Big Finance, Demystified

John Kay shares findings from his new book, Other People’s Money, and his insights on changing the financial sector.

Once upon a time, says John Kay, Fellow at St. John’s College at Oxford and Visiting Professor at the London School of Economics, bankers were fairly ordinary folks —cautious-minded community members who knew the people they were lending to. That world is gone. Starting in the 1970s, a new system arose, dominated by clever traders making anonymous transactions at break-neck speed. Caution was thrown to the wind, compensation skyrocketed, and something so complex and dysfunctional came about that it threatens our entire society.

In his new book, Other People’s Money: The Real Business of Finance, Kay delves into what finance means to the real economy and how it must change. He goes beyond a simple narration of the events that unfolded before and during the crisis, instead taking the long view and revealing the crisis as not just a once-in-a-lifetime event driven by the hubris of a few bad apples, but rather the “culmination of a process of financialization that had affected the whole structure of the economies of the West over the last 20 to 30 years.” When bad behavior happens on a large scale, he observes, you have to look to the system to find answers. And we had better find them, because out-of-control finance still endangers us all.

Key to Kay’s perspective on what needs to change is his observation that finance is not a special industry that ought to have its own rules and support from government. We must start by asking basic questions about what we want finance to do, and go about putting regulations in place that serve the public, are focused on the structure of the industry, and mindful of the incentives of people who work in it. Watch the interview as Kay discusses his work with Rob Johnson, President of the Institute for New Economic Thinking.

[MrGTO]

John Kay is hands down amazing and so was this interview. He talks about so many of the problems I have suspected but hadn't fully articulated yet.

[stephenyang]

Mr. Kay tells it like it was. He understands America and speaks the truth, without being judgmental.

[brentshuffler]

He is especially accurate in highlighting that the top 1% of the population is increasingly dominated by financiers, but, far worse, the top 1% of the financial sector has increasingly egregious compensation and an increasingly immorally larger and larger share of the income within their firms and within the economy. They need to share in the downside risks and costs, as they used to do, rather than profitting heavily from the upside without responsibility for the downside.

[brentshuffler]

Excellent insights and summary analysis of the desirable role and purposes of the financial system! In particular, we note his historical point that banking evolved from personal relationships and community-focused bankers, to anonymity, large-scale activities, rapid transactions, and detachment of finance from people and their long-term best collective welfare.

[sydgvkx]

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[davidfoust]

I want more details! "We need better regulations." Yeah no kidding! But what does that look like?

[billcole]

Restore the Glass-Seagull Act. Separate commercial banks from investment banks. The FDIC should only insure the commercial banks. When the investment banks gamble and loose the investors and stock holders loose not society.

[johnf]

Kondratiev focused on prices and interest rates.

[johnellington]

For Financial Marriage. Your Divorce Papers Need Signed. No more Breaks.

[grayarcana]

The Big Bang wasn't in 1986: it may be coming, or maybe just a long, slow train crash!

[benjaminrupertodomingo]

Of course CEO wont think of themselves as overly compensated, their inflated ego's would allow that.

[zuiop]

I really thought that most of the points made are really on the point. But how can you say that on the one hand we need to look back to the 70s to see how culture has shaped our economy to our disadvantage and on the other hand imply that people like corbyn are dangerous? I downvoted just because of that comment. Many of the proposals of Corbyn wouldn't have been seen as far left in this time period. The problem is the centre of the political system that adopted economic policies of the right and sometimes of the libertarians. We need "far left" leaders like Corbyn and Sanders that can energise the people that are voting populist right out of desperation.

[patbranigan]

Why not just enforce the laws of the land? Commit fraud you go to jail. If you launder money for criminals you go to jail and under RICO have all your business assets and possibly if you benefited personally your personal assets confiscated by the government. If you cheat your employees you go to jail. If you cheat your customers you go to jail. How about we just treat big criminals just like we do petty criminals and in fact give big criminals longer sentences? The biggest problem is that we do not live in a democracy, we live in an oligarchy where the oligarchs have the divine right to cheat and steal from the rest of us with impunity and in fact are rewarded for doing so.

[staninjapan]

Of course I am commenting as lay-person in this regard, but boy oh boy this man uses so many words to politely and pseudo-eloquently say... nothing.
Oh, it's systemic...
Oh, it's cultural...
Oh, it's all merely academic.
Oh, really?
Oh dear.