I’ve read a few more books since my last post on the subject.
Other People’s Money, by John Kay, came recommended by one of my colleagues, and I found it excellent. The book takes a good look at the banking and finance industry, and how changes in the industry over the past 30 years made the global financial crisis inevitable. Personality driven stories like ‘The Big Short’ make for better movies, and are certainly worth reading/watching, but they can give the false impression that the problems are caused by extraordinary criminals, or bizarre anomalies in the market, and the solution is more regulation.
In fact, as this book outlines, the problems are far more endemic and a result of a number of gradual shifts over the past 30 years:
- Longer chains between capital user and capital lender/investor, making the overall system less stable, and reducing the involved parties’ knowledge of the fundamental needs/abilities of the ultimate lender/investor.
- An increased appetite for profit (including ‘apparent’ profit) and a disdain for boring respectability; banks optimising their business model to take advantage of the public’s trust in them.
- The increasingly unquestioned assumption by parties (including regulators and governments) that more trading was always good for society, and a corresponding inability to distinguish between genuinely value-creating trades and those that merely passed risk onto someone unable to value/manage it.
- Banks devoting far more of their resource to trading with other financial organisations, rather than supporting commercial and residential customers.
The book successfully steers clear of oversimplification, and is full of valuable insight, whether or not you work in banking: not only do we all depend on an effective banking system, but the lessons in this book have a lot to teach other industries.
The other main book that I read that I’d recommend was Red Notice, by Michael Brewer, about his adventures (and eventual misadventure) investing in Russia. It was as well-written as any spy thriller, but hard-hitting because it is a true story – it is a book that I’m not going to forget in a rush.