There is now much discussion of the immorality of the market. The latest fashion is to say that financial deregulation, dated conveniently to 1986 to place it under Margaret Thatcher, caused people to suddenly become self centred, materialistic and greedy in a way which has wrecked our finances, markets and banking ever since.
This is bad history and sloppy politics. There was a continuous rise in the volume and detail of financial regulation in the period 1986- 2011. Most of this period in the UK saw the country governed by a left of centre government with a large majority. They had the power to reverse any trends and deregulations they did not like. They themselves completely changed the system of financial regulation in 1997, 14 years ago. They formalised more of the regulation, and put the banks under a large new body of law designed by the FSA.
The truth is the last decade saw an explosion of extra regulation by both the UK and the EU. It saw substantial regulation by the global banking regulators of Basle. Collectively they made a huge error of judgement, allowing too much bank credit to be sustained on too small a banking foundation. It was a case of bad regulation, not deregulation.
Markets were never moral. They did not enjoy a golden age of good behaviour. There were always some greedy people and companies in them. Markets are neither all bad nor all good. Saints buy from sinners. The moral lend to the immoral. Nasty people make things for nice people. Christians trade with atheists. Markets are the results of the choices and actions of millions of people and companies deciding what to buy and what to sell. A market does not have a collective view or a moral outlook.
When a market is moving rapidly in one direction then it can be a useful fiction to say “the market is optimistic because…” or the “market does not believe in Greek state finances because…” Even in these more extreme conditions every transaction needs a buyer as well as a seller. Buyers and sellers by definition usually have different views.The attribution of an attitude or opinion to a market is an attempt to explain price movements by trying to identify the motivation of the majority of traders.
Markets are amoral. They are a babble of voices, a mixture of the well informed, the opinionated, the frightened and the optimistic, the lost and the wrong headed. They are important ways of allowing people to change their assets, raise cash, invest and make economic decisions. They are not places to come to a single moral conclusion.
That is why markets need regulating. That is why politicians are elected to write laws to control them, or to impose a moral view on the actions of the many. It is generally agreed in a free society that we need laws against theft and damage to other people’s property. We need a law of contract, and some law to ensure honest dealing. We need laws to stop individuals and companies gaining too much power in ways which can distort a market or can prevent other people enjoying proper access to it.
Markets allow the moral to flourish if they wish by using the market. Investors can invest in moral ways. Entrepreneurs and charities can raise money for good purposes from the market. Large companies in recent years have pioneereed better employment practises, better products and services, and the greening of their actions. Market pressures and market money allowed them to do these things.
Governments have to decide how to prevent abuses and immoral purposes stalking the markets. They have done so through a myriad of regulations. Some of these work and are needed. Some have failed. Some have been badly implemented and missed the targets. We do not have unbridled greed because we have insufficient financial regulation. Markets are never going to abolish all greed. Regulators have to decide what to stop and how to stop them. If the left now thinks there is too much greed, we are entitled to ask why did they do so little to stem it between 1997 and 2011?
November 8, 2011
It was as you say a case of bad regulation and bad government as usual. A sledge hammer to miss a nut.
A good bank, a highly moral businessman/woman or a good company cannot anyway do anything about an immoral or badly run business. It is simply not under their control so complaining about good businesses is pointless. They can only make a noise about it (and even then are constrained by Libel risks).
It is the regulators job pure and simple and we need good regulation that works sensibly with the markets.
The market can however help – a bad bank should not attract deposits easily – but then the government deposit guarantee usurps this. If the state offers a guarantee they need to regulate the risk they are taking on.
So much of regulation is done for political reasons (or for the enrichment of the regulation industry). There are more tenants and employees, than landlord and employers, so it is always popular (politically) to lean in their direction. Even though it does not, in fact, even help the tenants or employees – who are best helped by a good choice of jobs or properties to rent.
How we can get to good regulation, not driven by petty politics, the political cycle and self enrichment of the regulation industry is a good question that needs an answer. It is certainly not assisted by the absurd multilevel government/powers of EU, Westminster, Scotland, Wales, Ireland.
The regulator/government need to use game theory and work with the markets to create systems that tend to give quick, sensible, inexpensive solutions to everything from Divorce Law, Libel, employment and all legal disputes, banking and insurance regulations, consumer laws and much else.
At the moment it is all done in the interest of the regulators and the largely parasitic professions. The more complex, expensive, uncertain, ineffective and long winded the better from their point of view.
The more people doing useful things rather than disputing things the better.
Anyway surely the country has been governed by a left of centre government for all the 40 odd years I can remember – apart perhaps from a small portion of the Thatcher years. Even then She was handicapped by much of the Cameron wing of the Tory party, the EU and most of Whitehall.
November 8, 2011
This anti capitalist orchestrated discussion and the promotion of Robin Hood type of taxes comes mainly from the usual sources. State sector trade unions, the BBC, the politics of envy political parties, the lovies, many charities and of course the hilarious C 0f E bishops.
Clearly no one should be allowed to earn a lot, pay 50% taxes and live in a palace according to them. This should clearly be reserved just for Bishops and Royalty.
Bishops of course have “tax structures” to allow them to live in very grand multi-million pound palaces without even having to earn very much or even bother to pay the 50% income taxes I understand.
Most would surely think this was rather less moral than those that do work hard and pay the high taxes. Indeed is it moral, at all, to deceive and indoctrinate young impressionable minds into religious beliefs and the destructive politics of envy at all?
November 8, 2011
Given how much you promote tax avoidance it’s odd to hear you criticise bishops for doing just that. Also how many bishops earn over £150,000 per year (50% tax bracket)?
November 8, 2011
My point was that to live in such palaces (were they to pay for them themselves rather than through churches income) they would have to earn well into the 50% bracket. I understand they are rather well paid and get a good defined benefit pension and the Palace accomodation. More a charge of hypocracy really rather than one of tax avoidance.
I advocate tax avoidance (not evasion) because:
1. Govenment is so bad and not under real democratic control so it is the only way to restrict its waste.
2. The money is nearly alway better spent/invested by the individual.
Were we to have good efficient government at a sensible 20-30 level anit mighd sensible tax rates it be different.
November 8, 2011
I think he is being sarcastic.
November 8, 2011
I suspect LL was remarking on the irony of Bishops demanding higher taxes for others whilst themselves avoiding taxes rather than condeming tax avoidance.
November 8, 2011
Bishops and bankers seem to have a lot in common.
lifelogics beliefs lie in the latter as you can see.
November 9, 2011
The more good (and properly regulated) high tax paying bankers we have the better. Bishops and men of the cloth – I think we have quite enough to amuse us with their interesting gold gowns, old books(which offend against political correctness-ed), mitres and idiotic pronouncements every so often.
November 8, 2011
Politics of envy? Some people who are rich believe that they are hard done by because there is richer people than themselves the real politics of envy. I could take on the other point you mention like unions, but why bother?
You have had these arguments taken apart for you many times by myself and others. You just say the same things hoping none will notice. Do you actually ever take notice of the points put to you? uanime5 showed you a calculation of a rich persons taxes earning a two million pounds in John’s ‘Bankers bonuses bashed’ post. You made no reply any reason?
November 9, 2011
I take notice where I can understand what the point being made is.
I have now replied to the point you refer too as below:
I was referring, as I made clear just to “income tax” . (NI mainly is needed to cover state pension contributions and sick pay and such) In fact the position is far worse than the 300 taxpayers as:
1. People on average pay levels are more likely to use state services and state education, medicine, benefits.
2. Families on average pay get other benefits through family allowance and family tax credits.
So in many cases people, on average pay, get as much or more in benefits as they pay in certainly those with two or more at school.
The government is very heavily dependent on the very wealthy for tax income they would be mad to deter them as they are currently doing.
November 8, 2011
Justine Greening is, I understand, going to meet some MP with who have ‘concerns’ over HS2. Let us hope that as an accountant she will see what a nonsense the whole plan is. Ten minutes with an envelope and a calculator should be enough to work it out. It is almost as bad an idea as Huhne’s green energy plan and chucking cash at the PIGIS and the IMF.
Anyway we simply cannot afford all this waste with a 50% state, the EU and over regulation of virtually everything. It will make Brown’s £10Billion? loss on the gold reserves look like small change.
A few longer trains/platforms, better simpler ticketing, a new runway at both Heathrow and Gatwick and a quick train (15 mins) link round the M25 to make in effect one five runway airport out of them both. That is all that is needed.
Private industry would pay for it all and it will be useful and will pay for itself in no time. Also get rid of the Dartmouth Tolls which cause congestion and are expensive to run and put it on general taxation or perhaps a Swiss style road disc for non residents.
November 8, 2011
How about your beliefs being little more than socialism for the rich? Where is the average persons share of all this wealth? Cut their taxes on low wages and reduce these wages to produce even more low wage jobs? Reduce benefits when the system has finished with us for the moment or permanently. Sorry your church is wrong and has proved to be wrong. My respect for my supposedly betters is fag paper thin and the idea that I should grovel to them for a few crumbs is for the birds. The elite are taking a thread from all of us to produce fine suits for themselves. Ram it.
November 8, 2011
I trust that the Cameron government and Huhne have ensured that the huge asteroid passing, very close and at huge speed is a “sustainable” one. After all we would not want their 100 year computer temperature projections to be proved to be total bunk would we.
I assume they have all the 100 years of volcanic activity plotted and allowed for too.
November 8, 2011
How exactly would a huge asteroid passing closely by affect the climate of this planet? Since there’s no air in space as long as it doesn’t hit us or the moon it won’t have any effect.
Given that we have volcanic information from thousands of years ago and that many volcanoes erupt regularly it will be easy to plot all volcanic activity for the past 100 years.
November 8, 2011
Yes for the past 100 years – but they need to know it for the next 100 years in order to say anything very useful about the climate in 100 years time and they need to know the timing and the emissions of the volcanoes and the sun’s activity and countless more things too.
The next smaller as yet unseen less “sustanable” asteriod might well hit somewhere then it will certainly affect the weather in spades. And in different ways depending on where it hits and size and energy thus given off.
But do not worry I am sure Hunhe and his experts have taken it all into account and his windmills will blow it away or something.
November 8, 2011
I believe the gravitational pull could affect tides or tectonic plates. This is uncertain and very tricky to predict in detail.
November 8, 2011
This is all a bit like blaming the householder for not securing his house enough to prevent entry by burglars. Not once does he mention the top bankers milking the system and the idea that there can be more houses and jobs than people looking for them is another consistent flaw in his argument for no regulations or in this world regulating regulations.
It has not gone unnoticed that when you are confronted on specific points you do not reply. You are in effect just chanting an old mantra of a free for all with no taxes and regulated regulations. ie any regulation that stops the free for all is bad. Not ‘sensible’ in any sense
November 9, 2011
I answer any questions when I can understand what the question is?
I agree that some bankers have abused the system but it is the regulators jobs to stop this not the other banks.
Just as I do not really blame people for living of benefits I tend to blame the system that allows them do it for years on end.
November 9, 2011
Often they have no other options the system does not allow any, and has in many cases created this trap.
It is a lifestyle but how much ‘choice’ in living this way is questionable.
November 8, 2011
I wish that the restrictions on our government were 1% of those on our so-called free market economy.
Instead we have a body with a majority, either large or slender, that for five years can do whatever it wants thanks to docilely whipped MPs, including destroying the education system, debauching the currency, running up massive debts, hugely increasing taxes, etc.
Any private company that behaved in the way governments behave would see it’s directors banned from ever holding a position of responsibility again. Our back-slapping hail fellow well met politicians get kicked up into the EU or the Lords to carry on snouting.
November 8, 2011
I suppose in a way that the markets, because they are free, are a bit like the internet.
And do you know what? I do not want the EU Commission telling me what I can say, can look at, cannot think.
Still less do I want my intellectual exercises limited to those of a Comprehensive schoolgirl.
If the government – of all stripes – could handle the economy, the tax system, the civil service a bit better, I might listen.
November 8, 2011
Mr Redwood. I suggest you circulate the link below to your colleagues.
http://rogerhelmermep.wordpress.com/2011/11/08/time-to-say-no/
November 8, 2011
Given how difficult it is to predict what will happen 5 years in the future an economic forecast over the next 40 years is highly likely to be wrong.
November 8, 2011
Just like the climate forecasts.
November 9, 2011
Indeed and give how difficult it is to predict the weather next week on Wednesday the same applies to the 100 year climate predictions on which Huhne, the BBC, the Met office and the EU seem to place such faith.
Such faith and also want to waste billions of our money on “preventing”.
November 8, 2011
Oh Roger! You are a card! Us Ladies love you.
November 8, 2011
Many thanks for the link, I have forwarded it on to other Euro-sceptics like myself, including MPs
Tad Davison
Canbridge
November 8, 2011
Nice piece John.
One thing you did not mention is the “morality” of shorting versus going long. If I sell something I own then “morally” most would agree that is entirely reasonable.
If I sell a risk in order to hedge a risk I already have (e.g. hedging my Greek bond exposure using a CDS – perhaps not such a good idea now) then that is fine.
But if I sell something I do not own by borrowing the asset and selling it then that is short selling and taking a view that the market should fall.
Many people do not like this but it is simply the mirror image of buying and should accelerate the establishment of a new lower price if that is what the market ultimately believes. Or would you say this is “immoral”.
We can forget about “naked short selling” which is wrong in my view, because the shares are never borrowed and so the short position is obtained falsely.
Another issue is “speculation” against “investment”. Good or bad.
November 8, 2011
Short selling is good for markets it is essentially a bet with someone else on weather the price will rise or fall. One wins one looses (a net zero sum) but it can be useful to some people to edge their bets and limit risk. It also tend to reduce irrational exuberance in the markets such as the absurd dot.com boom. Reducing the latter falls and losses. So long as the those betting on it can afford the losses I cannot see any real reason to restrict it even if the assets are not owned or borrowed.
November 8, 2011
May or may not be true and in some ways both, but in no way is the gospel truth. Are you just stupid or some sort of pusher of these views for political ends?
November 8, 2011
“hedging my Greek bond exposure using a CDS”
If you have Greek bond exposure then that is a perfectly legitimate form of insurance .
However , as you know , you do not need any exposure to Greek bonds in order to buy a synthetic CDS .
Aggregate CDS exposure often exceeds the amount which can be defaulted on by over 100 times so almost all of it is completely synthetic .
If this was not bad enough all the counterparty risk which buyers of CDS’s should be taking themselves gets transferred to the taxpayer .
The only people qualified to manage risks are that nature are turf accountants and underwriters – not banks and certainly not the taxpayer !
No claims manager would have entertained losses on CDS’s yet the taxpayer gets landed with it .
The fact that banks are allowed to continue writing this sort of derivative business shows that they have achieved regulatory capture .
Just look at the bailing out of a well known insurance company in the US with taxpayer money in order to recapitalise a shadow bank which has planted it’s alumni in the institutions which orchestrated the bail out .
Rotten to the core .
November 8, 2011
Clearly you have to be sure the person giving the insurance is good for it if you claim. Really security needs to be taken of the bank/insurer to ensure they are good for the money. If not and with no proper regulation they will just sell endless paper to anyone they can and disapear with the money as we have seen.
November 9, 2011
Firstly CDS are only insurance if you have an actual interest and stand to lose in the case of a default . The fact that aggregate CDS exposure can be 100 times the sum defaulted shows that most CDS are synthetic and by definition not insurance .
With the principle of taxpayer bailouts having become firmly established as a legitmate source of business income you don’t need to worry about counterparty risk .
Another way of looking at it is the banks converted the premium income straight into bonuses without waiting for claims to come in and tail off !
If banks want to get involved in this rubbish then perhaps they need to move to rolling 3 yearly accounts like Lloyd’s of London syndicates used to use (and may still do for all I know) .
I can’t for the life of me think why banks including the nationalised banks can continue to write these sort of socially useless risky instruments yet still retain their taxpayer guarantee .
November 8, 2011
Aggregate CDS exposure exceeds amount which can be defaulted by 100 times ?? So what. The settlement of CDS is done on the NET amount via an auction and not all participants actually require physical settlement so your point is actually not so important since the net amount is usually much smaller. For Greece it is $3.7bn versus $500bn of GGBs.
And if banks can’t manage credit risk then what can they manage. The business of banks is the management of credit risk.
The US tax payer only got landed with a CDS-related bill in the case of AIG. Apart from that CDS have probably made the crisis less bad by spreading the risk around.
November 8, 2011
How do you define shorting? If a shipyard agrees to manufacture a vessel for a fixed price, it has shorted the market, because it will take maybe 18 months to make the ship once there is an available slipway. It won’t have a 250,000 tonne supertanker available “off the shelf” to sell. In order to offer the fixed price, it purchases forward hedges for steel, exchange rates and so forth. The steel prices it locks in represent steel that has yet to be made, again requiring someone to go short.
If you want a fixed price mortgage, again it requires someone (perhaps savers or others who need a reserve of financial investments such as insurance companies, or banks) to take a forward view on interest rates and go short against whatever the central bank may later decree. Perhaps you should be considered immoral for demanding a fixed price mortgage that can only be satisfied if there are investors and savers willing to bet that interest rates will fall?
There is nothing intrinsically wrong with markets that entail short positions. There are many ways in which markets can be abused from the long side: consider (named person and company-ed) who was eventually jailed for his attempts at cornering the copper market. Sheer “weight of money” can be used to manipulate markets either up or down, or to induce extra volatility up and down that enhances trading profits of those throwing their weight around without taking any significant position at all.
Market (im)morality is easier to know when you see it than to define in a set of rules. A set of rules that supposedly define acceptable behaviour merely defines the boundaries to be exploited: so long as behaviour is “within the rules” it is deemed moral. In my view principles are better than rules. They create an uncertainty that makes it less likely that immoral behaviour will be attempted – at least so long as oversight is vigilant. Blackballing is probably one of the most effective punishments: if people won’t do business with a firm it can’t make money.
November 8, 2011
Report of Mr Hamanaka’s jail sentence:
http://www.nytimes.com/1998/03/26/business/international-business-former-copper-trader-gets-8-years-in-prison.html?src=pm
November 8, 2011
I agree that markets are amoral. The market is simply the aggregation of billions of exchanges between individuals and enterprises worldwide. A political system that allows the market to operate freely is the most moral one. When I think of immorality, I think of socialism, which interferes with the free choices of individuals and disrespects property rights. The free market, arguably, has never been given its full head. In the circumstances when it has been most free–in the 18th and 19th centuries in the UK and America, for example–economic growth has been strongest and prosperity has broadened most quickly. The market based policies of Thatcher and Reagan were a move in the right direction after the disaster of wartime and post-war social planning, but did not result in the state taking a smaller role.
In the UK, the state is now responsible for half the economy. This means that the citizen has only one choice every five years to elect how half his or her money is spent. In the free market the voting process is endless. There is a big difference between democracy and liberty. Right now, we have the former but not the latter.
November 8, 2011
Nicely put. Markets are not moral or amoral, they just are. They are, as you say, an efficient mechanism for sorting out complex exchange calculations that are so complex that they are beyond the wit of a few functionaries to assess.
JR is right, the explosion of regulaton has happened since 1986. And as we seem to have forgotten the 1986 FS Act principal aim was to do away with many anti-competitive restrictive practices and introduce regulation. I particularly despise the deciet of those that claim the opposite.
As liberty is the fundamental value on which all other values are based, any restriction of liberty (especially by unelected functionaries like the failed FSA) is to be resisted at all costs. The tidal wave of rules and restrictions placed in the way of efficient markets by the Failed FSA precipitated this current mess.
Markets trend to spontaneous order. Interfering bureaucracies trend to chaos.
November 8, 2011
Two excellent posts. I completely agree. Sadly, the Left’s control of much the media means these are views seldom given a wider platform than political blogs.
November 8, 2011
“As liberty is the fundamental value on which all other values are based, any restriction of liberty (especially by unelected functionaries like the failed FSA) is to be resisted at all costs. ”
In other words you should be able to make as much profit as you can, no matter who gets hurt. Also what liberties are being restricted? The liberty for insider trading? The liberty for monopolies?
November 9, 2011
Oh dear. Firstly, of course I should to maximise my profits. But your fundamental (with emphasis on the – mental) error is conflate profit maximisation with others losses – or atheir ‘expense’. In any event, in a comptitive free market super profits are rarely available and overall things equal out. But I agree that ‘super profits’ are made – made by specially priviliged sectors not subject to market discipline, e.g. banks. Banks benefit from cronyism. They have been proto-nationalised for years by excessive reg-yew-lay-shun. The same applies to monopolies – banking again which is a state sanctioned cartel supplier of a monopoly product.
As regards ‘insider trading’ either everyone is guilty on no-one is. Everyone everywhere tries to use special knowledge for their own advantage. In open markets this special knowledge quickly dissipates making it practically impossible to profit from it.
November 8, 2011
Actually, I think the EU ought to take a lot of blame here. The FSA and all that are, after all, just a front for the real power in our country.
http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2007/0913_vr.shtml
November 8, 2011
“A political system that allows the market to operate freely is the most moral one.”
Based on which moral system? Utilitarianism?
“When I think of immorality, I think of socialism, which interferes with the free choices of individuals and disrespects property rights.”
In other words socialism interferes with the rights of the rich to abuse their staff and make huge profits.
“In the circumstances when it has been most free–in the 18th and 19th centuries in the UK and America, for example–economic growth has been strongest and prosperity has broadened most quickly.”
Also when there was large scale poverty and inequality; along with sexism and racism.
So how do you plan to revive the successes of the past? Workhouses? Abolishing the police and NHS?
“In the UK, the state is now responsible for half the economy.”
Do you have any evidence of this? The only tax I can think of that’s 50% is the 50p tax rate that affects 1% of the population.
November 8, 2011
The state accounts for c50% of GDP. It is a monopoly supplier for the majority of its services. In the private sector, businesses have to compete for customers. Their customers vote, each day, with their wallets. Businesses that fail to keep their customers satisfied with the products they offer will fail and go bust. They cease to exist. The pressure is on those businesses to provide better products, offering better value than their competitors. This capitalist system has help provide rising living standards for billions of people. For the starkest contrast, look at North Korea.
November 8, 2011
“Do you have any evidence of this? The only tax I can think of that’s 50% is the 50p tax rate that affects 1% of the population.”
GDP?
November 8, 2011
“Based on which moral system? Utilitarianism?”
No, freedom. The free, voluntary, non-coercive transactions between buyers and sellers. This is all a free-market really is.
“In other words socialism interferes with the rights of the rich to abuse their staff and make huge profits.”
I don’t care how much profit someone makes BUT in a free-market super-profits can’t exist because of competition, it’s regulation that allows the enduring profits you seem to hate, not capitalism. As to abuse, with a free-market, any employer dumb enough to abuse staff will lose them soon enough.
“Also when there was large scale poverty and inequality; along with sexism and racism”
Well of course the way to eradicate poverty is not government welfare so beloved of socialists, its economic growth which has lifted millions out of poverty in China, unlike the UK welfare state which traps people in said poverty. I don’t care two hoots about ‘inequality’ we are different, get over it. And it wouldn’t be a socialist argument without introducing racism would it.
“So how do you plan to revive the successes of the past? Workhouses? Abolishing the police and NHS?”
The police? No, though I would end victimless crimes, the NHS? HELL YES.
“Do you have any evidence of this? The only tax I can think of that’s 50% is the 50p tax rate that affects 1% of the population.”
This is straightforward. The economy as measured by GDP is X, if government spending is 0.5X then it is half the economy.
November 9, 2011
Sorry mate, you have been reading the government’s bull too long. Most of your income will be your average tax rate plus at least 20% VAT, sometimes more. Most people pay 30% income tax plus 20%, lots pay 40 plus 20, and as you say, 1% of people pay a marginal rate of 70% tax.
Now that is for most goods, for ‘luxuries’ like petrol you will pay 90% tax, because you pay the tax you pay, then you pay over 70% tax on petrol.
So if a medium rate taxpayer earns £100, he takes home £60 after tax. If he fills his tank, only about £20 goes on fuel, the rest is tax. So you are paying £80 on tax when you buy petrol = 80% tax rate.
November 9, 2011
Q: Based on which moral system? A: A moral system that respects property rights and individual liberties.
Q: In other words socialism interferes with the rights of the rich to abuse their staff and make huge profits. A: Free markets should not be confused with feudalism. Staff who have been abused can choose another employer. Businesses need to compete to employ staff just as they need to compete for customers, so there is no motivation to abuse staff in the first place. Many corporations have policies on maternity leave or redundancy for example that exceed statutory minimums. Huge profits are a natural and healthy incentive for innovation. As a market matures, new competitors enter which leads to price competition and profit margins fall. However, no system can guarantee that staff will never be abused, and I wouldn’t claim that for free markets. One difference in our viewpoints is that you implicitly seem to believe that socialism can prevent such abuses. I never lived in soviet Russia, but I doubt that workers there were free from abuses.
Q: Also when there was large scale poverty and inequality; along with sexism and racism. A: Poverty and inequality were widespread during the industrial revolution, but it was arguably less bad than the rural poverty and famine that it replaced. One of the reasons for the mass relocation from the countryside to the cities was the availability of paid work: even if the wages were meagre it was better than starvation. The industrial revolution also saw the middle class expanding rapidly and the start of the breakdown of feudal hierarchies that had survived for centuries. (I deplore sexism and racism, but I’m not sure of your point in connection with the industrial revolution. The evidence I can think of at the national level does not suggest socialism has a very clean bill of health here.)
Q: So how do you plan to revive the successes of the past? Workhouses? Abolishing the police and NHS? A: This is a backward looking analysis. Each generation will struggle to fulfill its obligations to the disadvantaged in the best way it can.
Q: Do you have any evidence of this? The only tax I can think of that’s 50% is the 50p tax rate that affects 1% of the population. A: What I mean is that state spending accounts for approximately half of GDP.
November 8, 2011
“The truth is the last decade saw an explosion of extra regulation by both the UK and the EU”
So all that regulation produced the worst credit bubble in history, huge market distortions, massive corruption and, in the end, bankruptcy for millions of people and soon governments as well.
The more regulation you have the less the market can rectify mistakes. This leads to the mistakes becoming ever larger until you find we’re all living in Greece.
Governments should restrict themselves to enforcing the laws of contract and criminal behaviour but should leave almost everything else to the market.
November 8, 2011
Exactly. Bureaucratic regulation crates chaos. Markets trend to spontaneous order.
November 8, 2011
“The more regulation you have the less the market can rectify mistakes.”
Good idea, we should go back to the 1920’s when the markets had almost total control of their regulations and were able to rectify any mistake; except the 1929 one.
November 8, 2011
It wasn’t the markets that introduced beggar-my-neighbour tarriffs, nor FDR’s lunatic price setting. Why do you think the depression of 1920 ended so quickly?
November 9, 2011
Nope. The 1929 crash was caused by the same errors of cronyism as today. Over-leveraging especially by private investors came home to roost. The cure was to let it sort itself out. Trouble is FDR then rose in with massive stimuli (a la Obama) and these just prolonged the agony (a la Obama). Markets tend to be manic depressives, what you have to do is stand back which is easy to do as long as you remember that what looks to good to be true, is.
November 8, 2011
I would be interested to hear your views on the Tobin tax. This has become a test of righteousness. ‘Moral’ people who dont like bankers like the Archbishop of Canterbury are in favour and ‘greedy’ people who believe in markets are against. the Govt’s argument that its a good idea but only if its global (hoping and probably knowing it never will be) is a cop out. Perhaps a Tobin tax, if it increased cost of capital, increased volatility due to reduced liquidity might actually be profoundly immoral – as the consequence would be reduced prosperity & more hardship for the poor. What do you think?
Reply: I am against a Tobin tax
November 8, 2011
So what? To really steal money, you need a government.
Still waiting for you to fulfil your election promise John Redwood. Just how much does the government owe that has been Bernie Maddoff’ed off the books. You made a promise on this blog before you were elected that once elected you would publish those figures.
Still not happened.
You’ve taken everyone’s state pension. You are only offering 25% of what people would have got in return, and even that is being cut.
Time to opt out of the corruption that is UK Government PLC, thieves and fraudsters to the masses.
Reply: I published my version of the true figures before the election, and the government has published figures for state debt, bank commitments and pension liabilities as promised.
November 8, 2011
Nick ,
When you say the Govt is only offering state pensions of only 25% of what people would have got in return :-
– what proportion of N.I. contributions are you assuming go towards the state pension (surely not 100%) ?
– 25% compared with what ? – what you would get in a private pension fund after huge charges are taken away ?
November 8, 2011
Capitalists quite rightly never miss an opportunity to make an easy buck and competition is by far the best fom of regulation.
We have the former but lack the latter thanks to succesive governments who believe they know better than the markets.
Clearly they are mistaken
November 8, 2011
It is not just that they believe they know better. They themselves are lacking in morality. Just look at the current immigration row. Whatever the details, the government ordered a SECRET relaxation in the rules. If the opposition spokeswoman had any morality, she would have stood down from the debate, given her record on the matter.
November 8, 2011
The problem is that Capitalists make an easy buck by not competing. Monopolies and cartels are far more profitable.
November 8, 2011
The biggest monoploy of them all is the state.
November 9, 2011
Monpolies rarely succeed without cronyistic support from politicians. And the current banking cartel is a direct result of state regulation and cronyism. Markets are not functioning in banking.
November 8, 2011
The problem is not too much Capitalism it’s too much Socialism. It’s ironic to see most of the people on benefits walking around with the latest iphone, something that I as a tax payer cannot afford and I am indirectly paying for their’s.
Even the Chinese director of the sovereign fun is saying that too much socialism has ruined the West.
November 8, 2011
Interesting points. I would add that state intervention and regulation actually makes things worse. As in all sectors all regulation makes life easier for large companies with departments to deal with regulation and laws opposed to small companies. Further they have often heavily influenced by the lobbying of large firms.
Also much of the failure in finance has been due to interest rates held far below the natural rates and thus cheap credit encouraged by government.
Regulation has a place but perhaps only in ensuring strong market place competition and avoiding heavily anti competitive practices. Anything else government does just seems to distort the market for the worse
November 8, 2011
I tend to come at this from the angle of unwise vs wise rather a sort of religious/marx angle of good vs bad.
From the days of the first South Sea Bubble irrational bubbles have been a major danger as they are often followed by horrible slumps. On the other hand we are usually all addicted to the upside of a bubble be it shares, housing.
There is of course criminal wrong doing within markets. The CEO who bullies the person (who asks can that country/company really repay that loan) because he sees his bonus as more important than long term shareholder value. More often we have the herd instinct – the others are doing it – it must be O.K.
So can legislation stop this behavior? I doubt it – we have all commented about silly FSA questions. Many in the right and left of politics assume more laws and regulations make things better.
No I reckon we need better education. Most folk leave the education system with little or no knowledge of how to even decode a PAYE tax code never mind the 1930s great depression.
November 8, 2011
A fascinating article a couple of days ago on, of all places, Guido Fawkes said that, before the Big Bang, investment was handled by old men who had worked their way up through the firm and then were handling their own money. In order to get to the top, in other words, they had to place their own fortunes into the firm itself.
This meant that they were gambling their own money.
Nowadays when the CEOs are gambling other people’s money, they take risks which they would certainly not take with their own funds.
I think that a glance at the crooks who led us into the 2008 debacle (including the governments) rather bear this out, don’t they?
November 8, 2011
They were partnerships; partners would buy their way and sell their way out.
Welcome to the new era of the Pulic Limited Responsibility Company: directors and traders make the profits and shareholders and taxpayers bear the losses.
November 8, 2011
The repeal of Glass-Steagal started it. After that, investment banks could marry commercial banks and get access to all that cheap capital which they then leveraged to the max.
By the way, the employees of Lehman owned 30%+ of its stock. It was the closest to a partnership you could get in the big investment banks. The problem was that the boss, Dick Fuld, had banked so much cash ($400m+) that this stock was his plaything and he was ready to take risks with it that he would not have taken had all his money been tied up in Lehman stock. So in some ways, him having so much cash and so much stock made the situation riskier.
I do agree with GF that a partnership is better.
November 8, 2011
Markets are amoral…..” That is why markets need regulating. ”
We are back to trying to prove that politicians and committees can allocate resources better than the market. This has been tried and has failed countless times. Politicians cannot even allocate their own expenses economically, not even legally in many cases. The 2009 edition of Tolley’s Yellow Tax Handbook has 11,520 pages, compared with just 4,998 pages in 1997, making the UK’s tax code the longest in the world. We are DROWNING in regulations !
Who staffs these regulatory quangos ? The FSA cannot even start to understand the bankers’ dealings. They proved to be useless preventing this meltdown. The regulator cannot match the salaries of the regulated and end up with inferior staff. Ironically the market does them in. Lets get more regulators to regulate the regulators. Crazy.
The bankers love regulation, what they hate is a free market. They hate the idea that they fail and cease to exist when they overextend risk in a free market. They hate that they cannot easily become cartels in a free market, they hate that they cannot become to big to fail in a free market. Bankers love regulations , for the taxpayers to underwrite them. Want to regulate bonuses ? They will make themselves a charity or a trust fund, or a SIV or 100 new wheezes before you have had breakfast. Bankers own the regulators. You cannot regulate them , just let the market deal with them.
Hong Kong growth caught fire when Cowperthwaite rolled back govt and regulations , the golden age of American growth came before they even had a federal income tax and central bank. We have gone from that through communism and now to the EU, where regulation is a heavy industry. Now we must have even more regulation ?
The debate about the Impossibility of Economic Calculation needs to be wheeled out again or we are doomed to repeat our mistakes.
This is the most surprising and disappointing piece that I have read from you.
Reply: You try working in a market with no law of contract, no competition law and no law against theft.
November 8, 2011
“the golden age of American growth came before they even had a federal income tax and central bank”
I wonder why? The Federal Reserve Act of 1913 brought into existence a private secret bank owned by Wall Street banksters with the monopoly right to ‘loan’ money to the Federal government as debt; to pay for the interest on these ‘loans’, the Federal Income Tax was instituted. When President Kennedy bypassed the private secret Fed under Executive Order 11110 allowing the Federal Government directly to issue money, he was assassinated by a conspiracy.
Since 1913 there have been booms and busts, wars, enormous accretions of wealth away from the real economy and into the pockets of Wall street banksters. Ron Paul is running for President on a ticket of ‘End the Fed’; the MSM is yet to notice.
November 8, 2011
But where does that end ? Contracts where the govt hands out monopoly favours ? Who provides those checks ?
In a free market, contracts are between the participants in the markets who can negotiate their own penalties. Competition and creative destruction is a feature of the free market in of itself. And theft , well, the govt has proven expert at that. Ask the pensioners and savers.
Bastiat said it :
“It is not because men have passed laws that personality, liberty, and property exist. On the contrary, it is because personality, liberty, and property already exist that men make laws. ”
If we are going to let the govt meddle in the markets to make them “moral”, at least let the govt be shrunk down to the local level so that when they do hand out favourable contracts , it won’t cripple the entire country.
November 8, 2011
Who will adjudicate disputes ? The courts, and failing that :
“The use of private arbitration in lieu of public courts has grown for decades, especially in the insurance industry, a trend that is the exact opposite of what those who argue against private courts say should be happening. Evidently a growing number of people and organizations have found the public courts to be clogged, inefficient, and wasteful, so they are increasingly using the free-market alternative of private arbitration to settle their disputes. Private arbitration businesses have an economic incentive to be as fair and rational as possible. They seek to build a positive reputation for quality in their service just as any other business does.
In fact, in medieval England, the structure of merchant law (which the government’s courts handled clumsily and inefficiently) grew up completely in private merchants’ courts. From the Middle Ages down to 1920, merchants enforced private arbitration decisions through ostracism and boycott. If a merchant refused to submit to arbitration or ignored a decision, the other merchants published this fact in the trade and refused to deal with the recalcitrant merchant. This typically brought him quickly to his senses. These days, with the Internet and credit ratings, ostracism and boycotting can be even more effective than they ever were in the past.
“
November 8, 2011
This worked in medieval England because they didn’t have to deal with multinational corporations who have far greater wealth than the average ‘merchant’. Given that most multinational corporations can bring in workforce from abroad local boycotts are now completely useless.
November 8, 2011
In Europe the original capitalist, multinationals were the monasteries. They became extremely powerful partly because many of them were were well managed, partly because they enjoyed monopoly privileges and partly because they enjoyed the benefits of low cost labour.
November 8, 2011
“Competition and creative destruction is a feature of the free market in of itself. ”
Wrong, the free market stifles competition. This is why when regulations are removed companies form monopolies and cartels to maximise profits and remove competitors. Never forget that companies exist to maximise their own profits, not to benefit their customers.
November 8, 2011
Have you ever worked in or run a business? From your comment it seems you have not. I suggest you read Tom Peters Competitive Strategy to start to understand what is involved in trying to run a business. If businesses do not satisfy their customers they make no sales; no sales means losses.
November 8, 2011
“The 2009 edition of Tolley’s Yellow Tax Handbook has 11,520 pages, compared with just 4,998 pages in 1997, making the UK’s tax code the longest in the world. ”
You should see the German tax system. There’s a reason why German produces 80% of the world’s tax literature.
November 8, 2011
Sorry it should have said Fund not fun, here is his quote:
If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society. I think the labour laws are outdated. The labour laws induce sloth, indolence, rather than hardworking. The incentive system, is totally out of whack…
Why should, for instance, within [the] eurozone some member’s people have to work to 65, even longer, whereas in some other countries they are happily retiring at 55, languishing on the beach? This is unfair…
The welfare system is good for any society to reduce the gap, to help those who happen to have disadvantages, to enjoy the life, but a welfare society should not induce people not to work hard.
November 8, 2011
If you want people to work they need jobs. You cannot resolve 2.5 million people being unemployed if there are only 0.5 million jobs. Removing the welfare state will not change this.
November 8, 2011
The 2.5 miillion are being employed by the taxpayer to do nothing. The taxpayer would rather fund them out through his purchases of goods and services than through his direct and indirect taxes thereby constraining his disposable income.
November 8, 2011
Both the Catholic Church ( I am Catholic) and Church of England are on the banker bashing bandwagon at the moment, conveniently forgetting how they have managed and accumulated their wealth over the centuries.
People make a profit, people are moral or immoral not markets and the Churches need to remember that, spend less time on the material and more on the spiritual. Currently what they are preaching has been steadily loosing them parishioners and this lurch to the left is making them look foolish.
November 8, 2011
I really do not think that a Church which was responsible for the Inquisition has any right whatever to preach about morality.
The Catholic position appears to be (at Vatican level) that child abuse is fine, but the accumulation of wealth is evil?
I wonder why the Church is always keen to have everything in its ceremonies made out of gold?
(Silver is actually better because a silver communion cup has natural antibacterial properties which prevent the transfer of infections between communicants. Gold does not have that property).
If one wishes to talk to God, it is not necessary to pay a priest to act as an intermediary, because like all intermediaries, there is a tendency for them to make an immoral accumulation of wealth, and the Church is no exception.
November 8, 2011
Seems to me those making the accusation of greed in others should look to themselves and make sure they are not guilty of the sin of envy.
In particular, churchmen should remind themselves that the source of their wealth came from monopolistic practices and draconian regulation, and resulted in great inequality.
November 8, 2011
Since when has the church had a monopoly on religion? They haven’t had a monopoly since Protestantism removed Catholicism’s monopoly.
What are these draconian regulations? Laws from God? Equity? Cannon Law?
Given that equity was fairer than the common law I can’t see how this created inequality.
November 9, 2011
By “churchmen” I include all religions.
As to “draconian regulations”, many died because they did not toe the line.
As to “inequality” there are numerous examples, the wealthy monasteries for instance.
November 8, 2011
If the market is working, then is not evidence of excessive profit and remuneration a pointer as to a business opportunity for someone else?
November 8, 2011
What the Market is doing at the moment is refusing to believe the assurances of European politicians.
From Der Spiegel;
Run For Your Lives’
“Run for your lives” is the new motto in Europe, and not just among banks and insurance companies, which are selling off southern European bonds as quickly as they can, but also among ordinary holders of savings accounts. Banks and regulatory agencies are noticing that anxious citizens throughout Europe are trying to bring their money to safety. The flight of capital from Italy, Spain and Greece is in full swing.”
We are not seeing any details of capital flight from peripheral Europe, but it is clearly happening; leaving the Banks in troubled Countries in an even more perilous position.
Within the Eurozone, capital is fleeing to German Banks.
The Euro is no longer a single currency; it has already failed.
November 8, 2011
My finacial adviser has told me that the fund that include my pension have virtually been removed from European countries. They have moved into China, India, Aussi and other Eastern countries. The East is growing very strongly and money is moving in that direction. It looks as if the West is coming to the end of its domminance.
November 8, 2011
If the Euro has failed then why are people transferring their accounts to banks that use the Euro; rather than the non-Euro currencies such as the Swiss frank, US dollar, or GB pound.
November 8, 2011
They are worried about their countries defaulting, dropping out of the Euro and converting Euro accounts into the new currency at a huge loss.
Euro accounts in Germany are seen as free from that risk.
You are right however that money is also going to Switzerland and other safe havens.
The figures are not being published for obvious reasons.
November 8, 2011
You should read what he said: “capital is fleeing to German banks”.
November 8, 2011
The failure is of countries and banks driven to failure by the Euro.
November 8, 2011
I think short selling is wrong, particularly when pension funds are involved.
If a pension fund lends the shares to a third party, so the third party can make a profit, then the returned shares will have a reduced value. This seems a gross dereliction of duty on the part of pension trustees, who are there to maintain and increase pension fund value.
The third party speculator is not going to short sell if on balance they do not make a useful profit, thus reducing pension fund value.
Yes we all know pension funds are there for the long term, its all a game which hurts no one, but every day a real person has to transfer their part of the pot to an annuity or an alternate fund. They get less value than they should have.
The other moral question is the lemming like actions of pension trustees. The trustees gamble on the stock market. Later they go cap in hand to the company directors complaining that their is a massive hole in the pension fund and that the company needs to pump in millions more.
What do the trustees do with the new found millions, gamble it on the stock market.
Saving for a pension is no different to putting money in to a bog standard building society account. When did you last hear of a bog standard BS account pay out less than you put in as deposits and accumulated interest.
The BS account has no fee structure, albeit the returns may be lower than other schemes. On the other hand the Building Society takes the risk whereas with defined contribution schemes the pension saver takes all the risk. This is not moral.
November 8, 2011
Yet again, you are responding to socialist rhetoric that is pushed into the MSM. They are leading the debate and you are playing catch-up. Your sensible, logical reasoning is widely ignored by the MSM and the metropolitan elite. This is because you are going against a monumental tide of socialist and leftist influence. From the Church to the Arts, to the BBC, to academia, they have their placemen and women. Nearly all the 000s of Quangos still in existence have left-wing executives, feeding on hard-working taxpayers, and propagating the socialist doctrine. Their press releases and reports fill the pages of publications. You only have to pick up a copy of the Metro to see most news stories are linked to the output of left-wing run Quangos, charities, TUs and other State agencies.
The Left are always looking to use language to push their agenda by stealth. Moral capitalism is just a cover for further State control, socialist corporatism and weaker democracy and freedom. Its an attempt to control and influence the markets. Beware. Lefties are immoral. Their very existence and lifestyles are contrary to the ideology they propogate. They are hypocrites. Those that are full of delusionary hypocrisy have no boundaries to lying and misleading.
I believe the Cameron clique are not as left-leaning as some believe. They are mostly ancestral Conservatives, but ambitious for power and status. They realise the difficulty in fighting the tide of the liberal left agenda and have decided (rather cowardly) to ride that tide to ensure their own legacy. Its easier to cosy up to the BBC, the Guardian, the EU than to represent the interests of the conservative people of England.
November 8, 2011
How is any of this going to weaken democracy? Your argument seems all bile and no facts.
November 8, 2011
So long as “too big to fail” and the principle of taxpayer bailouts is upheld any form of regulation is worthless .
November 8, 2011
The cheapest and most efficient/effective regulation is not to bail out banks and let natural risk taking be dominant…some you win, some you lose…you reap the rewards and deal with the failure yourself. It is nature’s way of controlling excessive growth and smoothing out the troughs.
This is worth 100 times the petty fogging nonsense that comes out of the government and the FSA….
zorro
November 8, 2011
For those who believe they can re-engineer human nature need to read a little Greek and Roman history to see the emotional side brains have not evolved.
Morals exist above the desires.
You can engineer the moralities of a society you cannot engineer the emotions of a society.
November 8, 2011
Certainly between 1997 and 2010 while Labour were in Government. The last18 months are down to a Tory led Coalition that is treading water on so many issues and achieving nothing. In fact they are allowing the civil service to carry on as they did under a Labour Government. Things have declined further- EU budget rising rapidly, public sector spending increasing, mass immigration out of control, pathetic defence strategy, increased taxes so on and so forth. Cameron and Co are a complete waste of space. No right minded person could believe a word Clegg and Co says. Both like the kudos of their position, Cameron thinks he is a good speaker, he is arrogant and pompous and has complete contempt for the British public as we saw on 23rd October regarding the EU vote.
Time for people to vote with their feet to bring a change. Vote UKIP.
November 8, 2011
The market is an abstract construct. It cannot be either moral or immoral. The root of the immorality lies in the people, whether as consumers or voters.
You ask why Labour did nothing to put a brake on market excess during their time in office. Well it is obvious: they and their political fortunes did just too well out of it. During those bubble-driven, frolicsome years after 2000, the economy grew, prosperity increased, cash was splashed in industrial quantities. This resulted not only in increased private wealth, but vast amounts of extra public spending too, on popular things like the NHS and public sector pay. The people happily voted for this formula time after time after time, even as it grew increasingly clear that it was unsustainable and built on air and debt.
Then the crash, and the same people who were happy to feed off the irresponsibility of the politicians and the bankers turned on them and blamed them for their woes. This may be no more than basic human nature – man is, after all, fallen – but the road to recovery starts with recognising where the problem lies.
November 8, 2011
I do wonder as I watch TV and listen to the radio, just who is running our country; is it our elected government or, the markets.
I hear report after report on political and business programmes about what the markets want and don’t want and whether they will approve of a government’s policy or not. I wonder if we will ever get a chance to vote or elect these faceless people, I assume they’re people, that run the market. I am neither an economist nor a businessman but I assume a market can only operate if we allow it to; what would happen if we stop playing their games?
Once the so called PIGs have been bankrupted and forced to accept more political and fiscal integration, what is to stop “The Markets” coming after us? We don’t have Germany nor other cash rich states to bail us out and I doubt if many other countries have daft PMs, that will throw money at us. Will we be forced further into the EUSSR in return for a bail out using our own money? Money is a difficult thing to destroy; even if you spend it, you tend to have something in return for it, ie an asset, so where has all the trillions and trillions of cash gone?
November 8, 2011
We have some time because of the situation in Europe thankfully. There are far riper targets than us and the Eurozone’s stubborn resistance and prevarication in dealing with the issue effectively (wholly their own fault) has been their downfall.
It all depends but our independence and control of our currency allows us to be masters of our own destiny. Remember why the markets chased us in 1992? Because Mr Major was pursuing a ridiculous unsustainable policy. Quite rightly the markets called the bluff on his policies and then allowed us to grow again. ‘Markets’ do not go after countries to destroy them…they want countries to be successful. That way you can make more money!
zorro
November 8, 2011
I suppose you could say “There is no such thing as The Market, there are individuals and businesses who trade with one another.”
November 8, 2011
I missed this – you beat me to it!!
November 8, 2011
Markets need both regulation and clear moral direction.
To put all your energy into one and ignore the other is deeply unwise.
So with regard to moral direction – there should be a very clear message that the purpose of business in the city is to create and efficiently run financial product which add value to society.
Now we all know that significant chunks of the city do this. But we also all know that there are trading activities which take place in the city which seek to deliberately create unnecessary volatity in the markets purely for the purpose of making profits for the individuala and companies which pursue those activities and will clearly be only detrimental to society.
Clearly stating such a moral purpose alongside the specific regulations which are devised allows all interested parties including regulators to more rapidly address potentially damaging behaviour. I have explored the behaviour of regulators in purpose-led vs. process-led environments extensively – for example here: http://mathseducationandallthat.blogspot.com/2011/08/ofsted-part-3-cultures-of-inspection.html
This was Thatcher’s mistake John. No amount of rules could make up for a lack of the definition and condemnation of inappropriate behaviour. I don’t know if she ignored that behaviour because we needed the tax revenue from it or because she didn’t have sufficient understanding of the nature of inspection and regulation. That latter is quite possible because, as a nation, we have only come to robust awareness of this since the completion of the Hampton review.
November 8, 2011
I think we have a similar perspective on this issue. This post:
http://physicsoffinance.blogspot.com/2011/10/abolish-banks-maybe-maybe-not.html
also makes some relevant points. The speech by Adair Turner linked from it goes into greater depth. I think he would admit he doesn’t have the answers, yet he sits in the Court of the Bank of England.
November 8, 2011
Thanks for this Mark.
Reading this has prompted me to contemplate the differences and interactions between regulating people and regulating markets.
What happens when we have markets which can be used for both appropriate and inappropriate purposes? Company shares could be sold for many appropriate reasons, such as a change in valuation of the company or the need of the owner to realise capital. But they could also be sold with the intention of deliberately causing a scare in the market and playing games with derivatives, purely for the purpose of short term financial gain.
Has any attempt ever been made to sanction individuals or companies for inappropriate behaviour with appropriate market products?
November 8, 2011
Interesting thoughts Rebecca
There is a common similar breakdown within the Financial Services, generally between companies which are small and companies which are large.
For Small companies their operations staff will often work on a “product basis”, rather than a “process basis”. This is because their aren’t many staff and there are few enough products for a staff member to be able to have a big enough picture of the products life-cycle in operations, to cover it from cradle to grave. They will oversee the initial trade, the custody, the fund accounting, the pricing, the market data etc. for example.
However, for large companies, especially with ones trading complicated derivative products and ones with perhaps hundreds of different products, it is neither possible or efficient for a few members of staff to understand the intricacies of every operational aspect of that product. Therefore the life-cycle is broken down into to process’ and you will have specialists which only look after their area of expertise, for example, one pricing analyst, one fund accountant etc.
My point is this. It is while I understand that you are arguing to include some sort of morality – big picture – oversight into the regulation. This regulation already exists and rather than replacing process analysis, it incorporates both process analysis as well as what you refer to as “purpose” analysis.
The FSA already has a number of rules, called Conduct of Business (CoB) regulations, which ensure that companies not only apply the letter of the law, but apply the intention of the law as well. They can still follow the rules and be fined very, very heavily because they tried to get around the intention of the law on a technicality. They apply equally to a process driven environment. The way the FSA is set up is actually to allow companies to query their interpretation of the CoB and other regulations, to allow them to not come unstuck. In fact, it is often the case the FSA would make recommendations if they felt a company was stretching the boundaries of the intention of the law and give the company a set period to come up to scratch.
There is no need to introduce any further “moral” oversight. It is simply not compatible with a free market.
If you want to prevent the types of volatile trading to which you mention, then you can only apply restrictions to speculative trading at a global level or it will do nothing but crush your own economy.
If you are concerned about the morality of the people taking part in the free market, then that is an argument about British society as a whole, which you would do better speaking to Ian Duncan Smith about. You can’t impose morality on a free market. I personally believe that individual freedom and free markets do not result in greed or self centred behaviour – I believe much of that comes from the cultural socialism we have had inflicted on us by Labour over the last 18 years.
November 9, 2011
The FSA has failed. End of. It’s failed because of its prescriptive rules and arbitrary judgements. It is a central planning bureaucracy which is both ignorant and arrogant. A toxic combination. Its rule book stands 8.5 feet high (at the last count a few years agon -it’ll be more now). 95% of that verbiage is self serving regulatory cobblers. To see why look up ‘I, pencil’.
November 9, 2011
How would you reform it Lola?
November 9, 2011
Thank you for this reply shaft120 – I very much appreciate the time you took to write it.
Are you saying, in brief, that there is no way of acting to prevent the kind of speculative trading which seeks to use human psychology to manipulate the behaviours of markets because such regulation would have to exist at a global level?
Or is there some regulation in this direction?
November 10, 2011
Thinking aloud: Time I actually properly read ‘Masters of Nothing’ instead of just dipping. If I write that here they I’m committing to doing it!
November 8, 2011
yes and we need laws to stop the outsourcers flooding the country with none EC workers on ICT visas
see the immigration e-petition is past 100,000
lets see if parliament listens to the people and brings the government in line with their wishes
November 8, 2011
What is that pink porcine animal flying past my window…?
zorro
November 8, 2011
EC workers ? Non EC workers ?
I do not distinguish. The issue is about numbers and not nationalities.
November 8, 2011
Are you indirectly refering to Andrew Tyrie (Treasury committee chairman) recent article in the FT.
I welcome his call for the Chancellor to be in charge in times of crisis. We have spoken on this site about lack of democracy and accountablity. I believed when Gordon Brown first deferred interest rate setting to the BofE it was strongly related to his need to write a book on Bravery.
I strongly believe a strong chancellor should be in charge and not unelected technocrats at the BofE. I think that the BofE MPC should not SET interest rates, but should ask the Chancellor to set rates – every time. The Chancellor should then have a period of time to decide if the new rate is appropriate. If this means moving the meeting forward a day to accomodate this decision then that is better for democracy.
PS. we are seeing an increasing number of technocrats (e.g. Greece) taking over Political Roles. By technocrats I mean ex heads of unelected financial bodies taking over democrating positions without a full democratic mandate. I see this as a very dangerous move in Europe towards a bottom up EU dictatorship. The Government needs to go in the opposite direction to this and move technocrats back in advisory and not decision making roles.
What are your thoughts on this?
November 8, 2011
In my recollection, when the Chancellor was responsible for interest rates, we invariably suffered a pre-election boom. What is wrong with the present system is that neither does the BoE follow its mandate nor does the Chancellor hold it to account for failure; the democratic deficit would appear to be as a result of a conspiracy. There is no reason to expect that Chancellors are sufficiently skilled to have informed judgements on interest rates any more than the Secretary for Health has informed judgements on open heart surgery.
November 8, 2011
Govt created and maintained private sector monopolies which distort the market are immoral .
J.R. , any chance of postponing the proposed NEST pension scheme please ?
The last thing those of us in the private sector need is yet another half-baked ponzi scheme .
Call me a cynic but I can’t help feeling that this is just a scheme concocted by the International elite to channel citizens money into buying/circulating British sovereign debt .
November 8, 2011
You are right that it is sloppy history to blame 1986 for all our ills. I hear this nonsense regularly unchallenged/promulgated on the BBC. I think that 1986 was a key year in reforming post-war Britain and certainly created a lot of wealth – for the Treasury, for many working class traders as well as the army of regulators, lawyers and accountants it created. New Labour loved the money it created…but it is a start date for Thatcher’s deregulation. This is when the stockbrokers and merchant banks were far more socially elite and made 1.65% on every share trade and the City was a backwater compared to its pre WW1 days…the loathing for bankers bankers and Mrs. T has addled the ability to be logical. As a result we are less likely to make good decisions based on a sensible debate.
November 8, 2011
“made 1.65% on every share trade”. No. In my recollection, trades were on a sliding scale depending the consideration with a maximum of 1.25% at the lower end for registered stocks. The Stock Exchange did nevertheless facilitate all the stock trades demanded of legitimate market users. It is not clear why a market should expand beyond the needs of legitimate market users. There was fair open competition for bargains by the stockjobbers; costs were higher in part because computerisation had yet to bestow its benefits and the settlement system by tickets was excruciating.
November 8, 2011
Oops, your right on 1.65%. Just checked old Contract Note; they were increased before minimum commission were finally abolished.
November 9, 2011
You are probably correct but the City prospered from the re-regulation and increased competition from the abolition of fixed commissions and the foreign investment – Pace Philip Auger…
November 8, 2011
Left wing governments are a gift to large corporations and perpetuate excessive capitalism.
Example:
Financial Transaction tax, say 1% per transaction:
Banks charge 1.05% extra to customer, per transaction
Pension fund managers charge an extra 1.05% to our pensions
Insurance companies add 1.05% to premiums
Etc
Large corporations LOVE government regulations. When a blanket tax is levied on a sector there is no need for illegal collusion on prices. No need for a nod or wink. The signal to raise prices is there for all to see.
The St Paul’s protesters are right to worry about the gap between the ultra rich and the rest of us and the reason the richest get richer is, in my view, due to the government causing market imbalances and big government itself.
The blame should not fall on companies which do what companies are supposed to do: make money. The blame should fall squarely on those who have (perhaps inadvertently) colluded with large corporations to rig markets.
November 9, 2011
Spot on – the complaint about Labor was that it suited them to only talk to 5 or 6 big players. No fuss from business for 13 years and the underperforming wallies at the top taking big bucks and honors. This also suited lazy Whitehall people who tend not to like small business and entrepeneurs but do like visits to marble halls…did someone mention tax officials ?
November 8, 2011
Apropos as you say John about the date 1986 being used to Tar the whole thing with Mrs Thatcher’s brush [totally wrong IMHO as she was not responsible] Did not George Orwell write about his LEFT WING dictatorship under BIG BROTHER REWRITING history to suit their own ends,THAT is the LEFT ALWAYS.Except IMHO Blair/Brown USED the boom created by the post ERM recovery to really PUMP PRIME a new political order and landscape
thinking it would ensure their Hegemony politically ad infinitum.HUBRIS made them keep borrowing to pay for a false economy even after they KNEW the game was up ,and the people fell for it,poor fools but who wouldn’t feel good when your supposed wealth went up by the £25000 your house went up by last year and on top of that you took the family to Las vegas for a fortnight.
November 8, 2011
Excellent Article John
I’d like to follow up on your points on moral investing. I used to work for Fidelity a, rare in these times, privately owned Investment Company. Now there are several companies out there which sell ‘ethical’ funds. Fidelity never did, and the reason was – how do you define ethical? There is no consensus on ethics. Where do you place investment in Stem Cell research, or Genetically modified foods, or defence companies, or pornographic companies? To some people these will be morally acceptable and to others, they will not. Trying to regulate on this basis is ridiculous.
With banking regulations there is a similar problem with derivatives. Many of these instruments are totally valid for use, to hedge risk in an investment. A Farmer selling his future crops to the market to guarantee an income to use for investment in his farm. However there are also speculators, who are using these products for nothing more than gambling or spread betting. For them it is the rich man’s horse racing.
The problem you will always have, however, is that unless any regulations are made at a global level, effecting everywhere, there will always be a poor country willing to offer light regulation on Trading, in order to boost their economy. Take Luxembourg, the Channel Islands, Bermuda, Lichtenstein etc. as examples. The Investment banks will merely relocate there and the economies which have signed up to the regulation – like the tobin tax the EU is trying to impose on the city of London – will suffer as all the serious players relocate.
One final thought on your point about ‘the Markets’, and their perceived persona used by the MSM to justify a point of view on the political landscape. I think it is very apt your comments about Margaret Thatcher, for you could apply her infamous “there is no such thing as society” and interchange the word society with markets. “There is no such thing as ‘the markets'”. As you say, this is not a conscience entity, it is merely made up of individuals all acting for their own reasons. To apply a persona to it and use this to justify a biased point of view is at most naive, at worst arrogant, self aggrandising, nonsense.
November 8, 2011
“The problem you will always have, however, is that unless any regulations are made at a global level, effecting everywhere, there will always be a poor country willing to offer light regulation on Trading, in order to boost their economy. Take Luxembourg, the Channel Islands, Bermuda, Lichtenstein etc. as examples. The Investment banks will merely relocate there and the economies which have signed up to the regulation – like the tobin tax the EU is trying to impose on the city of London – will suffer as all the serious players relocate.”
If you deny access to the markets to any country outside the EU or without a special trade agreement the Investment banks will not be able to relocate.
Alternatively you can tax any transaction made within the UK, so the Investment banks will have to pay no matter where they’re located.
November 8, 2011
It is not an issue of the morality of the market, but of the market participants. The criminal law exists to deter and punish those who breach the moral code. What is considered ‘immoral’ is dependent on the mores of the society; when an element of society uses financial or other means to appropriate to itself the creation of new laws or the enforcement of those laws to the detriment of the majority and in direct opposition to the implicit moral code of that society, the law has become a tool of criminals and pirates Such is the case in the USA; such to a lesser extent is the case here.
Whether of the ‘right’ or ‘left’ we all happily partake of those deliverables that only capitalism in practice can confer, gizmos, food, foreign holidays because we know of the provenly unspeakable inefficiency of other mechanisms for delivery.
What, however, if instead of the profits from e.g. oil production going to the risk takers in exploration, extraction, transportation, refining and delivery, it primarily goes to ‘traders’ who manage to achieve the ‘impossible’ feat of creating high prices whilst the supply of oil is plentiful, we know the market has been rigged by pirates who are taxing us to use our cars.
There is clear evidence that changes in the US Federal Law have been intended to benefit ‘market’ participants and act against the interests of producers in the real economy and society as a whole.
The market crash of 2008 may have been precipitated by a reduction in liquidity orchestrate by the private secret Fed, but it was preceded by a loose money boom from the same source which engendered a housing bubble and massive mortgage fraud. This fraud damaged the balance sheets of several UK banks for which UK taxpayers were put on the hook. No one has been prosecuted. Why?
We need markets. We need to be able to invest our savings. New businesses need to be able to raise risk capital. But, companies want stock holders who a loyal for more than five milleseconds, who do not short their stock so that a predator can take them over on the cheap. Savers need to be able to invest without being taxed by predatory practitioners for the privilege.
The market should enable the free and fair exchange of goods and services and everything else and everybody else should be driven out.
November 8, 2011
Nobody this side of sainthood works to put food on another’s table, or works longer hours to make life better for somebody else. We also want more to accrue for slender times or to exchange.
That is called “selfish” and “greed”. It is how we got here over many years of evolution rather than dying out as so many other species did.
“The Markets” is an abstract term, a thing and can have no morals, or feelings or sentiments or think or decide. People do those things.
“The Markets” is part of free market capitalism none of which is a system, or an organisation, or a conspiracy of a few, but it is the sum of the Human Condition.
As such it contains all Human vices as well as virtues. It is then free, uncontrollable like the Four Winds, which sometimes blow fair, sometimes foul.
It is after millions of years of evolutionary process, inherent in Humans to survive, strive and thrive, profiting from one’s activities, reinvesting accrued wealth for return. In early days this was done by barter, now we have money as a token and a sophisticated system to replace meeting at the cross-roads or in a town square toe exchange and profit from what we have earned and accrued.
To change this required oppression – see: USSR, North Korea, Pol Pot, etc – but ultimately fails.
The sooner the political class and Socialist buffoons understood this the better – and “nudging” does not work either.
I have noticed that those who protest most about selfishness and greed, are very materially well off.
November 8, 2011
– if Mrs T was in her heyday and in charge.
I cant imagine the taxpayers would be bailing out private investors and private losses without some big and immediate changes and on Europe well where would we be now?
November 8, 2011
“Mrs T…..On Europe ;”
She would be sidelined , exactly as she was when she underwent her epithany and the parliamentary Conservative party kicked her out .
Europe is all powerful ;
– Papandreou to resign and be replaced with one of the EU’s two annointed candidates
– Berlisconi to be replaced with an EU plant
This is starting to terrify me .
November 8, 2011
The market’s moral slide ?
It just follows the nation’s moral slide. You know – the nation whereby it’s now common place for war memorials to be desecrated so that even this is losing its shock factor.
This moral slide began in the ’60s and it pervades everything – not just banking.
November 8, 2011
Blame it on the mini skirt or the burka?
November 9, 2011
Hmmm – I would say the morqal slide set in with Rousseau and the Social Contract…the French Revolution and its tiny helper and codifier Marx has given us the guillotine, the sexiness of perpetual revolution, class warfare, and poster and teashirt locker of crappy ideas – socialism, deconstructionalism, post-modernism, relativism etc. That’s how a self-seeking materialist party like Labour – Oxbridge only not so you would notice, like the Radio 4 continuity announcer from Essex put there just to annoy the SE England listernership – can say one minute that they care about the poor and the next minute oppose reforms that might make them better off! (Tee-shirts trump reality.)
November 9, 2011
I would say that the moral slide and continual revolution is the fault of youths and youthful people not excepting their place in society, which comes out as class warfare, often in reverse. Tory youths looking and behaving like middle aged gits should be happy when they reach middle age as this is what they always wanted.
November 8, 2011
The “Markets” indeed have no consciousness nor morality. Deep in the hearts and minds of Millions of investor decision makers, collective actions are gradually formed. For example, when the Key Decision making politicians of France and Germany broker the taboo as to the “possibility of Greece leaving the Euro and the EU, then naturally investors thought “What Next?” Italy has fallen nicely as the target as it must repay some $300 Billion next year and its interest rates on borrowed bonds now exceeds 6%. There is NO WAY that Italy can cut back to pay such huge interest rates on borrowings. It is simply not sustainable… Italy may shuffle chairs and change their Prime Minister, but they cannot get away from that huge interest rate on their sovereign debt. At these rates Italy will GO BUST.. Germany will be forced to decide soon, are they going to fully back the members of the Euro or not? If Germany becomes selective, eg Let Greece go, why not Italy? Merkel and Sarcosy can still run, but they cannto hide from this huge reality
November 8, 2011
BUT –
The markets are always right.
You can say they are amoral and they don’t do what we want them to do, but the market is the ultimate judge and totally impartial, weighing risk and reward at every junction.
That is why the EU hates the market and the socialists and communists stand around St Pauls with placards, because they are wrong and the markets are right and they don’t like it and there is really nothing they can do about it.
November 8, 2011
Once the markets think however reckless they behave Governments will use taxpayers money and even borrow to act as their saviours then we are heading for disaster.
Gordon Brown made many poor decisions but the one where he decided banks were to big to fail was his poorest.
If only he had kept his nerve and let the failing banks go bust, simply protected savers accounts from loss and allowed other more successful banks to come in and buy up the remnants at a bargain price off the receivers, we would now be in a much better position.
It was that “Old Labour” obsession with nationalisation that got us into this mess.
It is in the very nature of capitalism that whilst some businesses succeed some will fail, therefore saving those businesses that are on the brink of failure just weakens the system and costs us all in wasted money.
November 9, 2011
You are quite right, John. And anyway, one person’s greed is another’s aspiration.
Or as Gordon Gekko put it in the film Wall Street:
Greed — for lack of a better word — is good. Greed is right. Greed works.
Greed clarifies, cuts through, and captures the essence of the evolutionary spirit.
Greed, in all of its forms — greed for life, for money, for love, knowledge — has marked the upward surge of mankind.
November 9, 2011
The UK was dealt a load of silly, thoughtless regulation over the last 13 years, often just with the intention of overthrowing the old, and introducing something new. The US decided to repeal the Glass Steagall act to keep pace with the UK’s financial performance. These are the two countries that suffered from bad banks.
NO OTHER COMMONWEALTH COUNTRY HAD ANY PROBLEMS WITH ANY BANKS. That is because they were kept liquid under excellent regulations that have stayed largely the same for the last 400 years.
If the UK goes back to the same regulations that have served us so well in the past and are still serving our commonwealth friends, then no new regulation will be required.