Other People's Money
by John Kay
In Edinburgh, Kay remembers the old days as a schoolboy in the 1960's when a career at "the Bank" or "the Royal Bank" was an aspiration for boys whose grades were not good enough for admission to a good university. As he details in his recent book, things are very different now, with a career in Finance attracting the best and the brightest. The world has changed, much for the worse. These things might be linked.
Kay's an excellent writer and every page has something worthwhile on it, and quotable. He's scathing about the way "financialisation" has taken over the financial industry. A tremendous amount of money is now floating around the system and a equally massive number has inflated the pay packet of large numbers employees in the finance industry. This does not include the average retail bank employee though: closer to shop assistants now. Lots of money to be made "trading" though, but, as Kay asks, what is all the trading for?
There seems to be a huge disconnect now between the needs of the real economy and the financial system today; a system that trades mostly with itself and, seemingly, mostly for its own benefit. And the bottom line is that all this is with other people's money. Prudence is weak or non-existent and abuse easy, widespread and unpunished. After all, fines levied are paid with other people's money.
The title of this post, I'll be gone, you'll be gone is another of the sticks he uses. Like much of politics today, there is a mostly short-term outlook taken and people know that the results of their activities will be felt long after they've left the industry, usually amply rewarded. I'll be gone, you'll be gone.
"We are investment bankers. We don't care what happens in five years."
Vincent Dahinden, head of global structured products, Royal Bank of Scotland in Institutional Investor, 12 February 2004. Quoted in Ian Fraser, 2014. Shredded. Inside RBS, the Bank that broke Britain p 222. Royal Bank of Scotland was bailed out by the UK taxpayer four years, eight months later.
Depressingly, Kay is pessimistic and thinks that we missed the opportunity to fix things. It was right to backstop the system and prevent a collapse in 2008 but :
They might have used the control of the finance sector they achieved in the aftermath of the crisis to restructure the industry. But they did not, and that makes it certain that they will get another chance - perhaps to make similar mistakes again.
Great book, well written. I wish there were more people like Kay around, and I hope our politicians, financial regulators and economists listen. As The Economist says :
Above all, the finance sector should be judged on the same basis as other industries; if an activity is unprofitable without taxpayer support, it should not occur. “Our willingness to accept uncritically the proposition that finance has a unique status has done much damage,” the author wisely says. Let us hope those in authority will listen.