After work I accompanied Terry (my ultimate boss) to an economics seminar delivered by Gillian Tett from the Financial Times.
By taxi to a side road off St James, and then into one of the clubs. Up the stairs two at a time as we were so late. We took our glasses of Chilian white wine into the meeting and sat down right at the back just as the introduction was ending.
Gillian Tett walked to the podium. Dull blonde hair, soberly dressed, her neck swathed in seed pearls. Her background - she trained as a social anthropologist in
She described her efforts to understand the financial markets over the last seven or eight years, looking at financial structures from the point of view of a social anthropologist. As an anthropologist she was able to identify "cognitive capture" – the way elites hang onto power. She developed a sketch map of how the City of
She discovered that the concept of risk dispersion via hedge portfolios, although claimed to be a safer system was in fact a "bunkum" creed ("because of the slicing and dicing people couldn't see along the chain"). She began to dig around into the concept of "Market Completion" ("a private financial ideology few outside the City has heard of"). Market Completion aimed at spreading risk perfectly all over the financial system, but in fact this was all nonsense ("but no-one was able to see this because of greed - Market Completion had the function of keeping the elites in power").
There was also the problem of fragmentation. Within banks departments were extremely competitive, with the risk departments usually having little power. Senior management had little idea of what CDOs were doing and very small groups of people were taking decisions.
She was very critical about the disconnect between the City and the rest of society ("we need to have a good hard look at the cultural translators in society - these should be politicians, media and academics, but they are not doing their job"). The City is two miles from
Financial regulation had become separated from monetary policy. Most banks have become too big to manage and need breaking up. The idea that the crisis is all the fault of
Her finishing comments included: "Slowing down the pace of financial innovation might be a solution, otherwise we could be looking at these crises every fifteen years".
"You have just seen a future Editor of the FT" Terry said to me on the way out.