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Everything exists in a context. FS is a social construct that has differed massively over time and space, always existing in a context of Policy and Regulation. Over my 30 years in FS I have seen deregulation time turn into hyper-regulation. Talk about pendulums (pendula?). Where do these changes in Policy and Regulation come from? How does the “game” of setting the rules for the “games” work?
In LFP065 I am delighted to be joined by Lord Turner who headed the FSA from a few days post Lehman’s crash (“welcome to your new role…”) and was intimately involved in the years-long process of the creation of the Basel 3 global regulations for banking.
Apart from wearing these FS hats (with more background in FS per se) he has worn the BigBiz hat when he headed the CBI and the state/social-good angles when he chaired the Pensions Committee, the Low Pay Commission and the Committee on Climate Change in the UK.
He is also an academic and an author and his latest book “Between Debt and the Devil: money, credit and fixing global finance” dives deep into the nature of money and banking. As a taster I recommend his YouTube talk at the LSE. He is currently Chairman of the Institute for New Economic Thinking.
So there is literally no-one better to guide us through the whole set of processes whereby policy “emerges”. How does the world change? Where does policy come from? What are the roles of academics, bankers, lobbying groups, politics, government, regulators? Do the people ever get a look in?
We start by examining the backdrop to the past 30yrs in FS and in understanding that give an understanding of where we are in the cycle of current crises leading to new ideas and future Policy and Regulation
This is a special episode – both in length and content – it’s nigh on impossible to make enough notes on this without it turning into a transcript .. however key points include:
– famous/infamous sons of Ipswich
– Adair’s famous/infamous phrase in 2009 which has lived long re “socially useless trading” – what about “socially useless lawyering”, “socially useless regulation” “socially useless accounting” etc and what about “socially dangerous trading”?
– IDEAS as starting the whole process … if we see Big Bang and deregulation in the mid-80s as “implementation” of an idea where did the idea come from? How long had it been around?
– THE ROLE OF CRISES … the 30s crisis as leading to new ideas (Keynes et al); WW2 as the end of that crisis and itself spawning new ideas (versus the monolithic power of the state in wartime); these ideas themselves leading to the crisis of 2008 and of course that crisis now leading to new thinking…
– FERTILE CIRCUMSTANCES … “the right time” … the 60s and 70s leading to a set of circumstances which proved to be fertile ground for these seeds from the 40s/50s
– SOCIAL/CULTURAL CHANGE … it is hard to discount the impact of the more “Dionysian” hippy era and culture (against a backdrop of a very ordered/”Apollonian” statist structure) in leading to the deregulation of the 80s
– SELLING OF IDEAS .. ideas need to spread
– POLITICAL INTERESTS/ARGUMENTS/WILL TO IMPLEMENT .. the combination of a sufficiently widespread acceptance of the gravity of an issue to enable a sufficiently determined leader to implement those changes; a comparison between the failed early-70s “free market” approach from the Ted Heath government and the subsequent Thatcher 80s implementation; similarly the “two bites at the cherry” of the Labour party when in government to trade union restraint; the role of “groups” within the parties as providing intellectual support for ideas
– TODAY – challenges in banking, regulation, the nature of money and the creation of purchasing power;
– “Basel 2 was .. where we went off the rails” [internal models + loss of focus on the totality of the system (eg amount of credit/debt/leverage as a whole]; current regulation as amounting to stuffing a lorry with defective brakes’ cab with supervisors rather than improving the brakes (capital buffers)
– IMPLEMENTATION CHALLENGES – the creation of Basel 3 as a case study; why can’t we get simple rational policy implemented?
– agreement with Niall Ferguson “regulation has become the disease for which it purports to be the cure” (Reith Lectures 2012) and Andy Haldane “one can’t manage complex systems with complex rules” (“The Dog and the Frisbee”)
– “we should aim for much simpler regulation” [&the core of it should be much more capital]; we need “a small number of powerful regulations rather than micro-supervision”
– the structure of bank lending – most goes on financing a competition for pre-existing assets (esp housing) rather than adding value to the economy as a whole [only some 15% of bank lending is for business investment]; property as a long term problem in the UK economy/banking crises; property becoming more importance as wealth increases; the difficulty of regulating
– SPECIAL INTEREST LOBBYING and the INERTIA/SHORT TERM EXPEDIENCY as blowing the rational policy implementation off course; practical case studies in the context of Basel 3
– “THE PROBLEM OF STARTING FROM HERE” leading to incremental changes in the right direction; the “value” of crises as permitting much greater shifts in approach
– pulling together these implementation challenges and themes in terms of implementing Adair’s ideas
– the very pukkha lineage of the some-see-as-controversial ideas in Adair’s new book (alternatives to “austerity”?; these ideas as seeds for the future; what he would do tomorrow if her were either to be able to implement them simultaneously globally or just to take power in the UK
– can you provide ideas and do a government job at the same time? Freedom versus constraints
And much much more 🙂
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