Tuesday, 8 September 2009

That Adair Turner interview

Back on the mainland ;-) after a nice break with the grandparents. Managed to stop myself looking at any emails until today, or doing (much) work-related reading. But I did buy Prospect in the airport yesterday to see what Adair Turner actually said, having only read second-hand accounts. 

Actually although the piece is worth a read, it's considerably less interesting content-wise than I was expecting. And it's actually a roundtable which also includes John Gieve, Paul Woolley (who set up the fantastically-named Centre for the Study of Capital Market Dysfunctionality about which I've blogged occasionally before), and the FT's Gillian Tett. And I'm going to be really superficial here and say that the thing that struck me most reading the article was what appear to be some quite distinct conceptual models at play on the part of those interviewed.

For instance, Turner himself seems quite attached the 'economy as a machine' metaphor, which I find a bit surprising. What do I mean by that? Well how about this:
"There was no definition of the levers to pull if you decided there were problems..."

"...we all recognise we need levers other than macro-prudential ones or other than interest rates alone."

"...to stop the credit bubble of 2015-20 we do need to have levers for tightening liquidity or tightening capital rules" 

Gillian Tett (background in anthropology remember) meanwhile chucks in a religious analogy in respect to some ideas about how markets operate (EMH etc):
"There is a real sense of intellectual confusion. Over the past year I have been speaking to former true believers and they're like a priest who has lost faith in the Bible, but still has to go to church, and the congregation is sitting there but he doesn't know what the Bible is anymore."
Paul Woolley though sticks with economic theory, mentioning the principal-agent issue several times. And in one of these comes one of the most interesting bits of the whole article for me:
WOOLLEY: If we agree that agents in the financial sector are capturing too much of the productive economy's return then surely part of the solution is educating the principals, the pension funds and so on, to make agents deliver longer-term investment strategies with less dealing for the agents' own sake.

TETT: It's a complete pipedream to think that the principals are suddenly going to change their ways... The pension funds are so dumb and fragmented, they're not going to protect their own interests, the FSA is going to have to be interventionist and protect the end interests of the people who supply the money - the pensioners.
I think that's a lot of the stuff I bang on about explained in a few sentences. The pension funds do get ripped off, they do seem to be paying more but getting no better results. But there is a lack of concerted pressure for change. 

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