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Other People's Money: Masters of the Universe or Servants of the People? Paperback – 5 May 2016
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Stratospherically authoritative. (Independent)
Should be read by everyone concerned with preventing the next crisis... barely a page goes by without an acute observation or pithy aphorism. (Economist 2015-08-21)
Kay is both a first-class economist and an excellent writer. (Financial Times)
Mr Kay is a brilliant writer. (Wall Street Journal 2015-09-25)
An admirable debunker of myths and false beliefs - Kay can see substantial things others don't. (Nassim N Taleb, author of The Black Swan)
Quite brilliant ... about as good a demonstration of Kay's skills (as economist, thinker and writer) as you are likely to find. (Andrew Haldane Prospect magazine 2015-09-17)
John Kay is one of the most engaging and accessible writers on economics in Britain today (Morning Star)
A scathing and well-informed critique of the financial industry by leading economist John KaySee all Product description
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One of the problems with the finance industry is that there is no effective deterrent to stop financiers misusing other people's money. Even after the banking collapse that followed the sub-prime mortgage scandal (2007-2008) very few went to prison and even the banks that had been bailed out by the taxpaying muppets continued to pay out billions in bonuses to their executives.
Whilst this book contains few surprises for anyone who was prejudiced against greedy bankers, it quantifies the scale of the problem and describes the tricks used by financier to evade censure - it is no accident that many financial products are so complex - the complexity disguises the borderline criminality of what many financiers are up to.
I found this book well-written and compelling. It will certainly open the eyes of anyone who is tempted to hand over money to financial advisers in the expectation of getting a good return. Indeed, John Kay argues that many ordinary people might be far better off handling their own finances rather than trusting their savings to a bunch of rogues.
There were some pretty dumb (to use GE CEO Jack Walsh's term) ideas in play: the new dominance of shareholder value; the repeal of Glass-Steagal; the pressure on traders to 'tailgate' which might being them short-term benefit but would cause regular pile-up that cost society massively.
An important (manipulated?) US legal decision was delivered on the status of Credit Default Swaps that suddenly gave their use free rein. So-called opportunities were created by the UK government encouraging transactions through London, in order to be governed by more lax English law.
Kay writes of the 'wilful blindness of those who do not ask questions when it would be embarrassing or at least inconvenient to know the answer...difficult to get a man to understand something when his salary depends on his not understanding it'. Cognitive dissonance is also observed in 'superannuated politicians and former regulators'. As some of us will have met from City Smart-alecs , 'sceptics need to be refuted, and so are mocked and maligned', as unsurprisingly in some of the Amazon predictable 'personal justification' reviews.
The presumption of the FIRE (Finance, Insurance, Real Estate) business is that they create wealth, when they mostly just move it around. There was a recent illusion of profitability and new tools for reducing risk (eg 'slicing' sub-prime), when traders were merely borrowing from the future. Kay believes that 'Too Big to Fail' missed the point, which is that corporations are Too Complex to Manage. The proliferation of intermediators is 'the most conspicuous example of the consequence of replacing the (past) knowledgeable intermediator with the supposed wisdom of crowds'. It is clear that technical illiteracy is commonplace nowadays in Britain, and employees would rather 'chat' that pursue detailed knowledge about 'things'.
His Part III on Policy and reform is most valuable. He endorses Hedge Funds, would rather have less complexity than more Regulation, would see a transaction tax as a way to discourage the vast volume of meaningless activity - but recognises that is well-nigh impossible while the most secretive banking system in the world operating through British Dependency tax havens (Economist newspaper opinion, 2015), continues mostly unfettered. Doubtless so important is the City for Britain's economic survival, we will continue to be ruled by the bankster's instinct, where a rival's beliefs and strategies are imitated, if only to keep up with the relative performance in asset trading (no absolutes here, nor much worry about moral hazard!).
I find this a deeply satisfying book. All my half formed worries about the financial system, all my little insights, John Kay has agreed with and swept up into a masterly oversight of the whole complex, interlocked mess that drives the City, Wall St, their peers in other countries, and the penumbra of associated services around. Particularly, he shows how the managers of the Financial Services industry have achieved in reality more than Milo Minderbinder achieved in fiction. They have convinced the world that their profits are a good in their own right, however they are achieve.
If you want to know how the financial services industry works, read this. If you know how it works, but want to know how it could work better, read this even more carefully.
Kay brings together all of the separate strands without ever getting lost in the detail. He unifies them under a common theme of finance becoming an end in itself, rather than serving the good of its users.
I rarely give 5 stars, but this is a book that most certainly deserves it.
Just one question remains: where are the men and women of stature that will enact the necessary changes to our financial system, to restore it as a force for good?