John Kay shares findings from his new book, Other People’s Money, and his insights on changing the financial sector.
Once upon a time, says John Kay, Fellow at St. John’s College at Oxford and Visiting Professor at the London School of Economics, bankers were fairly ordinary folks —cautious-minded community members who knew the people they were lending to. That world is gone. Starting in the 1970s, a new system arose, dominated by clever traders making anonymous transactions at break-neck speed. Caution was thrown to the wind, compensation skyrocketed, and something so complex and dysfunctional came about that it threatens our entire society.
In his new book, Other People’s Money: The Real Business of Finance, Kay delves into what finance means to the real economy and how it must change. He goes beyond a simple narration of the events that unfolded before and during the crisis, instead taking the long view and revealing the crisis as not just a once-in-a-lifetime event driven by the hubris of a few bad apples, but rather the “culmination of a process of financialization that had affected the whole structure of the economies of the West over the last 20 to 30 years.” When bad behavior happens on a large scale, he observes, you have to look to the system to find answers. And we had better find them, because out-of-control finance still endangers us all.
Key to Kay’s perspective on what needs to change is his observation that finance is not a special industry that ought to have its own rules and support from government. We must start by asking basic questions about what we want finance to do, and go about putting regulations in place that serve the public, are focused on the structure of the industry, and mindful of the incentives of people who work in it. Watch the interview as Kay discusses his work with Rob Johnson, President of the Institute for New Economic Thinking.