John Kay’s ‘Other People’s Money; Masters of the Universe or Servants of the People?’ asks some serious questions about serious money (i.e. yours and mine) although it feels as if they’ve been asked before.
To begin by taking a brief time trip back to 2007-8, when stock markets and the institutions surrounding them seemed in free-fall. Kay assured us that we were indeed hours away from a point when banks would have literally run out of money and all those handy holes in the wall would merely have mocked those seeking to remove their savings from completely disappearing.
Kay didn’t expand on the aftermath, but its possibly instructive to consider the fate of two fairly innocent bystanders to this financial car-crash. One, a casual drinker with a slight theatre problem watched the cost of a three-bedroom seaside bungalow vanish off the value of his holdings in the space of forty-eight hours. The other, a retired university professional lost even more from the value of his shares in the Royal Bank of Scotland.
The first held on and recovered the losses over the next seven years, while the other has received very limited compensation (he has another word for it) for his loss.
Such, it might be said, is merely ‘the market’ doing its self-regulating best, but as John Kay points out, whatever the future may hold, the events of those years marked a departure not only from financial collapse in the past, but was also a result of the way in which financial organisations had come to be organised and behaved.
Kay blames our woes of those days and since on a change in culture and ways of doing things that began in the mid 1970’s with the financialisation of financial services. The pin-stripe suited city gent who looked after other people’s money with conscientious probity was replaced by a fresh generation that saw the world very differently.
Kay notes and mourns the passing of that age, but what may be even more to blame is the increasing use of computerisation by financial institutions. A hedge fund is behind the construction of a tunnel through the Alleghenies to carry a fibre-optic cable that will reduce the speed of communication between the Chicago and New York stock exchanges to less than 4 seconds.
Such instant communication makes the interventions of humans, no matter how well informed, redundant and even delinquent in relation to the machines that now determine which trades are made and when.
It could be argued that it is this reality, as much as the behaviour of individuals, which contributed to the crises of 2007-8, and much as one may applaud Kay’s efforts to reignite the consciences and behavioural standards of those working in financial trading, one fears this is not enough to avert any oncoming repetition of past events.
John Kay; ‘Other People’s Money; Masters of the Universe or Servants of the People?’ Profile Books 2015 isbn; 9781781254431