Prof Richard Werner - Brilliant interview! 11 March 2017

Summary

The conversation delves into the complexities of the UK's financial sector, exploring whether the country has a 'finance curse' due to its over-reliance on the City of London. David Buick emphasizes the economic importance of a strong financial sector, while Richard Werner critiques the concentration of financial power and its negative effects on inequality. The debate highlights the challenges of regulating banks, the need for decentralization, and the growing concerns about asset inflation and the broader societal consequences of an out-of-balance financial system.

Takeaways

• 😀 David Buick emphasizes the importance of the City of London’s financial infrastructure, built over 70 years, and argues that a well-regulated financial sector is crucial for the economy.
• 😀 The introduction of the euro-dollar market in the 1970s and the removal of exchange controls in the 1980s were pivotal in transforming London's financial sector, according to David Buick.
• 😀 Despite public distrust, Buick insists that banks are essential for the functioning of the economy, as nothing happens without them.
• 😀 Richard Werner argues that the financial sector’s impact on GDP is difficult to measure, as its role often involves extracting value rather than adding value.
• 😀 Werner challenges the conventional view of banks as intermediaries, asserting that they create money out of thin air by issuing loans and claiming deposits.
• 😀 The conversation highlights the issue of bloated financial sectors and the risks associated with banks prioritizing profits over their role in serving the economy.
• 😀 David Buick acknowledges the scandals from the 2003-2008 period but asserts that regulatory reforms have made banking in London safer, reducing taxpayer liability.
• 😀 Werner criticizes the concentration of the banking sector in the UK, with five banks holding 90% of deposits, leading to a lack of accountability and increased inequality.
• 😀 Werner advocates for decentralizing the banking sector, promoting smaller, local banks that are more accountable to the communities they serve, as seen in countries like Germany.
• 😀 The debate touches on how banks create credit for speculative purposes, which drives asset price inflation, contributes to inequality, and exacerbates financial instability.
• 😀 Werner calls for a new regulatory framework that recognizes the true role of banks in money creation, suggesting that bank credit should be guided towards productive investments to prevent economic instability.

Q & A

What is the main difference in perspective between David Buick and Professor Richard Werner regarding the role of the financial sector in the UK?

David Buick views the financial sector, particularly the City of London, as crucial for economic growth and the UK’s financial infrastructure, while Professor Richard Werner is critical of the financialization process, arguing that the banking sector, especially large institutions, harms the broader economy by focusing on speculation rather than productive lending.

How does David Buick justify the role of the City of London in the UK economy?

David Buick argues that the City of London plays an essential role in providing the necessary financial services and infrastructure for businesses. He believes the City’s banking sector helps the UK economy function smoothly and that regulation has improved since the 2008 crisis.

What concerns does Professor Richard Werner raise about the financial sector in the UK?

Professor Richard Werner highlights that the financial sector, especially large banks, has too much power and influence, leading to speculative lending that inflates asset prices and exacerbates inequality. He calls for decentralization and more regulation to ensure that banking serves the real economy.

What is the 'finance curse' mentioned in the debate, and how do the participants view it?

The 'finance curse' refers to the negative consequences of an overly dominant financial sector that harms the broader economy. David Buick downplays the existence of a finance curse, arguing that the challenges are manageable. In contrast, Professor Richard Werner suggests that the UK's focus on finance leads to a concentration of power and wealth, which is detrimental to the economy.

Why does David Buick believe overregulation could be harmful to the economy?

David Buick expresses concern that overregulation could stifle economic growth by hindering the financial sector’s ability to provide the necessary services for businesses. He acknowledges the need for regulation but worries that excessive restrictions could create negative consequences for the economy.

What solution does Professor Richard Werner propose to address the issues caused by large financial institutions?

Professor Richard Werner proposes decentralizing the banking system, emphasizing the importance of smaller, local banks that focus on lending for productive purposes rather than speculation. He also advocates for redirecting credit to small and medium-sized enterprises (SMEs) instead of large, speculative ventures.

How does David Buick view the regulation of the banking sector post-2008 crisis?

David Buick acknowledges that the regulation of the banking sector has significantly improved since the 2008 financial crisis. He believes that these regulations have helped reduce the likelihood of future financial instability, though he remains cautious about excessive regulatory measures.

What is the key difference in the banking models mentioned by Professor Richard Werner and how does it affect economic stability?

Professor Richard Werner contrasts the banking model in the UK, dominated by large financial institutions, with the German model, which features smaller, local banks. He argues that the German system promotes more sustainable economic growth because these smaller banks focus on supporting local businesses and productive investment.

Why does Professor Richard Werner consider speculative lending harmful to the economy?

Professor Richard Werner argues that speculative lending inflates asset prices and creates financial bubbles, which primarily benefit the wealthy and exacerbate inequality. This kind of lending does not contribute to the real economy or productive activities, which leads to long-term economic instability.

What is the role of the City of London in the UK’s broader political and economic system?

The City of London operates almost independently of the UK, with its own governance structure where banks hold voting power. This autonomy means that the City is not fully integrated into the UK's democratic political system, and its influence on economic and policy decisions is significant, raising concerns about accountability and fairness.