Finance fact and finance fiction

I had a delightful weekend at the Pordenonelegge book festival, speaking about the new Italian edition of . The life of an author is indeed tough.

Reading in Pordenone

As my reading matter, I took a book (recommended by Brett Christophers, whose Banking Across Boundaries is out next year) that might be tough to get through in everyday life. It’s  by Mary Poovey. The author is an English and Humanities professor at NYU, so this isn’t a natural title for me to have picked up. But, a bit over half way through, I’m finding it fascinating.

[amazon_image id=”0226675335″ link=”true” target=”_blank” size=”medium” ]Genres of the Credit Economy: Mediating Value in Eighteenth- and Nineteenth-Century Britain[/amazon_image]

The book traces the creation of a distinction between writing about value that became money – bills of exchange and bank notes – writing about value that became formal, ‘expert’ economic writing, and writing about value that became literary writing. What we now understand to be totally distinct genres were created so by the development of the credit-based economy in 18th and 19th century Britain and the sociological evolution of the economics profession on the one hand and literary writers on the other. A split between ‘factual’ writing about monetary or market value based on the forms of writing about natural science and ‘fictional’ writing about non-market value in literary fiction and poetry now seems natural and inevitable, but it was not always so. Once one sees this, it becomes immediately obvious that some ‘factual’ forms of writing about markets are entirely ‘fictional’. Without even going to the metaphorical character of many economic models, this statement obviously applies to the multi-hundred pages long prospectuses issued for complex securities in the run up to the Crisis (and for that matter still being issued). Nobody could possibly have read and understood these. Not that this mattered – they might as well have been tales of unicorns and dragons, containing less insight about value and values than, say, my next read, which will be .

[amazon_image id=”1849904936″ link=”true” target=”_blank” size=”medium” ]Parade’s End[/amazon_image]

Meanwhile I’ll write a full review of Prof Poovey’s book when I’ve finished tit.


Economists, sociologists and the crisis

Oh dear. Oh dear. I’m going to have to say unkind things about a book I’d been rather looking forward to reading. The book is , edited by Manuel Castells, Joao Caraca and Gustavo Cardoso.

[amazon_image id=”0199658412″ link=”true” target=”_blank” size=”medium” ]Aftermath: The Cultures of the Economic Crisis[/amazon_image]

When they first came out, I read eagerly Castells’ three books in The Information Age trilogy and found them enlightening (if quite heavy-going)  – my copies still have lots of bookmarks sticking out of the pages. I’ve also been keen to find some good sociological analysis of the financial markets. Gillian Tett, an anthropologist by training, wrote the terrific . John Lanchester, a novelist, gave us But (like Aditya Chakrabortty in The Guardian) I’ve been wondering about the absence of careful sociological study of the markets (in fact, Mark Granovetter was asking long before the crisis why sociologists left important domains of study to economists).

[amazon_image id=”1405196866″ link=”true” target=”_blank” size=”medium” ]The Rise of the Network Society: Information Age: Economy, Society, and Culture v. 1 (Information Age Series): The Information Age: Economy, Society, and Culture Volume I[/amazon_image]

So, I was pleased when Aftermath arrived. But I’ve given up part way through. The introduction is just a summary of the main events since 2008. The first chapter is about budget cutting and protests at Berkeley, mildly interesting but a touch navel-gazing. Subsequent chapters are unexpectedly abstract. This is a typical passage:

“The key analytical observation is that the current crisis has produced strong resistance identities against not only the measures used to treat the crisis but more deeply against the development model that led to the crisis and from which the current attempts to rectify the situation derive. Therefore, there is an explicit tension between identity and the global network society as it is expressed in its currently dominating form. …. We can make a further argument: the root of the current crisis is the fact that the generally dominant model for development has been based on systematic debt-taking.” (p159)

In other words, a statement of the the unintelligible followed by a statement of the obvious. Now, I do know that every discipline has its own jargon so ‘resistance identities’ may well be a piece of it. But I don’t know what the first bit of the quotation means.

To be fair, a couple of later chapters (on Catalonia, on China) look more empirical so I’ll give them a go. But what I’d really hoped for was some insight into questions like: Why did it become normal for so many people to take on debts they would never repay to buy cars and clothes and houses? What was it about our societies and governments that mean the only way many people could find a home of acceptable standard by lying about their incomes to a dodgy mortgage broker? Why or how did people working in the financial markets lose all their sense of everyday ethics, their connections to the rest of society? Who are the people who went into flogging sub-prime mortgages?  How did it come about that regulators were content to take hundreds of pages of complicated and unread documentation as proof of adequate risk-management? And many more.

Now, I certainly am not going to get on my high horse about how wonderful economics is – having written so much about economists’ need to acknowledge its flaws and fix them (see eg ) – and as sociology is not my discipline, maybe there are new pieces of research into such questions by sociologists and other social scientists, and I’d be grateful for the references. But I have a sneaking suspicion that it isn’t the kind of work sociologists have been doing.


Banks behaving badly

It’s five years since Northern Rock hit the rocks, and four years since Lehman Brothers went bust. The banking system remains fragile, a number of Eurozone banks still posing a threat of global systemic instability. Regulatory reform creeps ahead, slowly, very slowly, and (as Andy Haldane pointed out in his paper The Dog and The Frisbee) will not work anyway. In other words, after half a decade the financial crisis is still in full swing. We are all paying for it in direct taxpayer subventions, through the central banks massively subsidising banks’ costs, and through slow growth – the latest US figures showing real median incomes at their lowest since 1995 – 1995! –  illustrate the point starkly.

So I was shocked an angry to read a small article in the second section of the FT this morning (Banks Force Aluminium Market Shake-Up) pointing out that big investment banks have started speculating in aluminium. At a time of slow global growth, metals prices should be falling. Instead, there has been a 50% increase this year in aluminium because Goldman Sachs, JP Morgan and the like are buying up large stocks and warehousing them to restrict supply.

“The increasingly dominant role of banks including Goldman Sachs, JP Morgan and Deutsche Bank – as well as traders such as Glencore – has prompted a surge to record levels in the premium consumers pay for metal over the benchmark price set at the London Metal Exchange.”

This comes on the back of evidence that investment bank speculation on food commodities through new indices (launched by Goldmans) made a significant contribution to the increases in food prices in recent years.

Is anybody else angered by this? And why are politicians and regulators as silent on this front as they have been until very recently on the use of the financial system for tax avoidance and money laundering? A number of books have flagged up these behaviours in banking – Nicholas Shaxson’s , Misha Glenny’s  and , Matt Taibbi’s early ‘vampire squid’ intervention in  – and other journalists have been covering the dark side of banking. But there is no salience for these issues in policy and political circles. Why aren’t central banks concerned about soaring commodity inflation when the economy is flat, and the deliberate market distortions causing it?

[amazon_image id=”0099546558″ link=”true” target=”_blank” size=”medium” ]DarkMarket: How Hackers Became the New Mafia[/amazon_image]


Which economic crisis?

There’s a house on the way to the station whose occupant has been putting out books he or she is obviously trying to get rid of. So far they have been dull legal texts, but at the weekend I pounced on the trophy of by Keith Smith. This was a 1989 Pelican paperback of a book first published in 1984 and reissued in 1986.

My first thought was, Hah! Call the 1980s an economic crisis! Then I started reading and grew gloomy. The essence of the problem Smith diagnosed was the weakness of manufacturing, and the absence of consistent R&D spending and investment – written against the backdrop of the North Sea Oil-driven rise in the exchange rate, which savaged export and industrial output in the early 80s. He also picks out other contributing problems such as the inadequate education and training of the UK workforce, the over-reliance on financial services and the failings of the welfare state.

His conclusion: “Sustainable improvement in British economic performance can only happen through a thorough-going reconstruction of the ‘supply side’ of the British economy.” In the 1990s we thought the Thatcher governments had tackled the supply side problems through privatisations, labour market reforms, and deregulation. But it would be hard, in the 2010s, to take any more cheerful a view of the country’s economic potential than Prof Smith did 30 years ago.


Which crisis would that be?