the markets. In turn these market prices would serve as a guide to debt renegotiation

Who can offer such a guarantee, which is effectively a price guarantee? A price guarantee only operates if markets know beyond doubt that the guarantor can and will buy any bond that trades below the announced target (which in this case is a floor).The total value of Eurozone public debts stands at some €8300 billion (more than three times the German – or Chinese – GDP). This is beyond any enlargement of the EFSF. This is beyond current and future IMF lending resources, currently some €400 billion. The unavoidable conclusion is that the ECB is the only institution in the world that can backstop public debts and make reasonably orderly defaults possible. The current ECB position – “we have done what we can, now it is up to governments” – dramatically misses the point. Of course, the ECB may be concerned about taking on such a momentous task; an imaginative solution is for the ECB to provide the commitment through the EFSF, as suggested by Gros and Maier (2011).Finally, how can the two rescues – of sovereign debts and banks – be carried out simultaneously, as required? If Greece defaults, its banks, pension funds, and insurance companies will fail in large number. It seems that Greece will not be able to bail them out. Assume, just as an example, that Greece defaults on half of its public debt (about% of its GDP). Assume that bailing out its banks, pension funds, and insurance companies costs 30% of GDP. The government can do the bailout and still come out with a debt that is lower than now by 40% of GDP. Greece can afford to borrow what it needs to bail out its financial system. The solution then is that the ECB – directly or indirectly via the EFSF – partially guarantees the existing stock of debts and fully newly issued debts simultaneously. Obviously, the guarantee of future debts cannot be given without absolute and verifiable assurance of fiscal discipline in the future.