Transforming Finance: notes from the conference on 10th May 2013

May 24, 2013 Comments Off on Transforming Finance: notes from the conference on 10th May 2013 by

The one day conference was jam-packed – both with several hundred delegates, and with content. Perhaps too much content. The organisers wanted it to be ‘fast-paced’, but achieved this via ten minute presentation ‘snippets’ and limited deliberative discussion. Questions from the floor were taken in threes or fours, guaranteeing that respondents could be selective in their answers. From a PR perspective this resulted in a very high profile event with some good mainstream press coverage, but from an attendees point of view perhaps a partially missed opportunity. Given that the event, as is often the case, was preaching largely to the converted, this is perhaps excusable but it did mean that the occasional contrarian elements – such as Mariana Mazzacato’s trashing of SME’s economic contribution were left largely unchallenged.

One of the event sponsors was the Finance Innovation Lab (http://thefinancelab.org/). Chris Hewitt set the tone by noting that the recent bailout equated to around 5 years of total tax take from the City, implying that support for the financialised economy sector was not perhaps the no-brainer for the UK government that it is presented as.

The first plenary session asked how to avoid boom and bust, asset bubbles and costly bailouts. Thierry Philipponnat (http://www.finance-watch.org) contrasted the first-uses of what is effectively unlimited credit as it piles into asset purchases (causing bubbles), consumer goods and derivatives (c USD 700 trillion to date) rather than into investments where it is badly needed. The banking reform proposals being tabled in the UK (post Vickers), France and Germany still make no distinction between these channels of credit use. His powerful conclusion was that bank-dictated allocation of capital, rather than managing risk actually created risk and that no immediate change was likely. The session also noted that the Basel 3 capital requirements still rated SME loans as higher risk than speculative buyout lending.

Richard Werner from Southampton University explained that when banks make loans they create ‘fictional deposits’ and that these are inseparable from the real deposits made by savers and investors. He also reinforced Philipponnat’s analysis and suggested that misallocation of capital should be addressed via some form of credit guidance as had happened as recently as the 1950s. His definition of speculation: “transactions that are not part of GDP”.

Other presentations included one on the German Savings Banks, confirming that Germany has a much more diverse (and hence I would say sustainable) banking system.

The following break out sessions were on increasing that diversity in the UK and ‘fresh thinking on debt and recovery’. The latter addressed a debt jubilee (Nick Dearden) and Positive Money (Ben Dyson), sandwiched by two academic reassessments of Keynsian and non-Keynsian narratives of the debt crisis.

The after lunch plenary session was on Socially Useful Investment with excellent presentations from Tim Jackson, the author of Prosperity Without Growth and James Vaccaro of Triodos. The general message was of the shortage of local, ethical, transparent investment choices and of the portfolio-gap of virtually all IFAs for such investments. While there was a developing market place for ethical advisors such as Ethex, these tended to concentrate on the pro-social qualifications of the bigger companies. There was a lack of long term committed patient finance – ‘slow finance’ – and of real options for community-led projects. In this context reference was made to Empower Community (http://empowercommunity.co.uk/), but it was felt that to date these were somewhat ‘fragile experiments’.

From an individual investors point of view, as Vaccaro said “what is individually sensible is collectively disatrous”.

The afternoon breakout sessions split into Capital Markets and Accountability and Rehumanising Money. The latter addressed a number of issues with which I felt reasonably familiar so I attended the former. Paul Woolley used his ten minutes to underline the myth of efficient markets. Orthoodox ecopnomics completely ignores the effects of intermediaries whose activities promote and are sustained by unneccesary volatility, and create the principal/ agent problem. The consequent mis-pricing of assets and perpetual rent-taking atrophy the market. With finance, as he pointed out, unlike the purchase of a washing machine you don’t know you have been mis-sold until its too late.

Hannah Griffiths from the World Development Movement painted a disturbing but all too believable picture of food speculation. As with many financial instruments what starts out as a sensible hedging of risk turns inexorably into a speculative binge fuelled by the misallocated capital referred to earlier. Thus futures contracts became tradeable instruments, especially post 1990 when regulations were weakened. In 1996 88% of the use of these instruments was hedging and 12% speculation; by 2011 the figures were 39% hedging and 61% speculation.

Bruce Davis from Abundance Generation, while pushing a pensions investment in 25 year renewable energy debentures, made the point that in his view the economic war could not be won if we deal solely in the terms of the existing market model. We need to shift the battlefield to one of a cultural war, where the economics follow the ethics. His advice was to take as much active control over your finances as you can – not just Move Your Money (Google it), but Move Your Pension and so on. Recent changes on auto-enrolment would bring in a new cohort of naive investors, with potential to create the next mis-selling scandal. However in general the ‘stupid consumer’ was not the problem, it was the City. Challenging as it was, though, consumers needed take control – ‘Have faith – there will be apps!’

The closing plenary offered a chance to showcase the host’s electronic voting system. This was used to test whether the audience had fully taken on board the key messages of the day via a rather loaded series of questions.

Overall, a very worthwhile day; an organisational tour de force by Beth Stratford and her team; lots of good contacts and peppered with insights; but perhaps too many talking heads squeezed in and not enough in-depth dialogue.

Refs:

good snippets:
http://www.guardian.co.uk/business/video/2013/may/17/transforming-finance-avoiding-a-new-crisis

bank diversity:
http://www.guardian.co.uk/business/video/2013/may/16/transforming-finance-banking-economy-video

funding the green economy:
http://www.guardian.co.uk/business/video/2013/may/15/transforming-finance-fund-green-economy

Twitter: #tranfin

Featured Image: London Commercial Centre on a rainy day. Author: Graham Briggs. Source: http://www.sxc.hu/photo/1197422

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About the author

Graham Barnes is a Currency Innovation Strategist. He is a Director of Feasta and co-organiser of the Feasta Currency Group. He holds a PhD in Computer Science and worked at a senior level in IT and online marketing in a previous life. His current projects include the design and delivery of currencies to be sponsored by a local authority; by a social entrepreneur to complement and enhance a well established sustainability methodology; and by a restaurant chain. https://twitter.com/GrahamJBarnes https://www.linkedin.com/in/grahamjbarnes

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