Finance used to be a means to an end, not an end in itself. From food and housing to family vacations, everything in our daily lives must be paid for one way or another. If we don’t have cash on hand, we turn to a lender for a credit line.
Where do the lenders get the money from? It is from savers who are trying to build up their pension pot.
Companies do the same. They routinely finance their operations by borrowing
which families do
or issuing equity stakes to investors,
which families don't do. If you lend me money, you don't become a member of my family and aren't consulted on family matters. When you buy shares in a Company, you become one of the owners of the company and get a vote at the AGM.
who will part with their money in the expectation of future returns. By bringing these counterparties together, capital markets play a crucial role in the economy. So far so good.
Capital markets bring institutional investors and arbitrageurs and speculators together. They don't themselves lend or borrow.
But finance is no longer just an intermediary that channels money from savers to borrowers.
Banks do that but so do loan sharks.
No longer are its functions confined to putting money in the hands of people who will pledge to pay back the principal, plus interest, in the future. On the contrary, finance is now in the driver’s seat, setting the agenda for others, including governments.
That is not a function of finance. If such a thing is happening in a parliamentary democracy, there is political dysfunction. Still, it may be preferable to have 'finance' in the driver's seat rather than gangsters or crazy people. It is possible that people trust bankers or hedge fund managers more because such people are known to be of angelic character or to have outstanding leadership skills. But surely that is not the claim Pistor is making?
There are two big problems with this: finance is both dumb and dangerous.
But, if it is really in the driver's seal, Politics is dead drunk- which is yet more dangerous.
It is dumb because it can only read numbers, unable to understand, much less assess, difficult social problems or complex business or engineering strategies.
Whereas Politics excels at that sort of stuff- right? BTW, how do you assess complex problems without 'numbers'- i.e. statistical data?
And it is dangerous because the people at the helm of financial institutions think they are smarter than they are,
Trump was President. He didn't think he was smart at all- right?
which leads them to assume that they should steer the ship.
Do ship's have driver's seats? Perhaps in Germany.
If you are looking only at price tags, ruling the world seems easy.
Very true. If you are having to look at the price tags in the thrift store, you naturally think you would find it easy to rule not just this world, but the whole fucking galaxy.
Everything becomes comparable, and you need only buy low and sell high to make a profit.
You need to calculate which items will rise in price. That is difficult.
Unless you are one of the few moral investors who wants to feel good about where you direct your money, the nature of what you are buying or selling matters little.
Only if consumers don't give a shit about sweated labour or global warming or other such issues.
The price mechanism dispenses with the need to understand an asset’s real-world qualities, negative attributes, or possible side effects.
Not if you work in finance. You need to anticipate what consumers and legislators and judges will do. Consider what happened when Putin invaded Ukraine. Finance reacted more quickly than Western politicians. Why? Over the weekend, people in that field had seen the reaction of their spouses and their kids to the TV coverage of Ukraine. They realized that doing business with Russia was to participate in a 'repugnancy market'. If they didn't act quickly, they themselves would face the wrath of the public.
In fact, the less investors know or care about such matters, the more liquid the market.
No. Market liquidity increases when 'common knowledge' expands. This ultimately has to do with the preferences of consumers. There was a time when a Bank would lend on the security of the slaves you owned. Then, the thing became a repugnancy market. Smart bankers got out of that line of work before the thing became illegal.
Hence, assets that have been around for a long time – such as shares of oil and gas companies – are more attractive than newer ones.
Because, till recently, the great mass of the public were 'climate deniers' more particularly those old enough to remember the exaggerated claims made by the Environmental lobby back in the Seventies.
The prices of assets that lack an established record are less reliable, regardless of the benefits they might offer.
Which is why nobody is willing to advance me any money to complete my magnum opus- 'Dieter's guide to weight-loss through farting'- even though it is bound to make billions.
The plain fact is that nobody and nothing 'without an established record' can get very much money or attention or kisses from Princesses who understand frogs turn into Princes if you kiss them long enough.
Finance thus dispenses with the need for debate.
No. Accountants spend a lot of time examining and debating big loans or investments.
If everybody can see what the price is, there is nothing left to discuss.
Nobody knows what the prices will be. There's a little thing called 'Knightian Uncertainty' which can turn Arrow-Debreu securities into 'weapons of financial mass destruction'. Volatility concentrates minds. It has driven a type of 'Econophysics' of which Pistor has chosen to remain ignorant.
If you believe an asset is overpriced, you can short it.
Just as if you think Pistor is stupid, you can ignore her.
Markets do not need political deliberation;
Nor does our ignoring Pistor
they get things done here and now by allocating and reallocating resources to the highest bidder.
Where does that bidder get his money? How long will he keep it if he does stupid shit? The fact is we may go out with the person who claims to love us and who says they will do much to make us happy. Then we find out the person is lying and dump her. Well we would have done if she'd actually showed up to the restaurant. Instead she and her boy friend were busy robbing our house.
But this tendency to replace problem-solving with pricing is not limited to market players.
Pistor is paid to teach Law. I don't suppose a really smart lawyer would accept an academic's wage. That's why all Law Professors or so utterly shit.
Many governments
which get money from taxes in return for providing services
– either voluntarily or involuntarily – have embraced the same approach, even if only to comply with conditions demanded by their creditors. As a result, in the United States, the Congressional Budget Office must price the costs and benefits of legislation, and courts have occasionally struck down agency actions that did not include such an analysis. For example, the designation of the insurance company MetLife as a systemically important financial institution was successfully challenged on these grounds.
Is Pistor really saying that the Bench could not strike down arbitrary and unfair actions of the State? In any case even Dodd-Frank had a provision for judicial review. The plain fact is the Government couldn't make its case and though the Obama administration appealed, by 2018, MetLife prevailed. However AIG got the same relief while GE Capital had been able to escape the label in 2016 after overhauling its business. Singling out particular Companies was arbitrary and unfair.
Yet reducing everything to a number comes at a cost, too.
Did Pistor not read the relevant judgment? MetLife's position was that it had been unfairly treated- which was true. Fairness can't be reduced to a number.
It requires us to pretend that price differentials between goods and services are the only thing that matters, even though we all know better.
MetLife won because the Law is concerned with fairness. Arguably, the Government was only interested in numbers but it acted arbitrarily and unfairly.
It leads us to lump together factories and commodities with nature, health, happiness, the climate, and life itself.
Pistor is speaking only for herself. We don't lump factories together with the fairies at the bottom of our garden.
And it pushes us simply to ignore issues that cannot be priced, such as matters of justice.
Pistor is too stupid to understand the Law- though that is the subject she teaches- so she ignores the Law so as to attack some strawman which has to do with Finance being in the driver's seat of a ship which they are steering this way or that depending on who will toss them a larger coin.
We can thank this reductive view of the world for “solutions” such as the use of securitization to support homeownership,
as opposed to the use of mud and thatch to support ownership of huts
a private-pensions system to develop or deepen financial markets,
Any one who is not a civil servant should not get a pension. Let them go into the hut construction business. Also, it is just wrong for ordinary people to have money because they may put it into a bank and thus 'deepen financial markets'.
and green assets to address climate change.
Mud huts can address climate change but climate change may run away because those who dwell in mud huts smell bad.
Create an asset with a price tag, and investors will flock to it,
I am currently charging ten million pounds for one of my turds. How come investors aren't flocking to me? Oh. It's because I smell bad. So would you if you spend your time hawking your own turds up and down Threadneedle street.
especially when they can rely on implicit government guarantees against possible losses (as is often the case).
Was the case under Obama. Biden won't repeat that mistake.
But consider the results. We got a mortgage market that fostered a boom in construction and house prices, but failed to solve the housing crisis;
which can only be sustainably done by getting people to build their own mud huts on Wall Street and other such financial districts.
a pension system that constantly needs safe assets to meet future obligations,
as opposed to what? A pension system heavily invested in my glorious turds?
even if that means continuing to invest in oil and gas;
which is only profitable if people want to use oil and gas
and decades of delays in changing how energy is sourced, produced, and disseminated, because green assets simply cannot do those things.
Yes they can. Tesla's market cap is 820 billion. That's almost 500 billion more than Ford, GM and Toyota put together.
Having placed our faith in the “magic of the market,” we got a bloated, fragile financial system that is in constant need of stewardship by central banks, lest it implode and take the economy with it.
No. America put its faith in a 'War on Terror' which would give it control of the wealth of the MENA. When that failed, the whole house of cards came tumbling down. You can kill 1.3 million Muslims but if you are a trillion dollars out of pocket as a result, the thing is so not worth it.
None of this makes much sense. After all, prices are poor guides to the future, which is inherently unknown and unknowable, all the more so when there is strong evidence that it will deviate substantially from the past.
This is why Finance employs smart people- not useless Professors- to make guesses about the future. This can mean very much more money becomes available for tech start-ups which can disrupt or kill off 'repugnancy markets'. Equally, Finance could just do a cozy deal with regulators and concentrate on extracting rent.
In the 1930s, John Maynard Keynes quibbled that it was impossible to know if and when another world war would break out, or what the inflation rate would be in the 1960s.
At the time it would have been difficult, but not impossible, to be sure Communism would be utterly shitty compared to Capitalism.
In 2023, we do not know just how rapidly climate change will accelerate, where the next wildfires will break out, or which parts of the world will experience devastating droughts, flooding, and so forth.
But we do know that Pistor is a cretin.
Because these scenarios are uncertain, there is no way that markets can price them accurately.
Markets don't price scenarios. They may price expectations regarding scenarios. This is a bit like the Condorcet Jury theorem on which Democracy relies.
Still, unless we ignore the scientific evidence, we do know one thing for sure: More climate-related devastation is coming, and we cannot fathom the additional social and political effects it might bring.
We can and do have expectations in that regard. Anyway, politicians or professors of shite subject know less than Markets so this is not an argument this silly bint should be making.
Worse, because finance is in the driver’s seat, we have come to accept that the most obvious solution – reducing emissions immediately – is too “costly.”
To ordinary people- like France's 'yellow vests'.
That is why more and more businesses and governments are now reneging on commitments to reduce emissions, diluting previously stated goals, or delaying policies for implementing them.
Politicians reneging on promises! How shocking!
Financialization has become so deeply rooted that we seem to have unlearned politics.
What politics did Pistor learn?
By blindly relying on price tags, we have deprived ourselves of the skills for building consensus and developing effective strategies that avoid imposing the greatest costs on people whose lives are not “priced in.”
Pistor and her ilk haven't built any consensus nor have they developed any 'effective strategies'. This is because they are as stupid as shit.
No one benefits more from this calamity than finance. But those returns cannot last indefinitely.
Why not? If poor people die, do the rich necessarily suffer? Yes if you believe that all wealth originates in theft. The honest peasant is sleeping in his mud hut. An evil person with a hooked nose stealthily enters the hut and snatches the sack of gold which the honest peasant is using as a pillow. The swarthy hooked nose fellow also makes off with a nice Christian baby because the blood of such innocents are a vital ingredient in making matzoh balls for Passover. I need hardly point out that such practices are deeply unfair to Hindu babies- and I was once a little baby in Germany- whose blood would have been just as tasty as, I can assure you, my turds currently are. Sadly, the Jewish Homosexuals who control Wall Street won't buy my turds at a fair price. This is the reason I, like Pistor, shake my fist at Finance and warn it in no uncertain terms that its days are numbered. Still, it is never too late to repent. I have currently reduced the price of my turds by three percent. No. I don't take Bitcoin. My Mummy gave me some as a birthday present back in 2010 but a friend of mine, who works at the off license, very generously took them off my hands back in 2021 without charging me a penny. This saved me a lot in taxes. Had I gone to one of them fancy-shmancy 'Financial Advisors', I would have been fleeced. As an economist I understand these matters. Shame Pistor doesn't.
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