Will Hutton Again

Crippled Jesu Christe on a crutch:

One of the reasons why rogue trader Jérôme Kerviel faked a stunning £3.7bn of transactions at SocGen may have been because he regarded himself as being paid as a beta when he should have been paid as an alpha like everybody else.

Why is Hutton employed to write on matters financial? He doesn\’t seem to know the difference between transactions and losses.

That\’s the amount that was lost by Soc Gen in trying to clean up Kerviel\’s trades. His actual transactions have been (by working backwards from the losses, looking at the changes in market prices) estimated at €30 billion or so.

Someone who doesn\’t know the difference between these two things should really put down their prejudices and step away from the keyboard.

The rest of it is all about how finance should be regulated like a utility: welcome back the "queue" to get your mortgages folks.

Thirteen years ago, I tried to blow the whistle on financial market liberalisation in my book The State We\’re In. It was obvious then what is even more obvious now: financial market freedom embeds short-termism, guarantees lower investment, works against business building and innovation, generates booms and busts, inflates house prices, creates system-wide risk and excessively rewards those who work in them. I thought the Germans and Japanese were better than the British and Americans in the way they organised and regulated finance and that while Britain and America might look good in the short term, their economies would eventually come back to earth with a bump.

Allow that all of that is true (it isn\’t, but we\’ll allow Willy his moment of glory). 13 years for a prophecy to come true is actually really rather a long time as far as an economy is concerned. What would be most intriguing to look at is, after the slump in Anglo-Saxon economies that\’s predicted, what are the end results of the comparison between the two systems?

13 years ago the German and Japanese economies were at x and y GDP respectively, the US and UK at a and b similarly. So, have x+13, y+13, shown a higher growth rate than a+13 and b+13?

No, I don\’t have those figures to hand, but that would be the way to work out which was a better system of financial managment: the Anglo system might have greater volatility, but what if it provides better results in the longer term?

4 thoughts on “Will Hutton Again”

  1. I think Hutton slightly misrepresents his own argument. The State We’re In, a badly timed book, was actually most scathing about the UK financial system and rather more complimentary about the UK one.

    Alex’s figures show one argument, another would be to look at GDP per capita, in which case US growth is less good than the UK’s. In PPP per capita it’s

    UK – 82%
    US – 70%
    Germany – 60%
    Japan – 54%

    These should be deflated by the US CPI.

    Of course there are other factors – the Independent claimed via supermarket sales that the UK’s population is actually 77m, in which case GDP growth per capita was probably much lower, perhaps negative if the extra 16m were of working age.

  2. financial market freedom embeds short-termism, guarantees lower investment, works against business building and innovation,

    Financial market freedom has led to the greatest growth in liquidity the world has ever seen. With so much money chasing so few opportunities, we have seen a boom in investment that is extremely diverse.

    Massive investments in emerging markets that have helped raise millions out of poverty, were driven by the lack of high earning potential in the rich world.

    Massively speculative investments in technology, alternative energy or space travel being good examples are again a direct result of excess capital.

    Take business building. Does he believe that with liberalised financial markets, Mittal steel would be the globe striding company it is? (Mittal was just the first name that sprung to mind there are many more).

    Then there is that famous short termism. Does he really believe that investors are so unsophisticated that they care nothing for anything beyond the next quarter? Even the shortest term investors, need to worry about what longer term investors think about companies prospects.

    In short, The Guardian only employs a clueless fuckwit like Will Hutton, because anyone who knew what they were talking about would come to non Guardian conclusions.

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