Other People's Money
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Speaker(s): Professor John Kay Chair: Professor Wouter Den Haan Recorded on 20 October 2015 at Old Theatre, Old Building Modern economies need finance, to enable us to make payments, transfer wealth across our lifetimes and between generations, allocate capital and maintain the corporate and physical infrastructure, and to help us manage the risks of everyday life. Instead, we have created a financial world that talks to itself, trades with itself, and is increasingly divorced from the activities of the real economy. John Kay explains how this came about – and what can be done to recreate a financial sector responsive to economic and social needs. John Kay (@JohnKayFT) is an economist whose career has spanned the academic world, business and public affairs. Currently, he is a visiting Professor of Economics at LSE and a Fellow of St John’s College, Oxford. He is a Fellow of the British Academy and of the Royal Society of Edinburgh. He is a director of several public companies and contributes a weekly column to the Financial Times. He recently chaired the Review of UK Equity Markets and Long-Term Decision-Making which reported to the Secretary of State for Business, Innovation and Skills in July 2012. He is the author of many books, including The Truth about Markets (2003), The Long and the Short of It: finance and investment for normally intelligent people who are not in the industry (2009) and Obliquity (2010). His latest book is Other People’s Money. Wouter Den Haan is Professor of Economics and Co-Director of the Centre for Macroeconomics. The Department of Economics at LSE (@LSEEcon) is one of the largest economics departments in the world. Its size ensures that all areas of economics are strongly represented in both research and teaching. The Centre For Macroeconomics (@CFMUK) brings together world-class experts to carry out pioneering research on the global economic crisis and to help design policies that alleviate it.
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Jon Kay has made some really good points here. Worth listening to by all means.
Particularly the example of closing the room ( at -7:10 onward) and exchanging papers.
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But his example of the piece of paper being traded throughout the room with the thing he does not explain is what would happen if that 'piece of paper' if it were not traded. Would that mean that when the same someone who had it in the first instance realised it was not worth what it was purported to be would that make any difference ? Would that mean when it is finally traded? Possibly less and possibly more but the price is likely to vary more greatly than a trade made shortly after the previous trade so the step from one value to the next would be greater as a result of increased exposure time to risks due to the time factor.
The factor that he surprisingly missed out in these examples is risk which is always present in every transaction and cannot be eliminated as he later points out.
It shows you cannot put out an example that proves something and leave out critical factors which may affect it and it should be pointed out to the audience lest they realise it and start to doubt other salient points he wants to get across.
His other assertion that the trading would result in borrowing from the future is very doubtful if not completely wrong. This is since no more excess debt would be created since the sellers of the paper would have to pay off their debt with the money they had from the next trade.
The debt is paid off in sequence after each trade. One cannot assume that the money gained from trading would be use for anything else. No debt increase there.
As far as Bernanke is concerned Mr Bernanke was wrong and didn't see the writing on the wall in the time up to the crash but should have and has since has largely changed his story to say and even believe his own convenient fantasy version of what happened as has Janet Yellen.
The information about his view of the credit default swaps is much appreciated particularly the distinction he makes between a bet (the coffee shop) and insurance (the agreement on replacement of the animals).
The bigger issues which he also misses are - it does not mater who actually owns what of a business like Apple. the fact that someone else like the queen owns the location that Apple operates out of . Wherever they operate from is neither here nor there since who ever owns it receives a rent and wherever they operate out of the Apple people must pay that rent to the real estate operators who operate in another type of business.
Apple's assets include patents and rights and the organizational abilities, brand value, knowledge and good will.
The largest risk that the financial system had to endure overall and continues to be so is the large risk of changes in government legislation having an adverse impact on their operations.
This had a huge affect on the housing industry in the USA where there was a severe financial shock (sub prime crisis) caused by the transfer of risk from the borrowers (mortgagees) to the lenders that was a result of legislative issues created by government.
This factor was the largest one in the housing collapse which exposed banks to the losses resulting from having by law to take on this share of what was formerly the mortgagee's risk.
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many thanks for lecture.. shame that his slides weren't shown though
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Interesting like the folly of medieval enlighteners who thought they were smarter than god but are mere fools. any 5 year old can infer that it is the lack of regulation that is the cause of people trading paper and getting money from it. now you know why the romans thought they were better. complexity of deriviatives is made to disguise the fact they are trading paper for real wealth not as a result of regulation which infers that they are transparent , accountable through a independent regulatory body that oversees the transaction and ensures they are actually trading something in exchange for something else tangible not fiat gambling ponzy scheme..the romans did not call the barbarians barbarians for simply smelling dirty and lacking dress sense. roman law would find these transactions null and void since they are assets that do not actually exist but are actually paper. like the many futures paper gold transactions on ETFs that cannot be settled with real commodities but fiat.
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THE ONLY THING YOU CAN DO IS BRING THE ZIONIST TO TASK!
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There were lots of people who foretold the 2007 financial crash, but because they were of the 'Austrian school' of economics nobody wanted to take any notice of them.
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Very interesting breakdown of the collapse and the entire system itself. The fact that it has its origins in gambling is fascinating. Completely agree that increased regulation will simply lead to increased complexity. Need to fracture the institutions, simplifying the trading (limit invest packages of CCC to AAA). Could go on but refreshing to hear. Actual enforcement of existing regulation needs to be addressed.
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They killed the law. This guy has no way of coming back to reality. Keep up the theatrical act of language. These pepel are a bore and lie. Just tired of playing there game, when people get tired of their shit, they take ot the real sword nota bunch of lies and made up shit of the artifices of cruel and debauchery and disgusting habited and traited men, that pull the earth down in a great curtain or act. Everyone is at fault. People then hide behind the god, of not killing, yet no one follows a leader, but the headless ship.
The west... one time people worked together... as long as money and commanding of mens actios take part, everyone is all dead. THe rational thought of the selfiless act of life itself is forgotten into a world of complete bullshit and lies. Nature is cruel in a bit, but life itself makes nothing complicated, and nature itself works out of efficiency. How can anyone have this kind of man in their neighbourhood.
you look at 1800 photos and graveyards, and it paints a completely different picture then all the hogwash dictated into the orgins of society and its apparently mass societal upbringing, its all used for these assholes gain. Tired of it all, not all are fools ot the American, England,d Japan, Jews, Chinese. It matters not of any of that, justa bucn hof little shits and bullies doing the same shit as before. THey cannot fathom to humble themselves to recover a sane mind of reality. THey love the lies they have built and the reality of how ot operate in it. For who then calls themselves god. Sigh. Charity by money not action, good works by boistering about it. Lies, lies lies... Not that am against actors, I mean one can learn a ot acting, language and socializing nad being able to orate. To bad actors took over realms of the earth. Money ...
For instance here is an actor: Doesn't know what he does.
Robin Williams.... DvD purchased.
Rothchilds nad Jp Morgan and other banks followed suit in stealing the ideas of society and people by commanding money in a aggressive and psychopathic form.
Thus children follow the ill taught ways.
Bill Gates - Ms dos purchased and stole the computer programmer ideas. America (the judicial body) is a whore of the earth tat teals knowledge and makes war, and then causes peace. No different then china and its stealing, no different then any other positional government that steals, for its own purpose. The whole thing is comical act that is ruthless and violent in its reality of play. I think I'll just play in the mud, because apparently work and ethic is commanded by a lie so grand it masks reality from the world. If everyone is doing it... it must be good..... >.>. Rational sense of money with a good sense of proper action is quite useful resource, its the other use of it. but meh... this guy is like 60 years behind the ball of the public knowing the problems. 4050 years behind an even greater problem of the same reoccurring theme.
Who knows, these could be all paid actors, playing the GAME of good and evil. Might as well throw them all into the furnace. Actors in poltics is nevera good idea. What are people memorizing nad remembering in school. What is the application> LMAO... kind of screwy.
A REGIEMe... ><L< $d- -
Excellent raised point about the Casablanca defense. The vox populi is incredulous that the big kahuna bank CEOs routinely plead ignorance of what is going on . The $64 ? then is: Why then does the BOD pay them so GD much? Its a real Catch 22.
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Interesting, lots of understated vilification of 'The Americans' but no mention of Blythe Masters and her role in CDS development. Lots of diagnosis of what happened and no practical road map for effective change.
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