Friday, 19 April 2013

Former UK FSA Chairman Adair Turner re "intellectual delusions about the nature of finance capitalism."

More thought provoking words from the very mouths of one of the very highest levels of international high finance - Adair Turner - In September 2008 Lord Turner became Chairman of the Financial Stability Authority (FSA) financial regulator of England.
Prior to September 2008 Lord Turner was a non-executive Director at Standard Chartered Bank, United British Media and Siemens; from 2000-2006 he was Vice-Chairman of Merrill Lynch Europe, and from 1995-99, Director General of the Confederation of British Industry. He was with McKinsey & Co. from 1982 to 1995, building McKinsey’s practice in Eastern Europe and Russia as a Director. He was previously Chair of the Overseas Development Institute (2007-10).
Lord Turner studied History and Economics at Gonville and Caius College, Cambridge from 1974-78.

This below is from an April 2013 interview from  http://www.fungglobalinstitute.org/
https://www.youtube.com/watch?feature=player_embedded&v=AFv9_g4vzAM



"One of the main things to learn for any emerging markets in Asia or elsewhere is to avoid some of the completely unnecessary financial instability which we allowed to occur in the West by falling in love with some intellectual delusions about the nature of finance capitalism.
Finance is very different from other sectors of the economy, I mean essentially if you wont good restaurants there is no better formula than a completely free market, you know, some will fail, some will succeed. Some will develop new styles, new ambiances, new menus that satisfy consumer expectations. Any attempt to plan or regulate it, other than in health and safety fashions just doesn't help at all.
Finance is different. There's some things about the nature of finance and particularly about when finance creates debt instruments in excessive quantities which can create risks, which can create what economists call rent extraction, people essentially making lots of money from activities which are not socially useful, are not a useful part of the market economy.
We failed to realise that in the developed world before the financial crisis. We fell in love with economic theories which believed you could apply completely free market principals to finance as to any other sector of the economy and that was a major intellectual delusion and one needs to be very careful of it, finance needs very careful regulation and in particular the processes of banking and credit creation need very careful regulation and control.”

Adair Turner had a keynote speech at The Institute for New Economic Thinking (INET) annual plenary conference in Hong Kong (April 4-7 2013) entitled - Private Debt and Fiat Money: Lessons from the crisis and from some old economic texts – in which he said;

"Banks are different, and I think this is a crucial insight that we often miss but which Fisher, Symons and Friedman really focused on. It is often said in general text books or discussion's 'what do banks do?' and you will often hear this description 'well they take deposits and they intermediate it to investment' This is a lousy description of what banks do. The idea that banks intermediate a pre-existing set of liquid asset savings is wrong!. Banks simultaneously create new private credit and new money."

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