Other People’s Money: big finance and where it’s taking us
What is the finance industry for? And why is it so profitable?
Traditionally, financiers looked after people’s savings, loaned money, provided a payment system and helped people manage economic risks. Their services were relationship-based, for the long haul, grounded in the real economy.
But today less than ten per cent of bank lending is to firms and individuals producing goods and services. Banks mostly loan money to other banks. Common sense suggests that when a closed circle of people continuously exchange bits of paper with each other, the total value of these bits of paper should not change much, if at all. And in this circle of intangible exchange, who cares if the loans go bad? As they say in the trading room, ‘I’ll be gone, you’ll be gone.’
One of Britain’s leading economists, John Kay sets out in his new book, Other people’s money: masters of the universe or servants of the people, to explain how post-GFC tweaks have not solved the underlying problems in the finance industry.
Retired investment banker Harrison Young joined John Kay in a discussion with Marion Terrill, Transport Program Director at the Grattan Institute.