Oikonomics: a social life of money

For the 'love of money'

A continuation of the BBC2 series on the 2008 financial crash as told (but definitely not brought to you, it was a global problem started in America don’t forget…) by Gordon Brown, Alistair Darling, Baroness Vadera and a banker from UBS. If history really is told by the winners, here was the government’s best attempt to show the bank bailout as a victory for common sense of governments over the hubris of bankers – specifically the Scottish Faustian pact maker himself, Fred Goodwin.

"What experience and history teach is this -- that people and governments never have learned anything from history or acted on the principles deduced from it."

G.W.F. HEGEL, Philosophy of History

Firstly, I lost count of the number of time GB corrected himself to say that ‘Alastair’ was involved, consulted, talked to, met with, inputted – it was ‘we’ wot saved the world not ‘I’. Secondly, why was there only one banker in this episode willing to go on record? All the main ‘perpetrators’ were represented by carefully selected stock photo images displaying periodic ‘despair’, ‘pain’, ‘arrogance’; but no opinions. Only a minor player, UBS, gave a bit of travelogue about Standard Chartered’s board room, while Alastair twisted the knife into Fred the shred with what can only be interpreted as a determined glee.

Some questions that might have been asked: Why did we wait for the US to make a mess of the TARP legislation? Why was it such a ‘gamble’ to capitalize banks which weren’t able to fund themselves for 24 hours? What was the other option – apart from to become the next Iceland or Ireland? Why did the government require Lloyds to rescue HBOS, thus hamstringing a bank which could have helped the recovery on the high street, rather than do a ‘Rock’?

What was portrayed at the time as dithering and indecision was in fact ‘a secret plan’ which cleverly maneuvered the US into shifting the TARP money in buying equity stakes in banks. The US commentators (again mainly public officials and nothing from Paulson himself who was made to look somewhat agricultural in both expression and image; huffing and puffing his way into a political bear trap) were scathing of the idea that it ‘suddenly’ occurred to them to copy the British solution, but by then they had been edited to look like ideological fools (sorry, Republicans). Even allowing for some dramatic license, selective memories and judicious editing this struck me as a great pitch for why politicians should have no influence over setting the levels of the BBC’s license fee.

Perhaps the most balanced statements came from Mervyn King who seemed to be saying that really there was nothing ‘historic’ or ‘unique’ about all this, crashes happen because it is the nature of finance – the essence of banking is confidence not money. Capitalism makes money by betting on the future and no amount of history or document can tell you what is just around the corner. The smart capitalists (who are back to their old lifestyle and ways) know this and lay off their bets with others who don’t.

The essence of banking?

There is a lot of talk today following Lord Turner’s comments on future regulation of the financial services industry and the Bank of England’s view of separating ‘retail’ and ‘casino’ functions of banks which are serving to cloud rather than clarify the picture ahead.

As Andy Burnham put forward in a recent article for Prospect, can a philosophical perspective cut [through] the crap? (although in true New Labour style he characterized such a perspective in terms of appointing a philosophical ‘quango’ with a ‘Chief Philosophical Officer’ – let’s not pursue the metaphysical contradictions that entails…..).

A philosophical approach to understanding "banking" would come down to a simple question. Do we better define ‘banking’ in terms of the institutions and methods of making money or in terms of banking as a social and cultural practice? Just as the philosophy of science has shifted from understanding method to understanding science as practice, so it is useful to look at the activities of banks, bankers and banking in more subjective/

phenomenological, less empirical, terms.

For a start, the retail / casino categories don’t really hold water. The idea that ‘retail’ is somehow an essential activity of banking is born from a rather conservative and historically minded belief in banks being solid buildings with nice /nasty bank managers running them. These managers and branches were literal "pillars" of their local community. In today’s virtual and connected world such a conception of ‘what banking is’, is as short sighted as it is anachronistic. The generation who create trust out of such expensive, localized and fundamentally illusory experiences are no longer the people whose economic and cultural activity needs to be harnessed (although they do have a lot of votes…). Saying that we need ‘retail’ banks for money to function is a bit like saying we need supermarkets to eat. Just look at the roots of the names of Banks – Midland, NatWest, of Scotland etc – they are institutions of an age before communications and networks. Why not take this opportunity to create the ‘Bank of Facebook or Myspace?’ – or perhaps Facebook already have? Or is it called zopa? : )

The benefit of 'breaking up' banks would not be to limit their functions, but instead make them more responsive to the communities in which they operate, less industrial monoliths, perhaps more like local 'organic' farmers?

The utility of banks are the systems which we rely on to exchange, store and account for our money (and they are often slow to innovate) such as payments/transfers, accessibility to account information, security of that information etc and their ability to offer credit. They aren’t storing anything of ‘value’ in their branches any more beyond the electronic data which makes or breaks their customers’ wealth. Just look at the new branch designs – they are dominated by cash machines, leaflets and sales people. Not a safe door in sight! Interestingly, if ‘retail’ is the essence of banking, then why aren’t the FSA having round table talks with the likes of Moneysupermarket, Comparethemeerkat (sic), and the like, to define the future of retail banking?

Which brings us to casinos. If all banks really were casinos we wouldn’t have had the crash. Unfortunately, banks are the gamblers in the casino and as such betray many of the traits of gamblers in any other context; such as betting shops. The gamblers I have researched and experienced tend to have a rather "liquid modern" view of what money is. Money comes and it goes, you spend it before it disappears. Strangely it is not the money you win which makes you gamble but the thrill of the win itself – of proving myself right and able to predict the future in some small way that other people can’t. This visceral enjoyment of competition becomes everything and end result is lost in the desire for more competition. As a result, a win will often be lost very quickly on a series of ill considered bets made purely on the basis that ‘I am having a lucky day’. Sound familiar? Welcome to the betting bubble.

The only winners in the crunch were the guys who were actually running the casino – the market makers of Barclays Capital perhaps – who supplied the ‘races’ in which banks with less expertise or vision decided they could pick a winner. As it was the suppliers of the products these gamblers played with were always going to win and they had very little interest in which of their punters won or lost as long as they kept creaming off a margin as the bookie/ casino owner.

So talk of all this talk of breaking up banks and ‘regulating’ the risky practices of individual traders is rather like bookies saying that they will only provide sure bets in their betting shops and will tell the gamblers in the casino about the dangers of gambling (the other thing they get their thrill from; the real emotional excitement caused by the fear of losing actual money).

Lord Turner wants banks to do things which are ‘useful’ to the economy and society as a whole. In my experience, this isn’t a question of bankers being given lots of rules about what constitutes ‘risk’ and ‘reward’,  it is about engaging the people inside banks with what their customers are trying to achieve with their money. Only in this way will they prove their worth by creating the new forms of credit, capital and money which we need to create a more sustainable economy and perhaps fairer society.

Brixton Pound - does local money create social value?

On the basis of the two reports (One from the Guardian and One from the Times) the jury is out on the social benefits of Transition Towns new local Brixton pound. Most local shopkeepers the Guardian reporter spoke to (by the looks of things from the market stallholders) the new currency was at best a distraction and worst a waste of public time ‘keeping money in the community’.

Having met many of the original thinkers and creators of LETS schemes at various conferences here and in the USA, I must admit that I am skeptical about the story of ‘local money for local people’ which has become the normal justification for the value of such creations. As many of the local stallholders pointed out, there is nothing about them being small that means their own supply chain is somehow ‘local’. My ‘local’ florist for example, empties a lorry from the Netherlands every morning. Spending my local ‘Kingston’ pounds in there won’t save the planet, but can I really be asked to discriminate between local businesses and truly locally sourced product (and as far as I know they don’t grow many orchids in the local allotments). Likewise in Brixton, the stallholders bemoan the fact that you can get ‘authentic’ West Indian cooking ingredients anywhere in London now, which has reduced the number of outside shoppers whose money would benefit the community.

Yes, it is encouraging a perception of Brixton as a community, but having worked with some local groups there in the past, community spirit is one thing that local Brixtonians have in abundance. Lewes and Totnes (other Transition Towns) also have that local predilection, so in many ways the local currencies merely commoditize that community spirit and attempt to use it for economic ends and to increase local economic activity – arguably counter to the overall implicit agenda of Transition towns?

Perhaps it comes back to the limited idea of seeing money purely in its role as a medium of exchange rather than a store of value. LETS schemes encourage people to spend money which has a short term benefit and for money to circulate more quickly which is also beneficial to increasing economic activity but and it is a big but, it does not encourage investment locally. It sees the answer to recessions being the knee jerk ‘we must spend more’ which merely has the effect in the long run of making us feel less well off in the long run (and drives things like inflation).

What is needed is a local currency which encourages people to invest in their local community; something which can be targeted to create environmental benefits (if that is what you want as part of your entrepreneurial return). Such a currency has two benefits, firstly it could be structured to incentivize people to look for risk and return locally in the community and secondly it promoted the idea of money as capital without necessarily conforming to the ‘competition = the only efficiency’ model that is endemic to the cultures of the City and Wall Street. Such an investment could promote a more collaborative relationship and derive efficiencies from share social goals as well as economic ones.

Making money ‘social’ is all very well, but more important both for the future economic recovery and sustainability of our society’s way of life is that we find new ways of producing capital that allow the sorts of investments required to achieve both goals.

Cutting money down to size

It looks as if money is going to be centre stage for the coming election. However, this time it seems to be about that ‘it’s the economy, stupid’ as producing money (the work of the economy) takes a back seat for the problem of spending money (we haven’t got).

If the success of New Labour was built on the back of the aspirations of the new consumer generation, where the creation of an abundance of money was seen as going hand and in hand with the realization of individual and social values, all three parties seem to be at a loss for how to talk about money when it is no longer abundant – it is now scarce.

Labour in this respect are acting a bit like parents who aren’t being honest with their children about the extent to which their collective lifestyle is about to change. Daddy and Mummy (Brown and Harman!?) are still making the pretence of going out to work, but unfortunately their Uncle Darling (who is also their bank manager) knows the real truth. So now we are all sitting round the kitchen table wandering whether it is the family holiday, Dad’s new car or the cat which has to go.

The Conservatives seem to be taking a more puritanical line (ironic given Brown’s Presbyterian roots, but then sons always rebel against their father’s attitudes especially when it comes to money) with the comfort of being in opposition and therefore not actually spending any money at the moment; at least if you discount certain of their number with a penchant for duck houses and subsidized salads.

So why doesn’t Labour make it a collective problem? Surely we are all responsible for the ‘credit bubble’ in our own small way?

Perhaps it is a reflection of what Mandelson referred to on Monday when talking about the positives of Brown as PM – his ‘big picture’ mentality and ‘long term decision making’. You meet people like that all the time inside the top of organizations, politically astute operators who concern themselves with the internal system rather than the customer at the door. Labour in this respect have become institutionalized, unable to envisage a different reality to the one they so fervently believe in and need to cling on to when all around the world is changing.

Do the Conservatives get this new reality? They are certainly more open to the idea that extending the idea of ‘ownership’ in society is a good thing for encouraging both individual entrepreneurship and individual responsibility but I can’t help feeling that the ‘Conservative’ instincts will be to go back to what worked in the past rather than being truly open to creating wholly new mechanisms for collectively ‘nudging’ us towards a more sustainable balance between what we produce and what we desire to consume. An instinct which seems to be showing itself in their ‘if you see Sid’ considerations.

The LibDems by contrast seem to be enjoying themselves imagining all sorts of frugal futures, but again are very short on ideas for how we as individuals are going to be enabled to make this a reality. Clegg doesn’t seem to have thrown off his Management Consultant past, producing reports that are reminiscent of the bad old days when employing consultants really was like lending someone your watch to tell you the time.

Thatcher may have been famously misquoted that ‘there is no such thing as society’ (there are only families and individuals) in her Readers Digest article, but by the same token the can be no such thing as society without individuals getting together to make it happen. Until we understand what it is that people need to get control of their money, we won’t understand the collective levers that will help get us back on track. It is not only politicians who have had their world of money shaken to the core, and like politicians there seems to be little effort for re-thinking and re-making money so that it fits with what we, collectively are trying, and need, to achieve.

Is Peter Mandelson flogging a dead brand?

Just emerged blinking into a reality where black really is black and white really is white after 45 minutes being persuaded otherwise by our President (of the council) - my italics. : ) – at the LSE.

My question (if the session had not been a little hijacked by the usual student hang ups of debt and jobs) would have been to ask whether as the marketer in chief of the New Labour brand (yes he did use that phrase, accompanied by a photoshop scan, perhaps the only one still in existence, of the oldNew Labour iconography on the background powerpoint slide), he would have preferred that the mantle of power had passed not to the man/person who least wanted it, rather than the one who most wanted it?

Reason being that although he set out the ‘battleground’ to be POLICY and CHARACTER of the next government we were remarkably short of substance on either. It is perhaps the nature of political brands, unlike their commercial counterparts, that they are allowed to attack their opponents. As a result, we got a master class is how to turn every question into a question about THE OTHER party (mainly David (with George and Ken), with whom Peter seems on first name terms, whilst he studiously added Gordon’s and Alistair’s surnames). Marketing politics this time around is not going to be different, if the parties have any say about it; instead we are going to get the usual efforts to make the other party so odious that you have to vote for the default – i.e. the other choice –even if you have no clear idea what it is going to do in actuality.

Mandelson’s problem is that Brown is associated with the a phase of New Labour which was unashamedly about big ideas and big initiatives – national headlines rather than local service delivery. The irony being that only man with experience of "local service delivery" was the ex-postman who didn’t want the job (or was put off by the thought of taking on the supposed Brownite attack dogs). Now we when want or need to have leader with a feel for the local and for the individual; we have instead a man who is only comfortable on a big stage which is kept well away from uncomfortable intimacy with voters.

Strangely, Mandelson did mention individual budgets which is a prime example of where New Labour needs to go back to its roots of representing the idea of the  ‘working’ (as in employed) class rather than just supporting those who are dependent on the state for their aspiration as well as their survival. Individual budgets should be an exercise in helping the individual to feel they are playing a positive role as a member of society, however, not just ‘getting control of their care’ which implies making the individual deal with the problem of public service delivery rather than create a better solution. Both parties are perhaps structurally shy of the implications of such initiatives, that they require trust in the capability of individuals to create their own choices (and creative solutions), given the opportunity rather than take the choices they are given.

There was an oblique reference to Amartya Sen’s ‘capabilities’ (I think Peter called them ‘capacities’ though) in the context of education and ‘helping people’ rather than harnessing the power of the individual to create change for themselves and those around them.

I am sure that my question would have been answered with the usual Brown platitudes and epithets, but how long before being misunderstood becomes just being dysfunctional when it comes to the social side of politics?

It is an issue that goes deeper than just being a problem of presentation. New Labour is an increasingly monolithic brand built for a time when the media and top down communication of political ideas mattered (and worked). The reality is that now they are just another noisemaker in the market for our attention and as such come across as distant and out of touch with the individual. What is needed is not a rallying call for a battle from its generals (PM could make quite a passable Kitchener impersonation if he allowed the moustache of his youth to take root again) but instead an empathy for what it is like actually on the ‘frontline’ (perhaps the word mentioned most today) and how it needs to change if any of this money is to do any good.

Reinventing the firm

As Bauman often elucidates, re-invention is the "problem" of the modern condition. If change is the norm then change becomes necessary to maintain our position and meaning in a fluid modern society. Now Will Davies(Potlatch) in conjunction with Demos has taken aim at the models of corporation which were supposed to bring us prosperity in our newly chastened "modern" age – specifically the Plc and its mantra of shareholder value – but patently failed in their governance of risk when it comes to banking at least. 

One response from the FT is to question not the models but the fallibility of the individuals which as I mentioned yesterday seems to be where much of the blame is landing currently. I think there is a wider question about the ways (and the whys) in which corporations and individuals take risks for personal and collective advancement and use knowledge to inform those risks. I was having a conversation last night about the experience of a credit card company which took the UK by storm in the 90’s and early Noughties by offering lower rates of interest to encourage people to maintain their credit balances month to month. Their mantra was total re-invention of the business every 5 years. They did this by deliberately replacing their graduate intake completely on a 5 yearly cycle. The rationale was that experience and ‘knowledge’ of how to do things evolved from risk taking to risk avoiding over that period and therefore such individuals were no longer useful to pushing the business forward.

Time and again you meet corporations where the ‘culture’ of the business and its purpose are held in the heads of a relative few (usually the entrepreneur founders – as was the case in Egg )or in the advertising agency (in the case of many large fmcg businesses) where the creative director (usually) lasts longer than the brand manager. Short termism and selfish risk taking becomes a function not of the way in which people are rewarded (i.e. bonuses) but in the way their career progresses. Fluidity of career becomes the norm creating specialization of the workforce not seen since Henry Ford’s time, as people seek their niche and hold on to their very specific experiences as the only way of both protecting their current value and creating their own future value. Generalists are few and far between in such organizations (witness the comments about the current state of the civil service as an example) who can join up knowledge sufficiently to make strategic decisions and understand a more complete picture of what is going on in a particular organization. Employee ownership in itself does not encourage such development, it requires enlightened managers as well as management structures. Although at least such models do encourage a degree of solidity rather than change for change’s sake.

The challenge for both PLC’s and Employee owned business is to see the pursuit of knowledge as a path to creating value for the business not individual power. Weber might state that such a goal is an impossible ideal our capitalist society but without it the lifespan of businesses (and their ability to create long term social value for their employees and society as a whole) will always be limited by their ability to use knowledge to adapt to a changing environment rather than affirm their internal cultural beliefs, prejudices and positions of power.

Grant McCraken is talking a lot about the need for a ‘chief culture officer’ to enable the corporation to maintain some of that perspective on both the meaning it infers and the meaning (and therefore value) it creates. All companies, PLC’s or otherwise, have a culture which tend to turn inward and conservative unless it can produce a critique of its own cultural production and bring about a re-invention of its point of view rather than merely renewing and re-inventing the arrangement of the deck chairs.

The Last Days of Lehman's

The familiar tragic character traits and flaw were in evidence in BBC2’s dramatization of "The Last days of Lehman’s (perhaps better titled the fall of Lehman’s?). Hubris, blindness (an oft quoted trait of Dick Fuld), uncontrolled anger, regretful nursemaids (Paulson) and existential angst laid blame for much of the financial crisis at the door of the frailty of human morality in the face of irrational animal spirits. As illustrated by the required film based ‘philosophical’ quotes from Fight Club by analysts working through the night to value AAA securities based on essentially fraudulently acquired mortgage debt – i.e. something really does come from nothing – you were left feeling perhaps suitably ‘empty’ feeling about having digested a dramatic exposition of what happened to our money.

It reflects our obsession that our motivations and ‘truths’ come from within the self and so we must look no further than the selfish individual to find the root cause of our predicament. This explanation plays well to our popular view of psychology and post-death-of-god view of our essentially human flaws (such as believing a diet coke will alleviate the effects of a donut) and hence why it is easier to say you will rein in such behavior by limiting bonuses and ‘punishing’ bankers.

However, this is a convenient ‘truth’ which hides a more politically inconvenient alternative reality where money is no ‘neutral veil’ over our diverse social relations and cultural beliefs and practices. We all share in the creation of what money is (and all its forms) and shape its future through our usage. It is a social and cultural thing – a product of our societies not some neutral medium. No researcher worth their salt would assume that a similar global technology – the mobile phone – would be used and valued in the same way in different cultures; we have gotten used to the idea that such things are adapted by their users to fit their cultural reality not blindly adopted in a cultural vacuum of consumerism.

The effect of globalization of money practices (rather than money) has not been, as was believed would be the outcome, to make money more ‘efficient’ and ‘rational’ through its management within the "market", but rather to link up a plural meanings of money across the globe, between East and West, Developed and Developing, Old world and New world – a truly chaotic tower of Babel built on the belief we are all talking the same language and meanings of money. It is the contradictions of values rather than imbalances of value which drive bubbles and crashes.

Perched on the top of this tower were the investment banks, busily producing money from a variety of cultural contexts and homogenizing it into rational, liberated and technologized packages which they could sell and create yet more money. However, when the social and economic reality of this production were called into question or simply failed to materialize then the emptiness of the promises which underpinned the value of what they were trading was laid bare.

The point was made in the "docu-drama" that no bank before and no bank after ("AIG are in the building," says Paulson, as he calmly pulls the plug on Lehman’s) were allowed to fail by the state. Why? What interest does the state have in preserving this myth of credit money as a tradeable essential commodity? Is it perhaps because states are the biggest credit junkies of all? Surely not!

Lehman’s may have been no more than a tragic-comic interlude in the history of money, but the fact is that the state was not prepared to pay the price of allowing money to be seen in all its plural, cultural, contradictory being. Instead we have replaced the abundance of banks with the abundance of the state – just don’t look too closely at the material fundamentals upon which such abundance is based.

Running for Money

It seems an apt thing to do given my two main interests are studying the world of money and finding time to do the odd triathlon/rowathlon/duathlon.  I will be entering the London Duathlon on 13th September which is being held on round my local training route (Richmond Park). The event is sponsoring a local hospital charity - Chelsea and Westminster - which I had personal experience of when my daughter was cared for after a bad burn.  The experience renewed my faith in what can be achieved by an institution like the NHS so any support you can give will be much appreciated - my charity giving page is at the link on the left hand side of this page.

addendum - the widget seems to be pointing at the wrong place so try this link instead!

Zopa vs. Banks: a social perspective

When creating Zopa, people in focus groups and interviews always told us not to put ourselves up against banks. The reason being that they saw Zopa as representing ‘doing something different’ with their money. If Zopa was just a more efficient, more customer friendly or better value ‘bank’ then they couldn’t see the point of it. We have plenty of banks, good and bad, with whom I can save or borrow money with varying degrees of difficulty as a self employed person.

The recent debate, kicked off by Martin at Zopa and James at Bankervision and followed up by Ft.com illustrates the difficulties of trying to compare Zopa with banks. In essence, you come down to a debate which is rather like comparing football teams, with each fan base wanting to show their choice is the superior one. As with Football such a debate will run and run and short of a total drubbing in some competition, will never be resolved. And so it should be.

My response to this debate is that you are not comparing like with like. By that I mean that ‘money’ on Zopa is different than ‘money’ in banks. My experience is that money cannot be understood in everyday life as a ‘neutral token’ or ‘symbolic medium’ facilitating social and economic exchange – as Simmel discovered, although that is the ultimate aim of money, it is a long way from achieving it. The way we value money is instead a direct function of its usage and the context of that usage. (If you want a more detailed and well reasoned sociological perspective on this point I suggest you read Geoffrey Ingram’s book ‘the Nature of money’).

Banks' ‘money’ is created ultimately by the Bank of England and their own ability to lend deposits to borrowers. Investment banks also create money through complex derivative credit products which in some cases used the same money to generate 8x the value of the underlying asset at the height of the bubble. This is one form of capitalism which took advantage of the new global, broadband and largely automated social and economic connections which exist between banks to create an abundance of money which we were all happy to take advantage of (both governments and consumers). The creation of money on such an industrial scale was unprecedented and put the final nail in the coffin in the believe that the value of money was based on tangible assets or was a commodity that was limited in supply in some way.

Zopa too creates money. I posted before about the thought experiment of Wicksell who postulated two worlds of money – one where money was a commodity and one where money was purely money of account or what we might call credit money. In the first world the bank rate of interest and what he called the natural rate (a function of supply and demand, or if you follow Weber’s account – conflict between competing institutional powers – or both!) can become disconnected, creating bubbles and overheating the economy. In the credit money world, supply is purely a function of the natural rate as it is individual transactions which define the market price at any particular time. Zopa seems to perform in this way with lenders and borrowers reacting to demand and supply with different levels of expertise (and understanding ) and while it benefits from the current disconnection between the bank rate and the natural rate (where banks are trying to rebuild balance sheets and re-price risk for a more ‘scarce’ money world) it does not participate in that world of money beyond that.

This is why Zopa does not compete with banks directly but instead offers a different system for creating money. Banks are part of a system of creating money in which individuals are encouraged to leave their money ‘idle’ by institutions who then lend to those individuals for the things that they need in the short and long term. Sometimes the goals of the major powers of that system are aligned with the individual but currently they are not.

As an individual who lends and borrows from Zopa I can access a natural rate of interest which is a function of a complex mix of supply/demand and the politics of some lenders on Zopa (who are more altruistic than banks can be) without needing to worry about macroeconomic decisions which are a function of political and commercial powers over whom I have little control (beyond a 4-5 yearly vote) and taken by people who seemingly take very little accountability for their actions. It is its unique mix of collaboration and competition which makes Zopa a better place to put my money and to borrow money as an individual. It is not for everyone, but then it never set out to create a new banking system, merely to tap into what we saw as an emerging trend of people wanting to do more than just accept the choices ‘of the herd’ but rather create and control their own choices as the means to a more authentic and fulfilling life.