Thursday, 23 September 2010

The Ancient Future of Finance

(Book review of ‘The Future of Finance. The LSE Report’ -- you can download it here)

Hmm. What a perfect moment! An near-perfect crisis over (well, just, and perhaps), and one very much triggered and spread by the financial sector, offering a lab-like insight into the mechanics of global banking. The complexity of the structure, the proportion of what is global to what’s local, and the sophistication of the tools all would scream for a renewal of what we think about managing the global financial system. Or even what we think about what finance is.

New era. New finance.


… if you want to read what the end-of-20th-century economics would have answered to the same question, read the new book from the LSE on the future of finance. Going through this book reminded me of the Bush administration's ‘solution’ of dealing with the anti-Americanism of the Arab world: send out a PR professional to ‘explain better’. Incidentally, this is exactly what the authors of The Future of Finance think: finance is fine as it is, all that’s needed is explaining it better. Perhaps a little fine-tuning here or there, but that is it.

The furthest you can get in terms of innovation is the call for ‘new thinking’. However, there is not much proposed what the desired novel framework would be. If this is going to be the future of finance, well, it will consist of some rather dark clouds. (Ironically, some chapter authors point out this controversy.)

Apart from the lack of promised ‘new finance’, there is merit to this book. It is a good summary of most debated points of the crisis: the role of banks is explained well, the obvious list of current regulatory choices are discussed in a coherentish framework, and the crisis’ impact on the policy toolbox is touched upon at least to some extent. So, if you are a new student of macroeconomics, and this recent crisis is new to you, then this book may be a good starting point.

But it is nothing more beyond that. You cannot pretend that the only thing that happened to us the past decade is more data.