Paddy, what’s the biggest problem facing financial decision-makers?
I think that one of the biggest problems is regulation. I like to compare the financial markets to a boy in his teenage years who is growing very fast and after a few years his clothes don’t fit to him. With the huge changes with computerisation that happened in the financial markets in the last 30 years, we need new pieces of regulation. The markets have become huge but the regulations are the same as they were in the 1930s… regulation hasn’t caught up!
What are the implications of that?
Financial institutions grow and make money and this allows them to lobby. As a result the regulatory system has been defunded: [regulators] haven’t got any money and they are the poor cousins of the financial markets. They cannot be the policemen of the financial markets as they are supposed to be.
What we need is not new regulation but better regulation, and a better enforcement of the rules that we have. We need simpler rules. There are so many rules that contradict each other in this market: if you are a bank you can be regulated by a number of organisations and you can therefore choose by which organisation you want to be regulated if you think some rules are too difficult. This is just crazy!
What do you think about Finance Watch’s motto “Making Finance Serve Society”?
I think that this is a really, really interesting point because banks are not social instruments. They are just there to make money. In a situation like now where you have so much of a country’s wealth in the hands of banks, banks should have something written into their charter that requires them to take on some morality.
In the USA, there is the Occupy Wall Street movement and I know that in Europe there is the movement of the Indignants asking for a deep reform of the institutions. I think that the bankers should be held up as a core part of society. They should be valued as a part of society that helps us grow. But at the same time, that leads us to responsibility and that should be mandatory. I think that it’s a great motto and banks should be part of that.
Let’s focus on banks. What do you think of these institutions?
This is my philosophy: a bank is like a gland. It has no mind, no brain, it does not have a conscience, it does not say to itself “Huh, I must look after the poor people” but rather “My job is to make money for my shareholders”.
When those bankers are putting together credit default swaps and all these financial engineering projects, they are engaging in financial science. Science is supposed to serve society. All that type of science does is enrich people at the top of the chain but it’s very bad for our society.
What led you to publish this book?
About 50% of American citizens own stocks. In Europe, the proportion is lower but pension funds where Europeans put their savings also invest in stocks. Many people are very concerned about the financial crisis and its consequences in their daily lives too. They are reading stuff in the newspapers, they are watching the TV and they do not understand even the language that these people are using. So this book is a way to explain what a lot of this language means. It is a way to relate the things that go on in the financial markets with what goes on and on in our everyday lives.
In a way this book is a dictionary because it explains individual terms; in a way it is a kind of encyclopedia because it spells out how these things work and in a way it is a guide that takes you by the hand and walks you by the street to understand things that seems weird and strange. Maybe it’s a combination of all.
The style of the book is very creative!
At the Marketplace, we believe our job is to explain what is going on in the business world to people. There is a real lack of understanding there because journalists use the same language that people in the business world use. So we decided it was important to communicate all this information with a different type of language and I made a conscious effort to find examples in people’s everyday lives. This book is an off-shoot of the radio programme and the whiteboard video online we started some time ago.
Thank you very much
Paddy Hirsch has recently published a new book “Man Vs Markets. Economics Explained (plain and simple)” (2012, Harper Collins).