Wednesday, November 18, 2009

Reds versus blues

(with apologies to Michael Skapinker)

In the blue shirts are Team Markets. The players are Eamonn Butler, Phillip Booth, Marcus Agius, Peter Sands, John Varley and Lloyd Blankfein.

In the red shirts are Team Ethics; Ken Costa, Stephen Green, Adair Turner, Mervyn King, Will Hutton, John Kay, Nick Anstee, John Plender and Gordon Brown.

They are preparing for a match to decide if free financial markets will save or destroy themselves, like a celebrity student seminar on Marx, but with real policy implications.

The day before, angry protesters started targeting bank offices with placards, which should focus the contest nicely on the question of how well today's financial markets fit with common ideas about markets and social justice.

The market ideas are familiar from Adam Smith and David Ricardo. Their application to finance was questioned by Alan Greenspan and will soon be the subject of a TV documentary with Luke Johnson, called “The Flaw”.

The social justice ideas include Rawls notion of equal access to opportunity and a floor under the poorest; Mill's laissez-faire without harming others; and Bentham's greatest good for the greatest number.

So far so theoretical, how does it compare with reality? 

Round-up from the last few days

Here's a quick round-up of developments in the last few days:

Goldman Sachs apologised after protesters bearing squid placards and too-big-to-exist signs converged on its Washington DC office and the home of Lloyd Blankfein. Blankfein had earlier caused uproar when said the bank does god's work. He later made things worse when he said he had been joking. The pressure had some effect as GS then pledged USD 500m to help small businesses.

Thursday, November 12, 2009

Fitness for purpose

Problem: parts of the financial architecture have evolved without regard to their general economic function, spreading dysfunction, cost and instability.

Solution: extend the “fitness for purpose” concept from consumer to financial law. Link financial licenses to a statement of economic purpose (such as to provide payment systems, capital allocation, risk dispersal, liquidity, trade facilitation etc) and use this to develop industry structure, taxation and regulations concerning pay, risk, capital, governance and any other areas of regulatory oversight.

Tuesday, November 10, 2009

Function and ethics

“In every civilised nation the soldier’s profession is to defend it, the pastor’s to teach it, the physician’s to keep it healthy, the lawyer’s to enforce justice in it, the merchant’s to provide for it,” wrote John Ruskin in 1860.

What would the 19th century social thinker, subject of a thought-provoking  video by the FT's Andrew Hill, have said about banks?

Sunday, November 8, 2009

Climate finance

Today’s G20 communiqué reminds finance ministers of another reason to take financial reform seriously – climate finance.

A paragraph at the end of the two-page document mentions the need “to increase significantly and urgently” the scale of finance to secure an ambitious climate agreement at Copenhagen next month.

Banks have been taking up a lot of public attention and money but they will soon have to compete with energy reform, which could make financial reform look easy by comparison.

Tuesday, November 3, 2009

Turner conference

There’s a consensus coming, slowly but surely. Based on the presentations at Monday's FSA Conference on reform, bankers and regulators agree that banks should be more resilient, better behaved and easier to clean up after a bust. The discussion also threw up some new opportunities