My dear friend Herbie Skeete heads up MondoVisione. His 2019 Forum at Haberdashers’ Hall led to some great insights on the nature of global finance. The highlight was probably an address and interview with Gina Miller, the campaigner behind two Brexit court cases.
Love her or loathe her, she presented excellently and handled questions well. While she can rouse different reactions, she won round the audience and gained a standing ovation – a first for a MondoVisione event.
My opening remarks went:
Herbie, Distinguished Guests, Ladies and Gentlemen,
Like many of us, I have been coming to Herbie’s wonderful shindig for a few decades, and spouting off about what should be done.
I’m reminded of the philosophy student who tells his friends about the winning strategy he used to pass his ethics exam, “I cheated”. In this age of green finance, I intend to cheat by recycling some comments I’ve made over the years.
In 2016, at the Dutch Church in Austin Friars, Herbie set us the theme, “Towards A New Economic Union”. This year he sets us “Innovation & Transformation”. Yet after nearly four decades in financial services we seem to have made little progress on towards innovation or transformation, either technically or ethically. Sure there have been many improvements, but let me explain:
Technically. I came to the City of London in 1984 to put computers into finance. It shouldn’t have been hard. First, finance was already pretty much solely paperwork. Sure, some coins and cash had to be moved around, but it was largely bits and bytes. How pathetic is our rate of innovation when compared with sectors like medicine, shipping, or telecoms, where actual physical devices had to be replaced, where physical connections and tracking take place in demanding environments?
I foresee finance 20.20, not just stupidly, boringly, and slowly automating the obvious, and slowly promoting technology such as cryptocurrencies, blockchains, bitcoins, and all the trappings of hazily understood trendiness. Finance 20.20 moves the silo of finance into bind-able applications at a cost of millicents. I board a bus, using my private insurance for transport – whereupon thousands of computer transactions are initiated (where, when, GPS, speed, transport company reinsurance, driver speed). Then I get off the bus, and more again. Without an accidents, perhaps a payment of a few pence balances off the various risks. With an accident When my API charges a few decimal percentage points for a micro-transaction, it will be impossible to justify an inverse scale where a larger transaction requires a few hundred basis points.
In a rebuke to today’s marketing myths, with a war from 1939, and exchange controls till 1979, and an oligopoly of brokers and jobbers, London was not to regain the role of a true international centre until 1986. With a few trillion in FX today, remember that until Margaret Thatcher lifted exchange controls, that business wasn’t here. Now it is. But simple changes could change that. The real point is that what is swiftly won can be swiftly lost as Z/Yen’s Global Financial Centres Index, Global Green Finance Index, and Smart Centres Index indicate.
I turn to a recent portmanteau, fintech. Fintech myths can seem insulting. Supposedly more important than decades of hard work plumbing deep wholesale networks, fintech is a glossy lipstick-on-a-pig smartphone application from an unregulated entrepreneur who can’t afford a desk, who’s neither a decent financier nor a decent programmer (“I have people who do that for me”) gasping about intelligence artificial while desperately trying to make an old sow of an oligopolistic bank look pathetically trendy and satisfy some three-minute-minister’s need for a photo opportunity. Financial services innovation needs a kick up the competitive rear which smart ledgers, new currencies, and regulators seem to be more willing to provide. The new plumbing is more important than the fintech tap colour. Let’s discuss that today.
Ethically. Past reactions to scandals rightly focus on preventing future scandals, but too often only focus on the exact one they faced, ‘fighting the last war’. Longer-term solutions need to be holistic, need to move people from hunting to farming. No industry, financial services especially, is meant to be hunted and exploited; it’s meant to be farmed and to serve society. I would suggest a moral dimension we should push more strongly. Our obligation to promote open markets. Society has many ways of solving resource allocation issues from direct control through taxation. Markets are one choice.
How pathetic that government guarantees are needed in an industry that claims high rewards. Once we have chosen a market-based approach, as we have in financial services, we must prove to society it’s working. Jokes about government guarantees or comments about ‘privatising gains, socialising losses’ hurt enormously. Perfect markets don’t exist. We know the failures, lack of competition, information asymmetry, agency problems, and externalities. Yet we are obliged to prove to society that the open market model is better than the alternatives, such as command-and-control, taxation, state-control, or a monopoly.
During the financial crises in 2009, a BBC news team stopped a young banker on Finsbury Square and asked him to address Adair Turner’s rhetorical question, isn’t banking “socially useless”? The young fellow was flummoxed, shrugged his shoulders, and slunk away. How terrible is this; to go to work each day with no social purpose.
I would hope that we have here a group of people who will explain clearly to the BBC news team outside why finance is socially useful – providing social protection, facilitating trade & commerce, promoting financial stability. Finance helps us make much better choices using society’s great decision-making mechanism, the monetary system. We have a boon with society. We’ve sold society a dream based on a theory. To move towards that dream we have to work together building open and competitive financial services markets, free of economic crime. Let’s discuss that today.
That’s our discussion today – Innovation and Transformation – technical and ethical – but let’s challenge our presenters. Let’s not accept that what our presenters present is even close to the edge of innovation.
Today’s event has been about Innovation & Transformation. Perhaps the greatest transformation of the London capital markets occurred around 1560 led by Sir Thomas Gresham (1519-1579). We celebrate the quincentenary of his birth this year. When London was half the size of Antwerp, he brought the idea of an exchange, the Antwerp bourse, to London. London then benefitted from the turmoil that began between Spain and the Low Countries, and the rest of the history we take for granted. The Royal Exchange at Bank junction is still there and spawned Lloyd’s, the Stock Exchange, and the Baltic Exchange. We cannot take the future for granted. We may be going through another great transformation, technical, political, or perhaps both.
A conference wrap-up should not be a blow-by-blow description of what happened. That said, it’s worth remembering that we had nine demanding sessions. To recall:
- Green finance discussion, where we also managed to touch on one of my favourite propositions, policy performance bonds.
- Crypto Compare, were Alissa Ostrove brought some realistic and sobering views on crypttocurrency exchanges which, when looked at in traditional market analysis, have some way to progress to normalcy.
- Estates Investment Exchange, where Mark Worrall outlined his team’s innovative approach to getting property into more liquid markets.
- Execution to settlement, where the discussion addressed the trough of despair versus the highlands of hype on smart ledgers (blockchains).
- Cyber, where Mike St John-Green, distinguished the ‘drains’ of cyber from the ‘plumbing’ of finance, and challenges us to build systems properly in the first place. Many of you will be unaware of Mike’s help on cyber in the carbon markets. I wish we’d had more time to explore his views on quantum computers breaking cryptography, particularly given press headlines on Google’s ‘quantum supremacy’.
- Financial centres and their futures, with Brexit obviously featuring, but also the wider issues of talent and regulation.
- Martin Wolf, giving us pictures of future frightening worlds. Fortunately, those around me were fresh out of razors.
- Gina Miller providing a candid view of her hermeneutic battles, and receiving a World Exchange Forum first, a standing ovation. I’m reminded of an amusing Irish Times cartoon I saw last year in Dublin when advising the Taoiseach’s Office. Two panels. The first said – “2028: Prime Minister Boris opens his bridge between Larne and Stranraer”. The second showed Stranraer’s kilted residents greeting them with “Welcome To An Independent Scotland (part of the EU)”.
- A lovely concluding panel with Jeremy Grant channelling Andrew Neil of ‘This Week’. A good discussion of geopolitics.
So do you feel ‘bull’ or ‘bear’, optimistic or pessimistic? Thomas Gresham would have seen a lot of opportunities to be optimistic, despite the gloom. Tudor businesspeople had to be optimistic.
Government officials frequently state that “business wants certainty”. This is balderdash. Businesses thrive on uncertainty. If there was certainty, there would be no need for markets. All quantities and prices would be known. There would be no change and no opportunity to compete. Businesses realise that the rules of the game need to change and improve over time, or there will be no progress. What businesses want is certainty about how the rules of the game change or will change.
Politicians do not shine on ‘certainty’. Certainty over how the rules will change requires a process that looks ahead, for example following a strict consultation, recommendation, drafting, revision, implementation timetable every so many years. Instead modern politicians react with more laws to most crises. Often these crises are media generated crises and the responses are designed to garner votes rather than solve a systemic problem.
Anyway, am I optimistic or pessimistic? Optimistic of course. Pessimism is for better times.
Your and my sincere thanks to Herbie and his team for a great day. Now let’s get even more optimistic across the road. Thank you.