The authors’ proposed solutions, however, are rock solid. Their core idea is that regulators need to ditch their focus on ensuring financial stability, and instead recognise that financial institutions’ core business model is to game the system, and always will be unless regulators stop them. This idea involves abandoning the traditional divide between right and left in politics, as if free markets and regulation are opposite poles, and recognising that truly free markets, ones which are not sabotaged by their most powerful participants, require robust regulation.
If you’re a progressive, in Britain or elsewhere, and if you think the movement needs fresh ideas, read this book, it’s full of them. Then get to work.
Sabotage is a great book. It lifts the lid on shocking, systematic abuses, of which every user of financial services needs to be aware. It ought to be required reading for every civil servant, regulator and politician in the UK and elsewhere, especially when you consider that, bamboozled by Hayekian thinking and duped by the banks’ lobbying, so many of them see their mission as being to stick up for bankers.
1917 didn’t quite do it for me: the standards set by its legions of illustrious predecessors are just too demanding. Sabotage, on the other hand, turned out to be a nice surprise – because it does bring a distinctive and valuable framework for analysing finance to the table. Yet ultimately I was not convinced that its novel perspective includes the most important parts of the story.
The rigging of foreign exchange markets and interest rates such as Libor, abusive business lending practices, mis-selling and the role of the City of London in money laundering and tax avoidance — such behaviour is so pervasive that the culture of finance has clearly been drained of ethical content.
But the notion that these conduct issues should take priority over financial stability is bizarre. Clearly egregious conduct calls for a robust response and it can reasonably be argued that policymakers have not been robust enough. Yet banks pose a greater threat to society when they are fragile than when they are dishonest — the loss of output arising from financial crises is far more damaging to living standards than the increase in the cost of financial services arising from the kind of market-rigging explored in this book.