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The UK’s financial services sector is not capitalism

For a variety of reasons, the sector that is sometimes dubbed “The City” (or for that matter, “Wall Street”) has not much connection to capitalism these days. Sure, financial institutions still channel money to borrowers who may include businesses that are investing it in some way. But given how central banks act as lenders of last resort, print money without limit, it seems, and interfere with the capital buffers and dealings with firms to the extent they do, this hardly counts as a free market. Obtaining a banking licence, for example, is not straightforward. The way that central banks and regulators can prop up established institutions, and interfere with their internal workings, is a clear case of the “mixed economy” at best. (Here is a good book on the subject and why claims that problems in financial markets were down to de-regulation are unfounded.)

The latest example of how financial services are increasingly being absorbed into the maw of the State comes from the Financial Conduct Authority. Its new boss wants to block appointments of directors at firms if they are too white or male. Unless a firm names sufficient numbers of women and members of ethnic minorities to sit on boards, the appointees currently in play might be blocked. Whether the persons being blocked are more competent or experienced will be secondary to their gender or colour if the choice comes right down the wire. (No-one wants to admit that this is what will happen.)

It is true that a preponderance of people of Group A or B can occupy certain roles and that this is not necessarily anything about bias as such. There are feedback/network effects when it comes to people being selected as directors or some other role. A knows B, who has been chummy with C, and C recommends D for a directorship at Filthy Lucre & Sons, and so it goes, and while there are still interviews and qualifications to think about, it is easy to see how a lot of people who go for certain jobs come from the same sort of pool. We see this in politics, even sport. (A schoolteacher might seek out black kids because he or she assumes they are great at athletics, and so over time a disproportionate number of black students are track and field athletes, etc).

And even when people try hard as possible to make their choices of talent more diverse, it is not always easy to do if the pipeline of talent is not there. Firms need to have directors, etc – so if there is a talent shortage created by a pro-diversity policy that could hamper corporate governance and add yet another competitive disadvantage. It is actually time-consuming and potentially costly to find certain talent – which is why City firms pay retainer fees to headhunter firms to find people (I know a bit about how this market works). Believe me, firms are desperate to recruit a more “diverse” management base – but they also have to locate the best they can find. And if the judgement call is about who is going to make the business better, that judgement should rest with the people who own the firm, not some civil servant ticking off some sort of virtue box.

Another point: when talking of “diversity”, such comments from the likes of the FCA invariably focus on gender and race. But rarely do you hear about diversity of experience, philosophy and background. Arguably what the City and other clusters of business need is to avoid group-think and stifling consensus. Imagine hiring a director who is a genuine liberal, who thinks that a lot of modern “corporate social responsibility” policy is a waste of time and so much fashionable cant? That firms’ primary duty is to build shareholder value, rather than push some sort of agenda? Ask yourselves how much chance this person might have of getting a seat on a board if his or her views are widely known? I don’t actually have to ask because you know the answer.

It might have escaped the notice of the FCA and other policymakers, but the UK and the rest of the world is trying to recover from one of the worst calamities in recent human business history – the lock-downs – and therefore adding hurdles towards recovery and rebuilding of business might not be a great idea.

8 comments to The UK’s financial services sector is not capitalism

  • Mr Ed

    A few years ago I went to my local building society to deposit some money, not an insignificant sum and the reaction of the cashiers was one of astonishment and uncertainty, not because it was about to go bust, it is actually quite likely to remain solvent come what may, but it was clear that they simply didn’t expect anyone to actually deposit any meaningful sums of money with them, it was almost as if I had asked for their Telex number. I concluded that they had grown so used to sucking at the Bank of England’s teat for money for their mortgages that they regarded depositing customers as a curiosity. Nothing has changed since, except that they seem to be keener to alienate savers than previously.

    As for the FCA and the Prudential Regulation Authority or whatever it calls itself, if you generate the right paperwork at the right time in sufficient quantities, you are doubtless beyond reproach.

  • APL

    Mr Ed: “except that they seem to be keener to alienate savers than previously.”

    Savers? are there such things in the UK these days? I think you might find a credit interest rate of nearly 1% while the inflation rate is claimed to be just under 2%.

    Why would you save?

  • Mr Ed

    APL,

    Hoping to save for a buyer’s market, when the economy has been totally trashed but the fiat inflation hasn’t yet kicked in.

    Any idea when this might be? Also not wanting to buy any assets at the peak of the boom.

  • Mr Ecks

    Until their wages get cancelled the FCA wont give a shite.

  • thefattomato

    If the city of london is not operating with capitalist efficiency anyway, might not be such a bad thing to kill it off with more pointless regulation 😆 😆 😆

  • Richard Rostrom

    Umm. The “City” consists of thousands of individual and corporate actors whose decisions to borrow, lend, invest, buy, or sell are made independently. That looks like a free market to me. This market may be subject to distorting state influences, but it is not socialism or anarchosyndicalism.

  • Paul Marks

    Free Banking is not automatically good – after all Scottish banks back in the 18th century had a reputation of being happy to accept gold and silver, but AT CERTAIN TIMES be very unwilling to PAY OUT gold or silver (regardless of what the contract with them said).

    And the courts tended to side with the bankers – not with people who wanted physical gold or silver.

    Basically when you needed physical gold or silver the most – during hard times, that was when you were LEAST likely to get it. Our ancestors (all over the West) were well aware of the dread words “suspension of cash payments” (cash being physical gold or silver – depending on where you were) and how the courts always seemed to side with the bankers – regardless of what your contract said.

    However, there was still a connection between REAL SAVINGS of CASH MONEY and bank lending.

    Now there is none at all – bank lending is now total Credit Bubble, not a Credit Bubble on top of Real Savings (actual sacrifice of consumption), but a Fairy Castle of Credit supported by Magic Pixie Dust and Moombeems.

    In short the poster (J.P.) and such comment writers as Mr Ed are correct.

    Modern, government supported, bankers are as much honest capitalist money lenders as I am a tall, slim, Nordic type with a full head of blond hair.

    “The City” is bugger all to do with capitalism any more – they are just a bunc of Welfare claimants in thousand Pound suits.

    And as mass poverty hits this country in 2021 the question among “the masses” will get louder and lounder.

    “Why do those bankers get so much MORE welfare from the government than we do?”

    So supporters of the “Great Reset” – it is NOT GOING TO WORK, you intend to fob us off with a “universal income” or some such, but it is going to be only a tiny fraction of what YOU get.

    And there is no reason why should get more welfare than we do.

    Of course there is the little question of who is to produce the actual wealth we all depend on.

    How long will people overseas carry on accepting all that Credit Money for the FOOD and other things they sell us?

    The Magic Pixie Dust economy is going to FAIL.

  • Paul Marks

    As for the Frankfurt School of Marxism “Diversity” stuff.

    Well it is evil – of course it is evil.

    But even if everyone in banking and so were appointed on merit (not because they were black, or a women, or a homosexual – or whatever) it would make little diference.

    The basic principles of modern banking and finance are all WRONG.

    So why not insist that all the senior staff of all banks be made up of Trans Sexual Star Goats from the Planet Zog.

    It it is NOT GOING TO MAKE ANY DIFFERENCE.

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